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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number: 0-21863
EPIX PHARMACEUTICALS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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04-3030815
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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4 Maguire Road, Lexington,
Massachusetts
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02421
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
(781) 761-7600
Securities registered pursuant to Section 12(b) of the
Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
per share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Exchange Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check One)
Large accelerated filer
o Accelerated
filer
þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act. Yes o No þ
The aggregate market value of the registrants voting and
non-voting common stock held by non-affiliates of the registrant
(without admitting that any person whose shares are not included
in such calculation is an affiliate) computed by reference to
the price at which the common stock was last sold as of the last
business day of the registrants most recently completed
second fiscal quarter was $87,760,000.
As of March 19, 2007, the registrant had
32,597,971 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by
reference into the following parts of this
Form 10-K:
Certain information required in Part III of this Annual
Report on
Form 10-K
is incorporated from the Registrants Proxy Statement for
the 2007 Annual Meeting of Stockholders.
TABLE OF
CONTENTS
Vasovist and our name and corporate logo are trademarks of EPIX
Pharmaceuticals, Inc. All other trademarks, trade names and
service marks appearing in this Annual Report on
Form 10-K
are the property of their respective owners.
2
EXPLANATORY
NOTE
In this Annual Report on
Form 10-K
for the year ended December 31, 2006, EPIX Pharmaceuticals,
Inc. (the Company) is restating its consolidated
balance sheet as of December 31, 2005 and the related
consolidated statements of operations, stockholders equity
(deficit), and cash flows for each of the years ended
December 31, 2005 and 2004 as a result of an independent
stock option investigation commenced by the board of directors
and special committee as described below. The investigation
concerned stock options granted prior to the Companys
merger with Predix Pharmaceuticals Holdings, Inc. in August
2006, and prior to the change in the Companys senior
management that occurred upon the consummation of that merger.
This Annual Report on
Form 10-K
will also reflect the restatement of Selected Consolidated
Financial Data in Part II, Item 6 for the years
ended December 31, 2005, 2004, 2003 and 2002. In addition,
the Company is restating the unaudited quarterly financial
information and financial statements for the interim periods of
2005. The impact of the investigation on the 2006 annual and
interim financial statements is not material.
On December 8, 2006 the Companys board of directors
created a special board committee of independent directors to
conduct a review of its historical stock option practices. The
review was initiated in response to a media inquiry the Company
received on December 8, 2006 concerning the exercise of
stock options during and prior to 2002 by a former Chief
Executive Officer of the Company, who left the Company in 2005.
Although the media inquiry only related to this former
executives exercise of stock options, the special
committee chose to review the Companys stock option
granting practices as well as the circumstances relating to the
exercise of stock options. The review was conducted with the
assistance of outside legal counsel and outside forensic
accounting consultants. All of the stock option grants requiring
adjustment were granted during the years 1997 through 2005 which
pre-dates the Companys merger with Predix Pharmaceuticals
Holdings, Inc. (Predix). The Companys current
Chief Executive Officer and Chief Financial Officer joined EPIX
in connection with the merger with Predix. None of the members
of the Companys current senior management participated in
the approval, modification, retrospective price selection or
re-pricing of any stock option grants requiring adjustment.
The special committee has completed its investigation and has
concluded that (1) there was not sufficient evidence to
support the conclusion that one or more exercises of stock
options by a former Chief Executive Officer had been backdated
to a date prior to the actual date of exercise and
(2) certain of the Companys employees, including
certain members of the Companys former senior management,
prior to the change in its senior management in connection with
the merger with Predix on August 16, 2006, participated in
retrospective date selection for the grant of certain stock
options and re-priced, as defined by financial accounting
standards, certain options during the period from 1997 through
2005. Accordingly, the Companys audit committee has
concluded that, pursuant to Accounting Principles Board
No. 25 and related interpretations, the accounting
measurement date for the stock option grants for which certain
members of the Companys former senior management had
restrospectively selected grant dates for certain grants awarded
between February 1997 and February 2004, covering options
to purchase approximately 1.4 million shares of the
Companys common stock, differed from the measurement dates
previously used for such stock awards. In addition, the Company
determined that, certain of the Companys employees,
including certain former senior management participated in the
re-pricing, as defined by financial accounting standards, of
approximately 0.9 million stock options awarded during the
period between June 1999 and March 2005. In addition, during the
course of the option review, the Company identified
approximately 0.1 million options in which other dating
errors resulted in stock options with grants dates that failed
to meet the measurement date criteria of APB 25. As a result,
revised measurement dates were applied to the option grants with
other dating errors and option grants for which certain of the
Companys employees, including certain former senior
management had retrospectively selected grant dates and for
options that were re-priced, as defined by financial accounting
standards, the Company revised its accounting for such awards
from accounting for the grants as fixed awards to accounting for
the grants as variable awards. Accounting for a variable award
requires the Company to revalue the re-priced option to its
intrinsic value at the end of each reporting period until such
option has been exercised or canceled. In addition, the Company
has recorded adjustments to its financial statements to record
compensation expense for approximately 44,000 stock options
granted to non-employees to recognize the fair value of such
options. The Company also recorded compensation expense for
approximately 70,000 stock
3
options for which the original terms of the stock award had been
modified. As a result of these adjustments, the Company has
recorded $7.4 million in additional stock-based
compensation expense for the years 1997 through 2005. The amount
of compensation expense recorded for stock awards in which the
Company revised measurement dates is net of forfeitures related
to employee terminations. The additional stock-based
compensation expense for options with revised measurement dates
is being amortized over the service period relating to each
option, typically five years. The Company has also accrued
payroll tax expense of approximately $0.9 million relating
to employer and employee payroll taxes, interest and penalties
it estimates it will owe as a result of the modifications to
exercised options previously considered incentive stock options
that should have been taxed as non-qualified stock options.
The adjustments did not affect the Companys previously
reported revenue, cash, cash equivalents or marketable
securities balances in any of the restated periods. The
adjustments relate exclusively to stock option practices of
certain employees, including certain members of the
Companys former senior management that predate the merger
between the Company and Predix and the change in the
Companys senior management that occurred upon the merger.
The Company believes that its current procedures, controls and
accounting practices are adequate to ensure that the granting
and exercising of options are executed in accordance with its
stock option plan requirements and accounted for in accordance
with Generally Accepted Accounting Principles.
This restatement is more fully described in Note 3,
Restatement of Consolidated Financial Statements, to
Consolidated Financial Statements in Part IV, Item 15
and in Part II, Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Previously filed annual reports on
Form 10-K,
Form 10-K/A
and quarterly reports on
Form 10-Q
affected by the restatements have not been amended and should
not be relied on.
4
PART I
This business section and other parts of this Annual Report
on
Form 10-K
contain forward-looking statements relating to, among other
things, our expectations concerning our research and development
efforts, regulatory compliance, commercial strategy, strategic
alliances and collaborative efforts, sales and reimbursement
efforts and their likely future success. Our forward-looking
statements involve risk and uncertainties. Our actual results
may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those set forth in
Item 1A. Risk Factors and elsewhere in this
Annual Report on
Form 10-K.
Overview
We are a biopharmaceutical company focused on discovering,
developing and commercializing novel pharmaceutical products to
better diagnose, treat and manage patients. We have four
therapeutic product candidates in clinical trials targeting
conditions such as depression, Alzheimers disease,
cardiovascular disease and obesity. In addition, we have two
imaging agents in various stages of clinical development. Our
blood-pool imaging agent, Vasovist is approved for marketing in
the European Union, Canada, Iceland, Norway, Switzerland and
Australia, and is currently marketed in Europe. We also have
collaborations with SmithKline Beecham Corporation
(GlaxoSmithKline), Amgen Inc., Cystic Fibrosis Foundation
Therapeutics Incorporated, and Bayer Schering Pharma AG, Germany
(formerly known as Schering AG).
The focus of our therapeutic drug discovery and development
efforts is on the two classes of drug targets known as G-protein
Coupled Receptors, or GPCRs, and ion channels. GPCRs and ion
channels are classes of proteins embedded in the surface
membrane of all cells and are responsible for mediating much of
the biological signaling at the cellular level. We believe that
our proprietary drug discovery technology and approach addresses
many of the inefficiencies associated with traditional GPCR and
ion channel-targeted drug discovery. By integrating
computer-based, or in silico, technology with in-house
medicinal chemistry, we believe that we can rapidly identify and
optimize highly selective drug candidates. We focus on GPCR and
ion channel drug targets whose role in disease has already been
demonstrated in clinical trials or in preclinical studies. In
each of our four clinical-stage therapeutic programs, we used
our drug discovery technology and approach to optimize a lead
compound into a clinical drug candidate in less than ten months,
synthesizing fewer than 80 compounds per program. We moved each
of these drug candidates into clinical trials in less than
18 months from lead identification. We believe our drug
discovery technology and approach enables us to efficiently and
cost-effectively discover and develop GPCR and ion
channel-targeted drugs.
On August 16, 2006, we completed our acquisition of Predix
Pharmaceuticals Holdings, Inc. pursuant to the terms of that
certain Agreement and Plan of Merger, dated as of April 3,
2006 as amended on July 10, 2006, by and among us, EPIX
Delaware, Inc., our wholly-owned subsidiary, and Predix, as
amended. Pursuant to the merger agreement, Predix merged with
and into EPIX Delaware, Inc. and became a wholly-owned
subsidiary of us. The merger with Predix was primarily a stock
transaction valued at approximately $125.0 million,
including the assumption of net debt at closing. As part of the
merger, we also assumed all outstanding options and warrants to
purchase capital stock of Predix. The purchase price includes a
$35.0 million milestone payment to the holders of Predix
stock, options and warrants payable in cash, stock or a
combination of both. Pursuant to the terms of the merger
agreement, $20.0 million of the milestone was paid in cash
on October 29, 2006. The remaining $15.0 million of
the milestone payment will be paid primarily in shares of EPIX
common stock on October 29, 2007, except to the extent that
such shares would cause the former Predix shareholders, warrant
holders and option holders to receive more than 49.99% of
outstanding shares measured as of the closing date immediately
after such milestone payment when combined with all shares of
EPIX common stock issued in the merger and issuable upon
exercise of all Predix options and warrants that we assumed in
the merger. The portion of the $15.0 million milestone that
cannot be paid in shares will be paid in cash with interest
accrued at a rate of 10%. In addition, in connection with the
merger, we effected a
1-for-1.5
reverse stock split of our outstanding common stock.
5
OUR
PRODUCT CANDIDATES
Through the application of our GPCR and ion channel drug
discovery expertise, over the past four years we have created a
pipeline of drug candidates designed to address diseases with
significant unmet medical needs and commercial potential across
a range of therapeutic areas. In addition, we have two imaging
agents in various stages of clinical development. The following
chart summarizes the status of our clinical drug development
programs:
THERAPEUTICS
PRX-03140
for Alzheimers disease
PRX-03140 is a novel, highly selective, small-molecule 5-HT4
agonist that we are developing for the treatment of
Alzheimers disease. PRX-03140 is being developed to
provide improved cognition and to slow Alzheimers disease
progression. We initiated a Phase 2 trial of PRX-03140 in
combination with an approved drug for Alzheimers disease
(the cholinesterase inhibitor
Aricept®
(donepezil)) in patients with Alzheimers disease in the
fourth quarter of 2006. This randomized, double-blind,
placebo-controlled, multiple ascending dose trial is expected to
enroll approximately 80 patients with mild Alzheimers
disease. The two primary endpoints of the trial are: (1) to
assess the safety and tolerability of PRX-03140 in patients with
Alzheimers disease when dosed orally once-daily for
14 days alone and in combination with donepezil, and
(2) to assess the effect of PRX-03140 on brain wave
activity, as was performed in the Phase 1b clinical trial.
Secondary endpoints of the trial include assessing the effects
of repeat doses of PRX-03140 on a battery of standardized
cognitive function tests, as well as evaluating the
pharmacokinetic effect of PRX-03140 on donepezil concentrations
in patients with mild Alzheimers disease.
We completed a Phase 1b clinical trial in Alzheimers
disease patients with PRX-03140 in September 2005. PRX-03140 was
well tolerated in this trial and also in two additional
Phase 1 clinical trials in healthy adult and elderly
volunteers. In the
14-day
Phase 1b clinical trial in patients with
mild-to-moderate
Alzheimers disease, treatment with PRX-03140 resulted in
changes in brain wave activity in these patients that are
consistent with those seen in clinical trials with currently
approved drugs for Alzheimers disease. In several
pre-clinical animal models, PRX-03140 enhanced cognition and
exhibited trends towards reduced levels of beta amyloid, or
Aß, a protein that is believed to be associated with
Alzheimers disease progression. In addition, in a
pre-clinical animal model of memory impairment, PRX-03140
demonstrated synergistic activity when combined with two
different acetylcholinesterase inhibitors, which are approved by
the FDA for the treatment of Alzheimers disease. These
results are based on pre-clinical animal studies and a small
6
number of patients in Phase 1 clinical trials and are not
necessarily predictive of results in later-stage clinical trials
with larger and more diverse patient populations.
On December 11, 2006, we entered into a development and
license agreement with SmithKline Beecham Corporation, doing
business as GlaxoSmithKline, and Glaxo Group Limited to develop
and commercialize medicines targeting four GPCRs for the
treatment of a variety of diseases, including an option to
license
PRX-03140
and other medicines arising from the four research programs.
Pursuant to the collaboration agreement, we granted
GlaxoSmithKline an option to obtain exclusive, worldwide license
rights to complete the development and to commercialize the
product candidates initially developed under each of the four
research programs.
PRX-08066
for Pulmonary Hypertension
PRX-08066 is a novel, highly selective, small-molecule
inhibitor, or antagonist, of a specific GPCR known as 5-HT2B. We
are developing PRX-08066 for the treatment of two types of
pulmonary hypertension: pulmonary arterial hypertension; and
pulmonary hypertension associated with chronic obstructive
pulmonary disease. Pulmonary hypertension or PH in general is a
serious, often fatal cardiovascular disease characterized by
elevation of pulmonary blood pressure and progressive thickening
and narrowing of the blood vessels of the lungs, often leading
to heart failure. We initiated a Phase 2 trial of PRX-08066
in pulmonary hypertension associated with chronic obstructive
pulmonary disease or COPD in August 2006. This randomized,
double-blind, placebo-controlled Phase 2 trial is expected
to enroll approximately 72 patients with PH associated with
COPD. The primary endpoint of the trial is to assess the effect
of PRX-08066 compared to placebo on systolic pulmonary artery
pressure in patients with PH associated with COPD following two
weeks of treatment. The trial is also designed to assess the
safety and tolerability of PRX-08066 during the course of
therapy. This study has been amended to include an open label
extension where up to ten subjects will receive PRX-08066 and be
followed for safety for up to four additional weeks. We have
completed three Phase 1 clinical trials of PRX-08066 in
healthy volunteers, including a Phase 1b clinical trial in
athletes conditioned to exercise at high altitudes. Results from
the Phase 1b trial showed that, compared with placebo,
PRX-08066 caused a statistically significant reduction in the
increase in systolic pulmonary blood pressure observed during
exercise in volunteers breathing low oxygen. In the two earlier
Phase 1 trials as well as the Phase 1b trial,
PRX-08066 was well-tolerated, with a half-life of approximately
16 hours, supporting once daily oral dosing. To date, there
have been no serious adverse events associated with treatment
with PRX-08066.
PRX-00023
for Depression
We are currently developing PRX-00023, a novel, highly
selective, small-molecule 5-HT1A agonist for the treatment of
depression. In March 2007, we initiated a Phase 2b clinical
trial to evaluate the efficacy of PRX-00023 in patients with a
primary diagnosis of Major Depressive Disorder (MDD) who
also have concurrent anxiety. The randomized, double-blind,
placebo-controlled trial is expected to enroll approximately 330
adult patients with MDD and is designed to evaluate the effect
of treatment with up to 120 mg of
PRX-00023
twice-daily for eight weeks as determined by change from
baseline in the Montgomery Asberg Depression Rating Scale
(MADRS) compared with placebo. All patients randomized to the
drug treatment will begin with 40 mg PRX-00023 twice daily,
and increase the dose, if tolerated, to a maximum of 120 mg
twice daily within the first week. Changes in the Hamilton
Anxiety Score (HAM-A), Clinical Global Impressions Improvement
Scale (CGI-I) and Clinical Global Severity of Illness Scale
(CGI-S) will also be measured.
During the fourth quarter of 2006, we completed a dose
escalating study of PRX-00023 in healthy volunteers where we
explored doses up to 320 mg, either as a single daily dose
or as 160 mg given twice per day for three weeks. PRX-00023
was well tolerated with no serious adverse events or
discontinuations. This study indicated that PRX-00023 at doses
up to 320mg per day may be well tolerated, and we anticipate
utilizing doses up to this level in future clinical trials. We
plan to initiate a randomized, blinded Phase 2 clinical
trial of PRX-00023 in major depression in the first half of 2007.
In September 2006 we completed a pivotal Phase 3 clinical
trial for the treatment of generalized anxiety disorder with
PRX-00023. Results from this trial demonstrated that PRX-00023
did not achieve a statistically
7
significant improvement over placebo for the primary endpoint of
efficacy with respect to generalized anxiety disorder at the
dose tested (80mg once daily). The trial was statistically
powered to evaluate the efficacy of PRX-00023 compared to
placebo as measured by the change from baseline in the Hamilton
Rating Scale for Anxiety or HAM-A. The HAM-A scale is the
accepted standard for the evaluation of anti-anxiety drug
activity by the U.S. Food and Drug Administration or FDA.
Effects of PRX-00023 on symptoms of depression, which was a
secondary endpoint of the Phase 3 clinical trial, were
assessed using the Montgomery-Asberg Depression Rating Scale or
MADRS, an FDA-recommended assessment for depression. The data
from this trial showed a statistically significant improvement
from baseline with PRX-00023 treatment compared to placebo in
the MADRS score, indicating that PRX-00023 reduced symptoms of
depression present in the patients in this trial. In this
Phase 3 trial, PRX-00023 was well tolerated, and the rate
of discontinuation due to adverse events was very low (1.4% with
PRX-00023 vs. 2.9% with placebo). To date, there have been no
serious adverse events associated with treatment in more than
250 subjects who have received PRX-00023. Based on the
Phase 3 trial results, we have discontinued clinical
development of PRX-00023 at a dose of 80mg once daily in
generalized anxiety disorder. We are currently focusing our
development efforts for this drug candidate on depression.
The Phase 3 trial in moderate-to severe generalized anxiety
disorder was a double-blind, placebo-controlled, multi-center
study with approximately 310 patients. While patients with
co-morbid depressive symptoms were allowed to enroll in this
trial; patients with a primary diagnosis of major depression
were not enrolled. The trial included 25 sites in the United
States. Patients were randomized equally into one of two arms:
treatment with PRX-00023; or placebo. The trial protocol was
oral dosing with PRX-00023 at 40 mg once daily for the
first three days, followed by 80 mg once daily for the
remainder of the study. The primary objective was to evaluate
the efficacy of PRX-00023 as measured by the change from
baseline in the HAM-A scale compared to placebo after eight
weeks, with additional evaluations of HAM-A at two, four and six
weeks. The trial was statistically powered to detect an
approximately two point difference in the change from baseline
in HAM-A score with PRX-00023 treatment vs. placebo. Patients
were not permitted to take any other psychiatric medications
during the trial.
The preliminary Phase 3 trial data indicate the mean HAM-A
score change from baseline to week eight with PRX-00023
treatment was 9.8, compared to a mean HAM-A score change of 8.5
from baseline to week eight with placebo. This result
corresponds to a measure of probability, or p-value, of 0.116
(p=0.116), which is not statistically significant. A p-value
represents the probability that a difference observed between
groups during an experiment happened by chance. For example, a
p-value of p=0.05 means there is a 5% probability that the
result occurred by chance. In general, clinical scientists
regard p-values of less than 0.05 to be statistically
significant, and p-values greater than 0.05 to be
insignificant. On the pre-specified secondary endpoint of change
in MADRS, an index of depressive symptoms, there was a highly
statistically significant (p=0.009) change from baseline to week
eight with PRX-00023 treatment compared to placebo. There was
also a trend toward improvement in symptoms of depression by
week four, but this result did not reach statistical
significance (p=0.06). Other assessments of drug activity on
anxiety and depression (Hospital Anxiety and Depression scale
(HADS) and Profile of Mood States scale (POMS)) also showed
positive trends in efficacy, with HADS data showing more effect
on symptoms of depression than on anxiety; these effects were
not statistically significant, however. Patients in the trial
with high MADRS scores at baseline (upper half) had a
statistically significant improvement on symptoms of depression,
as demonstrated by a mean MADRS reduction of 6.3 with PRX-00023
treatment at week 8 compared to a mean MADRS reduction of 3.3
with placebo (p=0.041). While these data are preliminary and
continue to be analyzed, we believe that the data from this
trial are encouraging regarding the potential efficacy of
PRX-00023 for the treatment of major depression.
During the fourth quarter of 2006, we completed a dose
escalating study in healthy volunteers where we explored doses
up to 320 mg, either as a single daily dose or as
160 mg given twice per day for three weeks. The drug was
well tolerated with no serious adverse events or
discontinuations. This study indicated that PRX-00023 at doses
up to 320mg per day may be well tolerated, and the company
anticipates utilizing doses up to this level in future clinical
trials.
8
PRX-07034
for Obesity, Alzheimers disease and Cognitive Impairment
associated with Schizophrenia
PRX-07034 is a novel, highly selective, small-molecule
antagonist of a specific GPCR known as 5-HT6. PRX-07034 is being
developed for the treatment of obesity, Alzheimers disease
and cognitive impairment associated with schizophrenia. In
October 2006, we initiated a Phase 1 multiple ascending
dose clinical trial to study the safety, tolerability,
pharmacokinetics, and pharmacodynamics of PRX-07034 administered
once-daily for 28 days in a population of otherwise healthy
obese adults with body mass indices, or BMI, between 30 and 42
kg/m2.
Normal BMI is less than 25
kg/m2.
Preliminary safety and tolerability data from a single ascending
dose Phase 1 trial completed in healthy adult male and
female volunteers indicated that single doses of PRX-07034 were
well tolerated up to 2500 mg, the highest dose tested. In
addition, PRX-07034 demonstrated adequate absorption, with drug
exposures increasing with increasing doses and a half-life of 14
to 24 hours, which we believe may make PRX-07034 suitable
for once-daily oral dosing. Pre-clinical animal models of
obesity suggest that this drug candidate may reduce both food
intake and body weight. In addition, pre-clinical animal models
of memory impairment suggest that PRX-07034 may have
cognitive-enhancing properties.
IMAGING
AGENTS
Vasovist
Vasovist is an internally discovered, injectable intravascular
contrast agent that is designed to provide improved imaging of
the vascular system using magnetic resonance angiography or MRA.
Our target indication for Vasovist is for use in MRA imaging of
peripheral vascular disease, with a goal of improving the
physicians ability to visualize the human vascular system
and thereby enhance disease diagnosis and treatment.
Vasovist reversibly binds to the human blood protein albumin,
allowing imaging of the blood vessels for approximately an hour
after administration. With a single injection, Vasovist enables
the capture of three-dimensional images of arteries and veins in
the body. Vasovist may make it possible for physicians to detect
vascular disease earlier, more safely and less invasively than
with X-ray angiography, and for physicians to provide an
improved evaluation of potential therapeutic options including
percutaneous intervention and vascular surgery.
In October 2005, the European Medicines Agency granted marketing
approval of Vasovist for all 25 member states of the
European Union. Bayer Schering Pharma AG, Germany, our strategic
partner for Vasovist, began marketing Vasovist in Europe in the
second quarter of 2006. Vasovist is currently marketed in the
Netherlands, Norway, Sweden, Denmark, United Kingdom, Austria
and Germany. In 2006, Vasovist was also approved for marketing
in Switzerland, Australia, Iceland, Norway and, most recently,
Canada
In December 2003, we submitted a New Drug Application or NDA to
the FDA for the use of Vasovist in detection of vascular
disease. In January 2005, we received an approvable letter from
the FDA for Vasovist pending additional clinical trials. In May
2005, we submitted a response to the FDA, which was accepted as
a complete response the following month. We received a second
approvable letter from the FDA in November 2005. We met with the
FDA twice in early 2006 to discuss the approvable letters and
the path forward for Vasovist in the United States. After
considering the parameters of the additional clinical trials
requested by the FDA, we filed a formal appeal with the FDA
requesting approval of Vasovist, as well as the use of an
advisory committee as part of the appeal process. In August
2006, we received a letter from the FDA denying our formal
appeal to approve Vasovist and our request for an advisory
committee to review Vasovist. In its response letter, the Office
of New Drugs of the FDA also suggested that if we decide to
conduct additional clinical research to support approval, then
rather than relying on a blinded re-read of previously submitted
data and data from a new clinical trial, a safer course of
action would be to conduct two new clinical trials to support
the application for approval. We have met with the FDA after
receiving the August 2006 response letter and in February 2007
we filed a second formal appeal with the FDA requesting approval
of Vasovist, as well as the use of an advisory committee as part
of the appeal process. The FDA informed us that the response to
our appeal regarding Vasovist will extend beyond the originally
anticipated
30-day
period. We are currently in discussions with the FDA regarding
the appeals process. We cannot assure you that the appeal
process will
9
be successful either in whole or in part, or that we will be
able to reach agreement with the FDA on an acceptable path
forward for any approval of Vasovist in the United States.
EP-2104R
We have developed a second targeted contrast agent product
candidate, EP-2104R, which is designed to enable the
identification of blood clots using MRI. Finding blood clots is
of critical medical significance in the evaluation and diagnosis
of patients with possible stroke, transient ischemic attack,
chest pain, heart attack, irregular heartbeat, deep vein
thrombosis and pulmonary embolism. We designed EP-2104R to bind
reversibly to fibrin, the dominant protein found in blood clots.
EP2104R entered a Phase 2 clinical trial in April 2005,
which was subsequently amended to include additional patient
safety monitoring based on a review by the FDA of observations
from a
14-day,
repeat dose pre-clinical toxicology study. We completed this
Phase 2a clinical trial of EP-2104R in the second quarter
of 2006. In this study, we saw encouraging images, which may be
indicative of EP-2104Rs potential utility for identifying
patients at risk of acute thrombotic events, such as stroke and
transient ischemic attack. The data from the Phase 2a
clinical trial was presented at the annual meeting of the
Radiological Society of North America in November 2006. In the
study, EP-2104R was able to detect blood clots not previously
seen on MRI and enhanced the images of clots previously seen on
MRI. Results also showed that EP-2104R was well tolerated and
able to detect or enhance clots on MRI images in all six of the
body systems studied (pulmonary, deep vein, carotid artery,
cardiac atria, left ventricle, thoracic aorta). In 2004, we
completed Phase 1 clinical trials of EP-2104R in which it
was well tolerated in healthy volunteers. In pre-clinical
studies, EP-2104R has been shown to enhance the ability of MRI
to image clots throughout the vascular system.
We granted Bayer Schering Pharma, AG Germany an option to
license and develop EP-2104R, which, in 2006, it determined not
to exercise. We do not intend to conduct additional clinical
studies on EP-2104R utilizing internal resources and,
accordingly, we are pursuing a partner for the continued
development of
EP-2104R.
Our
Therapeutic Drug Discovery Technology and Approach
We have developed a novel and proprietary in silico
protein structure-based approach to GPCR and ion
channel-targeted drug discovery that allows us to benefit from
the structure-based approach in the absence of
experimentally-determined structures for these targets. Our
PREDICT technology combines genomic information (the amino acid
sequence of the target protein) with physical and chemical
properties of the cell membrane environment to determine the
most stable 3D structure of a membrane-bound protein. The use of
our PREDICT technology to determine a 3D structure of the target
protein is the foundation and first step in our novel system of
discovery and optimization for GPCR and ion channel-targeted
drugs. We maintain our GPCR and ion channel structures as trade
secrets, which, when combined with our proprietary software and
the know-how required to use the PREDICT technology, we believe
creates a strong barrier to entry for our competitors.
Using our proprietary drug discovery technology and approach
requires the successive application of the following five steps:
(1) using our PREDICT technology to identify the most
stable 3D structure of the desired GPCR or ion channel drug
target, bypassing the need for X-ray crystallography,
(2) analyzing the resulting 3D structure and identifying a
potential binding site on the target structure for drug
interaction, (3) performing in silico screening
using the computer to virtually fit more than two
million drug-like compounds into this drug site, ensuring that
both the shape and chemical properties of the binding site and
the compound match, (4) selecting the approximately
100-200
compounds that best match the binding site on the target and
testing their activity in vitro in the laboratory
and (5) identifying the most active and novel chemical
compounds, referred to as lead compounds, and then subjecting
these lead compounds to an integrated structure-based lead
optimization process. The PREDICT-generated 3D structure of the
target protein as well as other 3D protein structures (many of
which are also generated by PREDICT) and more traditional
medicinal chemistry efforts
10
are used to steer lead optimization along the most efficient
path, transforming lead compounds into drug candidates
expeditiously. Our discovery and optimization process is
outlined in the following steps:
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PREDICT-3D in silico modeling. We have
developed novel proprietary algorithms which we use in our
PREDICT technology to model the 3D structure of targets of
interest (GPCRs and ion channel proteins) from their primary
amino acid sequence. PREDICT uses algorithms that explore a
large number of possible structures of the target and then
selects the biologically relevant one. It takes into account
specific interactions between the target protein and the
membrane, specific interactions within the target protein
itself, and addresses the limitations that hamper homology-based
modeling of GPCRs and ion channel proteins. The PREDICT software
code and many of its algorithms are kept as trade secrets,
making it difficult to copy or reverse engineer. We filed patent
applications for PREDICT version 1.0 in 2000. The current
version of PREDICT has evolved considerably from the original
version and includes numerous new algorithms and capabilities.
PREDICT bypasses the need for X-ray crystallography structures
of the GPCR or ion channel protein target to initiate a
structure-based (so-called rational) drug discovery
program.
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Virtual libraries. Our libraries consist of in
silico versions of approximately four million drug-like
compounds which are available for purchase from commercial
vendors worldwide. These virtual libraries reduce the need for
us to synthesize or purchase, store and maintain tens or
hundreds of thousands of actual compounds for the initial
screening.
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Rapid in silico screening. The process of in
silico screening requires the computer to perform trillions
of operations in trying to fit numerous drug-like compounds into
the binding site of the target protein, matching both shape and
chemical properties. We perform high-throughput in silico
screening with a combination of proprietary and commercially
available public software to identify compounds that may bind to
a target GPCR or ion channel protein.
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Ranking of screening results. We have
developed proprietary algorithms for ranking our in silico
screening results using internally developed tools, which we
believe enables us to select the
100-200 most
promising compounds for in vitro testing.
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Integrated structure-based lead
optimization. The most promising novel lead
compounds, identified in silico and shown to have binding
affinity and functionality in vitro, are optimized
into drug candidates using an integrated structure-based
approach. This process makes use of the PREDICT 3D structures
(of the drug target and related off-target proteins) as well as
many other in silico tools that we have created to enable
efficient structure-based lead optimization, leading to highly
selective drug candidates. These tools allow us to overcome
challenges frequently encountered during lead optimization, such
as selectivity, blood-brain barrier penetration and hERG ion
channel binding, in a fraction of the time and cost compared to
traditional lead optimization efforts. Using these in silico
tools, our computational and medicinal chemists are able to
select for actual synthesis the most promising subset of
suggested compounds for further optimization. In each of our
clinical-stage programs, this approach has allowed us to
synthesize fewer than 10% of the compounds that we believe would
have been synthesized if we were to follow the traditional
methods of lead optimization.
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Strategic
Alliances and Collaborations
GlaxoSmithKline
On December 11, 2006, we entered into a development and
license agreement with SmithKline Beecham Corporation, doing
business as GlaxoSmithKline, and Glaxo Group Limited to develop
and commercialize medicines targeting four G-protein coupled
receptors, or GPCRs, for the treatment of a variety of diseases,
including an option to license our 5-HT4 partial agonist,
PRX-03140, and other medicines arising from the four research
programs. The other three GPCR targets are new discovery
programs. GlaxoSmithKline does not have options to any of our
other clinical programs besides PRX-03140. Our collaboration
with GlaxoSmithKline is being conducted through its Center of
Excellence for External Drug Discovery.
11
Pursuant to the collaboration agreement, we granted
GlaxoSmithKline an exclusive option to obtain exclusive,
worldwide license rights to complete the development and to
commercialize the products initially developed under each of our
four research programs under the collaboration agreement. In
return for those options and in consideration of the development
work to be performed by us under the collaboration agreement,
GlaxoSmithKline paid us an initial payment of
$17.5 million. As part of the collaboration, on
December 11, 2006 we entered into a stock purchase
agreement with GlaxoSmithKline providing for the issuance and
sale to GlaxoSmithKline of 3,009,027 shares of our common
stock for an aggregate purchase price of $17.5 million. In
addition, we may be eligible for up to an aggregate of
$1.2 billion in additional nonrefundable option fees and
milestone payments relating to the achievement of certain
development, regulatory and commercial milestones across the
four research programs. We are also eligible to receive tiered,
double-digit royalties based on net sales by GlaxoSmithKline of
any products developed under the collaboration agreement. The
specific royalty rates will vary depending upon a number of
factors, including the total annual net sales of the product and
whether it is covered by one of our patents.
GlaxoSmithKlines royalty obligation under the
collaboration agreement generally terminates on a
product-by-product
and
country-by-country
basis upon the later of (i) the expiration of our last
patent claiming the manufacture, use, sale or importation of the
product in the relevant country and (ii) twelve years after
the first commercial sale of the product in the relevant country.
If GlaxoSmithKline does not exercise any of the four options,
the collaboration agreement will expire upon the expiration of
the last such option. Otherwise, the collaboration agreement
will expire on a
product-by-product
and
country-by-country
basis upon the expiration of the royalty payment obligations for
each product in each country.
Under the collaboration agreement, we have agreed to design,
discover and develop, at our own cost, small molecule drug
candidates targeting one of the four GPCRs on which the research
programs are focused. The design, discovery and development
efforts will be guided by a joint steering committee formed
pursuant to the collaboration agreement. The first program is
focused on the 5-HT4 receptor and will include our
5-HT4
partial agonist drug candidate, PRX-03140, which is currently in
early-stage clinical development for the treatment of
Alzheimers disease. We have retained an option to
co-promote products successfully developed from the 5-HT4
program in the United States. Under any such co-promotion
arrangement, the collaboration agreement provides for
GlaxoSmithKline to direct the promotional strategy and
compensate us for our efforts in co-promoting the product.
We have responsibility and control for filing, prosecution or
maintenance of any of our patents that are the subject of an
option to GlaxoSmithKline under the collaboration agreement,
provided that in the event an option is exercised,
responsibility and control of the patents subject to such option
transfers to GlaxoSmithKline.
The parties each have the right to terminate the collaboration
agreement if the other party becomes insolvent or commits an
uncured material breach of the collaboration agreement. In
addition, GlaxoSmithKline has the right to terminate the
collaboration agreement in its entirety, and to terminate its
rights to any program developed under the collaboration
agreement on a regional or worldwide basis, in each case without
cause. Upon a termination of the collaboration agreement,
depending upon the circumstances, the parties have varying
rights and obligations with respect to the grant of continuing
license rights, continued commercialization rights and
continuing royalty obligations.
Amgen
On July 31, 2006, we entered into an exclusive license
agreement with Amgen Inc. to develop and commercialize products
based on our pre-clinical compounds that modulate the S1P1
receptor and compounds and products that may be identified by or
acquired by Amgen and that modulate the S1P1 receptor. The S1P1
receptor is a cell surface GPCR found on white blood cells and
in other tissues that is associated with certain autoimmune
diseases, such as rheumatoid arthritis and multiple sclerosis.
Pursuant to the license agreement, we granted Amgen an exclusive
worldwide license to our intellectual property and know-how
related to the compounds in our S1P1 program that modulate the
S1P1 receptor, for
12
the development and commercialization of those compounds and
other compounds and products that modulate the S1P1 receptor.
Amgen has limited rights to sublicense its rights under the
license. In return for the license, Amgen paid us a
nonrefundable, up-front payment of $20 million and is
obligated to pay us royalties based on aggregate annual net
sales of all S1P1-receptor-modulating products developed by
Amgen under the license agreement. In addition, we may be
eligible for up to an aggregate of $287.5 million of
nonrefundable milestone payments that relate to milestones
associated with the commencement of clinical trials, regulatory
approvals and annual net sales thresholds of the products under
the license agreement. These royalty rates and milestone amounts
are subject to reduction in the event that, among other things:
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Amgen is required to obtain third-party rights to develop and
commercialize a product that incorporates an EPIX
compound; and
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Amgen develops and commercializes products that are not covered
by the intellectual property rights we licensed to Amgen, such
as for example, S1P1-modulating products that may be acquired by
Amgen from a third party.
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Generally, Amgens royalty obligation under the agreement
terminates on a
product-by-product
and
country-by-country
basis upon the later of (a) the expiration or termination
of the last claim within the patents (whether such patents are
patents EPIX licensed to Amgen or are patents owned or
in-licensed by Amgen) covering such product and (b) ten
years following the first commercial sale of the product. The
agreement expires when all of Amgens royalty obligations
have terminated.
We have the option to co-promote one product from the
collaboration in the United States for one indication to be
jointly selected by EPIX and Amgen. During the first
15 months of the agreement, we will design, discover and
develop, at our own cost, additional compounds that modulate the
S1P1 receptor and that are within the same family of compounds
as those identified in our patent applications licensed to Amgen
under the agreement. The collaboration agreement provides Amgen
with a license to these additional compounds to further its
development efforts. We may undertake additional research under
the agreement, at our own expense, as approved by a joint
steering committee formed pursuant to the agreement. We have
responsibility and control for filing, prosecution or
maintenance for any of our patents licensed to Amgen for
24 months or until the start of Phase 1 clinical
trials for the first product developed under the agreement, at
which time, responsibility and control of such patents transfers
to Amgen. Amgen has responsibility and control for filing,
prosecution or maintenance for all other patents covered by the
agreement, including patents jointly developed under the
agreement. Amgen will have final decision making authority on
all other research matters and will be responsible for
non-clinical and clinical development, manufacturing, regulatory
activities and commercialization of the compounds and products
developed under the license agreement, at its own expense.
The parties each have the right to terminate the agreement (in
whole or for specified products or countries, depending upon the
circumstances) upon a material uncured breach by the other party
and Amgen has the right to terminate the agreement for
convenience upon varying periods of at least three months
advance notice. Upon a termination of the agreement, depending
upon the circumstances, the parties have varying rights and
obligations with respect to the grant of continuing license
rights, continued commercialization rights and continuing
royalty obligations.
Bayer
Schering Pharma AG, Germany
In June 2000, we entered into a strategic collaboration
agreement with Bayer Schering Pharma AG, Germany (formerly known
as Schering AG) pursuant to which we granted Bayer Schering
Pharma AG, Germany an exclusive license to co-develop and market
Vasovist worldwide, excluding Japan. In December 2000, we
amended this strategic collaboration agreement to grant to Bayer
Schering Pharma AG, Germany the exclusive rights to develop and
market Vasovist in Japan. Generally, each party to the agreement
will share equally in Vasovist costs and profits in the United
States. Under the agreement, we retained responsibility for
completing clinical trials and filing for FDA approval in the
United States and Bayer Schering Pharma AG, Germany is
responsible for clinical and regulatory activities for the
product outside the United States. In addition, we granted Bayer
Schering Pharma AG, Germany an exclusive option to develop and
market an
13
unspecified vascular MRI blood pool agent from our product
pipeline. In connection with this strategic collaboration and
the amendment to our strategic collaboration agreement with
Tyco, as described under Intellectual Property
below, Bayer Schering Pharma AG, Germany paid us an up-front fee
of $10 million, which we then paid to Tyco. Under the
agreement, Bayer Schering Pharma AG, Germany also paid us
$20 million in exchange for shares of our common stock. We
may be eligible for up to an additional $23.2 million upon
the achievement of certain milestones, including
$1.3 million that may be earned if Vasovist is approved in
the United States. We also are entitled to receive a royalty on
products sold outside the United States and, if Vasovist is
approved and launched in the United States, a percentage of
Bayer Schering Pharma AG, Germanys operating profit margin
on products sold in the United States
Under the terms of the strategic collaboration agreement with
Bayer Schering Pharma AG, Germany, either party may terminate
the agreement upon thirty days notice if there is a material
breach of the contract. In addition, Bayer Schering Pharma AG,
Germany may terminate the agreement at any time on a
region-by-region
basis or in its entirety, upon six months written notice to us.
In May 2003, we entered into a broad alliance with Bayer
Schering Pharma AG, Germany for the discovery, development and
commercialization of molecularly-targeted contrast agents for
MRI. The alliance was composed of two areas of collaboration,
with one agreement generally providing for exclusive development
and commercialization collaboration for EP-2104R, our product
candidate for the detection of thrombus, and the second
agreement covering an exclusive research collaboration to
discover novel compounds for diagnosing human disease using MRI.
Under the first agreement, Bayer Schering Pharma AG, Germany had
an option to the late stage development and worldwide marketing
rights for EP-2104R. On July 12, 2006, Bayer Schering
Pharma AG, Germany notified us that it declined to exercise this
option. As a result, we retained commercial rights to EP-2104R.
In the event EP-2104R is commercialized, we are obligated to pay
Bayer Schering Pharma AG, Germany a royalty which is limited to
a portion of the funding we received for this program from Bayer
Schering Pharma AG, Germany. The second agreement related to a
broader research collaboration under which the research jointly
pursued under the agreement concluded in May 2006. We are
currently discussing with Bayer Schering Pharma AG, Germany the
allocation of rights to intellectual property generated during
the research effort.
On May 8, 2000, we granted to Bayer Schering Pharma AG,
Germany a worldwide, royalty-bearing license to patents covering
Bayer Schering Pharma AG, Germanys development project,
Primovist, an MRI contrast agent for imaging the liver, which
was approved in the European Union in 2004. Under this
agreement, Bayer Schering Pharma AG, Germany is required to pay
us royalties based on sales of products covered by this
agreement. This agreement expires upon the
last-to-expire
patent covered by the agreement unless terminated earlier by
either party because of the material breach of the agreement by
the other party. Also on May 8, 2000, Bayer Schering Pharma
AG, Germany granted us a non-exclusive, royalty-bearing license
to certain of its Japanese patents. Under this agreement, we are
required to pay Bayer Schering Pharma AG, Germany royalties
based on sales of products covered by this agreement. This
agreement expires upon the
last-to-expire
patent covered by the agreement unless terminated earlier by
either party because of the material breach of the agreement by
the other party.
Cystic
Fibrosis Foundation Therapeutics Incorporated
In March 2005, we entered into a research, development and
commercialization agreement with Cystic Fibrosis Foundation
Therapeutics Incorporated, or CFFT, the drug discovery and
development affiliate of the Cystic Fibrosis Foundation. In
August 2006, we expanded the research, development and
commercialization agreement with CFFT. Through December 31,
2006 we have received approximately $8.3 million from CFFT
under this agreement, consisting of a $2.0 million upfront
payment, approximately $4.1 million of reimbursed research
and development costs and milestone payments totaling
approximately $2.2 million. The milestone payments, which
were earned in July and August 2006, relate to the first
development program described
14
below. Including the payments already received, we may be
eligible for up to an aggregate of $16.0 million from CFFT
under this agreement. The agreement involves two development
programs as follows:
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The first program is focused on correcting a malfunction of the
Cystic Fibrosis Transmembrane conductance Regulator, or CFTR,
ion channel protein. We are using our proprietary
structure-based technologies to model the structure of this ion
channel protein target and identify binding sites in the channel
for therapeutic intervention. Once these sites are identified,
we aim to use our drug discovery capabilities to discover a drug
that restores proper functionality to the channel in patients
with cystic fibrosis. If the preliminary program is successful,
we and CFFT have agreed to negotiate towards a follow-on
agreement under which we will explore a structure-based approach
for the discovery and commercialization of a drug that will
target CFTR, with the financial support of CFFT and subject to a
royalty payable to CFFT.
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The second program is focused on the discovery of a
small-molecule agonist to the G-Protein Coupled Receptor known
as P2Y(2), which plays a role in cystic fibrosis, using our
proprietary structure-based drug design system. We retain the
right to develop and commercialize any drug candidates
discovered through this second program, and are obligated to
make aggregate royalty payments of up to $15.0 million to
CFFT for the first drug candidate that reaches particular
regulatory and sales milestones.
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The agreement expires with respect to the first program on
August 2, 2009 and with respect to the second program on
March 7, 2007, unless extended by the parties or terminated
by either party beforehand. The second program has been extended
through December 31, 2007. CFFT may terminate either or
both programs without cause upon 120 days notice or if we
suspend or discontinue our business. Either party may terminate
the agreement for an uncured material breach.
Technology
Agreements
Tyco
In August 1996, we entered into a strategic collaboration
agreement with Mallinckrodt Inc. (subsequently acquired by Tyco
International Ltd.), involving research, development and
marketing of MRI vascular contrast agents developed or
in-licensed by either party. In June 2000, in connection with
the exclusive license that we granted to Bayer Schering Pharma
AG, Germany under our strategic collaboration agreement, we
amended our strategic collaboration with Tyco. The amendment
enabled us to sublicense certain technology from Tyco to Bayer
Schering Pharma AG, Germany which allowed us to enter into the
strategic collaboration agreement for Vasovist with Bayer
Schering Pharma AG, Germany. Pursuant to that amendment, we also
granted to Tyco a non-exclusive, worldwide license to
manufacture Vasovist for clinical development and commercial use
on behalf of Bayer Schering Pharma AG, Germany in accordance
with a manufacturing agreement entered into in June 2000 between
Tyco and Bayer Schering Pharma AG, Germany. In connection with
this amendment, we paid Tyco an up-front fee of
$10.0 million and are obligated to pay up to an additional
$5.0 million in milestone payments, of which
$2.5 million was paid following NDA filing in February 2004
and $2.5 million will be paid upon U.S. product
approval. We will also pay Tyco a share of our Vasovist
operating profit margins in the United States and a percentage
of the royalty that we receive from Bayer Schering Pharma AG,
Germany on Vasovist gross profits outside the United States.
Bracco
In September 2001, pursuant to a settlement and release
agreement and worldwide license agreement, we granted Bracco a
worldwide, non-exclusive royalty bearing
sub-license
to certain of our patents. Under the terms of the license fee,
we received $10.0 million in 2001 and are entitled to
receive royalty payments from Bracco on their sales of
MultiHance. The royalty on sales of Multihance expires on the
patent expiration date in each country in which MultiHance is
sold. We expect to receive our final royalty payment in the
first quarter of 2007.
15
Competition
We face, and will continue to face, intense competition from
pharmaceutical and biotechnology companies, as well as numerous
academic and research institutions and governmental agencies
engaged in drug discovery activities or funding, both in the
United States and abroad. Some of these competitors are pursuing
the development of product candidates that target the same
indications that we are targeting for our clinical and
pre-clinical programs. Even if we and our collaborators are
successful in developing our clinical-stage candidates, the
resulting products will compete with a variety of established
products.
Significant competitors in the area of GPCR-focused drug
discovery include Arena Pharmaceuticals, Acadia Pharmaceuticals
and 7TM Pharma, and for ion channels our competitors include
Vertex Pharmaceuticals and Sucampo Pharmaceuticals. In addition,
most large pharmaceutical companies have drug discovery programs
that target GPCRs and ion channels.
Many of our competitors have significantly greater financial,
manufacturing, marketing and product development experience and
resources than we do. These companies also have significantly
greater research and development capabilities than we do, and
have significantly greater experience than we do in preclinical
and clinical trials of potential pharmaceutical products, and in
obtaining FDA and other regulatory clearances. Our commercial
opportunity will be reduced or eliminated if our competitors
develop and commercialize products that are safer, more
effective, have fewer side effects or are less expensive than
any products that we may develop.
If our clinical-stage drug candidates are approved, they will
compete with currently approved drugs and potentially with drug
candidates currently in development for the same indications,
including the following:
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PRX-08066. If approved, PRX-08066, the drug
candidate we are developing for the treatment of pulmonary
arterial hypertension (PAH), will compete with approved products
from such pharmaceutical companies as Actelion Pharmaceuticals
Ltd., GlaxoSmithKline plc, Pfizer Inc. and United Therapeutics
Corporation, and may compete with drug candidates in clinical
development by other companies, such as Encysive Pharmaceuticals
Inc. and Gilead Sciences, Inc.
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PRX-00023. If approved, PRX-00023, the drug
candidate we are developing for the treatment of depression,
will compete with approved products from such pharmaceutical
companies as Forest Laboratories, Inc., GlaxoSmithKline plc,
Pfizer Inc. and Wyeth, and may compete with drug candidates in
clinical development from other companies, including
Sanofi-aventis, Neurocrine and GlaxoSmithKline plc licensed from
Fabre-Kramer Pharmaceuticals, Inc.
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PRX-03140. If approved, PRX-03140, the drug
candidate we are developing for the treatment of
Alzheimers disease, will compete with approved products
from such pharmaceutical companies as Forest Laboratories, Inc.,
Johnson & Johnson, Novartis AG and Pfizer, Inc., and
may compete with drug candidates in clinical development from
other companies, including Myriad Genetics, Inc. and Neurochem
Inc. We are developing PRX-03140 in combination with approved
products, particularly
Aricept®
which is marketed by Pfizer Inc.
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PRX-07034. If approved for the treatment of
obesity, Alzheimers disease and cognitive impairment
associated with schizophrenia, PRX-07034 will compete with
approved products from such pharmaceutical companies as Abbott
Laboratories and Roche Holding Ltd., and may compete with
several therapeutic product candidates in clinical development
by other companies, such as Sanofi-aventis and Arena
Pharmaceuticals, Inc. If approved for the treatment of cognitive
impairment (associated with Alzheimers disease or
schizophrenia), PRX-07034 will compete with approved products
from such pharmaceutical companies as Forest Laboratories,
Johnson & Johnson, Novartis AG and Pfizer, Inc., and
may compete with several therapeutic product candidates in
clinical development from other companies, including
GlaxoSmithKline plc and Saegis Pharmaceuticals, Inc.
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Vasovist and EP-2104R. There are a number of
general use MRI agents approved for marketing in the United
States and in certain foreign markets that, if used or developed
for MR angiography, are likely to compete with Vasovist. Such
products include Magnevist and Gadovist by Bayer Schering Pharma
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AG, Germany, Dotarem by Guerbet, S.A., Omniscan by GE
Healthcare, ProHance and MultiHance by Bracco and OptiMARK by
Tyco International Ltd. We are aware of five agents under
clinical development that have been or are being evaluated for
use in MRA: Bayer Schering Pharma AG, Germanys Gadomer and
SHU555C, Guerbet, S.A.s Vistarem, Braccos B-22956/1,
Ferropharm GmbHs Code VSOP-C184, and Advanced Magnetics,
Inc.s Ferumoxytol. We are not currently aware of any MRI
contrast agent other than EP-2104R being developed for use in
imaging blood clots. In addition to competition within the MRI
field, we also face competition from other imaging technologies,
including CT scans, ultrasounds, and X-ray scans. Our success
will depend on physician acceptance of MRI as a primary imaging
modality for certain vascular and other applications.
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INTELLECTUAL
PROPERTY
We actively seek to protect the proprietary technology that we
consider important to our business, including chemical species,
compositions and formulations, their methods of use and
processes for their manufacture, as new intellectual property is
developed. In addition to seeking patent protection in the
United States, we plan to selectively file patent applications
in certain additional foreign countries in order to further
protect the inventions that we consider important to the
development of our foreign business. We also rely upon trade
secrets and contracts to protect our proprietary information.
As of March 8, 2007, our patent portfolio included a total
of 18 issued U.S. patents, 113 issued foreign patents, two
allowed U.S. patent awaiting issuance and 233 pending
patent applications in the United States and other countries
with claims covering the composition of matter and methods of
use for all of our clinical-stage candidates. In addition to
patents, we rely where necessary upon unpatented trade secrets
and know-how and continuing technological innovation to develop
and maintain our competitive position. We seek to protect our
proprietary information, in part, using confidentiality
agreements with our collaborators, employees and consultants and
invention assignment agreements with our employees. These
agreements may be breached, and we may not have adequate
remedies for any breach. In addition, our trade secrets may
otherwise become known or be independently discovered by
competitors. To the extent that our collaborators, employees and
consultants use intellectual property owned by others in their
work for us, disputes may arise as to the rights in related or
resulting know-how and inventions.
In addition, we license, and expect to continue to license,
third-party technologies and other intellectual property rights
that are incorporated into some elements of our drug discovery
and development efforts. Set forth below are our significant
license agreements.
Ramot
Our proprietary drug discovery technology and approach is in
part embodied in technology that we license from Ramot at Tel
Aviv University Ltd., the technology transfer company of Tel
Aviv University. Pursuant to this license, we have exclusive,
worldwide rights to certain technology developed at Tel Aviv
University to develop, commercialize and sell products for the
treatment of diseases or conditions in humans and animals. The
licensed technology, as continually modified, added to and
enhanced by us, consists in large part of computer-based models
of biological receptors and methods of designing drugs to bind
to those receptors.
All of our current clinical-stage therapeutic drug candidates,
PRX-00023, PRX-03140, PRX-08066 and PRX-07034, were, at least in
part, identified, characterized or developed using the licensed
technology, and we would be required to make payments to Ramot,
as described below, as and when rights to any such drug
candidates are ever sublicensed or any such drug candidates are
commercialized. In addition, we have used the licensed
technology in all of our preclinical-stage programs and would
expect to make payments to Ramot if rights to any drug
candidates were ever commercialized from any of these programs.
One of our former employees and a current employee, Oren Becker,
former Chief Scientific Officer, and Sharon Shacham, Vice
President of Product Leadership, respectively were inventors of
the technology that we license from Ramot. We believe that Ramot
shares a portion of any royalty income received with the
respective inventors and, accordingly, Dr. Becker and
Dr. Shacham receive a portion of the amounts we pay Ramot.
17
We paid Ramot an upfront fee of $40,000 upon the grant of the
license. Under the license, we have an obligation to make
royalty payments to Ramot on our net sales of products that are
identified, characterized or developed through the use of the
licensed technology that are either 1.5% or 2.5% of such net
sales (depending upon the degree to which the product needed to
be modified after being identified, characterized or developed
through the use of the licensed technology) and decrease as the
volume of sales increases. The royalty obligation for each
product expires on a
country-by-country
basis twelve years after the first commercial sale. There is
also an annual minimum royalty payment obligation of
$10,000 per year.
We also are required to share between 5% and 10% of the
consideration we receive from parties to whom we grant
sublicenses of rights in the Ramot technology or sublicenses of
rights in products identified, characterized or developed with
the use of such technology and between 2% and 4% of
consideration we receive from performing services using such
technology. In connection with our collaborations with
GlaxoSmithKline, Amgen and Cystic Fibrosis Foundation
Therapeutics Incorporated, we have to date paid $2,192,000 in
total royalties to Ramot primarily for the total payments
received to date for the upfront payments and milestone payments
received to date under these license agreements.
The license may be terminated by either party upon a material
breach by the other party unless cured within 30 days, in
the case of a payment breach, and 90 days in the case of
any other breach. The license may also be terminated by either
party in connection with the bankruptcy or insolvency of the
other party. The license expires upon the expiration of our
obligation to make payments to Ramot. Therefore, since we have
an ongoing obligation to pay annual minimum royalties to Ramot
as described above, the license may not expire and may only
terminate upon a breach by, or bankruptcy of, a party.
Massachusetts
General Hospital
In July 1995, we entered into a license agreement with
Massachusetts General Hospital (MGH) pursuant to
which MGH granted us an exclusive worldwide license to patents
and patent applications which relate to Vasovist. The MGH
license imposed certain due diligence obligations with respect
to the development of products covered by the license, all of
which have been fulfilled to date. The MGH license requires us
to pay royalties on the net sales of products covered by this
license, including Primovist, MultiHance and Vasovist. We have
paid MGH approximately $552,000 in royalty payments, primarily
related to the sale of Primovist and MultiHance, through 2006
under this license agreement. The license agreement expires on a
country-by-country
basis when the patents covered by the license agreement expire.
The majority of the patents covered by this license agreement
expired in November 2006. The license agreement does not contain
a renewal provision. We believe that the expiration of these
patents does not compromise our proprietary position with
respect to Vasovist because Vasovist is covered by composition
of matter patents independent of our license with MGH. These
composition of matter patents extend into 2015 in the United
States, although the life of these patents may be extended.
Prince
In November 2003, we entered into an intellectual property
agreement with Dr. Martin R. Prince, an early innovator in
the field of magnetic resonance angiography relating to
dynamic magnetic resonance angiography, which
involves capturing magnetic resonance angiography images during
the limited time, typically 30 to 60 seconds, available for
imaging with extracellular agents. Under the terms of the
intellectual property agreement, Dr. Prince granted us
certain discharges, licenses and releases in connection with the
historic and future use of Vasovist by us and agreed not to sue
us for intellectual property infringement related to the use of
Vasovist. In consideration of Dr. Prince entering into the
agreement, we agreed to pay him an upfront fee of $850,000 and
royalties on sales of Vasovist consistent with a non-exclusive
early stage academic license and delivered to him
88,000 shares of our common stock with a value of
approximately $2.3 million based on the closing price of
our common stock on the date of the agreement. In addition, we
agreed to supply Dr. Prince with approximately $140,000
worth of Vasovist per year during the term of the agreement. The
agreement expires upon the expiration of the last patent under
the agreement. The agreement is subject to termination by either
party upon the incurred material branch of the agreement by the
other party. As of December 31, 2006 no Vasovist product
has been requested by or provided to Dr. Prince.
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Marketing,
Sales and Distribution
We currently have no marketing, sales or distribution
capabilities. To commercialize any of our drug candidates or
imaging products, we must develop these capabilities internally
or through collaboration with third parties. In selected
indications where we believe that our products can be
commercialized by a specialty sales force that calls on a
limited but focused group of physicians, we may commercialize
our products in the United States. For example, we believe that
pulmonary specialists who treat pulmonary hypertension, and the
centers in which they practice, are sufficiently concentrated to
enable us to effectively promote PRX-08066, if approved by the
FDA, to this market in the United States with a small internal
sales force. In therapeutic or diagnostic areas that require a
large sales force selling to a large and diverse prescribing
population and for markets outside of the United States, we plan
to establish collaborations with pharmaceutical or biotechnology
companies for commercialization of our drug candidates. With
respect to Vasovist, we have granted Bayer Schering Pharma AG,
Germany an exclusive license to co-develop and market Vasovist
worldwide under our strategic collaboration agreement with Bayer
Schering Pharma AG, Germany. With respect to PRX-03140, we have
granted GlaxoSmithKline an exclusive option to obtain exclusive,
worldwide license rights to complete the development and
commercialize PRX-03140. With respect to our preclinical
compounds that modulate the S1P1 receptor, we have granted Amgen
an exclusive worldwide license for the development and
commercialization of those compounds.
Manufacturing
We outsource and plan to continue to outsource manufacturing
responsibilities to third parties for our existing and future
drug candidates for clinical development and commercial
purposes. We are currently working with our contract
manufacturers to produce sufficient quantities of the active
pharmaceutical ingredient and drug product in each of our
programs for our planned clinical trials in 2007. If one of our
manufacturers for our therapeutic product candidates should
become unavailable to it for any reason, we believe that there
are a number of potential replacements as our processes are not
manufacturer-specific, though we may incur some added cost and
delay in identifying or qualifying such replacements, including
delays associated with the need for FDA review and approval of
the new manufacturer, as well as those associated with the new
manufacturers ability to establish the manufacturing
process.
Bayer Schering Pharma AG, Germany is responsible for the
manufacture of Vasovist. Bayer Schering Pharma AG, Germany
relies on Tyco as the sole manufacturer of Vasovist for human
clinical trials and commercial use. Together with Bayer Schering
Pharma AG, Germany, EPIX is considering alternative
manufacturing arrangements for Vasovist for commercial use,
including the potential transfer of manufacturing to Bayer
Schering Pharma AG, Germany. In the event that Tyco fails to
fulfill its manufacturing responsibilities satisfactorily, Bayer
Schering Pharma AG, Germany has the right to purchase Vasovist
from a third party or to manufacture the compound itself.
We currently rely on Aptuit, Inc. and Metrics, Inc. for our
therapeutic drug product manufacturing and testing, and on
Evotec, Ltd. and Johnson Matthey Pharma Services for the
manufacture and testing of our active therapeutic pharmaceutical
ingredients. Our agreements with these suppliers generally
operate on a work order basis, with no minimum purchase
requirements and are generally terminable by us upon
60 days and 90 days prior written notice,
respectively. Small amounts of material used for pre-clinical
research and development purposes are synthesized in-house. The
production of our drug candidates PRX-08066,
PRX-00023,
PRX-03140 and PRX-07034 uses small-molecule synthetic organic
chemistry procedures that are standard in the pharmaceutical
industry. There are no complicated chemistries or unusual
equipment required in the manufacturing process of these drug
candidates. PRX-08066, PRX-00023, PRX-03140 and PRX-07034 are
all currently administered as unformulated drug products. A
commercially viable formulation will need to be developed,
manufactured and certified for each of these drug candidates.
The final commercial formulation may not prove to be
bioequivalent to the current formulation. This may result in the
need to initiate additional clinical trials to define new dosing
regimes. Furthermore, the development and implementation of a
new formulation and commercial process for cGMP manufacturing
may add significant delays to additional clinical trials,
regulatory filings and commercial launch.
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Government
Regulation and Product Approval
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial
requirements upon the clinical development, manufacture and
marketing of pharmaceutical products. These agencies and other
federal, state and local entities regulate, among other things,
the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, advertising
and promotion of our products. Failure to comply with regulatory
requirements may result in criminal prosecution, civil
penalties, recall or seizure of products, total or partial
suspension of production or injunction, as well as other actions
that could affect our product candidates or us. Any failure to
comply with regulatory requirements, to obtain and maintain
regulatory approvals, or any delay in obtaining regulatory
approvals could materially adversely affect our business.
The process required by the FDA before drugs may be marketed in
the United States. generally involves the following:
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preclinical laboratory and animal studies;
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submission of an investigational new drug application, or IND,
which must become effective before human clinical trials may
begin;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of the proposed drug for its intended
use; and
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FDA approval of a new drug application, or NDA.
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The testing and approval process requires substantial time,
effort and financial resources, and we cannot be certain that
any approvals for any of our drug candidates will be granted on
a timely basis, if at all.
Once a pharmaceutical candidate is identified for development it
enters the preclinical testing stage. During preclinical
studies, laboratory and animal studies are conducted to show
biological activity of the drug candidate in animals, both
healthy and with the targeted disease. Also, preclinical tests
evaluate the safety of drug candidates. Preclinical tests must
be conducted in compliance with good laboratory practice
regulations. In some cases, long-term preclinical studies are
conducted while clinical studies are ongoing.
Prior to commencing a clinical trial, we must submit an IND to
the FDA. The IND automatically becomes effective 30 days
after receipt by the FDA, unless the FDA, within the
30-day time
period, raises concerns or questions about the conduct of the
trial. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before the clinical trial can begin.
Our submission of an IND may not result in FDA authorization to
commence a clinical trial. All clinical trials must be conducted
under the supervision of one or more qualified investigators in
accordance with good clinical practice regulations. These
regulations include the requirement that all subjects provide
informed consent. Further, an institutional review board, or
IRB, at each institution participating in the clinical trial
must review and approve the plan for any clinical trial before
it commences at that institution. Progress reports detailing the
results of the clinical trials must be submitted at least
annually to the FDA and more frequently if adverse events or
other certain types of other changes occur.
Human clinical trials are typically conducted in three
sequential phases that may overlap:
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Phase 1: The drug is initially introduced
into healthy human subjects or patients with the disease and
tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion.
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Phase 2: Involves studies in a limited
patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the
product for specific targeted diseases and to determine dosage
tolerance and optimal dosage.
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Phase 3: Clinical trials are undertaken
to further evaluate dosage, clinical efficacy and safety in an
expanded patient population at geographically dispersed clinical
study sites. These studies are intended to establish the overall
risk-benefit ratio of the product and provide, if appropriate,
an adequate basis for product labeling.
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In the case of some products for severe or life-threatening
diseases, especially when the product may be too inherently
toxic to ethically administer to healthy volunteers, the initial
human testing is often conducted in patients. Because these
patients already have the target disease, these studies may
provide initial evidence of efficacy traditionally obtained in
Phase 2 clinical trials, and thus these trials are
frequently referred to as Phase 1/2 clinical trials.
The FDA or an IRB or the sponsor may suspend a clinical trial at
any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health
risk.
Concurrent with clinical trials and preclinical studies,
companies also must develop information about the chemistry and
physical characteristics of the drug and finalize a process for
manufacturing the product in accordance with cGMP requirements.
The manufacturing process must be capable of consistently
producing quality batches of the product candidate and the
manufacturer must develop methods for testing the quality,
purity and potency of the final drugs. Additionally, appropriate
packaging must be selected and tested and stability studies must
be conducted to demonstrate that the product candidate does not
undergo unacceptable deterioration over its shelf-life.
A sponsor of an IND may request that the FDA evaluate within
45 days certain protocols and issues relating to the
protocols. Such Special Protocol Assessments, or SPAs, may be
requested for clinical protocols for Phase 3 clinical
trials whose data will form the primary basis for an efficacy
claim if the trials had been the subject of discussion at an
end-of-Phase 2/
pre-Phase 3 meeting. If the sponsor and the FDA reach a
written agreement regarding the protocol, the SPAs will be
considered binding on the FDA and will not be changed unless the
sponsor fails to follow the
agreed-upon
protocol, data supporting the request are found to be false or
incomplete, or the FDA determines that a substantial scientific
issue essential to determining the safety or effectiveness of
the drug was identified after the testing began. Even if a SPA
is agreed to, approval of the NDA is not guaranteed since a
final determination that an
agreed-upon
protocol satisfies a specific objective, such as the
demonstration of efficacy, or supports an approval decision,
will be based on a complete review of all the data in the NDA.
The results of product development, preclinical studies and
clinical studies, along with descriptions of the manufacturing
process, analytical tests conducted on the chemistry of the
drug, results of chemical studies and other relevant information
are submitted to the FDA as part of an NDA requesting approval
to market the product. The FDA reviews all NDAs submitted before
it accepts them for filing. It may request additional
information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The
resubmitted application also is subject to review before the FDA
accepts it for filing. Once the submission is accepted for
filing, the FDA begins an in-depth review of the NDA. The
submission of an NDA is subject to the payment of user fees, but
a waiver of such fees may be obtained under certain
circumstances. The FDA may refuse to approve an NDA if the
applicable regulatory criteria are not satisfied or may require
additional clinical or other data. Even if such data is
submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. Once an approval is granted,
the FDA may withdraw the approval if compliance with regulatory
standards is not maintained or if problems occur after the
product reaches the market. In addition, the FDA may require
testing and surveillance programs to monitor the effect of
approved products that have been commercialized, and the FDA has
the power to prevent or limit further marketing of a product
based on the results of these post-marketing programs.
The FDA has various programs, including fast track, priority
review and accelerated approval that are intended to expedite or
simplify the process for reviewing drugs
and/or
provide for approval on the basis of surrogate endpoints.
Generally, drugs that may be eligible for these programs are
those for serious or life-threatening conditions, those with the
potential to address unmet medical needs, and those that offer
meaningful benefits over existing treatments. For example,
priority review applies to new drugs that have the potential for
providing significant improvements compared to marketed products
in the treatment or prevention of a disease. Although priority
review does not affect the standards for approval, FDA will
attempt to expedite review of the application for a drug
designated for priority review. We do not know whether our drugs
will be eligible for, or whether we will apply for, any of these
programs. Even if a drug qualifies for one or more of these
programs, we cannot be sure that the time period for FDA review
will be shortened.
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Satisfaction of FDA requirements or similar requirements of
state, local and foreign regulatory agencies typically takes at
least several years and the actual time required may vary
substantially, based upon, among other things, the type,
complexity and novelty of the product or disease. Government
regulation may delay or prevent marketing of potential products
for a considerable period of time and impose costly procedures
upon our activities. Success in early-stage clinical trials does
not assure success in later-stage clinical trials. Data obtained
from clinical activities are not always conclusive and may be
susceptible to varying interpretations, which could delay, limit
or prevent regulatory approval. Even if a product receives
regulatory approval, the approval may be significantly limited
to specific diseases and dosages. Further, even after regulatory
approval is obtained, later discovery of previously unknown
problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the
market. Delays in obtaining, or failures to obtain regulatory
approvals for any drug candidate could substantially harm our
business and cause our stock price to drop significantly. In
addition, we cannot predict what adverse governmental
regulations may arise from future U.S. or foreign
governmental action.
Any drug products manufactured or distributed by us pursuant to
FDA approvals are subject to continuing regulation by the FDA,
including, among other things, record-keeping requirements,
reporting of adverse experiences with the drug, drug sampling
and distribution requirements, notifying the FDA and gaining its
approval of certain manufacturing or labeling changes, complying
with certain electronic records and signature requirements and
complying with FDA promotion and advertising requirements. Drug
manufacturers and their subcontractors are required to register
their establishments with the FDA and certain state agencies,
and are subject to periodic unannounced inspections by the FDA
and certain state agencies for compliance with cGMP, which
impose certain procedural and documentation requirements upon us
and our contract manufacturers. We cannot be certain that we or
our present or future suppliers will be able to comply with the
pharmaceutical cGMP regulations and other FDA regulatory
requirements.
The FDAs policies may change and additional government
regulations may be enacted which could prevent or delay
regulatory approval of our drug candidates. We cannot predict
the likelihood, nature or extent of adverse governmental
regulation, which might arise from future legislative or
administrative action, either in the U.S. or abroad.
Under the Orphan Drug Act, the FDA may grant orphan drug
designation to drugs intended to treat a rare disease or
condition, which is generally a disease or condition that
affects fewer than 200,000 individuals in the U.S. Orphan
drug designation must be requested before submitting an NDA.
After the FDA grants orphan drug designation, the identity of
the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Orphan drug designation does not convey any
advantage in or shorten the duration of the regulatory review
and approval process. If a product that has orphan drug
designation subsequently receives FDA approval for the disease
for which it has such designation, the product is entitled to
orphan product exclusivity, which means that the FDA may not
approve any other applications to market the same drug for the
same indication, except in very limited circumstances, for seven
years. Orphan drug exclusivity, however, also could block the
approval of our product for seven years if a competitor obtains
approval of the same drug as defined by the FDA or if our
product is determined to be contained within the
competitors product for the same indication or disease. We
intend to file for orphan drug designation for those diseases
that meet the criteria for orphan designation, including for
PRX-08066 for the treatment of pulmonary hypertension. There is
no guarantee that we will be awarded orphan exclusivity for
PRX-08066 or for any other products or indications. In addition,
obtaining FDA approval to market a product with orphan drug
exclusivity may not provide us with a material commercial
advantage.
The FDA Modernization Act of 1997 included a pediatric
exclusivity provision that was extended by the Best
Pharmaceuticals for Children Act of 2002. Pediatric exclusivity
is designed to provide an incentive to manufacturers for
conducting research about the safety of their products in
children.
Pediatric exclusivity, if granted, provides an additional six
months of market exclusivity in the U.S. for new or
currently marketed drugs. Under Section 505a of the Federal
Food, Drug and Cosmetic Act, six months of market exclusivity
may be granted in exchange for the voluntary completion of
pediatric studies in accordance with an FDA-issued Written
Request. The FDA may issue a Written Request for studies
on
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unapproved or approved indications, where it determines that
information relating to the use of a drug in a pediatric
population, or part of the pediatric population, may produce
health benefits in that population. We have not requested or
received a Written Request for such pediatric studies, although
we may ask the FDA to issue a Written Request for such studies
in the future. To receive the six-month pediatric market
exclusivity, we would have to receive a Written Request from the
FDA, conduct the requested studies and submit reports of the
studies in accordance with a written agreement with the FDA or,
if there is no written agreement, in accordance with commonly
accepted scientific principles. There is no guarantee that the
FDA will issue a Written Request for such studies or accept the
reports of the studies. The current pediatric exclusivity
provision is scheduled to end on October 1, 2007 and it may
not be reauthorized.
Reimbursement
Sales of our product candidates depend in significant part on
the availability of third-party reimbursement. We anticipate
third-party payors will provide reimbursement for our
therapeutic and imaging products. It is time consuming and
expensive for us to seek reimbursement from third-party payors.
Reimbursement may not be available or sufficient to allow us to
sell our products on a competitive and profitable basis.
The passage of the Medicare Prescription Drug and Modernization
Act of 2003, or the MMA, imposes new requirements for the
distribution and pricing of prescription drugs for Medicare
beneficiaries, which may affect the marketing of our products.
The MMA also introduced a new reimbursement methodology, part of
which went into effect in 2004. At this point, it is not clear
what effect the MMA will have on the prices paid for currently
approved drugs and the pricing options for new drugs approved
after January 1, 2006. Moreover, while the MMA applies only
to drug benefits for Medicare beneficiaries, private payors
often follow Medicare coverage policy and payment limitations in
setting their own payment rates. Any reduction in payment that
results from the MMA may result in a similar reduction in
payments from non-governmental payors.
In addition, in some foreign countries, the proposed pricing for
a product candidate must be approved before it may be lawfully
marketed. The requirements governing pricing vary widely from
country to country. For example, the European Union provides
options for its member states to restrict the range of medicinal
products for which their national health insurance systems
provide reimbursement and to control the prices of medicinal
products for human use. A member state may approve a specific
price for the medicinal product or it may instead adopt a system
of direct or indirect controls on the profitability of the
company placing the medicinal product on the market.
We expect that there will continue to be a number of federal and
state proposals to implement governmental pricing controls.
While we cannot predict whether such legislative or regulatory
proposals will be adopted, the adoption of such proposals could
have a material adverse effect on our business, financial
condition and profitability.
Employees
We believe that our success will depend greatly on our ability
to identify, attract and retain capable employees. As of
December 31, 2006, we had 89 fulltime employees, including
a total of 59 employees who hold M.D. or Ph.D. degrees. Of our
employees, 66 of our employees are primarily engaged in research
and development activities, and 23 are primarily engaged in
general and administrative activities. Our employees are not
represented by any collective bargaining unit, and we believe
our relations with our employees are good.
Research
and Development
During the years ended December 31, 2006, 2005, and 2004 we
incurred research and development expenses of
$149.8 million, $18.3 million and $23.2 million
respectively. Included in our 2006 research and development
expense is a nonrecurring charge of $123.5 million for the
acquisition of in-process research and development in connection
with our acquisition of Predix. The in-process research and
development charge represents the fair value of purchased
in-process technology of Predix for research projects that, as
of the closing date of the merger, had not reached technological
feasibility and have no alternative future use.
23
Available
Information
We incorporated in Delaware in 1988 and commenced operations in
1992. Our principal executive offices are located at 4 Maguire
Road, Lexington, Massachusetts 02421 and our telephone number is
(781) 761-7600.
Our website is located at http://www.epixpharma.com. Our
Corporate Code of Conduct and Ethics as well as our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
and all amendments to these reports, which have been filed with
the Securities and Exchange Commission, or SEC, are available to
you free of charge through the Investor Relations section on our
website as soon as reasonably practicable after such materials
have been electronically filed with, or furnished to, the SEC.
We do not intend for the other information contained in our
website to be considered a part of this
Form 10-K.
We operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. This
discussion highlights some of the risks which may affect future
operating results. These are the risks and uncertainties we
believe are most important for you to consider. Additional risks
and uncertainties not presently known to us, which we currently
deem immaterial or which are similar to those faced by other
companies in our industry or business in general, may also
impair our business operations. If any of the following risks or
uncertainties actually occurs, our business, financial condition
and operating results would likely suffer.
Risks
Related to our Business
A
substantial portion of our future revenues will be dependent
upon our agreements with GlaxoSmithKline, Amgen Inc. and Bayer
Schering Pharma AG, Germany.
We expect that a substantial portion of our future revenues will
be dependent upon our collaboration agreements with
GlaxoSmithKline and with Amgen Inc. The agreement with
GlaxoSmithKline encompasses the development and
commercialization of medicines targeting four G-protein coupled
receptors, or GPCRs, for the treatment of a variety of diseases,
including an option to license our 5-HT4 partial agonist,
PRX-03140, and other medicines arising from the four research
programs. The agreement with Amgen encompasses the development
and commercialization of products based on our pre-clinical
compounds that modulate the S1P1 receptor and compounds and
products that may be identified by or acquired by Amgen and that
modulate the S1P1 receptor. We are substantially dependent upon
Bayer Schering Pharma AG, Germany to commercialize Vasovist, our
lead imaging product candidate, in the United States and Europe.
If these collaborators were to terminate their agreements with
us, fail to meet their obligations or otherwise decrease their
commitment there under, our future revenues could be materially
adversely affected and the development and commercialization of
our product candidates would be interrupted. In addition, if we
do not achieve some or any of the development, regulatory and
commercial milestones or if GlaxoSmithKline or Amgen does not
achieve certain net sales thresholds, in each case, as set forth
in the respective agreements, we will not fully realize the
expected benefits of the agreements. Further, the achievement of
certain of the various milestones under our collaboration
agreements with GlaxoSmithKline, Amgen and Bayer Schering Pharma
AG, Germany will depend on factors that are outside of our
control and most are not expected for several years, if at all.
Moreover, our receipt of revenues under our agreements with
these collaborators will be directly affected by the level of
efforts of such collaborators and we cannot control whether they
will devote sufficient resources to development or
commercialization of the technology under their respective
agreement or whether they will elect to pursue the development
or commercialization of alternative products or services. For
instance, Bayer Schering Pharma AG, Germany currently markets
imaging agents for other technologies that will compete against
Vasovist, and Bayer Schering Pharma AG, Germany will be
responsible for setting the price of the product candidate
worldwide. Accordingly, Bayer Schering Pharma AG, Germany may
not set prices in a manner that maximizes revenues for us.
Disagreements with our collaborators could delay or terminate
the continued development and commercialization of the licensed
products under our agreements or result in litigation, either of
which could have a material adverse affect on our business,
financial condition and results of operations overall. In
addition, Bayer Schering Pharma was recently formed through the
merger of Bayer AG and Schering AG. If the strategy of Bayer
Schering Pharma AG, Germany after the merger differs from
24
that of Schering AGs prior strategy with respect to the
marketing of Vasovist, our expectations regarding the marketing
of Vasovist could be negatively impacted, which could have a
material adverse effect on our imaging business. If any of our
agreements with GlaxoSmithKline, Amgen or Bayer Schering Pharma
AG, Germany is terminated prior to expiration, we would be
required to enter into other strategic relationships or find
alternative ways of continuing our product development programs.
We cannot assure you that we would be able to enter into similar
agreements with other companies with sufficient product
development capabilities to commercialize our product
candidates, and our failure to do so could materially and
adversely affect our ability to generate revenues.
We
anticipate future losses and may never become
profitable.
Our future financial results are uncertain. We have experienced
significant losses since we commenced operations in 1992. Our
accumulated net losses as of December 31, 2006 were
approximately $345.4 million. These losses have primarily
resulted from expenses associated with our research and
development activities, including pre-clinical studies and
clinical trials, acquired in-process research and development
from the merger with Predix and general and administrative
expenses. We anticipate that our research and development
expenses will remain significant in the future and we expect to
incur losses over at least the next several years as we continue
our research and development efforts, pre-clinical testing and
clinical trials. In particular, we believe that we will be
required to conduct additional clinical trials to obtain
approval from the FDA for any of our product candidates,
including Vasovist which trials would be expensive and which
could contribute to our continuing to incur losses.
In addition, as a result of our merger with Predix, our expenses
have increased as a result of the addition of our newly acquired
therapeutic research and development and commercialization
efforts.
As a result, we cannot predict when we will become profitable,
if at all, and if we do, we may not remain profitable for any
substantial period of time. If we fail to achieve profitability
within the timeframe expected by investors, the market price of
our common stock may decline and consequently our business may
not be sustainable.
Our
prior stock option practices may result in significant
liability.
As described in the Explanatory Note to this Annual Report on
Form 10-K
and in Note 3 to our consolidated financial statements, in
December 2006, our board of directors created a special
committee of independent directors to conduct, with the
assistance of outside legal counsel and outside forensic
accounting consultants, an investigation of our historical stock
option practices. The special committee has completed its
investigation and has concluded that certain employees,
including certain of our former senior management, prior to the
change in our senior management in connection with the merger
with Predix Pharmaceuticals Holdings, Inc. on August 16,
2006, participated in retrospective date selection for the grant
of certain stock options and re-priced, as defined by financial
accounting standards, certain options during the period from
1997 through 2005. Accordingly, our audit committee has
concluded that, pursuant to Accounting Principles Board
No. 25 (APB 25) and related interpretations, the
accounting measurement date for the stock option grants for
which those members of our former senior management had
restrospectively selected grant dates for certain grants awarded
between February 1997 and February 2004, covering options to
purchase approximately 1.4 million shares of our common
stock, differed from the measurement dates previously used for
such stock awards. In addition, we determined that, certain of
our former senior management re-priced, as defined by financial
accounting standards, to different prices approximately
0.9 million stock options awarded during the period between
June 1999 and March 2005. In addition, during the course of the
option review, we identified approximately 0.1 million
options in which other dating errors resulted in stock options
with grant dates that failed to meet the measurement date
criteria of APB 25. As a result, revised measurement dates
were applied to the option grants with administrative errors and
option grants for which certain of our former senior management
retrospectively selected grant dates for the grant and for
options that were re-priced, as defined by financial accounting
standards we revised our accounting for such re-priced awards
from accounting for the grants as fixed awards to accounting for
the grants as variable awards. Accounting for a variable award
requires us to revalue the re-priced option to its then
intrinsic value at the end of each reporting period until such
option has been exercised or canceled. In addition, we have
recorded adjustments to our financial
25
statements to record compensation expense for approximately
44,000 stock options granted to non-employees to recognize the
fair value of such options. We also recorded compensation
expense for approximately 70,000 stock options for which we
modified the original terms of the stock award. As a result of
these adjustments, we have recorded $7.4 million in
additional stock-based compensation expense for the years 1997
through 2005. The amount of compensation expense recorded for
stock awards in which we revised measurement dates is net of
forfeitures related to employee terminations. The additional
stock-based compensation expense for stock awards in which the
Companys former senior management retrospectively selected
dates for the grant is being amortized over the service period
relating to each option, typically five years. The Company has
accrued payroll tax expense of approximately $0.9 million
relating to employer and employee payroll taxes, interest and
penalties it estimates it will owe as a result of the
modifications to exercised options previously considered
incentive stock options that should have been taxed as
non-qualified stock options. Our historical stock option
practices and the restatement of our prior financial statements
expose us to greater risks associated with litigation and
regulatory proceedings. The Securities and Exchange Commission
has advised us that it has commenced an informal investigation
regarding our stock option grants. We are cooperating with that
investigation. In the event of any litigation or regulatory
proceeding involving a finding or assertion by the Securities
and Exchange Commission, other federal or state governmental
agencies, or any third-party that our past stock option
practices violated the federal securities laws or other laws, we
may be required to pay fines, penalties or other amounts, may be
subject to other remedies or remedial actions,
and/or may
be required to further restate prior period financial statements
or adjust current period financial statements. In addition,
considerable legal and accounting expenses related to these
matters have been incurred to date and significant expenditures
may continue to be incurred in the future.
We
have not been in compliance with SEC reporting requirements and
NASDAQ listing requirements and may continue to face compliance
issues with both. If we are unable to remain in compliance with
SEC reporting requirements and NASDAQ listing requirements,
there may be a material adverse effect on the Company and our
stockholders.
Due to the special committee investigation and resulting
restatement, we could not file our Annual Report on
Form 10-K
with the SEC on time and face the possibility of delisting of
our stock from the NASDAQ Global Market. On April 3, 2007,
we received a NASDAQ Staff Determination Letter indicating that
the we are not in compliance with Marketplace
Rule 4310(c)(14), which requires timely filing of periodic
reports with NASDAQ for continued listing, and we expect to file
our request for a hearing before the NASDAQ Listing
Qualifications Panel within the prescribed time period.
With the filing of this Annual Report on
Form 10-K,
we believe we have returned to full compliance with SEC
reporting requirements and NASDAQ listing requirements. However,
if the SEC has comments on this Annual Report on
Form 10-K
(or other reports that we previously filed) that require us to
file an amended report, or if the NASDAQ Listing Qualifications
Panel does not concur that we are in compliance with applicable
listing requirements, we may be unable to maintain an effective
listing of our stock on a national securities exchange. If this
happens, the price of our stock and the ability of our
stockholders to trade in our stock could be adversely affected.
In addition, we would be subject to a number of restrictions
regarding the registration of our stock under federal securities
laws, and we would not be able to issue stock options or other
equity awards to our employees or allow them to exercise their
outstanding options, which could adversely affect our business
and results of operations. In addition, although our 3.0%
Convertible Senior Notes do not mature until 2024, noteholders
may require us to repurchase these notes at par, plus accrued
and unpaid interest, on June 15, 2011, 2014 and 2019 and
upon certain other designated events including, but not limited
to, the termination of trading of our common stock on the NASDAQ
Global Market.
If we
are unsuccessful in our appeal process for Vasovist with the
FDA, we may never obtain approval to market and sell Vasovist in
the United States and our revenues will be materially
harmed.
Vasovist has not been approved for marketing and sale in the
United States by the FDA. In connection with a new drug
application, or NDA, that we submitted for Vasovist in December
2003, we received an approvable letter from the FDA in January
2005 in which the FDA requested additional clinical trials prior
to
26
approval. In May 2005, we submitted a response to the FDA
approvable letter, which was accepted by the FDA as a complete
response in June 2005. In November 2005, the FDA provided us
with a second approvable letter which indicated that at least
one additional clinical trial and a re-read of images obtained
in certain previously completed Phase 3 trials will be
necessary before the FDA could approve Vasovist. We believe that
these trials would require a substantial period of time to
complete. We have had three meetings with the FDA since
receiving the second approvable letter to discuss the path
forward for Vasovist in the United States. After considering the
parameters of the additional clinical trials requested by the
FDA, we filed a formal appeal with the FDA asking the FDA to
approve Vasovist and to utilize an advisory committee as part of
the appeal process. In August 2006, the FDA denied our appeal
and suggested that we conduct two new clinical trials for
Vasovist. In February 2007, we filed our second formal appeal
with the FDA asking the FDA to approve Vasovist and to utilize
an advisory committee as part of the appeal process. The FDA
informed us that the response to our appeal regarding Vasovist
will extend beyond the originally anticipated
30-day
period. We are currently in discussions with the FDA regarding
the appeals process. The approval, timeliness of approval or
labeling of Vasovist are subject to significant uncertainties
related to a number of factors, including:
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the process of reaching agreement with the FDA on the clinical
data and on any clinical trial protocol required for regulatory
approval of Vasovist;
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a re-read, or reanalysis, of images obtained from completed
Phase 3 trials by a new group of radiologists;
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the timing and process of conducting any clinical trials that
may be ultimately required if the appeal process ultimately ends
in denial of our suggested path forward;
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obtaining the desired outcomes of any required clinical
trials; and
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FDAs review process and conclusions regarding any
additional Vasovist regulatory submissions.
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We cannot assure you that the appeal process will be successful
or that we will be able to reach agreement with the FDA on the
design or clinical endpoints required for additional clinical
trials or re-read of images from the completed Phase 3
trials that may be required if the appeal process ultimately
ends in the denial of our suggested path forward. Further, we
cannot assure you that any such agreed upon clinical trials will
be feasible for us to conduct or whether such trials will be
completed in a commercially reasonable timeframe, if at all. Any
further clinical trials that are required could take several
years to complete. If the FDA does not approve Vasovist, then we
will not receive revenues based on sales of Vasovist in the
United States. Even if ultimately approved, we do not expect
revenues from the commercial sales of any of our product
candidates, other than Vasovist, for at least several years.
We
have never had a commercially available product in the United
States and we may never succeed in developing marketable
products.
We have never had any product candidates receive regulatory
approval for commercial sale in the United States and do
not expect to have any commercial therapeutic products available
in the United States for at least the next several years, if at
all. In September 2006, results from our pivotal Phase 3
clinical trial of our PRX-00023 product candidate for
generalized anxiety disorder demonstrated that PRX-00023 did not
achieve a statistically significant improvement over placebo for
the primary endpoint with respect to generalized anxiety
disorder. Prior to obtaining results from this trial, PRX-00023
was our most advanced therapeutic drug candidate. Based on these
trial results, however, we have discontinued our development
efforts with respect to PRX-00023 in anxiety and currently are
focusing our development efforts for this product candidate in
depression. PRX-00023 has not been tested in patients with a
primary diagnosis of major depression and will require
significant further additional clinical testing for that
indication. In addition, although our Vasovist imaging product
has been approved for commercial sale in the European Union,
Australia, Switzerland, Iceland, Norway and Canada, and is
currently being marketed in Europe by Bayer Schering Pharma AG,
Germany, we have not obtained approval of Vasovist in the United
States and do not expect any significant income or royalties as
a result of sales of Vasovist for the foreseeable future. In
August 2006, the FDA denied our formal appeal to approve
Vasovist and suggested that we conduct two new clinical
27
trials for Vasovist. Accordingly, the approval of Vasovist by
the FDA is subject to significant uncertainty and we may never
obtain regulatory approval to market Vasovist in the United
States.
In addition to PRX-00023 and Vasovist, each of our four other
clinical-stage drug candidates in the United States require
additional clinical studies: PRX-08066 for the treatment of two
types of pulmonary hypertension pulmonary
hypertension associated with chronic obstructive pulmonary
disease, which began a Phase 2 clinical trial in August
2006, and pulmonary arterial hypertension; PRX-03140 for the
treatment of Alzheimers disease, which entered a
Phase 2 clinical trial in the fourth quarter of 2006;
PRX-07034 for the treatment of obesity and cognitive impairment,
which commenced Phase 1 clinical trials in June 2006; and
EP-2104R, a contrast agent designed to enable the identification
of blood clots using MRI, which completed a Phase 2a
clinical trial in June 2006. Prior to the initiation of our
Phase 2 clinical trial, PRX-08066 had never been tested in
patients with pulmonary hypertension associated with chronic
obstructive pulmonary disease and has never been tested in
patients with primary pulmonary arterial hypertension. PRX-07034
is currently being tested in patients with obesity and has never
been tested in patients with cognitive impairment. A number of
companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late-stage clinical trials
even after achieving promising results in early-stage clinical
development. For example, Sanofi-Aventis discontinued the
development of its product candidate for the treatment of
Alzheimers disease designed to target the 5-HT4 protein
receptor due to lack of efficacy. This compound is believed to
have the same mechanism of action as PRX-03140, was more
advanced in clinical development and was more potent in
in vitro assays. Accordingly, the results from the
completed and ongoing studies and trials for our product
candidates may not be predictive of the results we may obtain in
later-stage clinical trials. In addition, Bayer Schering Pharma
AG, Germany declined to exercise an option to exclusively
license EP-2104R and, as a result, there is considerable
uncertainty regarding the future clinical development plan of
EP-2104R and depends upon many factors, including our ability to
enter into a collaboration to continue the development of
EP-2104R. If we are unable to find a new collaborative partner,
we may bear the expenses of further clinical development
ourselves, and these expenses would be significant. If we are
unable to develop one or more marketable products in the United
States, or elsewhere, our results of operations, business and
future prospects would be materially harmed.
If we
are unable to obtain required regulatory approval of our
therapeutic product candidates, we will be unable to market and
sell our therapeutic product candidates and our business will be
materially harmed.
Our existing therapeutic product candidates and any other
product candidates we may discover or acquire and seek to
commercialize are subject to extensive regulation by the FDA and
similar regulatory agencies in other countries relating to
development, clinical trials, manufacturing and
commercialization. In the United States and in many foreign
jurisdictions, rigorous pre-clinical testing and clinical trials
and an extensive regulatory review process must be successfully
completed before a new product candidate can be sold.
Satisfaction of these and other regulatory requirements is
costly, time consuming, uncertain and subject to unanticipated
delays. The time required to obtain approval by the FDA is
unpredictable but typically exceeds five years following the
commencement of clinical trials, depending upon many factors,
including the complexity of the product candidate. We initiated
clinical trials for PRX-08066, PRX-00023, PRX-03140 and
PRX-07034 in May 2005, February 2004, December 2004 and June
2006, respectively, and thus far, these therapeutic product
candidates have been studied in only a small number of patients.
Early-stage clinical trials in small numbers of patients are
often not predictive of results in later-stage clinical trials
with a larger and more diverse patient population. Even product
candidates with favorable results in late-stage pivotal clinical
trials may fail to get approved for commercialization for many
reasons, including:
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our failure to demonstrate to the satisfaction of the FDA or
comparable foreign regulatory authorities that a product
candidate is safe and effective for a particular indication;
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our inability to demonstrate that a product candidates
benefits outweigh its risks;
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our inability to demonstrate that the product candidate presents
a significant advantage over existing therapies;
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28
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the FDAs or comparable foreign regulatory
authorities disagreement with the manner in which we and
our collaborators interpret the data from pre-clinical studies
or clinical trials;
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the FDAs or comparable foreign regulatory
authorities failure to approve our manufacturing processes
or facilities or the processes or facilities of our
collaborators; or
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a change in the approval policies or regulations of the FDA or
comparable foreign regulatory authorities.
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The relevant regulatory authorities may not approve any of our
applications for marketing authorization relating to any of our
product candidates, or additional applications for or variations
to marketing authorizations that we may make in the future as to
these or other product candidates. Among other things, we have
had only limited experience in preparing applications and
obtaining regulatory approvals. If approval is granted, it may
be subject to limitations on the indicated uses for which the
product candidate may be marketed or contain requirements for
costly post-marketing testing and surveillance to monitor safety
or efficacy of the product candidate. If approval of an
application to market product candidates is not granted on a
timely basis or at all, or if we are unable to maintain our
approval, our business may be materially harmed. It is possible
that none of our product candidates or any other product
candidates we may seek to develop in the future will ever obtain
the appropriate regulatory approvals necessary for us to begin
selling them, which would materially harm our business.
Our
clinical trials may not yield results that will enable us to
obtain regulatory approval for our product
candidates.
We will only receive regulatory approval to commercialize a
product candidate if we can demonstrate to the satisfaction of
the FDA or the applicable foreign regulatory agency, in
well-designed and conducted clinical trials, that the product
candidate is safe and effective and otherwise meets the
appropriate standards required for approval for a particular
indication. Clinical trials are lengthy, complex and extremely
expensive processes with uncertain results. For example, results
from our recently completed Phase 3 clinical trial of
PRX-00023 in generalized anxiety disorder, which was designed to
evaluate the efficacy of PRX-00023 as measured by the change
from baseline in the Hamilton Rating Scale for Anxiety compared
to placebo, demonstrated that PRX-00023 did not achieve a
statistically significant improvement over placebo for the
primary endpoint with respect to generalized anxiety disorder.
Based on these results, we have discontinued our development
efforts of PRX-00023 in anxiety. We have limited experience in
conducting and managing the clinical trials necessary to obtain
regulatory approvals for our product candidates, including
filing and prosecuting the applications necessary to gain
approval by the FDA. Our NDA for Vasovist has not been, and may
never be, approved by the FDA and we have not submitted an NDA
to the FDA for any of our other product candidates. This limited
experience may result in longer regulatory processes in
connection with our efforts to obtain approval of our product
candidates. With respect to both our current product candidates
in human clinical trials and our research product candidates
which may be suitable for testing in human clinical trials at
some point in the future, we face risks including that:
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the product candidate may not prove to be safe and efficacious;
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the dosage form of the product candidate may not deliver
reproducible amounts of product to patients;
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patients may die or suffer other adverse effects for reasons
that may or may not be related to the product candidate being
tested;
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the results of later-stage clinical trials may not confirm the
positive results of earlier trials;
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the results may not meet the level of statistical significance
required by the FDA or other regulatory agencies for
approval; and
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the FDA or other regulatory agencies may require additional or
expanded trials.
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Of the large number of product candidates in development, only a
small percentage result in the submission of an NDA to the FDA
and even fewer are approved for commercialization. If we fail to
29
demonstrate the safety and efficacy of our product candidates,
we will not be able to obtain the required regulatory approvals
to commercialize these product candidates. The results from
pre-clinical testing of a product candidate that is under
development may not be predictive of results that will be
obtained in human clinical trials. In addition, the results of
early human clinical trials may not be predictive of results
that will be obtained in larger scale, advanced-stage clinical
trials. Our current product candidates and any other product
candidates we may seek to develop in the future may never
complete the clinical testing necessary to obtain the
appropriate regulatory approvals for us to begin selling them.
If
clinical trials for our product candidates are prolonged or
delayed, we may be unable to commercialize our product
candidates on a timely basis, which would require us to incur
additional costs and delay our receipt of any revenue from
potential product sales.
We may encounter problems with our completed, ongoing or planned
clinical trials for our product candidates that will cause us or
any regulatory authority to delay or suspend those clinical
trials or delay the analysis of data derived from them. A number
of events, including any of the following, could delay the
completion of our ongoing and planned clinical trials for our
product candidates and negatively impact our ability to obtain
regulatory approval or enter into collaborations for, or market
or sell, a particular product candidate, including any of our
current clinical-stage product candidates:
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conditions imposed on us by the FDA or any foreign regulatory
authority regarding the scope or design of our clinical trials;
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delays in obtaining, or our inability to obtain, required
approvals from institutional review boards or other reviewing
entities at clinical sites selected for participation in our
clinical trials;
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delay in developing a clinical dosage form, insufficient supply
or deficient quality of our product candidates or other
materials necessary to conduct our clinical trials;
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negative or inconclusive results from clinical trials, or
results that are inconsistent with earlier results, that
necessitate additional clinical study;
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serious
and/or
unexpected product-related side effects experienced by subjects
in clinical trials; or
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failure of our third-party contractors or our investigators to
comply with regulatory requirements or otherwise meet their
contractual obligations to us in a timely manner.
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Regulatory authorities, clinical investigators, institutional
review boards, data safety monitoring boards and the hospitals
at which our clinical trials are conducted all have the power to
stop our clinical trials prior to completion. Our clinical
trials for our product candidates may not begin as planned, may
need to be restructured, and may not be completed on schedule,
if at all. For example, in September 2001, after discussions
with the FDA, we expanded our initial target indication for
Vasovist from one specific body region, the aortoiliac region,
to a broader indication that included the entire bodys
vascular system, except for the heart. This expansion required
us to add two new clinical trials to our then existing
Phase 3 clinical trial program. This change to the
Phase 3 clinical trial program and the associated delay in
the startup of new clinical centers resulted in an approximate
15-month
delay in our NDA submission and an increase in costs associated
with the program. Delays in clinical trials may result in
increased development costs for our product candidates. In
addition, if our clinical trials for our product candidates are
delayed, our competitors may be able to bring product candidates
to market before we do and the commercial viability of our
product candidates could be significantly reduced.
In addition, the number and complexity of clinical trials needed
to achieve regulatory approval for our therapeutic drug
candidates, including but not limited to PRX-00023, our product
candidate for the treatment of depression, and PRX-03140, our
product candidate for the treatment of Alzheimers disease,
could be significant. Achieving primary efficacy endpoints in
depression and anxiety trials is difficult due to the
significant placebo effect commonly observed in trials in these
patient populations. For example, results from our recently
completed Phase 3 clinical trial of PRX-00023 demonstrated
that the product candidate did not achieve a statistically
significant improvement over placebo for the primary endpoint
with respect to
30
generalized anxiety disorder. Based on these results, we have
discontinued our development efforts with respect to PRX-00023
in anxiety and expect to focus our efforts with respect to
PRX-00023 in depression. In addition, we must also submit the
results of a two-year carcinogenicity study of PRX-00023 prior
to its approval. We have not yet initiated this study and intend
to conduct this study prior to submitting an NDA to the FDA. If
the clinical development of PRX-00023 is delayed as a result of
these matters, additional requirements set forth by the FDA,
including requirements related to confirming the correct dose
for PRX-00023, or otherwise, the time and cost of the
development of PRX-00023 could increase significantly.
We
have never generated positive cash flow, and if we fail to
generate revenue, it will have a material adverse effect on our
business.
To date, we have received revenues from payments made under
licensing, royalty arrangements and product development and
marketing agreements with strategic collaborators. In
particular, our revenue for the twelve months ended
December 31, 2006 was $6.0 million and consisted of
$2.9 million of product development revenue from Bayer
Schering Pharma AG, Germany and CFFT, $1.6 million of
royalty revenue related to the Bracco and Bayer Schering Pharma
AG, Germany agreements, and $1.5 million of license fee
revenue related to the Bayer Schering Pharma AG, Germany, Amgen,
Tyco, GlaxoSmithKline, CFFT, and Bracco agreements. In addition
to these sources of revenue, we have financed our operations to
date through public stock and debt offerings, private sales of
equity securities and equipment lease financings.
Although we believe that we are currently in compliance with the
terms of our collaboration and licensing agreements, the
revenues derived from them are subject to fluctuation in timing
and amount. We may not receive anticipated revenue under our
existing collaboration or licensing agreements, these agreements
may be subject to disputes and, additionally, these agreements
may be terminated upon certain circumstances. Therefore, to
achieve profitable and sustainable operations, we, alone or with
others, must successfully develop, obtain regulatory approval
for, introduce, market and sell products. We may not receive
revenue from the sale of any of our product candidates for the
next several years because we, and our partners, may not:
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successfully complete our product development efforts;
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obtain required regulatory approvals in a timely manner, if at
all;
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manufacture our product candidates at an acceptable cost and
with acceptable quality; or
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successfully market any approved products.
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As a result, we may never generate revenues from sales of our
product candidates and our failure to generate positive cash
flow could cause our business to fail.
We
depend on our strategic collaborators for support in product
development and the regulatory approval process for our product
candidates and, if approved, for product
marketing.
Our product development programs and potential regulatory
approval and commercialization of our product candidates will
require substantial additional cash to fund expenses. Our
strategy includes collaborating with leading pharmaceutical,
biotechnology or other companies to assist us in further
developing and potentially commercializing our product
candidates requiring large commercial sales and marketing
infrastructures. We may also seek to enter into such
collaborations for our other product candidates, especially for
target indications in which the potential collaborator has
particular expertise or that involve a large, primary care
market that must be served by large sales and marketing
organizations. In addition, we depend, and expect to continue to
depend, on strategic collaborators for support in a variety of
other activities including manufacturing, marketing and
distribution of our product candidates in the United States and
abroad, if the FDA and corresponding foreign agencies approve
our product candidates for marketing. We face significant
competition in seeking appropriate collaborators and these
collaborations are complex and time-consuming to negotiate and
document. For instance, in May 2006, we concluded a research
collaboration with Bayer Schering Pharma AG, Germany for the
development of certain potential imaging product candidates. We
are in discussions, and expect to continue discussions, with
Bayer Schering Pharma AG, Germany regarding the disposition of
the research products under this research collaboration. We
cannot predict how the disposition or winding down of
31
the individual research programs will occur, or whether we will
be able to take forward any of these research programs ourselves
or find alternative partners for these programs.
We may not be able to enter into any such collaboration on terms
that are acceptable to us, or at all. If that were to occur, we
may have to curtail the development of a particular product
candidate, reduce or delay one or more of our development
programs or potential commercialization, or increase our
expenditures and undertake development or commercialization
activities at our own expense. For instance, on July 12,
2006, Bayer Schering Pharma AG, Germany notified us that it
decided not to exercise its option to exclusively license
EP-2104R. As a result, we intend to pursue a collaboration for
the continued development of EP-2104R with new potential
partners, who may negotiate provisions that allow them to
terminate their agreements with us prior to the expiration of
the negotiated term under certain circumstances. If we elect to
increase our expenditures to fund development, potential
regulatory approval or commercialization activities on our own,
we will need to obtain additional capital, which may not be
available to us on acceptable terms, or at all. If we do not
obtain sufficient funds, we will not be able to complete
clinical development of our product candidates or bring our
product candidates to market. Further, our receipt of revenues
from strategic alliances is affected by the level of efforts of
our collaborators. Our collaborators may not devote the
resources necessary to complete development and commence
marketing of a product candidate in their respective
territories, or they may not successfully market product
candidates.
If we
encounter difficulties enrolling subjects in our clinical trials
for our product candidates, or subjects drop out of trials in
progress for our product candidates, our trials could be delayed
or otherwise adversely affected.
The timing of completion of clinical trials is dependent in part
upon the rate of enrollment of patients. Patient accrual is a
function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the existence of competitive
clinical trials, and the availability of alternative treatments.
Delays in planned patient enrollment may result in increased
costs and prolonged clinical development. In addition, patients
may withdraw from a clinical trial for a variety of reasons. If
we fail to accrue and maintain the number of patients into one
of our clinical trials for which the clinical trial was
designed, the statistical power of that clinical trial may be
reduced which would make it harder to demonstrate that the
product candidates being tested in such clinical trial are safe
and effective. We may not be able to enroll a sufficient number
of qualified patients in a timely or cost-effective manner. For
example, we experienced difficulty in enrolling healthy elderly
volunteers in our Phase 1 clinical trial for PRX-03140. Any
future delays in patient enrollment could result in increased
costs and longer development times. Enrollment of patients in
our clinical trials for our product candidates is affected by
many factors, including:
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the limited size of the patient population and the availability
of commercial products for certain target indications, including
pulmonary arterial hypertension and pulmonary hypertension
associated with chronic obstructive pulmonary disease;
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the nature and design of the trial protocol;
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the proximity of patients to clinical sites;
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the availability of other effective treatments for the relevant
disease (whether approved or experimental);
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the eligibility criteria for enrollment in our clinical trials;
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perceived risks and benefits of the product candidate under
study; and
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competing studies or trials.
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In addition, the FDA could require us to conduct clinical trials
with a larger number of subjects than we have projected for any
of our product candidates. If we have difficulty enrolling or
retaining a sufficient number of patients to participate and
complete our clinical trials for our product candidates as
planned, we may need to delay or terminate ongoing or planned
clinical trials. Delays in enrolling patients in these clinical
32
trials or the withdrawal of subjects enrolled in these clinical
trials would adversely affect our ability to develop and seek
approval for our product candidates, could delay or eliminate
our ability to generate product candidates and revenue and could
impose significant additional costs on us.
We may
need to raise additional funds necessary to fund our operations,
and if we do not do so, we may not be able to implement our
business plan.
Since inception, we have funded our operations primarily through
our public offerings of common stock, private sales of equity
securities, debt financing, equipment lease financings, product
development revenue, and royalty and license payments from our
strategic partners. Although we believe that we have adequate
funding to fund our operations through 2008, we may need to
raise substantial additional funds for research, development and
other expenses through equity or debt financings, strategic
alliances or otherwise. Our future liquidity and capital
requirements will depend upon numerous factors, including the
following:
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the progress and scope of clinical trials;
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the timing and costs of filing future regulatory submissions;
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the timing and costs required to receive both U.S. and foreign
governmental approvals;
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the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights;
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the extent to which our product candidates gain market
acceptance;
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the timing and costs of product introductions;
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the extent of our ongoing and any new research and development
programs;
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the extent to which we are required to pay the remaining
$15.0 million portion of the milestone payment in
connection with the Predix merger in cash;
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changes in our strategy or our planned activities;
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the costs of training physicians to become proficient with the
use of our product candidates; and
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the costs of developing marketing and distribution capabilities.
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If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our
stockholders could be significantly diluted, and these newly
issued securities may have rights, preferences or privileges
senior to those of existing stockholders. If we incur additional
debt financing, a substantial portion of our operating cash flow
may be dedicated to the payment of principal and interest on
such indebtedness, thus limiting funds available for our
business activities. We cannot assure you that additional
financing will be available on terms favorable to us, or at all.
If adequate funds are not available or are not available on
acceptable terms, when we desire them, our ability to fund our
operations, take advantage of unanticipated opportunities,
develop or enhance our software products, services and hosted
solutions, or otherwise respond to competitive pressures would
be significantly limited.
Our
therapeutic product candidates are currently
unformulated.
All of our therapeutic product candidates, including PRX-08066,
PRX-00023, PRX-03140 and PRX-07034, are currently unformulated.
The lack of an optimized and commercially-viable formulation
during clinical trials may have a significant impact in the
overall development and commercialization of these therapeutic
product candidates, including:
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the current dosage may not provide reproducible amounts of
product;
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the pharmaceutical development of a commercially viable
formulation may add significant cost and time to our clinical
development programs for therapeutics;
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additional trials may be required if the new formulation is not
bioequivalent to formulations already used in clinical trials;
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future clinical trials may be delayed in order to identify,
develop, optimize, manufacture and certify a commercially viable
formulation; and
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regulatory filings,
and/or
commercial launch may be delayed due to the lack of a commercial
process for cGMP manufacturing of the new formulation.
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The occurrence of any of the foregoing could materially harm our
business.
Failure
to comply with foreign regulatory requirements governing human
clinical trials and marketing approval for our product
candidates could prevent us from selling our product candidates
in foreign markets, which may adversely affect our operating
results and financial condition.
The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement for marketing our
product candidates outside the United States vary greatly from
country to country and may require additional testing. We have
no experience in obtaining regulatory approvals for any of our
product candidates. Although the use of Vasovist has been
approved in the European Union, as well as Canada, Iceland,
Norway, Switzerland and Australia, Bayer Schering Pharma AG,
Germany is responsible for obtaining foreign regulatory
approvals for Vasovist. The time required to obtain approvals
outside the United States may differ from that required to
obtain FDA approval. We may not obtain foreign regulatory
approvals on a timely basis, if at all. 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 countries
or by the FDA. Failure to comply with these regulatory
requirements or obtain required approvals could impair our
ability to develop foreign markets for our product candidates.
Our
product candidates will remain subject to ongoing regulatory
requirements even if they receive marketing approval, and if we
fail to comply with requirements, we could lose these approvals
and the sale of any approved commercial products could be
temporarily or permanently suspended.
Even if we receive regulatory approval to market a particular
product candidate, the product will remain subject to extensive
regulatory requirements, including requirements relating to
manufacturing, labeling, packaging, adverse event reporting,
storage, advertising, promotion and record keeping. In addition,
as clinical experience with a product expands after approval
because it is typically used by a greater number of patients
after approval than during clinical trials, side effects and
other problems may be observed after approval that were not seen
or anticipated during pre-approval clinical trials. We are
required to maintain pharmacovigilance systems for collecting
and reporting information concerning suspected adverse reactions
to our product candidates. In response to pharmacovigilance
reports, regulatory authorities may initiate proceedings to
revise the prescribing information for our product candidates or
to suspend or revoke our marketing authorizations. Procedural
safeguards are often limited, and marketing authorizations can
be suspended with little or no advance notice. Both before and
after approval of a product, quality control and manufacturing
procedures must conform to cGMP. Regulatory authorities,
including the European Medicines Agency, or EMEA, and the FDA,
periodically inspect manufacturing facilities to assess
compliance with cGMP. Accordingly, we and our contract
manufacturers will need to continue to expend time, funds, and
effort in the area of production and quality control to maintain
cGMP compliance. If we fail to comply with the regulatory
requirements of the FDA, the EMEA and other applicable U.S. and
foreign regulatory authorities or previously unknown problems
with any approved commercial products, manufacturers or
manufacturing processes are discovered, we could be subject to
administrative or judicially imposed sanctions or other
setbacks, including:
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restrictions on the products, manufacturers or manufacturing
processes;
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warning letters;
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civil or criminal penalties;
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fines;
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injunctions;
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product seizures or detentions;
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import bans;
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product recalls and related publicity requirements;
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unanticipated expenditures;
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total or partial suspension of production; and
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refusal to approve pending applications for marketing approval
of new products or supplements to approved applications.
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The imposition on us of any of the foregoing could materially
harm our results of operations. In addition to regulations
adopted by the EMEA, the FDA, and other foreign regulatory
authorities, we are also subject to regulation under the
Occupational Safety and Health Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act, and other
federal, state, and local regulations.
We are
focusing our therapeutic product discovery and development
efforts on G-Protein Coupled Receptor and ion channel-targeted
product candidates, which have historically had a high incidence
of adverse side effects.
Despite commercial success, many G-Protein Coupled Receptor, or
GPCR, and ion channel-targeted products have been associated
with a high incidence of adverse side effects due in part to
poor selectivity in binding to their target protein, resulting
in also binding to other off-target proteins. We
believe we are designing our therapeutic product candidates to
be highly selective and as a result to have a favorable
side-effect profile. However, all of our therapeutic product
candidates are in early stages of development, and although our
clinical therapeutic product candidates have to date exhibited
acceptable side-effect profiles in clinical trials in a limited
number of subjects, we cannot assure you that these results will
be repeated in larger-scale trials. If serious side effects
occur in later-stage clinical trials of our therapeutic product
candidates, we may not receive regulatory approval to
commercialize them. Even if any of our therapeutic product
candidates receive regulatory approval, if they do not exhibit a
more favorable side-effect profile than existing therapies, our
competitive position could be substantially diminished.
The
application of our in silico therapeutic product discovery
technology and approach may be limited to a subset of
therapeutically useful proteins, which may reduce the
opportunities to develop and commercialize product candidates
against other important therapeutic targets.
To date, our technology and approach has generated clinical
therapeutic product candidates, including PRX-08066, PRX-00023,
PRX-03140 and PRX-07034, which mimic the activity of a small
molecule, serotonin, within a class of GPCR proteins known as
serotonergic receptors. The activity is achieved through binding
of the ligand, serotonin, to a particular region of the protein
that spans the cell membrane. These GPCRs and mechanisms of
interaction represent a small subset of all known
therapeutically-relevant GPCRs. The application of our in
silico technology to other known therapeutically-relevant
GPCR targets based on large molecule ligands and other
interactions is unknown. Ion channels can consist of multiple
protein subunits that have complex and subtle mechanisms of
activation and inactivation. Therefore, it may be difficult to
apply our proprietary product discovery technology to
small-molecule ion channel targets.
Although we believe that the in silico technology
platform can be utilized and developed to discover such small
molecules, we cannot ensure that our in silico technology
and approach will generate clinical candidates for all GPCRs and
ion channels that are important targets for therapeutic
intervention.
35
Integrating
our organization with Predix may divert managements
attention away from our operations and, if we are unsuccessful
in integrating our companies, we may not be able to operate
efficiently after the merger.
Achieving the benefits of our merger with Predix will depend in
part on the successful integration of our operations and
personnel in a timely and efficient manner. The integration
process requires coordination of different development,
regulatory, administrative and commercial teams, and involves
the integration of systems, applications, policies, procedures,
business processes and operations. This may be difficult and
unpredictable because of possible cultural conflicts and
different opinions on scientific and regulatory matters.
Problems in integrating financial reporting could result in
control issues, including unplanned costs. Delays in
successfully integrating and managing employee benefits could
lead to dissatisfaction and employee turnover. In addition, the
combination of our organizations may result in greater
competition for resources and elimination of research and
development programs that might otherwise be successfully
completed, especially in light of the difference in our current
imaging business and therapeutic business. If we cannot
successfully integrate our operations and personnel, we may not
realize the expected benefits of the merger. Moreover, the
diversion of managements attention and any difficulties
encountered in the transition and integration process could
result in delays in the companies clinical trial programs
and could otherwise harm our business, financial condition and
operating results.
Our
competitors may develop products that are less expensive, safer
or more effective, which may diminish or eliminate the
commercial success of any future products that we may
commercialize.
Competition in the pharmaceutical and biotechnology industries
is intense and expected to increase. We face competition from
pharmaceutical and biotechnology companies, as well as numerous
academic and research institutions and governmental agencies
engaged in product discovery activities or funding, both in the
United States and abroad. Some of these competitors have
therapeutic products or are pursuing the development of
therapeutic product candidates that target the same diseases and
conditions that are the focus of our clinical-stage therapeutic
product candidates, including the following:
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PRX-00023. If approved, PRX-00023, the product
candidate we are developing for the treatment of depression,
will compete with approved products from such pharmaceutical
companies as Forest Laboratories, Inc., GlaxoSmithKline plc,
Pfizer Inc. and Wyeth, and may compete with several therapeutic
product candidates in clinical development from other companies,
including Sanofi-aventis and Fabre-Kramer Pharmaceuticals, Inc..
We believe that there are over 45 therapeutic product candidates
in clinical trials or that have been submitted for approval for
the treatment of depression.
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PRX-03140. If approved, PRX-03140, the product
candidate we are developing for the treatment of
Alzheimers disease, will compete with approved products
from such pharmaceutical companies as Forest Laboratories, Inc.,
Johnson & Johnson, Novartis and Pfizer, and may compete
with several therapeutic product candidates in clinical
development from other companies, including Myriad Genetics and
Neurochem. We believe that there are over 50 therapeutic product
candidates in clinical trials for the treatment of
Alzheimers disease.
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PRX-08066. If approved, PRX-08066, the product
candidate we are developing for the treatment of pulmonary
hypertension, will compete with approved products from such
pharmaceutical companies as Actelion, GlaxoSmithKline plc,
Pfizer Inc. and United Therapeutics Corporation, and may compete
with several therapeutic product candidates in clinical
development by other companies such as Encysive Pharmaceuticals
Inc. and Gilead Sciences, Inc. We believe that there are
approximately ten therapeutic product candidates in clinical
trials or that have been submitted for approval for the
treatment of pulmonary arterial hypertension
and/or
pulmonary hypertension associated with chronic obstructive
pulmonary disease.
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PRX-07034. If approved for the treatment of
obesity, PRX-07034 will compete with approved products from such
pharmaceutical companies as Abbott Laboratories and Roche
Holding Ltd., and may compete with several therapeutic product
candidates in clinical development by other companies, such as
Sanofi-aventis and Arena Pharmaceuticals, Inc.. We believe that
there are over 30 therapeutic
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product candidates in clinical trials for the treatment of
obesity. If approved for the treatment of cognitive impairment
(associated with Alzheimers disease or schizophrenia),
PRX-07034 will compete with approved products from such
pharmaceutical companies as Forest Laboratories, Inc.,
Johnson & Johnson, Novartis AG and Pfizer Inc., and may
compete with several therapeutic product candidates in clinical
development from other companies, including GlaxoSmithKline plc
and Saegis Pharmaceuticals, Inc. We believe that there are over
50 therapeutic product candidates in clinical trials for the
treatment of cognitive impairment associated with
Alzheimers disease or schizophrenia.
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We expect that many patents covering commercial therapeutic
products for these indications will expire in the next four to
nine years, which will result in greater competition in these
indications resulting from companies producing generic versions
of the commercial products. Many of our competitors have
therapeutic products that have been approved or are in advanced
development and may develop superior technologies or methods to
identify and validate therapeutic product targets and to
discover novel small-molecule products. Our competitors may also
develop alternative therapies that could further limit the
market for any therapeutic products that we may develop.
In addition, there are a number of general use MRI agents
approved for marketing in the United States, and in certain
foreign markets that, if used or developed for magnetic
resonance angiography, are likely to compete with Vasovist. Such
products include Magnevist and Gadovist by Bayer Schering Pharma
AG, Germany, Dotarem by Guerbet, S.A., Omniscan by GE
Healthcare, ProHance and MultiHance by Bracco and OptiMARK by
Tyco International Ltd.. We are aware of five agents under
clinical development that have been or are being evaluated for
use in magnetic resonance angiography: Bayer Schering Pharma AG,
Germanys Gadomer and SHU555C, Guerbet, S.A.s
Vistarem, Braccos B-22956/1, Ferropharm GmbHs Code
VSOP-C184, and Advanced Magnetics Inc. Ferumoxytol. Moreover,
there are several well-established medical imaging methods that
currently compete and will continue to compete with MRI,
including digital subtraction angiography, which is an improved
form of X-ray angiography, computed tomography angiography,
nuclear medicine and ultrasound, and there are companies that
are actively developing the capabilities of these competing
methods to enhance their effectiveness in vascular system
imaging.
We cannot assure you that our competitors will not succeed in
the future in developing therapeutic or imaging products that
are more effective than any that we are developing. We believe
that our ability to compete in developing commercial products
depends on a number of factors, including the success and
timeliness with which we complete FDA trials, the breadth of
applications, if any, for which our product candidates receive
approval, and the effectiveness, cost, safety and ease of use of
our product candidates in comparison to the products of our
competitors. In addition, these companies may be more successful
than we are in developing, manufacturing and marketing their
imaging products. In addition, many of our competitors and their
collaborators have substantially greater capital, research and
development resources, manufacturing, sales and marketing
experience and capabilities. Smaller companies also may prove to
be significant competitors, particularly through proprietary
research discoveries and collaboration arrangements with large
pharmaceutical and established biotechnology companies. Our
competitors, either alone or with their collaborators, may
succeed in developing products that are more effective, safer,
more affordable or more easily administered than our product
candidates and may achieve patent protection or commercialize
product candidates sooner than us. Any inability to compete
successfully on our part will have a materially adverse impact
on our business and operating results.
If the
market does not accept our technology and product candidates, we
may not generate sufficient revenues to achieve or maintain
profitability.
The commercial success of our product candidates, even if
approved for marketing by the FDA and corresponding foreign
agencies, depends on their acceptance by the medical community
and third-party payors as clinically useful, cost-effective and
safe. Market acceptance, and thus sales of our products, will
depend on several factors, including:
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safety;
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cost-effectiveness relative to alternative therapies, methods or
products;
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availability of third-party reimbursement;
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ease of administration;
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clinical efficacy; and
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availability of competitive products.
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If any of our product candidates, when and if commercialized, do
not achieve market acceptance, we may not generate sufficient
revenues to achieve or maintain profitability.
In addition, market acceptance of our imaging product candidates
will also depend on our ability and that of our strategic
partners to educate the medical community and third-party payors
about the benefits of diagnostic imaging with Vasovist-enhanced
magnetic resonance angiography compared to imaging with other
technologies. While we believe that contrast agents are
currently used in an estimated 25% to 35% of all MRI exams,
there are no MRI agents approved by the FDA for vascular
imaging. Furthermore, clinical use of magnetic resonance
angiography has been limited and use of magnetic resonance
angiography for some vascular disease imaging has occurred
mainly in research and academic centers. Vasovist represents a
new approach to imaging the non-coronary vascular system, and
market acceptance both of magnetic resonance angiography as an
appropriate imaging technique for the non-coronary vascular
system, and of Vasovist, is critical to our success.
We may
not be able to keep up with the rapid technological change in
the biotechnology and pharmaceutical industries, which could
make any of our future approved therapeutic products obsolete
and reduce our revenue.
Biotechnology and related pharmaceutical technologies have
undergone and continue to be subject to rapid and significant
change. Our future will depend in large part on our ability to
maintain a competitive position with respect to these
technologies. We believe that our proprietary therapeutic
product discovery technology and approach enables
structure-based discovery and optimization of certain GPCR and
ion channel-targeted drug candidates. However, our competitors
may render our technologies obsolete by advances in existing
GPCR and ion channel-targeted drug discovery approaches or the
development of new or different approaches. In addition, any
future therapeutic products that we develop, including our
clinical-stage therapeutic product candidates, PRX-08066,
PRX-00023, PRX-03140 and PRX-07034, may become obsolete before
we recover expenses incurred in developing those therapeutic
product candidates, which may require that us to raise
additional funds to continue our operations.
We are
currently focusing our imaging development efforts primarily on
Vasovist and will have limited prospects for successful imaging
operations if it does not prove successful.
Since the merger with Predix, we are focusing our imaging
development efforts on our lead imaging product candidate,
Vasovist. Accordingly, we have decided to cease work on our
research projects related to imaging and are seeking a partner
to continue development of EP-2104R. We are no longer allocating
resources to any imaging research or clinical programs other
than the efforts required to continue to pursue FDA approval of
Vasovist. Our efforts may not lead to commercially successful
imaging products for a number of reasons, including the
inability to be proven safe and effective in clinical trials,
the lack of regulatory approvals or obtaining regulatory
approvals that are narrower than we seek, inadequate financial
resources to complete the development and commercialization of
our imaging product candidates or their lack of acceptance in
the marketplace.
Our
product candidates require significant biological testing,
pre-clinical testing, manufacturing and pharmaceutical
development expertise and investment. We rely primarily on
external partners to complete these activities.
We have limited in-house biological and pre-clinical testing
capabilities. Therefore, we rely heavily on third parties to
perform in vitro potency, in vivo functional
efficacy, animal toxicology and pharmacokinetics testing prior
to advancing our product candidates into clinical trials. We
also do not have internal expertise to formulate our therapeutic
product candidates. In addition, we do not have, nor do we
currently have plans to
38
develop, full-scale manufacturing capability for any of our
products candidates, including Vasovist. We currently rely on
Evotec Ltd., and Johnson Matthey Pharma Services for our
therapeutic product substance manufacturing and testing, and on
Aptuit, Inc. and Metrics, Inc. for our therapeutic product
manufacturing and testing. Although we believe that we could
replace these suppliers on commercially reasonable terms, if any
of these third parties fail to fulfill their obligations to us
or do not successfully compete the testing in a timely or
acceptable manner, our therapeutic product development efforts
could be negatively impacted
and/or
delayed. We rely on Tyco as the primary manufacturer of Vasovist
for any future human clinical trials and commercial use.
Together with Bayer Schering Pharma AG, Germany, we are
considering alternative manufacturing arrangements for Vasovist
for commercial use, including the transfer of manufacturing to
Bayer Schering Pharma AG, Germany Tyco currently manufactures
imaging agents for other technologies that will compete with
Vasovist. In the event that Tyco fails to fulfill its
manufacturing responsibilities satisfactorily, Bayer Schering
Pharma AG, Germany has the right to purchase Vasovist from a
third party or to manufacture the compound itself. However,
either course of action could materially delay the manufacture
and development of Vasovist. Bayer Schering Pharma AG, Germany
may not be able to find an alternative manufacturer. In
addition, Bayer Schering Pharma AG, Germany may not be able to
manufacture Vasovist itself in a timely manner or in sufficient
quantities. If we experience a delay in manufacturing of
Vasovist or any of our product candidates, it could result in a
delay in their clinical testing, approval or commercialization
and have a material adverse effect on our business, financial
condition and results of operations.
If we
are unable to attract and retain key management and other
personnel, it would hurt our ability to compete.
Our future business and operating results depend in significant
part upon our ability to attract and retain qualified directors,
senior management and key technical personnel. Michael G.
Kauffman, M.D., Ph.D., Andrew C.G.
Uprichard, M.D. and Kimberlee C. Drapkin, C.P.A., our Chief
Executive Officer, President and Chief Financial Officer,
respectively, are expected to play key roles moving forward.
There can be no assurance that we will be able to retain
Dr. Kauffman, Dr. Uprichard, Ms. Drapkin or any
of our other key management and scientific personnel. The loss
of any of our key management and other personnel, or their
failure to perform their current positions could have a material
adverse effect on our business, financial condition and results
of operations, and our ability to achieve our business
objectives or to operate or compete in our industry may be
seriously impaired. Competition for personnel is intense and we
may not be successful in attracting or retaining such personnel.
If we were to lose these employees to our competition, we could
spend a significant amount of time and resources to replace
them, which would impair our research and development or
commercialization efforts.
Gadolinium-based
imaging agents, such as Vasovist and EP-2104R, may cause adverse
side effects which could limit our ability to receive approval
for these product candidates and our ability to effectively
market these product candidates, if approved.
Vasovist and EP-2104R, both MRI contrast drugs, contain
gadolinium. In May 2006, the Danish Medicines Agency announced
that it was investigating a possible link between the use of
Omniscan, an imaging agent containing gadolinium, and the
development of a very rare skin disease in 25 patients with
severely impaired renal function who had been administered the
imaging agent. Although the Danish Medicines Agency stated that
a causal relationship between Omniscan and the skin changes had
not been documented, they are conducting further investigations
with respect to all MRI contrast media containing gadolinium.
Recent reports indicate that the disease also has developed
following the administration of two other gadolinium-containing
agents (OptiMARK and Magnevist), and has sometimes developed in
patients with moderate renal impairment following administration
of an agent. It also has been reported that the disease,
nephrogenic systemic fibrosis, may affect internal anatomy as
well as the skin. To date, over 200 cases have been reported
world-wide. The Danish Medicines Agency has stated that a
European committee on medicines safety has advised warnings
regarding the disease be added to all gadolinium agents, and
other agencies, including FDA and Health Canada, have issued
advisories regarding the use of gadolinium-containing agents in
patients with moderate to severely impaired renal function.
Although we have reviewed our safety databases for Vasovist and
EP-2104R and have found no instances of this rare disease, our
databases
39
may be too small to show such an effect, if it exists. In the
event gadolinium-based imaging agents such as Vasovist and
EP-2104R are linked to this very rare disease or other
unanticipated side effects, such safety concerns could have a
material adverse effect on our ability to obtain marketing
approval for Vasovist
and/or
EP-2104R or any such approval for use may be revoked. Any safety
concerns could also materially harm our and our partners
ability to successfully market Vasovist or EP-2104R.
Our
research and development efforts may not result in product
candidates appropriate for testing in human clinical
trials.
We have historically spent significant resources on research and
development and pre-clinical studies of product candidates.
However, these efforts may not result in the development of
product candidates appropriate for testing in human clinical
trials. For example, our research may result in product
candidates that are not expected to be effective in treating
diseases or may reveal safety concerns with respect to product
candidates. We may postpone or terminate research and
development of a product candidate or a program at any time for
any reason such as the safety or effectiveness of the potential
product, allocation of resources or unavailability of qualified
research and development personnel. The failure to generate
high-quality research and development candidates would
negatively impact our ability to advance product candidates into
human clinical testing and ultimately, negatively impact our
ability to market and sell products.
We
rely on third parties to conduct our clinical trials, and those
third-parties may not perform satisfactorily, including failing
to meet established deadlines for the completion of such
trials.
We do not have the ability to independently conduct clinical
trials for our product candidates, and we rely on third parties
such as contract research organizations, medical institutions
and clinical investigators to enroll qualified patients and
conduct our clinical trials. Our reliance on these third parties
for clinical development activities reduces our control over
these activities. Accordingly, these third-party contractors may
not complete activities on schedule, or may not conduct our
clinical trials in accordance with regulatory requirements or
our trial design. If our contract research organizations and
other similar entities with which we are working do not
successfully carry out their contractual duties or meet expected
deadlines, we may be required to replace them. Although we
believe that there are other third-party contractors we could
engage to continue these activities, it may result in a delay of
the affected trial. Accordingly, our efforts to obtain
regulatory approvals for and commercialize our product
candidates may be delayed.
If we
fail to get adequate levels of reimbursement from third-party
payors for our product candidates after they are approved in the
United States and abroad, we may have difficulty commercializing
our product candidates.
We believe that reimbursement in the future will be subject to
increased restrictions, both in the United States and in foreign
markets. We believe that the overall escalating cost of medical
products and services has led to, and will continue to lead to,
increased pressures on the health care industry, both foreign
and domestic, to reduce the cost of products and services,
including products offered by us. These third-party payors are
increasingly attempting to contain healthcare costs by demanding
price discounts or rebates and limiting both coverage on which
drugs they will pay for and the amounts that they will pay for
new products. As a result, they may not cover or provide
adequate payment for our products. We might need to conduct
post-marketing studies in order to demonstrate the
cost-effectiveness of any future products to such payors
satisfaction. Such studies might require us to commit a
significant amount of management time and financial and other
resources. Our future products might not ultimately be
considered cost-effective. There can be no assurance, in either
the United States or foreign markets, that third-party
reimbursement will be available or adequate, that current
reimbursement amounts will not be decreased in the future or
that future legislation, regulation, or reimbursement policies
of third-party payors will not otherwise adversely affect the
demand for our product candidates or our ability to sell our
product candidates on a profitable basis. The unavailability or
inadequacy of third-party payor coverage or reimbursement could
have a material adverse effect on our business, financial
condition and results of operations.
40
Failure by physicians, hospitals and other users of our product
candidate to obtain sufficient reimbursement from third-party
payors for the procedures in which our product candidate would
be used or adverse changes in governmental and private
third-party payors policies toward reimbursement for such
procedures may have a material adverse effect on our ability to
market our product candidate and, consequently, it could have an
adverse effect on our business, financial condition and results
of operations. If we obtain the necessary foreign regulatory
approvals, market acceptance of our product candidates in
international markets would be dependent, in part, upon the
availability of reimbursement within prevailing healthcare
payment systems. Reimbursement and healthcare payment systems in
international markets vary significantly by country, and include
both government sponsored health care and private insurance. We
and our strategic partners intend to seek international
reimbursement approvals, although we cannot assure you that any
such approvals will be obtained in a timely manner, if at all,
and failure to receive international reimbursement approvals
could have an adverse effect on market acceptance of our product
candidate in the international markets in which such approvals
are sought.
We could be adversely affected by changes in reimbursement
policies of governmental or private healthcare payors,
particularly to the extent any such changes affect reimbursement
for procedures in which our product candidates would be used.
U.S. and foreign governments continue to propose and pass
legislation designed to reduce the cost of healthcare. For
example, in some foreign markets, the government controls the
pricing of prescription pharmaceuticals. In the United States,
we expect that there will continue to be federal and state
proposals to implement similar governmental controls. In
addition, recent changes in the Medicare program and increasing
emphasis on managed care in the United States will continue to
put pressure on pharmaceutical product pricing. Cost control
initiatives could decrease the price that we would receive for
any products in the future, which would limit our revenue and
profitability. Accordingly, legislation and regulations
affecting the pricing of pharmaceuticals might change before our
product candidates are approved for marketing. Adoption of such
legislation could further limit reimbursement for
pharmaceuticals.
We
deal with hazardous materials and must comply with environmental
laws and regulations, which can be expensive and restrict how we
do business.
The nature of our research and development processes requires
the use of hazardous substances and testing on certain
laboratory animals. Accordingly, we are subject to extensive
federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air
emission, effluent discharge, handling and disposal of certain
materials and wastes as well as the use of and care for
laboratory animals. Although we are not currently, nor have we
been, the subject of any investigations by a regulatory
authority, we cannot assure you that we will not become the
subject of any such investigation. Although we believe that our
safety procedures for handling and disposing of these materials
comply with the standards prescribed by these laws and
regulations, we cannot eliminate the risk of accidental
contamination or injury from these materials.
In the event of an accident, state or federal authorities may
curtail our use of these materials and interrupt our business
operations. In addition, we could be liable for any civil
damages that result, which may exceed our financial resources
and may seriously harm our business. Due to the small amount of
hazardous materials that we generate, we have determined that
the cost to secure insurance coverage for environmental
liability and toxic tort claims far exceeds the benefits.
Accordingly, we do not maintain any insurance to cover pollution
conditions or other extraordinary or unanticipated events
relating to our use and disposal of hazardous materials.
Additionally, an accident could damage, or force us to shut
down, our operations. In addition, if we develop a manufacturing
capacity, we may incur substantial costs to comply with
environmental regulations and would be subject to the risk of
accidental contamination or injury from the use of hazardous
materials in our manufacturing process. Furthermore, current
laws could change and new laws could be passed that may force us
to change our policies and procedures, an event which could
impose significant costs on us.
Product
liability claims could increase our costs and adversely affect
our results of operations.
The clinical testing of our products and the manufacturing and
marketing of any approved products may expose us to product
liability claims and we may experience material product
liability losses in the future. We
41
currently have limited product liability insurance for the use
of our approved products and product candidates in clinical
research, which is capped at $10.0 million, but our
coverage may not continue to be available on terms acceptable to
us or adequate for liabilities we actually incur. We do not have
product liability insurance coverage for the commercial sale of
our product candidates, but intend to obtain such coverage when
and if we commercialize our product candidates. However, we may
not be able to obtain adequate additional product liability
insurance coverage on acceptable terms, if at all. A successful
claim brought against us in excess of available insurance
coverage, or any claim or product recall that results in
significant adverse publicity against us, may have a material
adverse effect on our business and results of operations.
Political
and military instability and other factors may adversely affect
our operations in Israel.
We have significant operations in Israel and regional
instability, military conditions, terrorist attacks, security
concerns and other factors in Israel may directly affect these
operations. Our employees in Israel are primarily computational
chemists and are responsible for the computational chemistry for
all of our therapeutic discovery stage programs. Accordingly,
any disruption in our Israeli operations could adversely affect
our ability to advance our therapeutic discovery stage programs
into clinical trials. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have taken place
between Israel and its Arab neighbors. A state of hostility,
varying in degree and intensity, has led to security and
economic problems for Israel, and in particular since 2000,
there has been an increased level of violence between Israel and
the Palestinians. Any armed conflicts or political instability
in the region could harm our operations in Israel. In addition,
many of our employees in Israel are obligated to perform annual
military reserve duty, and, in the event of a war, military or
other conflict, our employees could be required to serve in the
military for extended periods of time. Our operations could be
disrupted by the absence for a significant period of time of one
or more of our key employees or a significant number of our
other employees due to military service. Furthermore, several
countries restrict business with Israel and Israeli companies,
and these restrictive laws and policies could harm our business.
Intellectual
Property Risks
We
depend on patents and other proprietary rights, and if they fail
to protect our business, we may not be able to compete
effectively.
The protection of our proprietary technologies is material to
our business prospects. We pursue patents for our product
candidates in the United States and in other countries where we
believe that significant market opportunities exist. We own or
license patents and patent applications on aspects of our core
technology as well as many specific applications of this
technology. As of March 8, 2007, our patent portfolio
included a total of 18 issued U.S. patents, 113 issued
foreign patents, two allowed U.S. patent awaiting issuance,
and 233 pending patent applications in the U.S. and other
countries with claims covering the composition of matter and
methods of use for all of our clinical-stage product candidates.
We also exclusively license technology embodied in patent
applications from Ramot at Tel Aviv University Ltd., the
technology transfer company of Tel Aviv University. Physiome
Sciences, Inc., a predecessor of Predix, received
U.S. Patent 5,947,899, which covers a computational system
and method for modeling the heart. This patent expires in 2016.
Even though we hold numerous patents and have made numerous
patent applications, because the patent positions of
pharmaceutical and biopharmaceutical firms, including our patent
positions, generally include complex legal and factual
questions, our patent positions remain uncertain. For example,
because most patent applications are maintained in secrecy for a
period after filing, we cannot be certain that the named
applicants or inventors of the subject matter covered by our
patent applications or patents, whether directly owned or
licensed to us, were the first to invent or the first to file
patent applications for such inventions. Third parties may
oppose, challenge, infringe upon, circumvent or seek to
invalidate existing or future patents owned by or licensed to
us. A court or other agency with jurisdiction may find our
patents invalid, not infringed or unenforceable and we cannot be
sure that patents will be granted with respect to any of our
pending patent applications or with respect to any patent
applications filed by us in the future. Even if we have valid
patents, these patents still may not provide sufficient
protection against competing products or processes. If we are
unable to successfully protect our proprietary methods and
technologies, or if our patent applications do not result in
issued patents,
42
we may not be able to prevent other companies from practicing
our technology and, as a result, our competitive position may be
harmed.
We
depend on exclusively licensed technology from Ramot at Tel Aviv
University Ltd. and Massachusetts General Hospital and, if we
lose either of these licenses, it is unlikely we could obtain
such technology elsewhere, which would have a material adverse
effect on our business.
Our proprietary drug discovery technology and approach is in
part embodied in technology that we license from Ramot at Tel
Aviv University Ltd., the technology transfer company of Tel
Aviv University. All of our current clinical-stage therapeutic
drug candidates, PRX-00023, PRX-03140, PRX-08066 and PRX-07034,
were, at least in part, identified, characterized or developed
using the licensed technology. We are required to make various
payments to Ramot, as and when rights to any such drug
candidates are ever sublicensed or any such drug candidates are
commercialized. Because we have an ongoing obligation to pay
annual minimum royalties to Ramot and the license expires upon
the expiration of such obligation, the license may not expire.
The license may, however, be terminated upon a breach by us or
our bankruptcy. In addition, under the terms of a license
agreement that we have with MGH, we are the exclusive licensee
to certain imaging technology, which relates to royalties we
receive and to Vasovist. The license agreement imposes various
commercialization, sublicensing, royalty and other obligations
on us. The license agreement expires on a
country-by-country
basis when the patents covered by the license agreement expire.
The majority of these patents expired in November 2006. One of
these patents has been extended through Supplementary Protection
Certificates for Primovist through May 2011 in certain European
countries. The license agreement does not contain a renewal
provision. If we fail to comply with our obligations under
either of these license agreements, the respective license could
convert from exclusive to nonexclusive, or terminate entirely.
It is unlikely that we would be able to obtain the technology
licensed under either of these agreements elsewhere. Any such
event would also mean that, with respect to our MGH license, we
would not receive royalties from Bracco for MultiHance or Bayer
Schering Pharma AG, Germany for Primovist and that we or Bayer
Schering Pharma AG, Germany could not sell Vasovist and, with
respect to our Ramot license, that we would not be able to
sublicense or commercialize any of our current clinical- stage
therapeutic drug candidate, either of which would have a
material adverse effect on our business and our financial
condition and results of operations.
We may
need to initiate lawsuits to protect or enforce our patents and
other intellectual property rights, which could result in our
incurrence of substantial costs and which could result in the
forfeiture of these rights.
We may need to bring costly and time-consuming litigation
against third parties in order to enforce our issued or licensed
patents, protect our trade secrets and know how, or to determine
the enforceability, scope and validity of proprietary rights of
others. In addition to being costly and time-consuming, such
lawsuits could divert managements attention from other
business concerns. These lawsuits could also result in the
invalidation or a limitation in the scope of our patents or
forfeiture of the rights associated with our patents or pending
patent applications. We may not prevail and a court may find
damages or award other remedies in favor of an opposing party in
any such lawsuits. During the course of these suits, there may
be public announcements of the results of hearings, motions and
other interim proceedings or developments in the litigation.
Securities analysts or investors may perceive these
announcements to be negative, which could cause the market price
of our stock to decline. In addition, the cost of such
litigation could have a material adverse effect on our business
and financial condition.
Other
rights and measures that we rely upon to protect our
intellectual property may not be adequate to protect our
products and services and could reduce our ability to compete in
the market.
In addition to patents, we rely on a combination of trade
secrets, copyright and trademark laws, non-disclosure agreements
and other contractual provisions and technical measures to
protect our intellectual property rights. While we require
employees, collaborators, consultants and other third parties to
enter into confidentiality
and/or
non-disclosure agreements, where appropriate, any of the
following could still occur:
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the agreements may be breached;
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we may have inadequate remedies for any breach;
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proprietary information could be disclosed to our
competitors; or
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others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access
to our trade secrets or disclose such technologies.
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If, as a result of the foregoing or otherwise, our intellectual
property is disclosed or misappropriated, it would harm our
ability to protect our rights and our competitive position.
Moreover, several of our management and scientific personnel
were formerly associated with other pharmaceutical and
biotechnology companies and academic institutions. In some
cases, these individuals are conducting research in similar
areas with which they were involved prior to joining us. As a
result, we, as well as these individuals, could be subject to
claims of violation of trade secrets and similar claims.
Our
success will depend partly on our ability to operate without
infringing the intellectual property rights of others, and if we
are unable to do so, we may not be able to sell our
products.
Our commercial success will depend, to a significant degree, on
our ability to operate without infringing upon the patents of
others in the United States and abroad. There may be pending or
issued patents held by parties not affiliated with us relating
to technologies we use in the development or use of certain of
our contrast agents. If any judicial or administrative
proceeding upholds these or any third-party patents as valid and
enforceable, we could be prevented from practicing the subject
matter claimed in such patents, or would be required to obtain
licenses from the owners of each such patent, or to redesign our
product candidates or processes to avoid infringement. For
example, in November 2003, we entered into an intellectual
property agreement with Dr. Martin R. Prince relating to
dynamic magnetic resonance angiography. Under the
terms of the intellectual property agreement, Dr. Prince
granted us certain discharges, licenses and releases in
connection with the historic and future use of Vasovist by us
and agreed not to sue us for intellectual property infringement
related to the use of Vasovist. We were required to pay an
upfront fee of $850,000, royalties on sales of Vasovist and
approximately 88,000 shares of our common stock with a
value of approximately $2.3 million based on the closing
price of our common stock on the date of the agreement. In
addition, we agreed to supply Dr. Prince with approximately
$140,000 worth of Vasovist annually throughout the patent life
of Vasovist. We cannot assure you that we will be able to enter
into additional licenses if required in the future. If we are
unable to obtain a required license on acceptable terms, or are
unable to design around these or any third-party patents, we may
be unable to sell our products, which would have a material
adverse effect on our business.
If MRI
manufacturers are not able to enhance their hardware and
software sufficiently, we will not be able to complete
development of our contrast agent for the evaluation of cardiac
indications.
Although MRI hardware and software is sufficient for the
evaluation of non-coronary vascular disease, which is our
initial target indication, we believe that the technology is not
as advanced for cardiac applications. Our initial NDA filing for
Vasovist is related to non-coronary vascular disease. Based on
feasibility studies we completed in 2001, however, the imaging
technology available for cardiac applications, including
coronary angiography and cardiac perfusion imaging, was not
developed to the point where there was clear visualization of
the cardiac region due to the effects of motion from breathing
and from the beating of the heart. In 2004, we initiated
Phase 2 feasibility trials of Vasovist for cardiac
indications using available software and hardware that can be
adapted for coronary and cardiac perfusion data acquisition, and
preliminary review of the data indicates that we have not
resolved the technical issues related to this use of Vasovist.
We have collaborated with a number of leading academic
institutions and with GE Healthcare, Siemens Medical Systems and
Philips Medical Systems to help optimize cardiac imaging with
Vasovist. We do not know when, or if, these techniques will
enable Vasovist to provide clinically relevant images in cardiac
indications. If MRI device manufacturers are not able to enhance
their scanners to perform clinically useful cardiac imaging, we
will not be able to complete our development activities of
Vasovist for that application, thereby reducing the potential
market for a product in this area.
44
Risks
Related to our Securities
Our
stock price is volatile, which could subject us to securities
class action litigation.
The market prices of the capital stock of medical technology
companies have historically been very volatile and the market
price of the shares of our common stock fluctuates. The market
price of our common stock is affected by numerous factors,
including:
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actual or anticipated fluctuations in our operating results;
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announcements of technological innovation or new commercial
products by us or our competitors;
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new collaborations entered into by us or our competitors;
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developments with respect to proprietary rights, including
patent and litigation matters;
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results of pre-clinical studies and clinical trials;
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the timing of our achievement of regulatory milestones;
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conditions and trends in the pharmaceutical and other technology
industries;
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adoption of new accounting standards affecting such industries;
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changes in financial estimates by securities analysts;
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perceptions of the value of corporate transactions; and
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degree of trading liquidity in our common stock and general
market conditions.
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Since the closing of our merger with Predix and our 1 for
1.5 share reverse stock split on August 16, 2006, the
closing price of our common stock ranged from $3.80 to
$7.58 per share. The last reported closing price for our
common stock on March 19, 2007 was $6.32. Significant
declines in the price of our common stock could impede our
ability to obtain additional capital, attract and retain
qualified employees and reduce the liquidity of our common stock.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly
affected the market prices for the common stock of similarly
staged companies. These broad market fluctuations may adversely
affect the market price of our common stock. In the past,
following periods of volatility in the market price of a
particular companys securities, shareholders have often
brought class action securities litigation against that company.
Such litigation could result in substantial costs and a
diversion of managements attention and resources. For
example, in January 2005, a securities class action was filed in
U.S. District Court for the District of Massachusetts
against us and certain of our officers on behalf of persons who
purchased our common stock between July 10, 2003 and
January 14, 2005. The complaint alleged that we and the
other defendants violated the Securities Exchange Act of 1934,
as amended, by issuing a series of materially false and
misleading statements to the market throughout the class period,
which statements had the effect of artificially inflating the
market price of our securities. In January 2006, the
U.S. District Court for the District of Massachusetts
granted our Motion to Dismiss for Failure to Prosecute the
shareholder class action lawsuit against us. The dismissal was
issued without prejudice after a hearing, which dismissal does
not prevent another suit to be brought based on the same claims.
We
significantly increased our leverage as a result of the sale of
3.0% Convertible Senior Notes due 2024, and may be unable to
repay, repurchase or redeem these notes if, and when,
required.
In connection with the sale of 3.0% Convertible Senior
Notes due 2024, we have incurred indebtedness of
$100.0 million. Each $1,000 of senior notes is convertible
into 22.39 shares of our common stock representing a
conversion price of approximately $44.66 per share. Our ability
to meet our debt service obligations will depend upon our future
performance, which will be subject to regulatory approvals and
sales of our products, as well as other financial and business
factors affecting our operations, many of which are beyond our
control. The amount of our indebtedness could, among other
things:
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make it difficult for us to make payments on the notes;
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make it difficult for us to obtain financing for working
capital, acquisitions or other purposes on favorable terms, if
at all;
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make us more vulnerable to industry downturns and competitive
pressures; and
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limit our flexibility in planning for, or reacting to changes
in, our business.
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In addition, although our 3.0% Convertible Senior Notes do
not mature until 2024, noteholders may require us to repurchase
these notes at par, plus accrued and unpaid interest, on
June 15, 2011, 2014 and 2019 and upon certain other
designated events under the notes, which include a change of
control of us or termination of trading of our common stock on
the NASDAQ Global Market. The definition of change in control
set forth in the indenture governing the notes does not include
certain mergers and similar transactions that are not deemed a
change in control. While we believe that our merger with Predix
did not constitute a change of control of us under the
indenture, we cannot assure you that we will not become
obligated to repurchase these notes, in whole or in part, as a
result of the merger. Based on the current trading price of our
common stock, we anticipate that in such event most, if not all,
of the noteholders would tender their notes for repurchase. We
may not have enough funds or be able to arrange for additional
financing to repurchase the notes tendered by the holders upon a
designated event or otherwise. Any failure to repurchase
tendered notes would constitute an event of default under the
indenture, which might also constitute a default under the terms
of our other debt. If we are required to repurchase or redeem
these notes prior to their maturity, whether as a result of the
merger or otherwise, the financial position of the combined
company would be materially adversely affected and the
anticipated benefits of the merger would be significantly
diminished.
Future
sales of common stock by our existing stockholders and former
security holders of Predix may cause the stock price of our
common stock to fall.
The market price of our common stock could decline as a result
of sales by our existing stockholders and former Predix
stockholders in the market, or the perception that these sales
could occur. These sales might also make it more difficult for
us to sell equity securities at an appropriate time and price.
Certain
anti-takeover clauses in our charter and by-laws and in Delaware
law may make an acquisition of us more difficult.
Our restated certificate of incorporation authorizes our board
of directors to issue, without stockholder approval, up to
1,000,000 shares of preferred stock with voting, conversion
and other rights and preferences that could adversely affect the
voting power or other rights of the holders of our common stock.
The issuance of preferred stock or of rights to purchase
preferred stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of
preferred stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of our common
stock or limit the price that investors might be willing to pay
for shares of our common stock. Our restated certificate of
incorporation provides for staggered terms for the members of
our board of directors. A staggered board of directors and
certain provisions of our by-laws and of the state of Delaware
law applicable to us could delay or make more difficult a
merger, tender offer or proxy contest involving us. We are
subject to Section 203 of the General Corporation Law of
the State of Delaware, which, subject to certain exceptions,
restricts certain transactions and business combinations between
a corporation and a stockholder owning 15% or more of the
corporations outstanding voting stock for a period of
three years from the date the stockholder becomes an interested
stockholder. These provisions may have the effect of delaying or
preventing a change in control of us without action by the
stockholders and, therefore, could adversely affect the price of
our stock.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
We lease a total of 57,303 square feet of space at the 4
Maguire Road Lexington, Massachusetts location,
23,921 square feet of space at 71 Rogers Street Cambridge,
Massachusetts and 9,203 square feet of space at
3 Hayetzira Street, Ramat Gan, Israel location. The current
lease at 4 Maguire Road expires October 2013. The current lease
at 71 Rogers Street expires December 31, 2007 and we do not
expect to renew this lease.
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The current lease at 3 Hayetzira Street, Israel expires
October 14, 2007. We believe that our current facilities
are adequate to meet our needs until the expiration of the
leases.
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ITEM 3.
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LEGAL
PROCEEDINGS
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From time to time we are a party to various legal proceedings
arising in the ordinary course of our business. The outcome of
litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to us.
Intellectual property disputes often have a risk of injunctive
relief which, if imposed against us, could materially and
adversely affect our financial condition, or results of
operations. From time to time, third parties have asserted and
may in the future assert intellectual property rights to
technologies that are important to our business and have
demanded and may in the future demand that we license their
technology.
The SEC is conducting an informal inquiry into our stock option
grants and practices and related accounting. We could be
required to pay significant fines or penalties resulting from
the inquiry.
On December 8, 2006, we created a special board committee
of independent directors to conduct a review of our historical
stock option practices. The special committee has completed its
investigation and has concluded that certain employees,
including certain members of our former senior management, prior
to the change in our senior management in connection with the
merger with Predix Pharmaceuticals Holdings, Inc. on
August 16, 2006, had retrospectively selected dates for the
grant of certain stock options and re-priced, as defined by
financial accounting standards, certain options during the
period from 1997 through 2005. As a result of this review, we
restated our financial statements to record additional non-cash
stock-based compensation expense, and related payroll tax
effects, with regard to certain past stock option grants. Our
past stock option practices and the restatement of our prior
financial statements expose us to greater risks associated with
litigation, regulatory, or other proceedings, as a result of
which we could be found liable for damages, fines or other civil
or other remedies or remedial actions, or be required to further
restate prior period financial statements or adjust current
period financial statements. In addition, considerable legal and
accounting expenses related to these matters have been incurred
to date and significant expenditures may continue to be incurred
in the future.
Due to the special committee investigation and the resulting
restatement, we did not file on time this Annual Report on
Form 10-K.
As a result, we received a NASDAQ Staff Determination letter,
dated April 3, 2007, stating that we were not in compliance
with the filing requirements of Marketplace
Rule 4310(c)(14) and, therefore, that our stock was subject
to delisting from the NASDAQ Global Market. We have filed a
notice and requested a hearing before a NASDAQ Listing
Qualifications Panel.
In addition, although our 3.0% Convertible Senior Notes do not
mature until 2024, noteholders may require us to repurchase
these notes at par, plus accrued and unpaid interest, on
June 15, 2011, 2014 and 2019 and upon certain other
designated events including, but not limited to, the termination
of trading of our common stock on the NASDAQ Global Market.
With the filing of this Annual Report on
Form 10-K,
we believe we have returned to full compliance with SEC
reporting requirements and NASDAQ listing requirements. However,
we cannot predict whether the SEC will review this Annual Report
on
Form 10-K
and, if so, whether the SEC will have comments on this Annual
Report on
Form 10-K
(or other reports that we previously filed) that may require us
to file amended reports with the SEC. In addition, we cannot
predict whether the NASDAQ Listing Qualifications Panel will
concur that we are in compliance with all relevant listing
requirements. If either of these events occur, we might be
unable to remain in compliance with SEC reporting requirements
and NASDAQ listing requirements, and, therefore, we might be
unable to maintain an effective listing of our common stock on
the NASDAQ Global Market or any other national securities
exchange.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the quarter ended December 31, 2006.
47
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Performance
Graph
The graph below compares the cumulative total stockholder return
on the shares of common stock of the Company for the period from
December 31, 2001 through December 31, 2006, with the
cumulative total return of the Nasdaq Market Index (U.S.) and
the Nasdaq Pharmaceutical Index over the same period (assuming
the investment of $100 in the Companys common stock on
December 31, 2001 and the reinvestment of all dividends).
This graph is not soliciting material, is not deemed
filed with the Securities and Exchange Commission and is not to
be incorporated by reference in any filing of the Company under
the Securities Act or the Exchange Act, whether made before or
after the date hereof and irrespective of any general statement
incorporating by reference this Annual Report on
Form 10-K
in its entirety, except to the extent that the Company
specifically incorporates this graph or a potion of it by
reference.
COMPARISON
OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG EPIX PHARMACEUTICALS, INC.,
NASDAQ MARKET INDEX AND NASDAQ PHARMACEUTICAL INDEX
ASSUMES
$100 INVESTED ON JAN. 1, 2002
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2006
Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
EPIX PHARMACEUTICALS, INC.
|
|
|
|
100.00
|
|
|
|
|
50.59
|
|
|
|
|
113.93
|
|
|
|
|
125.33
|
|
|
|
|
28.27
|
|
|
|
|
32.19
|
|
NASDAQ MARKET INDEX (U.S.)
|
|
|
|
100.00
|
|
|
|
|
69.97
|
|
|
|
|
106.36
|
|
|
|
|
115.98
|
|
|
|
|
120.15
|
|
|
|
|
134.00
|
|
NASDAQ PHARMACEUTICAL STOCKS
|
|
|
|
100.00
|
|
|
|
|
61.63
|
|
|
|
|
88.91
|
|
|
|
|
96.09
|
|
|
|
|
105.97
|
|
|
|
|
106.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Common Stock is listed on The NASDAQ Global Market under the
symbol EPIX. All prices reflect our 1 for
1.5 share reverse stock split effected on August 16,
2006 in connection with the closing of our merger with Predix.
Due to the special committee investigation of our historical
stock option practices (see Item 3 Legal
Proceedings) and the resulting restatement (see Note 3,
Restatement of Consolidated Financial Statements,
48
to Consolidated Financial Statements), we did not file our
Annual Report on Form 10-K with the SEC on time and therefore
the Companys stock is subject to delisting from the NASDAQ
Global Market. With the filing of this Report, we believe we
have returned to full compliance with SEC reporting requirements
and NASDAQ listing requirements (See Item 1A Risk
Factors).
The following table sets forth, for the periods indicated, the
range of the high and low bid prices for our Common Stock as
reported on The NASDAQ Global Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2005
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
27.27
|
|
|
$
|
10.20
|
|
Second Quarter
|
|
|
14.70
|
|
|
|
9.39
|
|
Third Quarter
|
|
|
16.19
|
|
|
|
10.61
|
|
Fourth Quarter
|
|
|
12.71
|
|
|
|
5.67
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
7.76
|
|
|
|
5.00
|
|
Second Quarter
|
|
|
7.25
|
|
|
|
4.05
|
|
Third Quarter
|
|
|
8.35
|
|
|
|
4.05
|
|
Fourth Quarter
|
|
|
8.75
|
|
|
|
3.50
|
|
The above quotations reflect inter-dealer prices without retail
mark-up,
markdown or commission and may not necessarily represent actual
transactions.
On March 19, 2007, the last reported price for the common
stock was $6.32 per share. As of March 19, 2007, there were
160 holders of record of the 32,597,971 outstanding shares of
Common Stock. To date, we have neither declared nor paid any
cash dividends on shares of our Common Stock and do not
anticipate doing so for the foreseeable future.
During the quarter ended December 31, 2006, there were no
repurchases made by us or on our behalf, or by any
affiliated purchaser, of shares of our common stock.
EQUITY
COMPENSATION PLAN INFORMATION
We maintain the following three equity compensation plans under
which our equity securities are authorized for issuance to our
employees
and/or
directors: Amended and Restated 1992 Equity Incentive Plan;
Amended and Restated 1996 Director Stock Option Plan; and
Amended and Restated 2003 Stock Incentive Plan. The following
table represents information about these plans as of
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(C)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column (A))
|
|
|
Equity compensation plans approved
by security holders
|
|
|
1,931,894
|
|
|
$
|
11.49
|
|
|
|
1,251,295
|
|
Equity compensation plans not
approved by security holders(1)
|
|
|
1,495,213
|
|
|
$
|
1.51
|
|
|
|
1,120,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,427,107
|
|
|
$
|
7.14
|
|
|
|
2,372,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the Predix Pharmaceuticals Holdings, Inc. Amended and
Restated 2003 Stock Incentive Plan assumed in our 2006 merger
with Predix. |
49
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The information presented in the following tables has been
adjusted to reflect the restatement of the companys
financial results, which is more fully described in Note 3,
Restatement of Consolidated Financial Statements in
the Notes to the Consolidated Financial Statements of this
Form 10-K.
The consolidated statements of operations for the fiscal years
ended December 31, 2003 and 2002 have been restated to
reflect the impact of stock-based compensation adjustments. In
thousands, except per share data.
The information below should be read in conjunction with the
consolidated financial statements (and notes thereon) and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in
Item 7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004
|
|
|
2003(3)
|
|
|
2002(3)
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,041
|
|
|
$
|
7,190
|
|
|
$
|
12,259
|
|
|
$
|
13,525
|
|
|
$
|
12,269
|
|
Operating loss
|
|
|
(157,668
|
)
|
|
|
(21,760
|
)
|
|
|
(22,351
|
)
|
|
|
(26,008
|
)
|
|
|
(22,282
|
)
|
Net loss
|
|
|
(157,393
|
)
|
|
|
(21,269
|
)
|
|
|
(22,621
|
)
|
|
|
(25,720
|
)
|
|
|
(21,657
|
)
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted(2)
|
|
|
20,789
|
|
|
|
15,505
|
|
|
|
15,259
|
|
|
|
12,704
|
|
|
|
11,252
|
|
Net loss per share, basic and
diluted(2)
|
|
$
|
(7.57
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(1.48
|
)
|
|
$
|
(2.02
|
)
|
|
$
|
(1.92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
marketable securities
|
|
$
|
109,543
|
|
|
$
|
124,728
|
|
|
$
|
164,440
|
|
|
$
|
79,958
|
|
|
$
|
28,112
|
|
Total assets
|
|
|
125,027
|
|
|
|
130,716
|
|
|
|
171,287
|
|
|
|
81,875
|
|
|
|
30,155
|
|
Long-term liabilities
|
|
|
120,066
|
|
|
|
100,756
|
|
|
|
101,210
|
|
|
|
4,331
|
|
|
|
7,829
|
|
|
|
|
(1) |
|
The company merged with Predix on August 16, 2006. Current
year includes a charge of $123.5 million for acquired
in-process research and development related to the merger. |
|
(2) |
|
All share and per share information has been retroactively
restated to reflect a 1.5 to 1 reverse stock split on
August 16, 2006. |
|
(3) |
|
The following adjusts the companys statements of
operations for the years ended December 31, 2003 and 2002
for the restatement as described in Note 3 of the
Consolidated Financial Statements (in thousands except per share
data). |
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2002
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
9,534
|
|
|
$
|
|
|
|
$
|
9,534
|
|
|
$
|
8,716
|
|
|
$
|
|
|
|
$
|
8,716
|
|
Royalty revenue
|
|
|
2,398
|
|
|
|
|
|
|
|
2,398
|
|
|
|
1,560
|
|
|
|
|
|
|
|
1,560
|
|
License fee revenue
|
|
|
1,593
|
|
|
|
|
|
|
|
1,593
|
|
|
|
1,993
|
|
|
|
|
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
13,525
|
|
|
|
|
|
|
|
13,525
|
|
|
|
12,269
|
|
|
|
|
|
|
|
12,269
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
28,024
|
|
|
|
2,797
|
|
|
|
30,821
|
|
|
|
29,084
|
|
|
|
(179
|
)
|
|
|
28,905
|
|
General and administrative
|
|
|
6,584
|
|
|
|
2,128
|
|
|
|
8,712
|
|
|
|
6,001
|
|
|
|
(355
|
)
|
|
|
5,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
34,608
|
|
|
|
4,925
|
|
|
|
39,533
|
|
|
|
35,085
|
|
|
|
(534
|
)
|
|
|
34,551
|
|
Operating loss
|
|
|
(21,083
|
)
|
|
|
(4,925
|
)
|
|
|
(26,008
|
)
|
|
|
(22,816
|
)
|
|
|
534
|
|
|
|
(22,282
|
)
|
Other income, net
|
|
|
368
|
|
|
|
|
|
|
|
368
|
|
|
|
719
|
|
|
|
|
|
|
|
719
|
|
Income taxes
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,795
|
)
|
|
$
|
(4,925
|
)
|
|
$
|
(25,720
|
)
|
|
$
|
(22,191
|
)
|
|
$
|
534
|
|
|
$
|
(21,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted(1)
|
|
|
12,704
|
|
|
|
|
|
|
|
12,704
|
|
|
|
11,252
|
|
|
|
|
|
|
|
11,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted(1)
|
|
$
|
(1.64
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(2.02
|
)
|
|
$
|
(1.97
|
)
|
|
$
|
0.05
|
|
|
$
|
(1.92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All share and per share information has been retroactively
restated to reflect a 1.5 to 1 reverse stock split on
August 16, 2006. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The information contained in this section has been derived from
our consolidated financial statements and should be read
together with our consolidated financial statements and related
notes included elsewhere in this Annual Report on
Form 10-K.
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 and Exchange act of 1934, as
amended, and are subject to the safe harbor created
by those sections. Some of the forward-looking statements can be
identified by the use of forward-looking terms such as
believes, expects, may,
will, should, seek,
intends, plans, estimates,
anticipates, or other comparable terms.
Forward-looking statements involve inherent risks and
uncertainties. A number of important factors could cause actual
results to differ materially from those in the forward-looking
statements. We urge you to consider the risks and uncertainties
discussed in greater detail under the heading Risk
Factors in evaluating our forward-looking statements. We
have no plans to update our forward-looking statements to
reflect events or circumstances after the date of this report.
We caution readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made.
Overview
We are a biopharmaceutical company focused on discovering,
developing and commercializing novel pharmaceutical products to
better diagnose, treat and manage patients. We have four
therapeutic product candidates in clinical trials targeting
conditions such as depression, Alzheimers disease,
cardiovascular disease and obesity. In addition, we have two
imaging agents in various stages of clinical development. Our
blood-pool imaging agent, Vasovist, is approved for marketing in
the European Union, Canada, Iceland, Norway,
51
Switzerland and Australia, and is currently marketed in Europe.
We also have collaborations with SmithKline Beecham Corporation
(GlaxoSmithKline), Amgen, Inc., Cystic Fibrosis Foundation
Therapeutics Incorporated, and Bayer Schering Pharma AG, Germany
(formerly known as Schering AG).
The focus of our therapeutic drug discovery and development
efforts is on the two classes of drug targets known as G-protein
Coupled Receptors, or GPCRs, and ion channels. GPCRs and ion
channels are classes of proteins embedded in the surface
membrane of all cells and are responsible for mediating much of
the biological signaling at the cellular level. We believe that
our proprietary drug discovery technology and approach addresses
many of the inefficiencies associated with traditional GPCR and
ion channel-targeted drug discovery. By integrating
computer-based, or in silico, technology with in-house
medicinal chemistry, we believe that we can rapidly identify and
optimize highly selective drug candidates. We focus on GPCR and
ion channel drug targets whose role in disease has already been
demonstrated in clinical trials or in preclinical studies. In
each of our four clinical-stage therapeutic programs, we used
our drug discovery technology and approach to optimize a lead
compound into a clinical drug candidate in less than ten months,
synthesizing fewer than 80 compounds per program. We moved each
of these drug candidates into clinical trials in less than
18 months from lead identification. We believe our drug
discovery technology and approach enables us to efficiently and
cost-effectively discover and develop GPCR and ion
channel-targeted drugs.
On August 16, 2006, we completed our acquisition of Predix
Pharmaceuticals Holdings, Inc. (Predix) pursuant to
the terms of that certain Agreement and Plan of Merger, dated as
of April 3, 2006 as amended on July 10, 2006, by and
among us, EPIX Delaware, Inc., our wholly-owned subsidiary, and
Predix, as amended. Pursuant to the merger agreement, Predix
merged with and into EPIX Delaware, Inc. and became a
wholly-owned subsidiary of us. The merger with Predix was
primarily a stock transaction valued at approximately
$125.0 million, including the assumption of net debt at
closing. As part of the merger, we also assumed all outstanding
options and warrants to purchase capital stock of Predix. The
purchase price includes a $35.0 million milestone payment
to the holders of Predix stock, options and warrants payable in
cash, stock or a combination of both. Pursuant to the terms of
the merger agreement, $20.0 million of the milestone was
paid in cash on October 29, 2006. The remaining
$15.0 million of the milestone payment will be paid
primarily in shares of EPIX common stock on October 29,
2007, except to the extent that such shares would cause the
former Predix shareholders, warrantholders and optionholders to
receive more than 49.99% of outstanding shares measured as of
the closing date immediately after such milestone payment when
combined with all shares of EPIX common stock issued in the
merger and issuable upon exercise of all Predix options and
warrants that we assumed in the merger. The portion of the
$15.0 million milestone that cannot be paid in shares will
be paid in cash with interest accrued at a rate of 10%. In
addition, in connection with the merger, we effected a
1-for-1.5
reverse stock split of our outstanding common stock.
The following information has been adjusted to reflect the
restatement of our financial results, which is more fully
described in Note 3, Restatement of Consolidated
Financial Statements in the Notes to the Consolidated
Financial Statements of this
Form 10-K.
The impact of the restatement on our net loss was a decrease in
the loss of $3.0 million in 2005 and an increase in the net
loss of $2.2 million in 2004.
The adjustments did not affect our previously reported revenue,
cash, cash equivalents or marketable securities balances in any
of the restated periods. The adjustments relate exclusively to
stock option practices that predate the merger between us and
Predix. We believe that our current procedures, controls and
accounting practices ensure that the granting and exercising of
options are executed in accordance with our stock option plan
requirements and accounted for in accordance with Generally
Accepted Accounting Principles.
Previously filed annual reports on
Form 10-K,
Form 10-K/A
and quarterly reports on
Form 10-Q
affected by the restatement have not been amended and should not
be relied on.
Findings
of the Stock Option Review
On December 8, 2006, our board of directors formed a
special committee of the board comprised solely of independent
directors who had not served on our board prior to the merger
with Predix in August 2006. The purpose of the special committee
was to investigate matters relating to our stock option grants.
The
52
special committee has completed its investigation, having
investigated both matters relating to the exercise of stock
options by our former executive officers and other employees as
well as our historical stock option granting practices. During
its investigation, the special committee retained outside legal
counsel to assist it in its investigation. In turn, legal
counsel retained forensic accounting consultants to assist it
and the special committee with accounting matters in connection
with the investigation. The investigation conducted by the
special committee consisted, in part, of the review of
voluminous hard copy and electronic files obtained from us as
well as from other sources (totaling approximately
2 million documents). In addition, interviews of
twenty-four of our current and former officers, directors, and
employees and other persons (totaling 32 separate interviews)
were conducted in the course of the investigation.
From our initial public offering through March 2005, our option
grant processes and procedures were not consistently followed.
Option grants during this period were either approved by the
then Chief Executive Officer or compensation committee of the
board of directors.
All of the stock option grants requiring adjustment were granted
during the years 1997 through 2005 which pre-dates our merger
with Predix. Our current Chief Executive Officer and Chief
Financial Officer joined EPIX in connection with the merger with
Predix. None of the members of our current senior management
participated in the approval, modification, retrospective price
selection or re-pricing of any stock option grants requiring
adjustment.
Stock
Option Grants Approval Process Prior to Merger With
Predix
During the period from our initial public offering through March
2005, pursuant to authority delegated to him by the compensation
committee, the then Chief Executive Officer (who had that
position from December 1994 until he left the company in
September 2005) approved stock option grants below a certain
number of shares to employees who were not executive officers or
members of our board of directors. Stock option grants to
executive officers and to employees receiving option awards over
certain thresholds required approval by the compensation
committee. Stock option grants to outside directors were granted
at fixed times each year in accordance with a stock option plan
relating to stock option awards to independent directors.
Evidence collected by the special committee indicates that the
grant date associated with many of these stock options granted
prior to our merger with Predix in 2006 had been selected by
certain employees, including certain members of our former
senior management, retrospectively after the date indicated on
the documents approving these options. As a result of the
evidence collected by the special committee, we concluded that
the grant dates associated with these grants differed from the
measurement date for these grants for financial accounting
purposes under Generally Accepted Accounting Principles, as set
forth in APB 25 or in certain grants, resulted in
re-pricing of the stock options requiring us to account for
these option grants as variable awards. Variable awards require
revaluation of the option awards to their then intrinsic value
at each reporting period until the option has been exercised or
canceled. In addition, in part as a result of such evidence of
retrospective selection of grant dates with respect to certain
grants, we also determined that adjustment of the measurement
date for accounting purposes was appropriate for certain other
grants for which we lacked information confirming that the
grants had been approved on the date reflected in the documents
approving each such grant.
All of our current executive officers, with the exception of
Dr. Andrew C.G. Uprichard, joined EPIX in connection
with the August 16, 2006 merger with Predix.
Dr. Uprichard joined EPIX in 2004. In March 2005,
Dr. Uprichard was granted 35,000 stock options which were
approved by the compensation committee. Subsequent to their
approval, certain members of our former senior management
re-priced these options and all other options granted by the
compensation committee on that same date. Dr. Uprichard was
never part of the stock option approval process. There were no
other stock options granted to current executive officers that
required a change in measurement date or resulted in the company
recording compensation expense.
Since the merger with Predix, we have revised our stock option
grant processes and procedures. As a result, we have adopted a
formal, written policy for stock option awards. We believe that
since our merger
53
with Predix, our current equity granting processes and practices
have been consistently adhered to, and are accounted for in
accordance with Generally Accepted Accounting Principles.
Our current stock option grant policy mandates the following:
1) stock option grants made in connection with our annual
performance review will occur on the same fixed date or dates
each year, such date or dates to be set by the board of
directors to occur promptly after an announcement of our annual
financial results 2) stock options to executive officers
and individual option awards of 25,000 options or greater must
be approved by the compensation committee and 3) all option
grants that are not awarded in connection with our annual
performance review, such as new hire and promotion grants, must
be priced and granted on the last trading day of the month in
which they were approved. Stock option grants requiring approval
by the compensation committee cannot be approved via unanimous
written consent, but may be approved only at an official meeting
of the compensation committee at which minutes are recorded. All
three members of our compensation committee are independent
directors. Our Chief Executive Officer has the authority to
approve stock option awards in certain circumstances if the
individual grant is for less than 25,000 options and is not to
an executive officer.
Adjustments
to Measurement Dates Arising From Evidence of Retrospective
Selection of Grant Dates
During the course of the special committees stock option
review, we identified approximately 1.4 million stock
options with grant dates that failed to meet the measurement
date criteria of APB 25 due to the retrospective selection
of grant dates. The measurement date for these twelve option
grants covering approximately 1.4 million shares was
adjusted in compliance with APB 25 as a result of evidence
indicating that the grant date had been selected
retrospectively, after the date reflected in the documents
approving these grants. Of these grants, options to purchase
approximately 0.5 million shares were granted to
former executive officers and options to purchase approximately
0.9 million shares were granted to other employees.
Adjustments to the APB 25 measurement dates for these
grants resulted in the recording of additional stock-based
compensation of $3.7 million. None of the approximately
1.4 million stock options requiring measurement date
adjustments due to the retrospective selection of the grant date
were made to any of our current executive officers. Each grant
in question was evaluated individually based on its particular
facts and circumstances in each case, in light of the electronic
and hard copy documentation and other evidence (including
information obtained from interviews of current and former
employees, officers, directors, among others) available to the
special committee. That documentation and information considered
in connection with the measurement date adjustments that we have
made included, but was not limited to:
|
|
|
|
|
minutes of compensation committee meetings;
|
|
|
|
unanimous written consents signed by compensation committee
members, and evidence relating to the date such consents were
circulated for signature
and/or
signed;
|
|
|
|
information found in personnel files maintained for optionees;
|
|
|
|
electronic mail messages and other electronic files maintained
in our computer system and in backup media;
|
|
|
|
documentation prepared in connection with our annual performance
reviews of employees as part of the process of determining the
allocation of stock option grants to individual employees;
|
|
|
|
information as to the date of hire of the optionee, including
(if the grant was a new hire grant) the date of any employment
agreement or offer letter:
|
|
|
|
correspondence and other documentation supporting the option
grant (including, without limitation, memoranda, SEC Form 4
filings);
|
|
|
|
information concerning the date or dates on which the stock
option was entered into our stock option tracking system, Equity
Edge; and
|
|
|
|
information obtained during interviews conducted by the special
committee of numerous individuals, including former officers,
directors, employees, and outside professionals.
|
54
Based on the relevant facts and circumstances, electronic and
other documentation, and other available information relevant to
each grant, we applied the appropriate accounting standards to
determine the proper measurement date for each grant at issue.
If the measurement date was not the originally assigned grant
date, accounting adjustments were made as required, resulting in
stock-based compensation expense and related tax effects.
Re-priced
Stock Options
Evidence collected by the special committee also indicated that
during the period June 1999 through March 2005, certain
employees, including certain former members of our senior
management, participated in the
re-pricing,
as defined by financial accounting standards, of certain stock
option grants subsequent to their approval by the compensation
committee. Approximately 0.9 million stock options were
considered to be re-priced and resulted in the recording of
compensation expense during the years 1999 through 2005 totaling
approximately $2.5 million. These options were considered
to be re-priced, as defined by financial accounting standards,
as the prices at which these options were granted were selected
by certain employees, including former members of our senior
management after the award had been approved by the compensation
committee and at prices different than original price on the
date the option had been approved. The accounting for stock
awards that are re-priced requires the option to be accounted
for as a variable award and requires revaluation of the option
to its intrinsic value at the end of each reporting period. Of
these approximately 0.9 million re-priced options, options
to purchase approximately 0.8 million shares were
granted to former executive officers, and options to purchase
approximately 0.1 million shares were granted to other
employees. Other than a grant to Dr. Uprichard discussed
above, none of the re-priced grants requiring adjustment of
measurement dates for financial accounting purposes were made to
any of our current executive officers. Each grant in question
was evaluated individually based on its particular facts and
circumstances in each case, in light of the electronic and hard
copy documentation and other evidence (including information
obtained from interviews of current and former employees,
officers, directors, among others) available to the special
committee. For a description and discussion of the documentation
and information considered by the committee and the Company, see
the section above entitled Adjustments to Measurement
Dates Arising From Evidence of Retrospective Selection of Grant
Dates.
Based on the relevant facts and circumstances, electronic and
other documentation, and other available information relevant to
each grant, we applied the appropriate accounting standards to
determine the proper accounting for the re-priced options. If
the exercise price of the option granted was different than the
fair value of our stock on the day the grant was approved and
was selected after such approval, the option was considered to
be re-priced and was accounted for as a variable option award.
Other
Dating Errors
In addition, during the course of the stock option review, we
identified certain instances in which other dating errors
resulted in stock options with grant dates that failed to meet
the measurement date criteria of APB 25. Of these, the
measurement date for nine option grants covering approximately
0.1 million shares was adjusted in compliance with
APB 25 as a result of evidence indicating that the grant
date selected failed to meet the measurement date criteria for
APB 25. The compensation expense resulting from the change
in measurement dates for these 0.1 million stock options
was approximately $0.1 million, which is net of forfeitures
related to terminations. The additional stock-based compensation
expense for the options with revised measurement dates resulting
from other dating errors is being amortized over the service
period relating to each option, typically five years. None of
these option grants were made to executive officers.
Included in these nine stock option grants that we determined to
require measurement date adjustment as a result of other dating
errors is one grant for approximately 16,000 stock options made
to two members of our board of directors, one former and one
current. In this instance, the grant date used was the day
before the option grant was approved by our board of directors
and the difference in our stock price on the two dates differed
only by $0.18 per share. This was determined by us to be an
administrative error.
55
Other
Adjustments
In addition, during the course of the stock option review, we
identified certain instances in which adjustments to stock-based
compensation expense were required that were not related to
changes in measurement dates, as follows:
|
|
|
|
|
Grants made to consultants were erroneously accounted for under
APB 25 as if they had been made to employees. To correctly
account for these grants in accordance with
EITF 96-18,
we recorded $0.3 million in additional stock-based
compensation during 1996 through 2001.
|
|
|
|
With respect to seven option grants totaling approximately
44,000 shares, modifications were made to previously granted
employee and consultant stock options that were not accounted
for in accordance with APB 25 and related interpretations,
EITF 96-18
and FAS 123, as applicable. The modifications included the
extension of the post-service exercise period for vested stock
options of terminated employees and or consultants. We recorded
$0.9 million in additional stock-based compensation expense
during 2000 through 2004, to properly account for these
modifications.
|
|
|
|
In 1999, we recorded approximately $0.1 million of
stock-based compensation expense equal to the gain recognized by
employees when those employees sold stock options that were
deemed to be disqualifying dispositions. Disqualifying
dispositions are potential tax deductions for companies and do
not require recognition as expense in a companys statement
of operations. As this accounting is not in accordance with
Generally Accepted Accounting Principles, the stock compensation
expense was reversed.
|
Financial
Impact of the Stock Option Review
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Amount
|
|
|
Retrospective selection of grant
date
|
|
|
1,387,982
|
|
|
$
|
3,680,249
|
|
Re-priced options
|
|
|
867,893
|
|
|
|
2,518,291
|
|
Other dating errors
|
|
|
162,196
|
|
|
|
164,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418,071
|
|
|
|
6,363,246
|
|
Consultant grants
|
|
|
44,345
|
|
|
|
272,303
|
|
Stock option modifications
|
|
|
70,168
|
|
|
|
906,110
|
|
Correction of erroneous stock
compensation charge
|
|
|
|
|
|
|
(96,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,532,584
|
|
|
|
7,444,831
|
|
|
|
|
|
|
|
|
|
|
Employee income and payroll taxes
|
|
|
|
|
|
|
886,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,330,868
|
|
|
|
|
|
|
|
|
|
|
The $7.4 million total in stock compensation expense shown
above represents the aggregate stock-based compensation for the
affected options as a result of our stock option review and if
applicable, is net of subsequent forfeitures related to employee
terminations. As we have and continue to recognize a net loss
annually, there were no income tax adjustments necessary in
connection with the restatement of any prior year financial
statements other than to record an increase in our gross
deferred tax asset and a corresponding increase in our valuation
allowance. We have, however, in connection with this
restatement, recorded approximately $0.9 million in payroll
tax expense relating to employer and employee payroll taxes,
interest and penalties we estimate we will owe as a result of
the modifications to exercised options previously considered
incentive stock options that should have been taxed as
non-qualified stock options.
The
Circumstances Requiring Adjustment of Measurement Dates Occurred
Entirely Before Our Merger With Predix
All of the grant dates that failed to meet the measurement date
criteria of APB 25 and all stock option re-pricings relate
to options granted during the years 1997 through 2005. All of
our current executive officers,
56
with the exception of our President, Andrew C.G.
Uprichard, M.D., joined EPIX in connection with the
August 16, 2006 merger with Predix. Dr. Uprichard
joined EPIX in 2004. Dr. Uprichard has never been part of
our stock option granting approval process. With respect to the
members of the compensation committee, the special committee
found no evidence of intentional backdating or re-pricing of
option grants during the period relevant to the special
committees review. Certain members of our current
compensation committee served on that committee prior to our
merger with Predix.
During the review, we determined that our option grant
procedures and processes that existed prior to our merger with
Predix lacked adequate controls, and that documentation and
recordkeeping relating to that granting process were
insufficient in certain instances to verify measurement dates.
All of the EPIX employees responsible for making financial
accounting judgments and decisions during the period prior to
the merger with Predix, which closed on August 16, 2006,
had resigned on or before the merger closing date.
Late SEC
Filings and NASDAQ Delisting Proceedings
Due to the special committee investigation and the resulting
restatement, we did not file on time this Annual Report on
Form 10-K.
As a result, we received a NASDAQ Staff Determination letter,
dated April 3, 2007, stating that we were not in compliance
with the filing requirements of Marketplace
Rule 4310(c)(14) and, therefore, that our stock was subject
to delisting from the NASDAQ Global Market. We have filed a
notice and requested a hearing before a NASDAQ Listing
Qualifications Panel.
With the filing of this Annual Report on Form 10-K, we believe
we have returned to full compliance with SEC reporting
requirements and NASDAQ listing requirements. However, SEC
comments on this Annual Report on Form 10-K (or other reports
that we previously filed) or other factors could render us
unable to maintain an effective listing of our common stock on
the NASDAQ Global Market or any other national securities
exchange.
In addition, although our 3.0% Convertible Senior Notes do not
mature until 2024, noteholders may require us to repurchase
these notes at par, plus accrued and unpaid interest, on
June 15, 2011, 2014 and 2019 and upon certain other
designated events including, but not limited to, the termination
of trading of our common stock on the NASDAQ Global Market.
Restatement
of Our Consolidated Financial Statements
As a result of the findings of our stock option review, our
consolidated financial statements for the years ended
December 31, 2005 and 2004 have been restated. The findings
of our stock option review did not have a material effect on our
2006 interim and annual financial statements. The restated
consolidated financial statements include unaudited financial
information for the interim periods of 2005 consistent with
Article 10-01
of
Regulation S-X.
We also recorded additional stock-based compensation expense
affecting our previously-reported financial statements for 1996
through 2003, the effects of which are summarized in a
cumulative adjustment to our additional paid-in capital and
accumulated deficit accounts as of December 31, 2003, in
the amounts of $8.5 million and $9.1 million,
respectively. See the Consolidated Statements of
Shareholders Equity (Deficit), included in Part IV,
Item 15 of this Report.
57
The impact on the consolidated statements of operations from
recognizing stock-based compensation expense, including
$0.9 million of related payroll tax withholding expense,
through December 31, 2005 resulting from the investigation
is summarized as follows:
|
|
|
|
|
Fiscal Year
|
|
Expense (Credit)
|
|
|
Year ended December 31, 1996
|
|
$
|
57,182
|
|
Year ended December 31, 1997
|
|
|
280,609
|
|
Year ended December 31, 1998
|
|
|
614,966
|
|
Year ended December 31, 1999
|
|
|
435,269
|
|
Year ended December 31, 2000
|
|
|
1,091,267
|
|
Year ended December 31, 2001
|
|
|
2,262,350
|
|
Year ended December 31, 2002
|
|
|
(534,245
|
)
|
Year ended December 31, 2003
|
|
|
4,925,406
|
|
|
|
|
|
|
Sub-total
|
|
|
9,132,804
|
|
Year ended December 31, 2004
|
|
|
2,239,964
|
|
Year ended December 31, 2005
|
|
|
(3,041,900
|
)
|
|
|
|
|
|
Total
|
|
$
|
8,330,868
|
|
|
|
|
|
|
The impact of recognizing additional stock-based compensation
and other adjustments on each component of stockholders
equity (deficit) at the end of each year is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact to
|
|
|
|
|
|
|
Additional Paid-In
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
|
Fiscal Year
|
|
Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
1996
|
|
$
|
57,182
|
|
|
$
|
(57,182
|
)
|
|
$
|
|
|
|
|
|
|
1997
|
|
|
280,609
|
|
|
|
(280,609
|
)
|
|
|
|
|
|
|
|
|
1998
|
|
|
613,848
|
|
|
|
(614,966
|
)
|
|
|
(1,118
|
)
|
|
|
|
|
1999
|
|
|
432,536
|
|
|
|
(435,269
|
)
|
|
|
(2,733
|
)
|
|
|
|
|
2000
|
|
|
1,029,007
|
|
|
|
(1,091,267
|
)
|
|
|
(62,260
|
)
|
|
|
|
|
2001
|
|
|
2,238,867
|
|
|
|
(2,262,350
|
)
|
|
|
(23,483
|
)
|
|
|
|
|
2002
|
|
|
(593,335
|
)
|
|
|
534,245
|
|
|
|
(59,090
|
)
|
|
|
|
|
2003
|
|
|
4,412,355
|
|
|
|
(4,925,406
|
)
|
|
|
(513,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
8,471,069
|
|
|
|
(9,132,804
|
)
|
|
|
(661,735
|
)
|
|
|
|
|
2004
|
|
|
1,995,577
|
|
|
|
(2,239,964
|
)
|
|
|
(244,387
|
)
|
|
|
|
|
2005
|
|
|
(3,021,815
|
)
|
|
|
3,041,900
|
|
|
|
20,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,444,831
|
|
|
$
|
(8,330,868
|
)
|
|
$
|
(886,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
Impact of Stock Option Restatement
As a result of the stock-based compensation restatement
discussed above, we recorded additional non-cash compensation
expenses in our quarterly consolidated statements of operations.
The effect on 2006 quarterly information was not material. The
restatement of our 2005 quarterly results for stock-based
compensation did not impact our previously reported revenue and
did not significantly impact the trends in our financial
condition or liquidity discussed in our previously filed
quarterly reports on
Form 10-Q.
The impact of the restatement on our 2005 quarterly results is
reflected in the Quarterly Information section of
this Item and Note 15 to the Consolidated Financial
Statements in Item 15 of this
Form 10-K.
The stock compensation expense recorded during the quarterly
periods in 2005 did impact the trends of our operating expenses
during the period as the stock compensation charges resulting
from the accounting for the re-priced options changed the awards
from fixed awards to variable which required us to remeasure the
compensation charge for options
58
at the end of each quarterly reporting period. Given the
fluctuation in our stock price the charges varied accordingly.
The stock option review and the resulting stock compensation
adjustments resulted in the following increases (decreases) in
our operating costs during each of the four quarters of 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ending
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
Research and development expense
|
|
$
|
(1,899,382
|
)
|
|
$
|
277,271
|
|
|
$
|
(134,052
|
)
|
|
$
|
(97,640
|
)
|
General and administrative expense
|
|
|
(1,153,645
|
)
|
|
|
151,816
|
|
|
|
(93,399
|
)
|
|
|
(72,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,053,027
|
)
|
|
$
|
429,087
|
|
|
$
|
(227,451
|
)
|
|
$
|
(170,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies And Estimates
The discussion and analysis of our financial condition and
results of operations is based on our financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation
of these financial statements requires us to make estimates and
judgments that affect our reported assets and liabilities,
revenues and expenses, and other financial information. Actual
results may differ significantly from the estimates under
different assumptions and conditions.
Our significant accounting policies are more fully described in
Note 2 of our Consolidated Financial Statements for the
year ended December 31, 2006. Not all significant
accounting policies require management to make difficult,
subjective or complex judgments or estimates. We believe that
our accounting policies related to revenue recognition, research
and development and employee stock compensation, as described
below, require critical accounting estimates and
judgments.
Revenue
Recognition
We recognize revenue relating to collaborations in accordance
with the Securities and Exchange Commissions
(SEC) Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition,
(SAB 104). Revenue under collaborations may
include the receipt of non-refundable license fees, milestone
payments, and research and development payments and royalties.
We recognize nonrefundable upfront license fees and guaranteed,
time-based payments that require continuing involvement in the
form of research and development as revenue:
|
|
|
|
|
ratably over the development period; or
|
|
|
|
based upon the level of research services performed during the
period of the research contract.
|
When the period of deferral cannot be specifically identified
from the contract, management estimates the period based upon
other critical factors contained within the contract. EPIX
continually reviews such estimates which could result in a
change in the deferral period and might impact the timing and
amount of revenue recognized.
Milestone payments which represent a significant performance
risk are recognized as revenue when the performance obligations,
as defined in the contract, are achieved. Performance
obligations typically consist of significant milestones in the
development life cycle of the related technology, such as
initiation of clinical trials, filing for approval with
regulatory agencies and approvals by regulatory agencies.
Milestone payments which are received at the time of initiation
of a collaboration agreement or do not represent a significant
performance risk are recognized ratably over the development
period.
Royalties are recognized as revenue when earned and reasonably
estimable, which is typically upon receipt of royalty reports
from the licensee or cash.
Reimbursements of research and development costs are recognized
as revenue as the related costs are incurred.
59
Product
development revenue
We recognize as revenue the cash consideration received from
Bayer Schering Pharma AG, Germany for efforts provide by us in
excess of our obligation under the agreement to expend 50% of
the costs to develop Vasovist. This revenue is recognized in the
same period in which the costs are incurred. With respect to
payments due to Bayer Schering Pharma AG, Germany, if any, in
connection with the Vasovist development program, we would
recognize such amounts as a reduction in revenue at the time
Bayer Schering Pharma AG, Germany performs the research and
development activities for which we are obligated to pay Bayer
Schering Pharma AG, Germany.
On a monthly basis, we calculate the revenue or reduction in
revenue, as the case may be, with respect to the collaboration
with Bayer Schering Pharma AG, Germany for Vasovist as follows:
|
|
|
|
|
We calculate our development costs directly related to Vasovist.
|
|
|
|
We obtain cost reports, or an estimate of costs, from Bayer
Schering Pharma AG, Germany for costs incurred by Bayer Schering
Pharma AG, Germany related to the development of Vasovist during
the same period. Where estimates are used, we review the
estimates and record, as necessary, adjustments in the
subsequent quarter when we receive actual results from Bayer
Schering Pharma AG, Germany. To date, there have been no
material adjustments.
|
|
|
|
We multiply our and Bayer Schering Pharma AG, Germanys
development costs by approximately 50% based on the contractual
allocation of work contemplated under the agreement.
|
|
|
|
We then record the net difference as development revenue if the
balance results in a payment to us and negative revenue if the
balance results in a payment to Bayer Schering Pharma AG,
Germany.
|
The result of this calculation is that we record revenue only
for amounts we are owed by Bayer Schering Pharma AG, Germany in
excess of 50% of development expenses of the project in the
particular period. We would record a reduction to revenue for
any amounts owed to Bayer Schering Pharma AG, Germany in the
particular period. To date, we have not been required to make
any payments to Bayer Schering Pharma AG, Germany.
Royalty
revenue
We earn royalty revenue pursuant to our
sub-license
on certain of our patents to Bracco Imaging S.p.A.
(Bracco). With the expiration in 2006 of certain
patents related to the sublicense with Bracco, we received
reduced royalty payments from Bracco throughout the second half
of 2006, and we expect such payments to end in the first quarter
of 2007. We are also entitled to receive a royalty on worldwide
sales of Primovist and on sales of Vasovist outside of the
United States by Bayer Schering Pharma AG, Germany. Royalty
revenue is recognized based on actual revenues as reported by
Bracco and Bayer Schering Pharma AG, Germany to us in the period
in which royalty reports are received.
License
fee revenue
We record license fee revenue in accordance with SAB 104,
Revenue Recognition. Pursuant to
SAB 104, we recognize revenue from non-refundable license
fees and milestone payments, not specifically tied to a separate
earnings process, ratably over the period during which we have a
substantial continuing obligation to perform services under the
contract. Certain contracts require judgment to determine the
period of continuing involvement by us and these estimates are
subject to change based upon changes in facts and circumstances.
When milestone payments are specifically tied to a separate
earnings process, revenue is recognized when the specific
performance obligations associated with the payment are
completed.
Research
and Development
We account for research and development costs in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 2, Accounting for Research and Development
Costs, which requires that expenditures be expensed to
operations as incurred. Research and development expenses
primarily include employee
60
salaries and related costs, third party service costs, the cost
of preclinical and clinical trials, supplies, consulting
expenses, facility costs and certain overhead costs.
In order to conduct research and development activities and
compile regulatory submissions, we enter into contracts with
vendors who render services over extended periods of time.
Typically, we enter into three types of vendor contracts:
time-based, patient-based or a combination thereof. Under a
time-based contract, using critical factors contained within the
contract, usually the stated duration of the contract and the
timing of services provided, we record the contractual expense
for each service provided under the contract ratably over the
period during which we estimate the service will be performed.
Under a patient-based contract, we first determine an
appropriate per patient cost using critical factors contained
within the contract, which include the estimated number of
patients and the total dollar value of the contract. We then
record expense based upon the total number of patients enrolled
during the period. On a quarterly basis, we review the
assumptions for each contract in order to reflect our most
current estimate of the costs incurred under each contract.
Adjustments are recorded in the period in which the revisions
are estimable. These adjustments could have a material effect on
our results of operations.
Employee
Stock Compensation
We have adopted the provisions of SFAS No. 123(R),
Share-Based Payment An Amendment of FASB
Statements No. 123 and 95,
(SFAS 123(R)), beginning January 1, 2006,
using the modified prospective transition method. Under the
modified prospective transition method, financial statements for
periods prior to the adoption date are not adjusted for the
change in accounting. However, compensation expense is
recognized, based on the requirements of SFAS 123(R), for
(a) all share-based payments granted after the effective
date and (b) all awards granted to employees prior to the
effective date that remain unvested on the effective date.
Determining the appropriate fair value model and calculating the
fair value of share-based awards requires us to make various
judgments, including estimating the expected life of the
share-based award, the expected stock price volatility over the
expected life of the share-based award and forfeiture rates. In
order to determine the fair value of share-based awards on the
date of grant, we use the Black-Scholes option-pricing model.
Inherent in this model are assumptions related to stock price
volatility, option life, risk-free interest rate and dividend
yield. The risk-free interest rate is a less subjective
assumption as it is based on treasury instruments whose term is
consistent with the expected life of options. We use a dividend
yield of zero as we have never paid cash dividends and have no
intention to pay cash dividends in the foreseeable future. The
stock price volatility and option life assumptions require a
greater level of judgment. Estimating forfeitures also requires
significant judgment. Our stock-price volatility assumption is
based on trends in both our current and historical volatilities
of our stock and those of comparable companies. We use the
simplified method, as prescribed by the SECs
SAB No. 107, to calculate the expected term of
options. We estimate forfeitures based on our historical
experience of cancellations of share-based compensation prior to
vesting. We believe that our estimates are based on outcomes
that are reasonably likely to occur. To the extent actual
forfeitures differ from our estimates, we will record an
adjustment in the period the estimates are revised.
Critical
Accounting Policies and Estimates Applied to the Restatement of
EPIXs Consolidated Financial Statements.
The preparation of our restated consolidated financial
statements required us to make estimates and assumptions that
affected the amount of the recorded stock-based compensation
expense. In certain instances the measurement date applied to an
affected option grant was the date the grant was entered into
our Equity Edge software system.
Equity
Edge®
Entry Date
In certain instances, the revised measurement date applied to an
affected option grant was the date the grant was entered into
our Equity Edge software system, which we used to monitor and
administer our equity award programs from 1996 through present.
This methodology was used for certain option grants for which we
were unable to locate contemporaneous documentation confirming
that the grant was approved on the
61
indicated grant date, and where it could not be definitively
determined when the grant actually had been approved. When an
option grant was entered into Equity Edge, the entry date was
recorded by the system. Also, once option grants were entered
into Equity Edge, individual grant information was generally
printed and distributed to employees. The Equity Edge Entry date
was used for two broad types of grants.
|
|
|
|
1.
|
Large Grants For certain of the Companys
grants that were broad-based, including those related to annual
and mid-year performance reviews, the evidence of the
investigation supported a practice by the Company of entering
the grants into Equity Edge on a timely basis (either at
approval date or within a few business days). Although this was
not the case for every large grant the Company made, the Company
concluded that there is significant evidence of the
Companys timely entrance of these grants into Equity Edge
soon after approval by the Companys former Chief Executive
Officer. The Company believes, based on its analysis of all
Large Grants, that for the Large Grants where the revised
remeasurement date was the Equity Edge record-added date,
approval occurred on or around the date when grants were entered
into Equity Edge. As a result, the Equity Edge record-added date
serves as a close approximation of the measurement date. Had the
Company not used the Equity Edge record-added date for such
grants, but used either the date of the highest or lowest stock
price during the period from the original grant date to the
Equity Edge record-added date, the total charge to operations
would have been either a increase in expense of approximately
$220,000 or an decrease in expense of approximately $175,000.
|
|
|
2.
|
Small Grants For certain of the grants that were for
limited numbers of employees, including promotion grants, there
did not appear to be an observable consistent trend in the
Equity Edge record-added dates occurring soon after the grant
approval date by the former Chief Executive Officer for the
Small Grants. As such, the Company has determined that, unlike
the Large Grants, the Equity Edge record-added dates were not in
all cases a close approximation of the approval date for Small
Grants. However, we believe in most cases the Equity Edge entry
date represents the earliest date when the terms of options to
individual recipients are known with finality where the date of
grant approval could not otherwise be determined by reference to
the information available to us. Had the Company not used the
Equity Edge record-added date for such grants, but used either
the date of the highest or lowest stock price during the period
from the original grant date to the Equity Edge record-added
date, the total charge to operations would have been either a
increase in expense of approximately $400,000 or an decrease in
expense of approximately $215,000.
|
With respect to option grants for which we were unable to locate
contemporaneous documentation corroborating that the grant date
reflected in the approval documents was in fact the actual date
of grant approval, we also considered using the indicated grant
date as the measurement date under APB 25. Although this
approach would have resulted in a substantially lower
stock-based compensation adjustment as compared to the
methodology we used, we were not able to conclude that the
indicated grant date represented the best approximation of the
date the terms of the option were determined with finality.
Re-pricing
of Stock Options
For situations in which stock options were approved by the
compensation committee and the stock option price used for the
grant was selected after such approval by certain employees,
including former members of our senior management, the
accounting treatment for these options was to deem this
selection of the price by certain employees, including former
members of our senior management to be a re-pricing for
financial accounting purposes. Based upon the weight of the
evidence obtained during the stock option investigation, the
approval by the compensation committee members was deemed to be
the measurement date for the grants as the compensation
committee members had determined the number of shares to be
granted, the recipients of the awards, and the related vesting
provisions and believed the option grant would be granted on the
closing price on the day the committee approved such grant. The
approximately 0.9 million options granted on six different
grant dates that were treated as re-pricings for accounting
purposes resulted in our accounting for these awards as variable
awards. All variable awards are remeasured on a quarterly basis
to adjust the grants value to the intrinsic value at the end of
the reporting period until such option is exercised or canceled.
62
Results
of Operations
Research
and Development Overview
Research and development expense consists primarily of:
|
|
|
|
|
salaries, benefits and related expenses for personnel engaged in
research and development activities;
|
|
|
|
fees paid to contract research organizations to manage and
monitor clinical trials;
|
|
|
|
fees paid to research organizations in conjunction with
pre-clinical studies;
|
|
|
|
fees paid to access chemical and intellectual property databases;
|
|
|
|
costs of materials used in research and development and clinical
studies;
|
|
|
|
academic testing and consulting, license and sponsored research
fees paid to third parties; and
|
|
|
|
costs of facilities and equipment, including depreciation, used
in research and development activities.
|
We expense both internal and external research and development
costs as incurred. We expect our research and development
expense to increase significantly (excluding acquired in-process
research and development) as a result of the merger with Predix
as we continue to expand our pipeline of drug candidates and to
advance our existing drug candidates through the clinical trial
process. We expect that a large percentage of our research and
development expenses in the future will be incurred in support
of our current and future pre-clinical and clinical development
programs. These expenditures are subject to numerous
uncertainties in timing and cost to completion. We test drug
candidates in pre-clinical studies for safety, toxicology and
efficacy. We then conduct early-stage clinical trials for each
drug candidate. As we obtain results from trials, we may elect
to discontinue or delay clinical trials for certain drug
candidates in order to focus our resources on more promising
drug candidates.
We currently have one imaging product, Vasovist, which is
currently approved for marketing in the European Union, Canada,
Iceland, Norway, Switzerland and Australia. We are currently
appealing the U.S. Food and Drug Administrations
(FDA) decision to require additional clinical trials for
approval of Vasovist in the United States. We also have one
imaging agent, EP-2104R, in clinical development. We completed a
Phase 2a clinical trial of EP-2104R in the second quarter
of 2006. We do not intend to continue development of EP-2104R
and are actively pursuing a partner to continue further
development. Future costs expected to be incurred for Vasovist
are currently limited to legal and consulting costs related to
the on-going FDA appeal. Future costs expected to be incurred
for EP-2104 are limited to consulting costs related to our
partnering efforts.
In connection with our acquisition of Predix, we incurred a
charge of $123.5 million for in-process research and
development The in-process research and development charge
represents the fair value of purchased in-process technology of
Predix for research projects that, as of the closing date of the
merger, had not reached technological feasibility and have no
alternative future use. This is a non-recurring charge. The
in-process research and development primarily represents the
estimated fair value of the following drug candidates: PRX-00023
($70.9 million) that, as of the date of the merger, was in
Phase 3 clinical trials for the treatment of generalized
anxiety disorder; PRX-03140 ($23.5 million) that, as of the
date of the merger had completed Phase 1 clinical trials
for the treatment of Alzheimers disease; PRX-08066
($20.2 million) that, as of the date of the merger, had
entered Phase 2 clinical trials for the treatment of
pulmonary hypertension in association with COPD; and PRX-07034
($8.9 million) that, as of the date of the merger, had
entered Phase 1 clinical trials for the treatment of
obesity.
In September 2006 we completed a pivotal Phase 3 clinical
trial for the treatment of generalized anxiety disorder with
PRX-00023. Results from this trial demonstrated that PRX-00023
did not achieve a statistically significant improvement over
placebo for the primary endpoint of efficacy with respect to
generalized anxiety disorder at the dose tested (80mg once
daily). The trial was statistically powered to evaluate the
efficacy of PRX-00023 compared to placebo as measured by the
change from baseline in the Hamilton Rating Scale for Anxiety or
HAM-A. The HAM-A scale is the accepted standard for the
evaluation of anti-anxiety drug activity
63
by the FDA. Effects of PRX-00023 on symptoms of depression,
which was a secondary endpoint of the Phase 3 clinical
trial, were assessed using the Montgomery-Asberg Depression
Rating Scale or MADRS, an FDA-recommended assessment for
depression. The data from this trial showed a statistically
significant improvement from baseline with PRX-00023 treatment
compared to placebo in the MADRAS score, indicating that
PRX-00023 reduced symptoms of depression present in the patients
in this trial. In this Phase 3 trial, PRX-00023 was well
tolerated, and the rate of discontinuation due to adverse events
was very low (1.4% with PRX-00023 vs. 2.9% with placebo). To
date, there have been no serious adverse events associated with
treatment in more than 250 subjects who have received PRX-00023.
Based on the Phase 3 trial results, we have discontinued
clinical development of PRX-00023 at a dose of 80mg once daily
in generalized anxiety disorder. We are currently focusing our
development efforts for this drug candidate on depression. We
initiated a randomized, blinded Phase 2 clinical trial of
PRX-00023 in major depression in March 2007.
The following summarizes the applicable disease indication and
the clinical status of active program therapeutic drug
candidates:
|
|
|
|
|
|
|
Drug
|
|
|
|
|
Candidate
|
|
Disease Indication
|
|
Clinical Trial Status
|
|
PRX-08066
|
|
|
PAH/COPD
|
|
|
Phase 2a
|
PRX-00023
|
|
|
Depression
|
|
|
Phase 2b
|
PRX-03140
|
|
|
Alzheimers disease
|
|
|
Phase 2a
|
PRX-07034
|
|
|
Obesity/cognitive impairment
|
|
|
Phase 1b
|
Completion of clinical trials may take several years or more,
but the length of time can vary substantially according to a
number of factors, including the type, complexity, novelty and
intended use of a drug candidate. The cost of clinical trials,
and therefore the amount and timing of our capital requirements,
may vary significantly over the life of a project as a result of
differences arising during clinical development, including,
among others:
the number of sites included in the trials;
the length of time required to enroll suitable
patient subjects;
the number of patients that participate in the
trials;
the duration of patient
follow-up
that seems appropriate in view of results; and
the efficacy and safety profile of the drug
candidate.
We could incur increased clinical development costs if we
experience delays in clinical trial enrollment, delays in the
evaluation of clinical trial results or delays in regulatory
approvals. In addition, we face significant uncertainty with
respect to our ability to enter into strategic collaborations
with respect to our drug candidates. As a result of these
factors, it is difficult to estimate the cost and length of a
clinical trial. We are unable to accurately and meaningfully
estimate the cost to bring a product to market due to the
variability in length of time to develop and obtain regulatory
approval for a drug candidate.
We estimate that clinical trials in our areas of focus are
typically completed over the following timelines, but delays can
occur for many reasons including those set forth above:
|
|
|
|
|
|
|
|
|
Clinical
|
|
|
|
|
Estimate
|
|
Phase
|
|
|
Objective
|
|
Completion Period
|
|
|
|
Phase 1
|
|
|
Establish safety in healthy
volunteers and occasionally in patients; study how the drug
works, is metabolized and interacts with other drugs
|
|
|
1-2 years
|
|
|
Phase 2
|
|
|
Evaluate efficacy, optimal dosages
and expanded evidence of safety
|
|
|
2-3 years
|
|
|
Phase 3
|
|
|
Further evaluate efficacy and
safety of the drug candidate in a larger patient population
|
|
|
2-3 years
|
|
64
If we successfully complete Phase 3 clinical trials of a
drug candidate, we intend to submit the results of all of the
clinical trials for such drug candidate to the FDA to support
regulatory approval. Even if any of our drug candidates receive
regulatory approval, we may still be required to perform lengthy
and costly post-marketing studies.
A major risk associated with the timely completion and
commercialization of our drug candidates is the ability to
confirm safety and efficacy based on the data of long-term
clinical trials. We cannot be certain that any of our drug
candidates will prove to be safe or effective, will receive
regulatory approvals or will be successfully commercialized. In
order to achieve marketing approval, the FDA or foreign
regulatory agencies must conclude that our clinical data
establishes the safety and efficacy of our drug candidates. If
our clinical-stage drug candidates are not successfully
developed, future results of operations may be adversely
affected.
We do not budget or manage our research and development costs by
project on a fully allocated basis. Consequently, fully loaded
research and development costs by project are not available. We
use our employee and infrastructure resources across several
projects, and many of our costs are not attributable to an
individually-named project but are directed to broadly
applicable research projects. As a result, we cannot state
precisely the costs incurred for each of our clinical and
pre-clinical projects on a
project-by-project
basis. We estimates that, from the date we acquired Predix,
August 16, 2006 through December 31, 2006, the total
payments we made to third parties for pre-clinical study
support, clinical supplies and clinical trials associated with
PRX-08066, PRX-00023, PRX-03140 and PRX-07034 are as follows:
|
|
|
|
|
PRX-08066
|
|
$
|
1.4 million
|
|
PRX-00023
|
|
$
|
2.8 million
|
|
PRX-03140
|
|
$
|
1.3 million
|
|
PRX-07034
|
|
$
|
2.3 million
|
|
As a result of the uncertainties discussed above, we are unable
to determine the duration and completion costs of our research
and development projects or when and to what extent we will
receive cash inflows from the commercialization and sale of a
product.
Financial
Results
Years
ended December 31, 2006 and 2005
Revenues
The following table presents revenue and revenue growth
(decline) for the years ended December 31, 2006, 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Revenue
|
|
|
Product development revenue
|
|
$
|
2,909,402
|
|
|
|
(31
|
)%
|
|
$
|
4,195,530
|
|
|
|
(45
|
)%
|
|
$
|
7,594,280
|
|
Royalty revenue
|
|
|
1,603,230
|
|
|
|
(31
|
)%
|
|
|
2,333,384
|
|
|
|
272
|
%
|
|
|
626,685
|
|
License fee revenue
|
|
|
1,527,910
|
|
|
|
131
|
%
|
|
|
660,747
|
|
|
|
(84
|
)%
|
|
|
4,037,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,040,542
|
|
|
|
(16
|
)%
|
|
$
|
7,189,661
|
|
|
|
(41
|
)%
|
|
$
|
12,258,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues in 2006 and 2005 have arisen principally from our
collaboration agreements with Bayer Schering Pharma AG, Germany
(for Vasovist, EP-2104R and MRI discovery research) and Cystic
Foundation Therapeutics Foundation (CFFT); from license fee
revenues relating to our agreements with Amgen, GlaxoSmithKline,
Bayer Schering Pharma AG, Germany, CFFT, Tyco and Bracco; and
from royalties related to our agreements with Bracco and Bayer
Schering Pharma AG, Germany. Our MRI discovery research
collaboration with Bayer Schering Pharma AG, Germany concluded
in May 2006 and our development agreement for EP-2104R with
Schering concluded in August 2006.
65
Product development revenue decreased 31% in the year ended
December 31, 2006 compared to the prior year primarily as a
result of the completion of the MRI discovery research program
in May 2006 and the
EP-2104R
program in August 2006, and the completion of the clinical
trials for Vasovist. This decrease was partially offset by
revenue of approximately $0.9 million from the CFFT program.
The decrease in royalty revenue of 31% for the year ended
December 31, 2006 compared to the prior year resulted from
a reduction in the royalty rate on sales of
MultiHance®
by Bracco once total qualified sales of MultiHance exceeded a
level established in the agreement and lower overall
royalty-eligible sales due to expiration of certain patents
related to the sublicense with Bracco. Due to the continuing
expiration of patents, we expect royalty revenue from Bracco to
end in the first quarter of 2007. Royalties from sales of
Vasovist in Europe, which were first received in the third
quarter of 2006, were less than $0.1 million but are
expected to gradually increase as the product is introduced in
additional markets where it has been approved.
License fee revenue increased 131% in the year ended
December 31, 2006 compared to the prior year primarily as a
result of the recognition of deferred revenue from the Amgen and
GlaxoSmithKline agreements. Partially offsetting this increase
was a decrease in revenue from the recognition of the Bracco
license fee as this fee was fully recognized by June 2006.
Royalty
Expenses
Royalty expenses of $1.1 million for the year ended
December 31, 2006 reflects an increase of approximately
$1.0 million from the prior year. The increase in royalty
expenses during 2006 is primarily due to the royalty payment
made to Ramot at Tel Aviv University Ltd. resulting from the
payments we received from GlaxoSmithKline in December 2006
relating to our agreement with them. In connection with the
execution of the GlaxoSmithKline agreement we received an up
front payment and proceeds from an equity investment in our
stock. We paid Ramot a royalty of approximately
$1.0 million relating to the GlaxoSmithKline up front
payment.
All of our current clinical-stage therapeutic drug candidates,
PRX-00023, PRX-03140, PRX-08066 and PRX-07034, were, at least in
part, identified, characterized or developed using the licensed
technology, and we would be required to make payments to Ramot,
as described below, as and when rights to any such drug
candidates are ever sublicensed or any such drug candidates are
commercialized. In addition, we have used the licensed
technology in all of our preclinical-stage programs, and would
expect to make payments to Ramot if rights to any drug
candidates were ever commercialized from any of these programs.
As such, we expect royalty expenses to increase significantly as
we receive payments under our existing and future partnership
agreements covering these programs.
We also are required to share between 5% and 10% of the
consideration we receive from parties to whom we grant
sublicenses of rights in the Ramot technology or sublicenses of
rights in products identified, characterized or developed with
the use of such technology and between 2% and 4% of
consideration we receive from performing services using such
technology. We would also be required to pay Ramot royalties on
sales of products developed with the use of such technology.
Research
and Development Expenses
Research and development expenses of $26.3 million for the
year ended December 31, 2006 reflects an increase 43.5%
from the prior year. The increase in research and development
expenses during 2006 is primarily due to external expenses of
$7.8 million associated with the clinical development
programs as well as costs for the pre-clinical programs and
internal costs which began after the Predix acquisition was
completed on August 16, 2006. In connection with the Predix
acquisition, we shifted our focus away from the discovery and
development of imaging agents to the discovery and development
of therapeutics. At the time of the merger, Predix had four drug
candidates in the clinic. Clinical program costs incurred since
the acquisition included completion of a Phase 3 clinical
trial for generalized anxiety disorder (GAD) with
PRX-00023; costs incurred for the completion of the Phase I
clinical trial and ongoing Phase 2a clinical trial of
PRX-03140 for the treatment of Alzheimers disease, costs
incurred for the ongoing Phase 2a clinical trial of
PRX-08066 for the treatment of pulmonary hypertension in
association with chronic obstructive pulmonary disease
66
(COPD), and costs incurred for completion of a
single ascending dose clinical trial and the cost of the ongoing
Phase 1 multiple ascending dose clinical trial of PRX-07034
for the treatment of obesity and cognitive impairment. In
addition, we recognized non-cash expense of approximately
$2.7 million resulting from our recognition of stock
compensation related to the implementation of SFAS 123(R)
in 2006 as compared to a credit of $1.8 million in 2005
based on the accounting for stock compensation under
APB 25. The credit in 2005 was primarily due to a reduction
in expense for options that were subject to variable accounting
as our stock price declined during 2005 as compared to 2004. In
addition, in the third quarter of 2006 we recorded a charge of
approximately $0.9 million for our obligation under the
settlement agreement reached with Dr. Prince in 2003 to
provide him with Vasovist product for the life of the agreement.
The increased costs in 2006 as described above were partially
offset by lower levels of spending on our Vasovist and EP-2104R
development programs and from lower expenditures on our MRI
research programs. In addition, we are no longer conducting
pre-clinical or clinical studies on any imaging product
candidates. Spending during 2006 for Vasovist primarily involved
legal and consulting costs related to our appeal to the FDA. In
addition, we completed a Phase 2 clinical trial for
EP-2104R the third quarter of 2006 and completed work on our MRI
discovery program in the second quarter of 2006. We do not
intend to continue development of EP-2104R and are actively
pursuing a partner to continue further development.
In-Process
Research and Development Charge
In connection with our acquisition of Predix, we incurred a
charge of $123.5 million for in-process research and
development The in-process research and development charge
represents the fair value of purchased in-process technology of
Predix for research projects that, as of the closing date of the
merger, had not reached technological feasibility and have no
alternative future use. This is a non-recurring charge. The
in-process
research and development primarily represents the fair value of
the following drug candidates: PRX-00023 ($70.9 million)
that, as of the date of the merger, was in Phase 3 clinical
trials for the treatment of GAD; PRX-03140 ($23.5 million)
that, as of the date of the merger had completed Phase 1
clinical trials for the treatment of Alzheimers disease;
PRX-08066 ($20.2 million) that, as of the date of the
merger, had entered Phase 2 clinical trials for the
treatment of pulmonary hypertension in association with COPD;
and PRX-07034 ($8.9 million) that, as of the date of the
merger, had entered Phase 1 clinical trials for the
treatment of obesity. We anticipate that we will continue to
spend a significant portion of our research and development
budget on advancing these four drug candidates through
additional clinical trials.
General
and Administrative Expenses
General and administrative expenses of $12.3 million for
the year ended December 31, 2006 reflects an increase of
27.9% from the prior year. The increase in general and
administrative expenses during 2006 is primarily due to
increased costs associated with the increase in personnel and
infrastructure relating to the Predix business that was acquired
on August 16, 2006. In addition, legal expenses for
patent-related matters and general corporate items increased due
to the increasing complexity of the post merger entity. In
addition, we recognized non-cash expense of approximately
$1.5 million resulting from our recognition of stock
compensation related to the implementation of SFAS 123(R)
as compared to a credit of $1.2 million in 2005 based on
the accounting for stock compensation under APB 25. The
credit in 2005 was primarily due to a reduction in expense for
options that were subject to variable accounting as our stock
price declined during 2005 as compared to 2004. In the first
quarter of 2007 we expect to incur approximately
$4.5 million of legal and accounting fees associated with
the stock option review.
Restructuring
Costs
Restructuring costs amounted to $0.6 million and
$1.0 million for the years ended December 31, 2006 and
2005, respectively. The costs incurred in 2005 related to
severance and benefits relating to the 2005 reduction in force.
In December 2005, we reduced our workforce by 48 employees, or
approximately 50%, in response to the FDAs second
approvable letter regarding Vasovist. The reductions, which were
completed in January 2006, affected both the research and
development and the general and administrative areas of the
company. The 2006 costs included approximately $0.4 related to
the 2005 restructuring plan for additional
67
severance costs as well as costs related to vacating certain
leased space and the write-off of leasehold improvements. In
addition, in the third quarter of 2006, we recorded additional
restructuring charges of $0.2 million for facility exit
costs related to the consolidation of our Cambridge, MA
headquarters into the former Predix headquarters in Lexington,
MA. These costs primarily consist of future lease payments
through the end of 2007 and the write off of leasehold
improvements. Additional restructuring costs are expected to be
incurred in 2007 for the consolidation of our leased laboratory
facility in Cambridge to our Lexington location. The timing and
amount of the additional restructuring costs will depend upon
the completion of laboratory construction at our Lexington
facility, which is currently anticipated to be in mid-2007.
Interest
Income and Interest Expense
Interest income of $5.5 million for the twelve months ended
December 31, 2006, represents an increase of 32.5% from
2005. The increase in interest income was primarily due to
higher interest rates on our invested cash, cash equivalents and
marketable securities during the period.
Interest expense of $5.1 million for the year ended
December 31, 2006, represents an increase of 40.5% from
2005. The increase in interest expense is primarily the result
of $1.4 million of interest related to the
$15.0 million milestone payment due to the former Predix
stockholders on October 29, 2007. The interest expense on
the milestone primarily represents the increase in value from
the date of acquisition of the embedded derivative included in
the merger consideration payable which provides for the
milestone payment to be paid in shares of our common stock based
on 75% of the
30-day
average closing price of our common stock ending on the trading
day that is ten days prior to the payment date. This embedded
derivative is recorded at its fair value and changes in the fair
value are recorded as interest expense. Under the terms of the
merger agreement, if the milestone cannot be paid in shares of
our common stock due to terms of the agreement, the payment plus
10% interest will be made in cash. The increase in interest
expense in 2006 was partially offset by lower interest expense
on our prior loan facility with Bayer Schering Pharma AG,
Germany as that facility was terminated by both parties in
January 2006.
Provision
for Income Taxes
The provision for income taxes represents Italian income taxes
related to the Bracco agreement. The amounts represent Italian
income taxes required to be withheld on Bracco royalties for
MultiHance sales. We expect to have Italian income taxes
withheld on Bracco royalties for the remainder of the agreement,
which will end in early 2007.
Years
ended December 31, 2005 and 2004
Revenues
Revenues for the years ended December 31, 2005 and 2004
were $7.2 million and $12.3 million, respectively.
Revenues for 2005 consisted of $4.2 million for product
development revenue from Bayer Schering Pharma AG, Germany,
$2.3 million for royalty revenue related to the Bracco and
Bayer Schering Pharma AG, Germany agreements and
$0.7 million for license fee revenue related to the Bayer
Schering Pharma AG, Germany, Tyco and Bracco agreements. The
decrease in total revenues of $5.1 million for the year
ended December 31, 2005 compared to the year ended
December 31, 2004 was attributed to lower product
development and license fee revenues, partly offset by higher
royalty revenue. The lower product development revenue accounted
for $3.4 million of the decrease between the two periods
and resulted from: (i) revenue adjustments related to the
overall increases in the costs and timeline to complete the
EP-2104R development program that were directly attributed to
amending our Phase II
proof-of-concept
clinical trial protocols for EP-2104R to include additional
patient safety monitoring; (ii) lower costs incurred in
2005 compared to 2004 for the EP-2104R development program
resulting in lower recognition of revenue during 2005; and
(iii) lower reimbursable costs from Bayer Schering Pharma
AG, Germany on the Vasovist program. The overall reduction in
product development revenue related to the Vasovist and EP-2104R
programs was partly offset by slightly higher revenue under the
research collaboration agreement with Bayer Schering Pharma AG,
Germany. The increase in royalty revenue in 2005 was primarily
attributed to the adjustment
68
recorded by us at the end of 2004 to reflect Braccos
revised determination of sales and its royalty overpayment
assertion. Royalty revenue in 2005 included royalties from sales
by Bracco of MultiHance and Bayer Schering Germanys sales
of Primovist. The license fee revenue in 2005 was lower than in
2004 primarily because of a non-repetitive Bracco FDA milestone
that was recognized in 2004 and, to a lesser extent, changes
made in 2005 to our estimate of the approval date for Vasovist
in the United States based on FDA actions.
Research
and Development Expenses
Our research and development expenses in 2005 and 2004 primarily
relate to development activities for Vasovist and EP-2104R and
from our imaging discovery research programs. Research and
development expenses for the year ended December 31, 2005
were $18.3 million compared to $23.2 million for the
same period in 2004. The decrease in research and development
expenses of $4.9 million during the year ended
December 31, 2005 resulted from lower spending for the
Vasovist and EP-2104R development programs and lower stock-based
compensation expense of $2.8 million, partly offset by
higher spending for our MRI and therapeutics research programs.
General
and Administrative Expenses
General and administrative expenses, which consist primarily of
salaries, benefits, outside professional services and related
costs associated with our executive, finance and accounting,
business development, marketing, human resources, legal and
corporate communications activities, were $9.6 million for
the year ended December 31, 2005 as compared to
$11.4 million for the year ended December 31, 2004.
The decrease in spending of $1.8 million by us resulted
from lower marketing expenses related to Vasovist and lower
stock-based compensation expense of $2.7 million, which was
partly offset by higher liability insurance premiums and higher
corporate administration, primarily attributed to legal costs,
combined with higher business development costs.
Restructuring
Costs
Restructuring costs for the year ended December 31, 2005
were $1.0 million as compared to $0 for the year ended
December 31, 2004. The restructuring costs related to
planned actions taken by management to control costs and improve
the focus of operations in order to reduce losses and conserve
cash. We announced a planned reduction in our workforce by 48
employees, or approximately 50%, in response to the FDAs
second approvable letter regarding Vasovist. The reductions,
which were completed in January 2006, affected both the research
and development and the general and administrative areas of the
company. We reported a charge of approximately $1.0 million
for severance and related benefits as of December 31, 2005.
Substantially all payments related to the separation of
employment were completed in the first quarter of 2006.
Interest
Income and Interest Expense
Interest income for the year ended December 31, 2005 was
$4.1 million as compared to $2.0 million for the year
ended December 31, 2004. The increase of $2.1 million
was primarily due to higher interest rates and higher average
levels of invested cash, cash equivalents and marketable
securities during 2005 as a result of receipt of the net
proceeds from the issuance of $100.0 million convertible
senior notes in June 2004. Interest expense for the years ended
December 31, 2005 and 2004 was $3.6 million and
$2.1 million, respectively. The increase in interest
expense of $1.5 million for the year ended
December 31, 2005 directly resulted from the issuance of
convertible senior notes in June 2004, partly offset by the
reduction in the outstanding balance of interest-bearing prepaid
royalties from Bracco and a reduction in interest expense
resulting from managements decision not to drawdown the
loan facility from Bayer Schering Pharma AG, Germany at the end
of 2005. In January 2006, we completed an agreement with Bayer
Schering Pharma AG, Germany to terminate the loan facility.
69
Provision
for Income Taxes
The provision for income taxes, which represents Italian income
taxes related to the Bracco agreement, was $42,000 for the year
ended December 31, 2005 as compared to $100,000 for the
year ended December 31, 2004. Since the remaining balance
of prepaid royalties were offset at the end of the third quarter
of 2005, Italian income taxes needed to be withheld on Bracco
royalties for MultiHance sales paid to us during the fourth
quarter of 2005.
Quarterly
Information
The following tables set forth our quarterly statements of
operations information for each of the four quarters in the year
ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
June 30, 2006
|
|
|
September 30, 2006
|
|
|
December 31, 2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,082,867
|
|
|
$
|
731,191
|
|
|
$
|
569,378
|
|
|
$
|
525,966
|
|
Royalty revenue
|
|
|
457,778
|
|
|
|
462,718
|
|
|
|
362,449
|
|
|
|
320,285
|
|
License fee revenue
|
|
|
161,597
|
|
|
|
161,597
|
|
|
|
413,802
|
|
|
|
790,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,702,242
|
|
|
|
1,355,506
|
|
|
|
1,345,629
|
|
|
|
1,637,165
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
43,795
|
|
|
|
28,233
|
|
|
|
31,778
|
|
|
|
959,296
|
|
Research and development
|
|
|
3,865,001
|
|
|
|
3,135,417
|
|
|
|
7,881,361
|
|
|
|
11,373,221
|
|
Acquired in-process research and
development
|
|
|
|
|
|
|
|
|
|
|
123,500,000
|
|
|
|
|
|
General and administrative
|
|
|
2,422,528
|
|
|
|
1,777,927
|
|
|
|
3,146,316
|
|
|
|
4,910,549
|
|
Restructuring costs
|
|
|
289,633
|
|
|
|
61,472
|
|
|
|
282,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,620,957
|
|
|
|
5,003,049
|
|
|
|
134,841,588
|
|
|
|
17,243,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,918,715
|
)
|
|
|
(3,647,543
|
)
|
|
|
(133,495,959
|
)
|
|
|
(15,605,901
|
)
|
Other income (expense), net
|
|
|
435,210
|
|
|
|
535,297
|
|
|
|
436,958
|
|
|
|
(987,232
|
)
|
Income taxes
|
|
|
43,816
|
|
|
|
43,818
|
|
|
|
31,551
|
|
|
|
26,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,527,321
|
)
|
|
$
|
(3,156,064
|
)
|
|
$
|
(133,090,552
|
)
|
|
$
|
(16,619,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,523,207
|
|
|
|
15,523,207
|
|
|
|
22,193,441
|
|
|
|
29,917,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(6.00
|
)
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005
|
|
|
June 30, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,475,819
|
|
|
$
|
|
|
|
$
|
1,475,819
|
|
|
$
|
314,026
|
|
|
$
|
|
|
|
$
|
314,026
|
|
Royalty revenue
|
|
|
444,289
|
|
|
|
|
|
|
|
444,289
|
|
|
|
578,321
|
|
|
|
|
|
|
|
578,321
|
|
License fee revenue
|
|
|
165,896
|
|
|
|
|
|
|
|
165,896
|
|
|
|
165,896
|
|
|
|
|
|
|
|
165,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,086,004
|
|
|
|
|
|
|
|
2,086,004
|
|
|
|
1,058,243
|
|
|
|
|
|
|
|
1,058,243
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
19,646
|
|
|
|
|
|
|
|
19,646
|
|
|
|
26,335
|
|
|
|
|
|
|
|
26,335
|
|
Research and development
|
|
|
5,339,318
|
|
|
|
(1,899,382
|
)
|
|
|
3,439,936
|
|
|
|
5,449,209
|
|
|
|
277,271
|
|
|
|
5,726,480
|
|
General and administrative
|
|
|
2,917,892
|
|
|
|
(1,152,796
|
)
|
|
|
1,765,096
|
|
|
|
2,732,417
|
|
|
|
152,665
|
|
|
|
2,885,082
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,276,856
|
|
|
|
(3,052,178
|
)
|
|
|
5,224,678
|
|
|
|
8,207,961
|
|
|
|
429,936
|
|
|
|
8,637,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,190,852
|
)
|
|
|
3,052,178
|
|
|
|
(3,138,674
|
)
|
|
|
(7,149,718
|
)
|
|
|
(429,936
|
)
|
|
|
(7,579,654
|
)
|
Other income (expense), net
|
|
|
(64,703
|
)
|
|
|
|
|
|
|
(64,703
|
)
|
|
|
53,634
|
|
|
|
|
|
|
|
53,634
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,255,555
|
)
|
|
$
|
3,052,178
|
|
|
$
|
(3,203,377
|
)
|
|
$
|
(7,096,084
|
)
|
|
$
|
(429,936
|
)
|
|
$
|
(7,526,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,484,451
|
|
|
|
|
|
|
|
15,484,451
|
|
|
|
15,504,798
|
|
|
|
|
|
|
|
15,504,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(0.40
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005
|
|
|
December 31, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,297,720
|
|
|
$
|
|
|
|
$
|
1,297,720
|
|
|
$
|
1,107,965
|
|
|
$
|
|
|
|
$
|
1,107,965
|
|
Royalty revenue
|
|
|
798,484
|
|
|
|
|
|
|
|
798,484
|
|
|
|
512,290
|
|
|
|
|
|
|
|
512,290
|
|
License fee revenue
|
|
|
165,894
|
|
|
|
|
|
|
|
165,894
|
|
|
|
163,061
|
|
|
|
|
|
|
|
163,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,262,098
|
|
|
|
|
|
|
|
2,262,098
|
|
|
|
1,783,316
|
|
|
|
|
|
|
|
1,783,316
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
32,463
|
|
|
|
|
|
|
|
32,463
|
|
|
|
19,645
|
|
|
|
|
|
|
|
19,645
|
|
Research and development
|
|
|
5,416,276
|
|
|
|
(134,052
|
)
|
|
|
5,282,224
|
|
|
|
3,942,921
|
|
|
|
(97,640
|
)
|
|
|
3,845,281
|
|
General and administrative
|
|
|
2,667,056
|
|
|
|
(116,032
|
)
|
|
|
2,551,024
|
|
|
|
2,456,864
|
|
|
|
(71,934
|
)
|
|
|
2,384,930
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
971,828
|
|
|
|
|
|
|
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,115,795
|
|
|
|
(250,084
|
)
|
|
|
7,865,711
|
|
|
|
7,391,258
|
|
|
|
(169,574
|
)
|
|
|
7,221,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,853,697
|
)
|
|
|
250,084
|
|
|
|
(5,603,613
|
)
|
|
|
(5,607,942
|
)
|
|
|
169,574
|
|
|
|
(5,438,368
|
)
|
Other income, net
|
|
|
193,940
|
|
|
|
|
|
|
|
193,940
|
|
|
|
350,471
|
|
|
|
|
|
|
|
350,471
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,991
|
|
|
|
|
|
|
|
41,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,659,757
|
)
|
|
$
|
250,084
|
|
|
$
|
(5,409,673
|
)
|
|
$
|
(5,299,462
|
)
|
|
$
|
169,574
|
|
|
$
|
(5,129,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,515,383
|
|
|
|
|
|
|
|
15,515,383
|
|
|
|
15,516,736
|
|
|
|
|
|
|
|
15,516,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(0.36
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
Our principal sources of liquidity consist of cash, cash
equivalents and
available-for-sale
marketable securities of $109.5 million at
December 31, 2006 as compared to $124.7 million at
December 31, 2005. The decrease in cash, cash equivalents
and
available-for-sale
marketable securities was primarily attributed to
71
funding of ongoing operations and a net cash payment of
$7.1 million to former Predix shareholders in connection
with the merger with Predix.
We used approximately $15.0 million of cash to fund
operating activities for year ended December 31, 2006,
which compares to $24.3 million to fund operations for the
same period in 2005. The decrease in the cash used to fund
operations in 2006 was primarily due to the receipt of
$17.5 million from GlaxoSmithKline in 2006. This increase
in cash was partially offset by increased payments of accrued
expenses in 2006 primarily related to the payment of accrued
merger-related liabilities that were assumed in the merger and a
decrease in the contract advance account resulting from the
offset of funds previously received from Bayer Schering Pharma
AG, Germany for the Vasovist, EP-2104R and MRI research programs.
Our investing activities used $35.6 million of cash during
the year ended December 31, 2006 as compared to
$37.8 million of cash provided for the same period last
year. The primary uses of cash from investing activities in 2006
was the net cash paid of $7.1 million in the Predix merger
(as a result of the milestone payment of $20.0 million less
net cash acquired) and the net purchase of marketable securities
of $26.9. million resulting from a strategy of purchasing
an increasing amount of securities with a greater than three
month maturity. The primary source of cash from investing
activities in 2005 was the net redemption of marketable
securities of $39.0 million which was partially offset by
$1.2 million of capital spending.
We generated $8.5 million in cash from financing activities
during the year ended December 31, 2006, which was
attributable to $17.5 million of common stock sold to
GlaxoSmithKline partially offset by the payment of
$9.5 million of bridge loans assumed in the Predix merger.
Financing activities in 2005 used $14.4 million in 2005
primarily from a net $15.0 million repayment of the loan
facility with Bayer Schering Pharma AG, Germany. This loan
facility was terminated in January 2006.
Our primary sources of cash include quarterly payments from CFFT
for research services, quarterly royalty payments from Bracco
from the sales of MultiHance and monthly interest income on our
cash, cash equivalents and
available-for-sale
marketable securities. With the expiration in 2006 of certain
patents related to the sublicense with Bracco, we expect royalty
payment from Bracco to end in the first quarter of 2007. In the
second half of 2006, we began receiving royalty payments
(approximately $75,000 for 2006) from sales of Vasovist by
Bayer Schering Pharma AG, Germany following the commercial
launch of the product in Europe, which began on a
country-by-country
basis in the second quarter of 2006. We expect royalty payments
from sales of Vasovist to slowly increase as the product is
introduced in other countries where it has been approved. Other
potential cash inflows include milestone payments from our
current strategic collaborators, GlaxoSmithKline, Amgen, CFFT
and Bayer Schering Pharma AG, Germany, including: a milestone
payment of $1.3 million from Bayer Schering Pharma AG,
Germany, which is dependent on the FDAs approval of
Vasovist.
Known outflows, in addition to our ongoing research and
development and general and administrative expenses, include the
following: $15.0 million milestone payment to the former
Predix shareholders due on October 29, 2007 primarily
payable in shares of our stock if certain conditions are met or
otherwise payable in cash; interest on our $100.0 million
convertible notes at a rate of 3% payable semi-annually on June
15 and December 15; semi-annual royalties that we owe to MGH on
sales by Bracco of MultiHance; a milestone payment of
$2.5 million owed to Tyco, which is dependent on the
FDAs approval of Vasovist.
We estimate that cash, cash equivalents and marketable
securities on hand as of December 31, 2006 and anticipated
revenue we will earn in 2007 and 2008, exclusive of any
significant milestone payments or opt-in fees, will fund our
operations through 2008. Our past stock option practices and the
restatement of our prior financial statements expose us to
greater risks associated with litigation and regulatory
proceedings. In the event of any litigation or regulatory
proceeding involving a negative finding or assertion by the SEC,
U.S. Attorney, court of law or any third party claim
related to our stock option practices, we may be liable for
damages, fines or other civil or criminal remedies or remedial
actions, or be required to further restate prior period
financial statements or adjust current period financial
statements. In addition, considerable legal and accounting
expenses related to these matters have been incurred to date and
significant expenditures may continue to be incurred in the
future.
72
If holders of our convertible senior notes require redemption of
the notes, we may be required to repay $100.0 million, plus
accrued and unpaid interest, on June 15, 2011, 2014 and
2019 and upon certain other designated events under the notes,
which include a change of control of us or termination of
trading of our common stock on the NASDAQ Global Market. Our
future liquidity and capital requirements will depend on
numerous factors, including the following: the progress and
scope of clinical and pre-clinical trials; the timing and costs
of filing future regulatory submissions; the timing and costs
required to receive both U.S. and foreign governmental
approvals; the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights;
the extent to which our products, if any, gain market
acceptance; the timing and costs of product introductions; the
extent of our ongoing and new research and development programs;
the costs of training physicians to become proficient with the
use of our potential products; and, if necessary, once
regulatory approvals are received, the costs of developing
marketing and distribution capabilities.
Because of anticipated spending for the continued development of
our pre-clinical and clinical compounds, we do not expect
positive cash flow from operating activities for at least the
next several years.
The following table represents payments due under contractual
obligations as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Long-term debt obligations,
including interest payments
|
|
$
|
113,500,000
|
|
|
$
|
3,000,000
|
|
|
$
|
6,000,000
|
|
|
$
|
104,500,000
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
18,921,918
|
|
|
|
3,600,142
|
|
|
|
5,186,591
|
|
|
|
4,593,417
|
|
|
|
5,541,768
|
|
Capital lease obligations
|
|
|
213,545
|
|
|
|
102,008
|
|
|
|
104,910
|
|
|
|
6,627
|
|
|
|
|
|
Unconditional purchase obligations
|
|
|
7,248,519
|
|
|
|
7,248,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger consideration payable
|
|
|
18,504,084
|
|
|
|
18,504,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
2,905,000
|
|
|
|
245,000
|
|
|
|
280,000
|
|
|
|
280,000
|
|
|
|
2,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,293,066
|
|
|
$
|
32,699,753
|
|
|
$
|
11,571,501
|
|
|
$
|
109,380,044
|
|
|
$
|
7,641,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The objective of our investment activities is to preserve
principal, while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, in
accordance with our investment policy, we invest our cash in a
variety of financial instruments, principally restricted to
government-sponsored enterprises, high-grade bank obligations,
high-grade corporate bonds and certain money market funds. These
investments are denominated in U.S. dollars.
Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest
rates or we may suffer losses in principal if forced to sell
securities that have seen a decline in market value due to
changes in interest rates. A hypothetical 10% increase or
decrease in interest rates would result in a change in the fair
market value of our total portfolio of approximately $127,000 at
December 31, 2006.
73
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
Index to Consolidated Financial Statements
|
|
Number
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Financial Statements:
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
F-3
|
|
Consolidated Statements of
Operations
|
|
|
F-4
|
|
Consolidated Statements of
Stockholders Equity (Deficit)
|
|
|
F-5
|
|
Consolidated Statements of Cash
Flows
|
|
|
F-6
|
|
Notes to Consolidated Financial
Statements
|
|
|
F-7
|
|
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
There have been no disagreements with accountants on accounting
or financial disclosure matters during our two most recent
fiscal years.
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
Stock
Option Grant Practices and Restatement
As discussed in Note 3 in our Notes to the Consolidated
Financial Statements of this
Form 10-K,
on December 8, 2006 our board of directors created a
special committee of independent directors to conduct a review
of our historical stock option practices. The special committee
has completed its investigation and has concluded that certain
employees, including certain members of our former senior
management, prior to the change in our senior management in
connection with the merger with Predix Pharmaceuticals Holdings,
Inc. on August 16, 2006, participated in the retrospective
selection of dates for the grant of certain stock options and
re-priced, as defined by financial accounting standards, certain
options during the period from 1997 through 2005. Accordingly,
our audit committee has concluded that, pursuant to Accounting
Principles Board No. 25 (APB 25) and related
interpretations, the accounting measurement date for the stock
option grants for which those members of our former senior
management had retrospectively selected grant dates for certain
grants awarded between February 1997 and March 2005, covering
options to purchase approximately 1.4 million shares of our
common stock, differed from the measurement dates previously
used for such stock awards. In addition, we determined that,
certain employees, including certain members of our former
senior management re-priced, as defined by financial accounting
standards, to lower prices approximately 0.9 million stock
options awarded during the period between June 1999 and
March 2005. In addition, during the course of the option review,
we identified approximately 0.1 million options in which
other dating errors resulted in stock options with grants dates
that failed to meet the measurement date criteria of APB 25.
Therefore, we have recorded additional non-cash stock-based
compensation expense and related tax effects with regard to past
stock option grants, all of which relate to options granted
between our initial public offering in 2007 and March 2005. As a
result of these adjustments, the companys consolidated
balance sheet as of December 31, 2005 and the related
consolidated statements of operations, stockholders equity
(deficit) and cash flows for each of the years ended
December 31, 2005 and 2004, and the companys
unaudited quarterly financial information for the interim
periods have been restated.
Remediation
of Past Material Weaknesses in Internal Control Over Financial
Reporting
As a result of this investigation, we identified certain
material weaknesses in our internal control over financial
reporting related to our stock option granting practices during
the years prior to 2006.
In connection with our implementation of the Sarbanes-Oxley Act
of 2002, we documented accounting policies, processes and
procedures, and assessed the design and operating effectiveness
of internal controls over our financial reporting including the
granting of stock options. Although there were controls put in
place relating to stock option granting practices, certain
employees, including certain members of our former senior
74
management during the years 1997 through 2005 overrode the
existing controls and procedures. In addition, there were
policies, processes and procedures in place surrounding the
financial reporting and accounting close process. Although these
financial reporting controls were followed, the persons
responsible for financial reporting and financial management
during the years 1997 through 2005 may not have had a full
appreciation for the accounting requirements for stock options.
In addition, on August 16, 2006 in connection with our
merger with Predix, we have had a significant change in our
senior and financial management. Our current Chief Executive
Officer and Chief Financial Officer joined EPIX in connection
with the Predix merger. All of the members of our current
financial management team were hired on or around the merger by
our current Chief Financial Officer.
As a result of this investigation we reviewed our existing
policies surrounding stock option processes and procedures and
our compensation committee adopted a formal written policy for
stock option awards. We believe that, since our merger with
Predix, our equity granting processes and practices have been
consistently adhered to, and are accounted for in accordance
with Generally Accepted Accounting Principles.
We believe that the change in senior and financial management
effectively remediated the past material weaknesses in our
internal control over financial reporting related to our stock
option granting practices and the related accounting and reduced
to remote the likelihood that any incorrect measurement dates or
any material error in accounting for stock options could have
occurred during the last fiscal year and not been detected as
part of our financial reporting close process. As a result, we
believe that the likelihood that a material error in our
financial statements could have originated during the last
fiscal year and not been detected as of December 31, 2006
is remote.
In addition to the change in senior and financial management
discussed above, we have adopted other measures identified by
the special committee and our board of directors to enhance the
oversight of the stock option granting and administration
function, including, but not limited to, the following:
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We have developed a formal written policy for stock option
awards granting effective March 28, 2007 which requires a
more regular schedule for when grants are made.
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|
Beginning in 2007, our compensation committee will perform
periodic reviews of our equity award granting policies.
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Beginning in 2007, stock option grants cannot be approved via
unanimous written consent.
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Beginning in 2007, our Chief Financial Officer will oversee the
stock option process.
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|
We will introduce additional controls related to the equity
award granting and administration process where necessary.
|
Evaluation
of Disclosure Controls and Procedures
Attached as exhibits to this report are certifications of our
CEO and CFO, which are required in accordance with
Rule 13a-14
of the Securities Exchange Act of 1934, as amended. This
Controls and Procedures section includes information
concerning the controls and controls evaluation referred to in
the certifications, and it should be read in conjunction with
the certifications for a more complete understanding of the
topics presented.
We carried out an evaluation, under the supervision and with the
participation of our management, including the CEO and CFO, of
the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, the CEO and CFO concluded
that, as of the end of the period covered in this report, our
disclosure controls and procedures were effective to ensure that
information required to be disclosed by the company in reports
that it files under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules
and forms, and that material information relating to our
consolidated operations is made known to our
75
management, including the CEO and CFO, particularly during the
period when our periodic reports are being prepared.
Changes
in Internal Controls over Financial Reporting
There was no change in our internal control over financial
reporting that occurred during the fourth quarter of 2006 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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Item 9B.
|
OTHER
INFORMATION
|
None
76
Managements
Report on Internal Controls
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934, as amended, as a
process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our
board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Our internal control over financial
reporting includes those policies and procedures that:
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pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflects transactions in and
dispositions of our assets;
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provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and
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provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2006.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on our assessment, management concludes that, as of
December 31, 2006, our internal control over financial
reporting is effective based on those criteria.
Our independent registered public accounting firm has issued an
audit report on our assessment of our internal control over
financial reporting. This report appears on page 78.
Changes in Internal Control over Financial
Reporting: There were no significant changes in
our internal control over financial reporting, identified in
connection with the evaluation of such internal control that
occurred during the fourth quarter of our last fiscal year that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
77
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
EPIX Pharmaceuticals, Inc.:
We have audited managements assessment, included in the
accompanying Managements Report on Internal Controls, that
EPIX Pharmaceuticals, Inc. maintained effective internal control
over financial reporting as of December 31, 2006, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). EPIX
Pharmaceuticals, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that EPIX
Pharmaceuticals, Inc. maintained effective internal control over
financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, EPIX Pharmaceuticals, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.), the
consolidated balance sheets of EPIX Pharmaceuticals, Inc. as of
December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2006 of EPIX Pharmaceuticals, Inc. and our
report dated April 9, 2007 expressed an unqualified opinion
thereon.
Boston, Massachusetts
April 9, 2007
78
PART III
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ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 31, 2006.
We have adopted a Corporate Code of Conduct and Ethics that
applies to all directors and employees, including our principal
executive, and financial and accounting officers. The Corporate
Code of Conduct and Ethics is posted on our website at
www.epixpharma.com.
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ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 31, 2006.
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ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 31, 2006.
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ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 31, 2006.
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ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required under this item is incorporated herein
by reference to the Companys definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be
filed with the Securities and Exchange Commission not later than
120 days after the close of the Companys fiscal year
ended December 31, 2006.
PART IV
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ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
Item 15(a).
The following documents are filed as part of this Annual Report
on
Form 10-K
Item 15(a)
(1) and (2).
See Index to Financial Statements at Item 8 to
this Annual Report on
Form 10-K.
Financial statement schedules have not been included because
they are not applicable or the information is included in the
financial statements or notes thereto.
79
The following is a list of exhibits filed as part of this Annual
Report on
Form 10-K.
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Exhibit
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|
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Number
|
|
Description
|
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3
|
.1@
|
|
Restated Certificate of
Incorporation of the Company. Filed as Exhibit 3.1 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
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3
|
.2@
|
|
Amended and Restated By-Laws of
the Company. Filed as Exhibit 4.2 to the Companys
Registration Statement on
Form S-8
filed July 1, 1997 (File
No. 333-30531)
and incorporated herein by reference.
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4
|
.1@
|
|
Specimen certificate for shares of
Common Stock of the Company. Filed as Exhibit 4.1 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006
(File No. 000-21863) and incorporated herein by
reference.
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4
|
.2@
|
|
Indenture dated as of June 7,
2004 between the Company and U.S. Bank National Association
as Trustee, relating to 3% Convertible Senior Notes due
June 15, 2024. Filed as Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed June 7, 2004 (File No. 000-21863) and incorporated
herein by reference.
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4
|
.3@
|
|
Warrant issued to RRD
International, LLC. Filed as Exhibit 4.3 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
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4
|
.4@
|
|
Warrant issued to General Electric
Capital Corporation. Filed as Exhibit 4.4 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
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4
|
.5@
|
|
Warrant issued to Oxford
Bioscience Management Partners II. Filed as
Exhibit 4.5 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
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10
|
.1@+
|
|
Amended and Restated License
Agreement between the Company and The General Hospital
Corporation dated July 10, 1995. Filed as
Exhibit 10.14 to the Companys Registration Statement
on
Form S-1
filed December 10, 1996 (File
No. 333-17581)
and incorporated herein by reference.
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10
|
.2@#
|
|
Amended and Restated 1992 Equity
Incentive Plan. Filed as Appendix A to the Companys 2003
Definitive Proxy Statement on Schedule 14A filed April 29,
2003 (File No. 000-21863) and incorporated herein by reference.
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10
|
.3@#
|
|
Form of Incentive Stock Option
Certificate. Filed as Exhibit 10.29 to the Companys
Registration Statement on
Form S-1
filed December 10, 1996 (File
No. 333-17581)
and incorporated herein by reference.
|
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10
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.4@#
|
|
Form of Nonstatutory Stock Option
Certificate. Filed as Exhibit 10.30 to the Companys
Registration Statement on
Form S-1
filed December 10, 1996 (File
No. 333-17581)
and incorporated herein by reference.
|
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10
|
.5@#
|
|
Amended and Restated
1996 Director Stock Option Plan. Filed as Appendix B to the
Companys 2003 Definitive Proxy Statement on Schedule 14A
filed April 29, 2003 (File No. 000-21863) and incorporated
herein by reference.
|
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10
|
.6@#
|
|
Amended and Restated 1996 Employee
Stock Purchase Plan. Filed as Appendix C to the Companys
2003 Definitive Proxy Statement on Schedule 14A filed
April 29, 2003 (File No. 000-21863) and incorporated herein
by reference.
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10
|
.7@
|
|
Short Form Lease from Trustees of
the Cambridge East Trust to the Company with a commencement date
of January 1, 1998. Filed as Exhibit 10.39 to the
Companys Registration Statement on
Form S-1
filed October 21, 1997 (File
No. 333-38399)
and incorporated herein by reference.
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10
|
.8@
|
|
First Amendment dated
February 8, 1999 to the Short Form Lease dated as of
July 7, 1998 with a commencement date as of January 1,
1998 between the Company and the Trustees of The Cambridge East
Trust. Filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
for the period ended March 31, 1999 (File No. 000-21863)
and incorporated herein by reference.
|
80
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|
Exhibit
|
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|
Number
|
|
Description
|
|
|
10
|
.9@
|
|
Second Amendment dated
June 30, 2000 to the Short Form Lease dated as of
July 7, 1998 with a commencement date as of January 1,
1998 between the Company and the Trustees of The Cambridge East
Trust. Filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
for the period ended June 30, 2000 and incorporated herein
by reference.
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10
|
.10@++
|
|
Amended and Restated Strategic
Collaboration Agreement dated as of June 9, 2000, among the
Company, Mallinckrodt Inc. (a Delaware corporation) and
Mallinckrodt Inc. (a New York corporation). Filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
|
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10
|
.11@++
|
|
Strategic Collaboration Agreement
dated as of June 9, 2000, between the Company and Schering
Aktiengesellschaft. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
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10
|
.12@
|
|
Stock Purchase Agreement, dated as
of June 9, 2000, between the Company and Schering Berlin
Venture Corporation. Filed as Exhibit 10.3 to the Companys
Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
|
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10
|
.13@
|
|
Standstill Agreement, dated as of
June 9, 2000, between the Company and Schering Berlin
Venture Corporation. Filed as Exhibit 10.4 to the Companys
Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
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10
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.14@++
|
|
Reacquisition Agreement dated
December 22, 2000 between the Company and Daiichi
Radioisotope Laboratories, Ltd. Filed as Exhibit 10.32 to
the Companys Annual Report on
Form 10-K
for the period ended December 31, 2000 (File No. 000-21863)
and incorporated herein by reference.
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10
|
.15@
|
|
Amendment No. 1 dated as of
December 22, 2000 to the Strategic Collaboration Agreement,
dated as of June 9, 2000, between the Company and Schering
Aktiengesellschaft. Filed as Exhibit 10.33 to the
Companys Annual Report on
Form 10-K
for the period ended December 31, 2000 (File No. 000-21863)
and incorporated herein by reference.
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10
|
.16@++
|
|
Worldwide License Agreement, dated
as of September 25, 2001, by and between the Company and
Bracco Imaging S.p.A. Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed September 25, 2001 (File No. 000-21863) and
incorporated herein by reference.
|
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10
|
.17@
|
|
Settlement and Release Agreement
dated as of September 25, 2001, by and between the Company
and Bracco Imaging S.p.A. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed September 25, 2001 (File No. 000-21863) and
incorporated herein by reference.
|
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10
|
.18@
|
|
Third Amendment, dated May 1,
2002, to the Short Form Lease dated as July 7, 1998 with a
commencement date as of January 1, 1998 between the Company
and the Trustees of the Cambridge East Trust. Filed as an
Exhibit 10.31 to the Companys Quarterly Report for
the period ended June 30, 2002 (File No. 000-21863) and
incorporated herein by reference.
|
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10
|
.19@++
|
|
Thrombus Development Agreement
between the Company and Schering Aktiengesellschaft, dated as of
May 26, 2003. Filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
for the period ended June 30, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
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10
|
.20@++
|
|
Collaborative Research Agreement
between the Company and Schering Aktiengesellschaft, dated as of
May 26, 2003. Filed as Exhibit 10.2 to the Companys
Quarterly Report on
Form 10-Q
for the period ended June 30, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
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10
|
.21@
|
|
Intellectual Property Agreement by
and between the Company and Dr. Martin R. Prince, dated
November 17, 2003. Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed November 18, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
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10
|
.22@++
|
|
Stock Purchase Agreement by and
between the Company and Dr. Martin R. Prince, dated as of
November 17, 2003. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed November 18, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.23@#
|
|
Description of Director
Compensation Arrangements. Filed as Exhibit 10.27 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004 (file No. 000-218039)
and incorporated herein by reference.
|
81
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|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.24@#
|
|
Named Executive Officer
Compensation Arrangements. Filed with the Companys Current
Report on
Form 8-K
filed February 16, 2006 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.25@#
|
|
Form of Indemnification Agreement.
Filed as Exhibit 10.29 to the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2004 (file No. 000-218039)
and incorporated herein by reference.
|
|
10
|
.26@
|
|
Form of Amendment to Stock Option
Agreement. Filed as Exhibit 10.30 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2004 (file No. 000-218039)
and incorporated herein by reference.
|
|
10
|
.27@#
|
|
Amendment to the Collaborative
Research Agreement dated as of May 26, 2003, between the
Company and Schering Aktiengesellschaft, dated
September 30, 2005. Filed as Exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed October 7, 2005 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.28@#
|
|
Employment Agreement between the
Company and Michael J. Astrue, dated September 21, 2005.
Filed as Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q
for the period ended September 30, 2005 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.29@#
|
|
Amendment Number One to Employment
Agreement between the Company and Michael J. Astrue, dated as of
March 7, 2006. Filed as Exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed March 9, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.30@#
|
|
Severance and Incentive Agreement
by and between the Company and Andrew Uprichard, M.D.,
dated September 14, 2005. Filed as Exhibit 10.3 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2005 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.31@#
|
|
Amendment to Severance and
Incentive Agreement by and between the Company and Andrew
Uprichard, M.D., dated as of May 19, 2006. Filed as
Exhibit 99.1 to the Companys Current Report on
Form 8-K
filed May 24, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.32@#
|
|
Separation Agreement between the
Company and Michael D. Webb, dated September 14, 2005.
Filed as Exhibit 10.4 to the Companys Quarterly
Report on
Form 10-Q
for the period ended September 30, 2005 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.33@
|
|
Consulting Agreement between the
Company and Michael J. Astrue, dated as of May 5, 2006.
Filed as Exhibit 99.2 to the Companys Current Report
on
Form 8-K
filed May 8, 2006 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.34@
|
|
Retention Agreement by and between
the Company and Robert Pelletier, dated as of July 25,
2006. Filed as Exhibit 99.1 to the Companys Current
Report on
Form 8-K
filed July 26, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.35@
|
|
Consulting Agreement by and
between the Company and Robert Pelletier, dated as of
July 25, 2006. Filed as Exhibit 99.2 to the
Companys Current Report on
Form 8-K
filed July 26, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.36@
|
|
Predix Pharmaceuticals Holdings,
Inc. Amended and Restated 2003 Stock Incentive Plan. Filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.37@
|
|
Physiome Sciences, Inc. Stock
Option Plan (as amended September 21, 2001). Filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.38@++
|
|
Amended and Restated License
Agreement between Ramot at Tel Aviv University Ltd., Company
Registration No. 51-066714-0 and Predix Pharmaceuticals
Holdings, Inc., dated as of May 20, 2004. Filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.39@++
|
|
Research, Development and
Commercialization Agreement between Predix Pharmaceuticals
Holdings, Inc. and Cystic Fibrosis Foundation Therapeutics
Incorporated, dated as of March 7, 2005. Filed as
Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
82
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.40@++
|
|
License Agreement between Amgen
Inc. and Predix Pharmaceuticals Holdings, Inc., dated as of
July 31, 2006. Filed as Exhibit 10.5 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.41@
|
|
Lease by and between Trustees of 4
Maguire Road Realty Trust and Predix Pharmaceuticals Holdings,
Inc., dated as of January 30, 1998, as amended by First
Amendment to Lease by and between Trustees of 4 Maguire Road
Realty Trust and EPIX Delaware, Inc., dated as of
August 31, 2006. Filed as Exhibit 10.6 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.42@
|
|
Lease Agreement by and between 150
College Road, LLC and Physiome Sciences, Inc., dated as of
December 21, 2000, as amended. Filed as Exhibit 10.7
to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.43@
|
|
Sublease by and between Predix
Pharmaceuticals Holdings, Inc. and Novo Nordisk Pharmaceuticals,
Inc., dated as of December 12, 2003. Filed as
Exhibit 10.8 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.44@
|
|
Unprotected Lease Agreement
between Emed Real Estate Development and Investments
Company Ltd. and Predix Pharmaceuticals Ltd., dated as of
September 26, 2004. Filed as Exhibit 10.9 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.45@#
|
|
Bio-I.T. (Bio Information
Technologies) Ltd. Employment Agreement between Bio-I.T. (Bio
Information Technologies) Ltd. and Dr. Silvia Noiman, dated
as of October 31, 2000. Filed as Exhibit 10.11 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.46@#
|
|
Predix Pharmaceuticals, Inc.
Employment Agreement between Predix Pharmaceuticals, Inc. and
Chen Schor, dated as of November 23, 2003. Filed as
Exhibit 10.13 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.47@#
|
|
Bio-I.T. (Bio Information
Technologies) Ltd. Employment Agreement between Bio-I.T. (Bio
Information Technologies) Ltd. and Dr. Oren Becker, dated
as of October 31, 2000. Filed as Exhibit 10.14 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.48@#
|
|
Employment Agreement between
Predix Pharmaceuticals, Inc. and Stephen R. Donahue, M.D.,
dated as of September 24, 2004. Filed as Exhibit 10.15
to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.49@#
|
|
Release Agreement by and between
the Company and Silvia Noiman, dated as of November 10,
2006. Filed as Exhibit 10.1 to the Companys Current
Report on
Form 8-K
filed November 13, 2006 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.50@++
|
|
Development and License Agreement
among SmithKline Beecham Corporation, doing business as
GlaxoSmithKline, Glaxo Group Limited and the Company, dated as
of December 11, 2006. Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K/A
filed January 18, 2007 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.51@
|
|
Stock Purchase Agreement among the
Company, Glaxo Group Limited and SmithKline Beecham Corporation,
doing business as GlaxoSmithKline, dated as of December 11,
2006. Filed as Exhibit 10.2 to the Companys Current Report
on
Form 8-K/A
filed January 18, 2007 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.52*
|
|
First Amendment to License
Agreement between Amgen Inc. and the Company, dated as of
March 20, 2007.
|
|
10
|
.53@#
|
|
Employment Agreement between the
Company and Kimberlee C. Drapkin, dated as of March 26,
2007. Filed as Exhibit 10.1 to the Companys Current
Report on
Form 8-K
filed March 29, 2007.
|
83
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.54@#
|
|
Employment Agreement between the
Company and Michael G. Kauffman, M.D., Ph.D., dated as of
March 27, 2007. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed March 29, 2007.
|
|
10
|
.55@#
|
|
Release Agreement by and between
the Company and Oren Becker, dated as of April 5, 2007.
Filed as Exhibit 10.1 to the Companys Current Report
on
Form 8-K
filed April 6, 2007
(File No. 000-21863)
and incorporated herein by reference.
|
|
12
|
.1*
|
|
Ratio of Earnings to Fixed Charges
|
|
14
|
.1@
|
|
The Companys Code of Conduct
and Ethics. Filed as Exhibit 14.1 to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2003 (File No.
000-21863) and incorporated herein by reference.
|
|
21
|
.1*
|
|
Subsidiaries of the Company
|
|
23
|
.1*
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
31
|
.1*
|
|
Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 for Michael
G. Kauffman.
|
|
31
|
.2*
|
|
Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 for Kim C.
Drapkin.
|
|
32
|
*
|
|
Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections
(a) and (b) of Section 1350, Chapter 63 of
Title 18, U.S. Code)
|
|
|
|
@ |
|
Incorporated by reference as indicated. |
|
* |
|
Filed herewith. |
|
# |
|
Identifies a management contract or compensatory plan or
agreement in which an executive officer or director of the
Company participates. |
|
+ |
|
Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of
1933, as amended. |
|
++ |
|
Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to
Rule 24b-2
of the Securities Exchange Act of 1934, as amended. |
84
SIGNATURES
Pursuant to the requirements of Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
EPIX PHARMACEUTICALS, INC.
Kim C. Drapkin, CPA
Chief Financial Officer
(Principal Financial and Accounting Officer)
April 10, 2007
Pursuant to the requirements of the Securities Act of 1934, this
Report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ MICHAEL
G. KAUFFMAN,
Michael
G. Kauffman, M.D., Ph.D.
|
|
Chief Executive Officer and
Director
(Principal Executive Officer)
|
|
April 10, 2007
|
|
|
|
|
|
/s/ KIM
C. DRAPKIN
Kim
C. Drapkin, CPA
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
April 10, 2007
|
|
|
|
|
|
/s/ CHRISTOPHER
F.O. GABRIELI
Christopher
F.O. Gabrieli
|
|
Chairman of the Board of Directors
|
|
April 10, 2007
|
|
|
|
|
|
/s/ FREDERICK
FRANK
Frederick
Frank
|
|
Vice Chairman of the Board of
Directors
|
|
April 10, 2007
|
|
|
|
|
|
/s/ PATRICK
J. FORTUNE,
Patrick
J. Fortune, Ph.D.
|
|
Director
|
|
April 10, 2007
|
|
|
|
|
|
/s/ MICHAEL
GILMAN,
Michael
Gilman, Ph.D.
|
|
Director
|
|
April 10, 2007
|
|
|
|
|
|
/s/ MARK
LEUCHTENBERGER
Mark
Leuchtenberger
|
|
Director
|
|
April 10, 2007
|
|
|
|
|
|
/s/ ROBERT
J. PEREZ
Robert
J. Perez
|
|
Director
|
|
April 10, 2007
|
|
|
|
|
|
/s/ GREGORY
D. PHELPS
Gregory
D. Phelps
|
|
Director
|
|
April 10, 2007
|
|
|
|
|
|
/s/ IAN
F. SMITH
Ian
F. Smith, CPA, ACA
|
|
Director
|
|
April 10, 2007
|
85
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1@
|
|
Restated Certificate of
Incorporation of the Company. Filed as Exhibit 3.1 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
3
|
.2@
|
|
Amended and Restated By-Laws of
the Company. Filed as Exhibit 4.2 to the Companys
Registration Statement on
Form S-8
filed July 1, 1997 (File
No. 333-30531)
and incorporated herein by reference.
|
|
4
|
.1@
|
|
Specimen certificate for shares of
Common Stock of the Company. Filed as Exhibit 4.1 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006
(File No. 000-21863) and incorporated herein by
reference.
|
|
4
|
.2@
|
|
Indenture dated as of June 7,
2004 between the Company and U.S. Bank National Association
as Trustee, relating to 3% Convertible Senior Notes due
June 15, 2024. Filed as Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed June 7, 2004 (File No. 000-21863) and incorporated
herein by reference.
|
|
4
|
.3@
|
|
Warrant issued to RRD
International, LLC. Filed as Exhibit 4.3 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
4
|
.4@
|
|
Warrant issued to General Electric
Capital Corporation. Filed as Exhibit 4.4 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
4
|
.5@
|
|
Warrant issued to Oxford
Bioscience Management Partners II. Filed as
Exhibit 4.5 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006
(File No. 000-21863) and incorporated herein by
reference.
|
|
10
|
.1@+
|
|
Amended and Restated License
Agreement between the Company and The General Hospital
Corporation dated July 10, 1995. Filed as
Exhibit 10.14 to the Companys Registration Statement
on
Form S-1
filed December 10, 1996 (File
No. 333-17581)
and incorporated herein by reference.
|
|
10
|
.2@#
|
|
Amended and Restated 1992 Equity
Incentive Plan. Filed as Appendix A to the Companys 2003
Definitive Proxy Statement on Schedule 14A filed April 29,
2003 (File No. 000-21863) and incorporated herein by reference.
|
|
10
|
.3@#
|
|
Form of Incentive Stock Option
Certificate. Filed as Exhibit 10.29 to the Companys
Registration Statement on
Form S-1
filed December 10, 1996 (File
No. 333-17581)
and incorporated herein by reference.
|
|
10
|
.4@#
|
|
Form of Nonstatutory Stock Option
Certificate. Filed as Exhibit 10.30 to the Companys
Registration Statement on
Form S-1
filed December 10, 1996 (File
No. 333-17581)
and incorporated herein by reference.
|
|
10
|
.5@#
|
|
Amended and Restated
1996 Director Stock Option Plan. Filed as Appendix B to the
Companys 2003 Definitive Proxy Statement on Schedule 14A
filed April 29, 2003 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.6@#
|
|
Amended and Restated 1996 Employee
Stock Purchase Plan. Filed as Appendix C to the Companys
2003 Definitive Proxy Statement on Schedule 14A filed
April 29, 2003 (File No. 000-21863) and incorporated herein
by reference.
|
|
10
|
.7@
|
|
Short Form Lease from Trustees of
the Cambridge East Trust to the Company with a commencement date
of January 1, 1998. Filed as Exhibit 10.39 to the
Companys Registration Statement on
Form S-1
filed October 21, 1997 (File
No. 333-38399)
and incorporated herein by reference.
|
|
10
|
.8@
|
|
First Amendment dated
February 8, 1999 to the Short Form Lease dated as of
July 7, 1998 with a commencement date as of January 1,
1998 between the Company and the Trustees of The Cambridge East
Trust. Filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
for the period ended March 31, 1999 (File No. 000-21863)
and incorporated herein by reference.
|
86
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.9@
|
|
Second Amendment dated
June 30, 2000 to the Short Form Lease dated as of
July 7, 1998 with a commencement date as of January 1,
1998 between the Company and the Trustees of The Cambridge East
Trust. Filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
for the period ended June 30, 2000 and incorporated herein
by reference.
|
|
10
|
.10@++
|
|
Amended and Restated Strategic
Collaboration Agreement dated as of June 9, 2000, among the
Company, Mallinckrodt Inc. (a Delaware corporation) and
Mallinckrodt Inc. (a New York corporation). Filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.11@++
|
|
Strategic Collaboration Agreement
dated as of June 9, 2000, between the Company and Schering
Aktiengesellschaft. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.12@
|
|
Stock Purchase Agreement, dated as
of June 9, 2000, between the Company and Schering Berlin
Venture Corporation. Filed as Exhibit 10.3 to the Companys
Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.13@
|
|
Standstill Agreement, dated as of
June 9, 2000, between the Company and Schering Berlin
Venture Corporation. Filed as Exhibit 10.4 to the Companys
Current Report on
Form 8-K
filed June 29, 2000 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.14@++
|
|
Reacquisition Agreement dated
December 22, 2000 between the Company and Daiichi
Radioisotope Laboratories, Ltd. Filed as Exhibit 10.32 to
the Companys Annual Report on
Form 10-K
for the period ended December 31, 2000 (File No. 000-21863)
and incorporated herein by reference.
|
|
10
|
.15@
|
|
Amendment No. 1 dated as of
December 22, 2000 to the Strategic Collaboration Agreement,
dated as of June 9, 2000, between the Company and Schering
Aktiengesellschaft. Filed as Exhibit 10.33 to the
Companys Annual Report on
Form 10-K
for the period ended December 31, 2000 (File No. 000-21863)
and incorporated herein by reference.
|
|
10
|
.16@++
|
|
Worldwide License Agreement, dated
as of September 25, 2001, by and between the Company and
Bracco Imaging S.p.A. Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed September 25, 2001 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.17@
|
|
Settlement and Release Agreement
dated as of September 25, 2001, by and between the Company
and Bracco Imaging S.p.A. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed September 25, 2001 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.18@
|
|
Third Amendment, dated May 1,
2002, to the Short Form Lease dated as July 7, 1998 with a
commencement date as of January 1, 1998 between the Company
and the Trustees of the Cambridge East Trust. Filed as an
Exhibit 10.31 to the Companys Quarterly Report for
the period ended June 30, 2002 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.19@++
|
|
Thrombus Development Agreement
between the Company and Schering Aktiengesellschaft, dated as of
May 26, 2003. Filed as Exhibit 10.1 to the Companys
Quarterly Report on
Form 10-Q
for the period ended June 30, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.20@++
|
|
Collaborative Research Agreement
between the Company and Schering Aktiengesellschaft, dated as of
May 26, 2003. Filed as Exhibit 10.2 to the Companys
Quarterly Report on
Form 10-Q
for the period ended June 30, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.21@
|
|
Intellectual Property Agreement by
and between the Company and Dr. Martin R. Prince, dated
November 17, 2003. Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed November 18, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.22@++
|
|
Stock Purchase Agreement by and
between the Company and Dr. Martin R. Prince, dated as of
November 17, 2003. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed November 18, 2003 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.23@#
|
|
Description of Director
Compensation Arrangements. Filed as Exhibit 10.27 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004 (file No. 000-218039)
and incorporated herein by reference.
|
87
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.24@#
|
|
Named Executive Officer
Compensation Arrangements. Filed with the Companys Current
Report on
Form 8-K
filed February 16, 2006 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.25@#
|
|
Form of Indemnification Agreement.
Filed as Exhibit 10.29 to the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2004 (file No. 000-218039)
and incorporated herein by reference.
|
|
10
|
.26@
|
|
Form of Amendment to Stock Option
Agreement. Filed as Exhibit 10.30 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2004 (file No. 000-218039)
and incorporated herein by reference.
|
|
10
|
.27@#
|
|
Amendment to the Collaborative
Research Agreement dated as of May 26, 2003, between the
Company and Schering Aktiengesellschaft, dated
September 30, 2005. Filed as Exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed October 7, 2005 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.28@#
|
|
Employment Agreement between the
Company and Michael J. Astrue, dated September 21, 2005.
Filed as Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q
for the period ended September 30, 2005 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.29@#
|
|
Amendment Number One to Employment
Agreement between the Company and Michael J. Astrue, dated as of
March 7, 2006. Filed as Exhibit 99.1 to the
Companys Current Report on
Form 8-K
filed March 9, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.30@
|
|
Severance and Incentive Agreement
by and between the Company and Andrew Uprichard, M.D.,
dated September 14, 2005. Filed as Exhibit 10.3 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2005 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.31@#
|
|
Amendment to Severance and
Incentive Agreement by and between the Company and
Andrew Uprichard, M.D., dated as of May 19, 2006.
Filed as Exhibit 99.1 to the Companys Current Report
on
Form 8-K
filed May 24, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.32@#
|
|
Separation Agreement between the
Company and Michael D. Webb, dated September 14, 2005.
Filed as Exhibit 10.4 to the Companys Quarterly
Report on
Form 10-Q
for the period ended September 30, 2005 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.33@
|
|
Consulting Agreement between the
Company and Michael J. Astrue, dated as of May 5, 2006.
Filed as Exhibit 99.2 to the Companys Current Report
on
Form 8-K
filed May 8, 2006 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.34@
|
|
Retention Agreement by and between
the Company and Robert Pelletier, dated as of July 25,
2006. Filed as Exhibit 99.1 to the Companys Current
Report on
Form 8-K
filed July 26, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.35@
|
|
Consulting Agreement by and
between the Company and Robert Pelletier, dated as of
July 25, 2006. Filed as Exhibit 99.2 to the
Companys Current Report on
Form 8-K
filed July 26, 2006 (File No. 000-21863) and incorporated
herein by reference.
|
|
10
|
.36@
|
|
Predix Pharmaceuticals Holdings,
Inc. Amended and Restated 2003 Stock Incentive Plan. Filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.37@
|
|
Physiome Sciences, Inc. Stock
Option Plan (as amended September 21, 2001). Filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.38@++
|
|
Amended and Restated License
Agreement between Ramot at Tel Aviv University Ltd., Company
Registration No. 51-066714-0 and Predix Pharmaceuticals
Holdings, Inc., dated as of May 20, 2004. Filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
88
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.39@++
|
|
Research, Development and
Commercialization Agreement between Predix Pharmaceuticals
Holdings, Inc. and Cystic Fibrosis Foundation Therapeutics
Incorporated, dated as of March 7, 2005. Filed as
Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.40@++
|
|
License Agreement between Amgen
Inc. and Predix Pharmaceuticals Holdings, Inc., dated as of
July 31, 2006. Filed as Exhibit 10.5 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.41@
|
|
Lease by and between Trustees of 4
Maguire Road Realty Trust and Predix Pharmaceuticals Holdings,
Inc., dated as of January 30, 1998, as amended by First
Amendment to Lease by and between Trustees of 4 Maguire Road
Realty Trust and EPIX Delaware, Inc., dated as of
August 31, 2006. Filed as Exhibit 10.6 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.42@
|
|
Lease Agreement by and between 150
College Road, LLC and Physiome Sciences, Inc., dated as of
December 21, 2000, as amended. Filed as Exhibit 10.7
to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.43@
|
|
Sublease by and between Predix
Pharmaceuticals Holdings, Inc. and Novo Nordisk Pharmaceuticals,
Inc., dated as of December 12, 2003. Filed as
Exhibit 10.8 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.44@
|
|
Unprotected Lease Agreement
between Emed Real Estate Development and
Investments Company Ltd. and Predix Pharmaceuticals Ltd., dated
as of September 26, 2004. Filed as Exhibit 10.9 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.45@#
|
|
Bio-I.T. (Bio Information
Technologies) Ltd. Employment Agreement between Bio-I.T. (Bio
Information Technologies) Ltd. and Dr. Silvia Noiman, dated
as of October 31, 2000. Filed as Exhibit 10.11 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.46@#
|
|
Predix Pharmaceuticals, Inc.
Employment Agreement between Predix Pharmaceuticals, Inc. and
Chen Schor, dated as of November 23, 2003. Filed as
Exhibit 10.13 to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.47@#
|
|
Bio-I.T. (Bio Information
Technologies) Ltd. Employment Agreement between Bio-I.T. (Bio
Information Technologies) Ltd. and Dr. Oren Becker, dated
as of October 31, 2000. Filed as Exhibit 10.14 to the
Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.48@#
|
|
Employment Agreement between
Predix Pharmaceuticals, Inc. and Stephen R. Donahue, M.D.,
dated as of September 24, 2004. Filed as Exhibit 10.15
to the Companys Quarterly Report on
Form 10-Q
for the period ended September 30, 2006 (File No.
000-21863) and incorporated herein by reference.
|
|
10
|
.49@#
|
|
Release Agreement by and between
the Company and Silvia Noiman, dated as of November 10,
2006. Filed as Exhibit 10.1 to the Companys Current
Report on
Form 8-K
filed November 13, 2006 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.50@++
|
|
Development and License Agreement
among SmithKline Beecham Corporation, doing business as
GlaxoSmithKline, Glaxo Group Limited and the Company, dated as
of December 11, 2006. Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K/A
filed January 18, 2007 (File No. 000-21863) and
incorporated herein by reference.
|
|
10
|
.51@
|
|
Stock Purchase Agreement among the
Company, Glaxo Group Limited and SmithKline Beecham Corporation,
doing business as GlaxoSmithKline, dated as of December 11,
2006. Filed as Exhibit 10.2 to the Companys Current Report
on
Form 8-K/A
filed January 18, 2007 (File No. 000-21863) and
incorporated herein by reference.
|
89
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.52*
|
|
First Amendment to License
Agreement between Amgen Inc. and the Company, dated as of
March 20, 2007.
|
|
10
|
.53@#
|
|
Employment Agreement between the
Company and Kimberlee C. Drapkin, dated as of March 26,
2007. Filed as Exhibit 10.1 to the Companys Current
Report on
Form 8-K
filed March 29, 2007.
|
|
10
|
.54@#
|
|
Employment Agreement between the
Company and Michael G. Kauffman, M.D., Ph.D., dated as of
March 27, 2007. Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed March 29, 2007.
|
|
10
|
.55@#
|
|
Release Agreement by and between
the Company and Oren Becker, dated as of April 5, 2007.
Filed as Exhibit 10.1 to the Companys Current Report
on
Form 8-K
filed April 6, 2007
(File No. 000-21863)
and incorporated herein by reference.
|
|
12
|
.1*
|
|
Ratio of Earnings to Fixed Charges
|
|
14
|
.1@
|
|
The Companys Code of Conduct
and Ethics. Filed as Exhibit 14.1 to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2003 (File No.
000-21863) and incorporated herein by reference.
|
|
21
|
.1*
|
|
Subsidiaries of the Company
|
|
23
|
.1*
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
31
|
.1*
|
|
Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 for Michael
G. Kauffman.
|
|
31
|
.2*
|
|
Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 for Kim C.
Drapkin.
|
|
32
|
*
|
|
Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections
(a) and (b) of Section 1350, Chapter 63 of
Title 18, U.S. Code)
|
|
|
|
@ |
|
Incorporated by reference as indicated. |
|
* |
|
Filed herewith. |
|
# |
|
Identifies a management contract or compensatory plan or
agreement in which an executive officer or director of the
Company participates. |
|
+ |
|
Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of
1933, as amended. |
|
++ |
|
Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to
Rule 24b-2
of the Securities Exchange Act of 1934, as amended. |
90
EPIX
PHARMACEUTICALS, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
F-2
|
Consolidated Financial Statements
|
|
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
EPIX Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of EPIX
Pharmaceuticals, Inc. (formerly EPIX Medical, Inc.) as of
December 31, 2006 and 2005, and the related statements of
operations, stockholders equity(deficit), and cash flows
for each of the three years in the period ended
December 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of EPIX Pharmaceuticals, Inc. at December 31, 2006 and
2005, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2006, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 3, Restatement of Consolidated
Financial Statements, the Company has restated previously
issued financial statements as of December 31, 2005 and for
the years in the two year period ended December 31, 2005 to
correct for stock-based compensation.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
the provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share Based Payment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.), the
effectiveness of EPIX Pharmaceuticals, Inc.s internal
control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated April 9, 2007
expressed an unqualified opinion thereon.
Boston, Massachusetts
April 9, 2007
F-2
EPIX
PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,332,468
|
|
|
$
|
72,502,906
|
|
Available-for-sale
marketable securities
|
|
|
79,210,430
|
|
|
|
52,225,590
|
|
Accounts receivable
|
|
|
46,367
|
|
|
|
149,287
|
|
Prepaid expenses and other assets
|
|
|
2,575,265
|
|
|
|
346,919
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
112,164,530
|
|
|
|
125,224,702
|
|
Property and equipment, net
|
|
|
3,592,570
|
|
|
|
2,517,859
|
|
Other assets
|
|
|
4,330,578
|
|
|
|
2,973,155
|
|
Goodwill
|
|
|
4,939,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,027,492
|
|
|
$
|
130,715,716
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,982,032
|
|
|
$
|
1,268,325
|
|
Accrued expenses
|
|
|
7,695,548
|
|
|
|
5,196,040
|
|
Contract advances
|
|
|
4,605,079
|
|
|
|
6,112,549
|
|
Merger consideration payable
|
|
|
18,504,084
|
|
|
|
|
|
Current portion of capital lease
obligation
|
|
|
84,633
|
|
|
|
|
|
Deferred revenue
|
|
|
3,665,120
|
|
|
|
435,861
|
|
Other current liabilities
|
|
|
446,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
36,982,633
|
|
|
|
13,012,775
|
|
Deferred revenue
|
|
|
17,101,165
|
|
|
|
755,647
|
|
Capital lease obligation
|
|
|
102,077
|
|
|
|
|
|
Other liabilities
|
|
|
2,862,898
|
|
|
|
|
|
Convertible debt
|
|
|
100,000,000
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
157,048,773
|
|
|
|
113,768,422
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par
value, 1,000,000 shares authorized; no shares issued
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par
value, 100,000,000 shares authorized; 32,524,726 and
15,523,207 shares issued and outstanding at
December 31, 2006 and 2005, respectively
|
|
|
325,247
|
|
|
|
155,232
|
|
Additional
paid-in-capital
|
|
|
312,984,862
|
|
|
|
204,833,760
|
|
Accumulated deficit
|
|
|
(345,368,698
|
)
|
|
|
(187,975,500
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
37,308
|
|
|
|
(66,198
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
(32,021,281
|
)
|
|
|
16,947,294
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity (deficit)
|
|
$
|
125,027,492
|
|
|
$
|
130,715,716
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
EPIX
PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
2,909,402
|
|
|
$
|
4,195,530
|
|
|
$
|
7,594,280
|
|
Royalty revenue
|
|
|
1,603,230
|
|
|
|
2,333,384
|
|
|
|
626,685
|
|
License fee revenue
|
|
|
1,527,910
|
|
|
|
660,747
|
|
|
|
4,037,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,040,542
|
|
|
|
7,189,661
|
|
|
|
12,258,601
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
1,063,102
|
|
|
|
98,089
|
|
|
|
31,000
|
|
Research and development
|
|
|
26,255,000
|
|
|
|
18,293,921
|
|
|
|
23,182,480
|
|
Acquired in-process research and
development
|
|
|
123,500,000
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
12,257,320
|
|
|
|
9,586,132
|
|
|
|
11,395,852
|
|
Restructuring costs
|
|
|
633,238
|
|
|
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
163,708,660
|
|
|
|
28,949,970
|
|
|
|
34,609,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(157,668,118
|
)
|
|
|
(21,760,309
|
)
|
|
|
(22,350,731
|
)
|
Interest income
|
|
|
5,496,081
|
|
|
|
4,146,532
|
|
|
|
1,958,152
|
|
Interest expense
|
|
|
(5,075,848
|
)
|
|
|
(3,613,190
|
)
|
|
|
(2,128,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(157,247,885
|
)
|
|
|
(21,226,967
|
)
|
|
|
(22,521,317
|
)
|
Provision for income taxes
|
|
|
145,313
|
|
|
|
41,991
|
|
|
|
99,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(157,393,198
|
)
|
|
$
|
(21,268,958
|
)
|
|
$
|
(22,621,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,789,388
|
|
|
|
15,505,458
|
|
|
|
15,259,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(7.57
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(1.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
EPIX
PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Stockholders
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
(Deficit)
|
|
|
Balance at December 31, 2003
(as reported)
|
|
|
14,879,095
|
|
|
$
|
148,791
|
|
|
$
|
188,926,344
|
|
|
$
|
(134,952,516
|
)
|
|
$
|
33,953
|
|
|
$
|
54,156,572
|
|
Adjustments to opening
stockholders equity
|
|
|
|
|
|
|
|
|
|
|
8,471,069
|
|
|
|
(9,132,804
|
)
|
|
|
|
|
|
|
(661,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
(as restated)
|
|
|
14,879,095
|
|
|
|
148,791
|
|
|
|
197,397,413
|
|
|
|
(144,085,320
|
)
|
|
|
33,953
|
|
|
|
53,494,837
|
|
Issuance of common stock upon
exercise of options
|
|
|
482,369
|
|
|
|
4,824
|
|
|
|
5,214,215
|
|
|
|
|
|
|
|
|
|
|
|
5,219,039
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
10,639
|
|
|
|
106
|
|
|
|
232,003
|
|
|
|
|
|
|
|
|
|
|
|
232,109
|
|
Issuance of common stock
|
|
|
88,000
|
|
|
|
880
|
|
|
|
2,338,160
|
|
|
|
|
|
|
|
|
|
|
|
2,339,040
|
|
Stock-based compensation expense
(as restated)
|
|
|
|
|
|
|
|
|
|
|
2,092,885
|
|
|
|
|
|
|
|
|
|
|
|
2,092,885
|
|
Net loss (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,621,222
|
)
|
|
|
|
|
|
|
(22,621,222
|
)
|
Available-for-sale
marketable securities unrealized loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(280,836
|
)
|
|
|
(280,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,902,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
(as restated)
|
|
|
15,460,103
|
|
|
|
154,601
|
|
|
|
207,274,676
|
|
|
|
(166,706,542
|
)
|
|
|
(246,883
|
)
|
|
|
40,475,852
|
|
Issuance of common stock upon
exercise of options
|
|
|
50,332
|
|
|
|
503
|
|
|
|
473,612
|
|
|
|
|
|
|
|
|
|
|
|
474,115
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
12,772
|
|
|
|
128
|
|
|
|
103,868
|
|
|
|
|
|
|
|
|
|
|
|
103,996
|
|
Stock-based compensation expense
(as restated)
|
|
|
|
|
|
|
|
|
|
|
(3,018,396
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,018,396
|
)
|
Net loss (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,268,958
|
)
|
|
|
|
|
|
|
(21,268,958
|
)
|
Available-for-sale
marketable securities unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,685
|
|
|
|
180,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,088,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
(as restated)
|
|
|
15,523,207
|
|
|
|
155,232
|
|
|
|
204,833,760
|
|
|
|
(187,975,500
|
)
|
|
|
(66,198
|
)
|
|
|
16,947,294
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
11,165
|
|
|
|
112
|
|
|
|
59,863
|
|
|
|
|
|
|
|
|
|
|
|
59,975
|
|
Issuance of common stock upon
exercise of options
|
|
|
360,018
|
|
|
|
3,600
|
|
|
|
454,124
|
|
|
|
|
|
|
|
|
|
|
|
457,724
|
|
Sale of common stock to
GlaxoSmithKline
|
|
|
3,009,027
|
|
|
|
30,090
|
|
|
|
17,469,910
|
|
|
|
|
|
|
|
|
|
|
|
17,500,000
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,203,663
|
|
|
|
|
|
|
|
|
|
|
|
4,203,663
|
|
Cash paid for fractional shares
|
|
|
(29
|
)
|
|
|
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
(205
|
)
|
Issuance of common stock in
connection with merger
|
|
|
13,621,338
|
|
|
|
136,213
|
|
|
|
85,963,747
|
|
|
|
|
|
|
|
|
|
|
|
86,099,960
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157,393,198
|
)
|
|
|
|
|
|
|
(157,393,198
|
)
|
Available-for-sale
marketable securities unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,506
|
|
|
|
103,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157,289,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
32,524,726
|
|
|
$
|
325,247
|
|
|
$
|
312,984,862
|
|
|
$
|
(345,368,698
|
)
|
|
$
|
37,308
|
|
|
$
|
(32,021,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
EPIX
PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(157,393,198
|
)
|
|
$
|
(21,268,958
|
)
|
|
$
|
(22,621,222
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and
asset write offs
|
|
|
1,548,422
|
|
|
|
1,188,610
|
|
|
|
1,000,101
|
|
Write-off of in-process research
and development
|
|
|
123,500,000
|
|
|
|
|
|
|
|
|
|
Stock compensation expense (credit)
|
|
|
4,203,663
|
|
|
|
(3,018,396
|
)
|
|
|
2,092,885
|
|
Noncash interest expense from
embedded derivative
|
|
|
936,536
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing
costs
|
|
|
492,337
|
|
|
|
475,115
|
|
|
|
260,188
|
|
Changes in operating assets and
liabilities, exclusive of amounts acquired from the merger with
Predix:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
852,920
|
|
|
|
173,259
|
|
|
|
(276,474
|
)
|
Prepaid expenses and other current
assets
|
|
|
(282,827
|
)
|
|
|
238,219
|
|
|
|
(191,459
|
)
|
Other assets and liabilities
|
|
|
2,073,119
|
|
|
|
|
|
|
|
4,943
|
|
Accounts payable
|
|
|
216,567
|
|
|
|
329,827
|
|
|
|
(999,867
|
)
|
Accrued expenses
|
|
|
(5,892,204
|
)
|
|
|
71,084
|
|
|
|
(1,056,598
|
)
|
Contract advances
|
|
|
(1,507,470
|
)
|
|
|
(37,464
|
)
|
|
|
2,977,306
|
|
Merger consideration payable
|
|
|
465,517
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
15,741,238
|
|
|
|
(2,406,099
|
)
|
|
|
(3,650,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(15,045,380
|
)
|
|
|
(24,254,803
|
)
|
|
|
(22,460,817
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for merger with Predix,
net of cash acquired
|
|
|
(7,142,601
|
)
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(124,598,368
|
)
|
|
|
(88,618,059
|
)
|
|
|
(93,663,936
|
)
|
Sales or redemptions of marketable
securities
|
|
|
97,717,034
|
|
|
|
127,648,784
|
|
|
|
45,607,145
|
|
Restricted cash
|
|
|
(243,327
|
)
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
|
(1,314,374
|
)
|
|
|
(1,215,665
|
)
|
|
|
(2,077,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(35,581,636
|
)
|
|
|
37,815,060
|
|
|
|
(50,134,350
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of
convertible debt
|
|
|
|
|
|
|
|
|
|
|
96,350,000
|
|
Proceeds from loan payable from
strategic partner
|
|
|
|
|
|
|
45,000,000
|
|
|
|
52,500,000
|
|
Repayment of loan payable to
strategic partner
|
|
|
|
|
|
|
(60,000,000
|
)
|
|
|
(45,000,000
|
)
|
Principal payments of notes payable
|
|
|
(9,516,380
|
)
|
|
|
|
|
|
|
|
|
Principal payments of capital leases
|
|
|
(44,536
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
17,500,000
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options
|
|
|
457,724
|
|
|
|
474,115
|
|
|
|
5,219,039
|
|
Proceeds from Employee Stock
Purchase Plan
|
|
|
59,975
|
|
|
|
103,996
|
|
|
|
232,109
|
|
Cash paid for fractional shares
from reverse stock split
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
8,456,578
|
|
|
|
(14,421,889
|
)
|
|
|
109,301,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
(42,170,438
|
)
|
|
|
(861,632
|
)
|
|
|
36,705,981
|
|
Cash and cash equivalents at
beginning of year
|
|
|
72,502,906
|
|
|
|
73,364,538
|
|
|
|
36,658,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
30,332,468
|
|
|
$
|
72,502,906
|
|
|
$
|
73,364,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,383,774
|
|
|
$
|
3,145,883
|
|
|
$
|
1,747,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
145,313
|
|
|
$
|
41,991
|
|
|
$
|
107,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash
financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in
connection with Intellectual Property Agreement
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,339,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
EPIX
PHARMACEUTICALS, INC.
On August 16, 2006, the Company completed its acquisition
of Predix Pharmaceuticals Holdings, Inc. pursuant to the terms
of that certain Agreement and Plan of Merger, dated as of
April 3, 2006 as amended on July 10, 2006, by and
among the Company, EPIX Delaware, Inc., the Companys
wholly-owned subsidiary, and Predix, as amended. Pursuant to the
merger agreement, Predix merged with and into EPIX Delaware,
Inc. and became a wholly-owned subsidiary of the Company. The
merger with Predix was primarily a stock transaction valued at
approximately $125.0 million, including the assumption of
net debt at closing. As part of the merger, the Company also
assumed all outstanding options and warrants to purchase capital
stock of Predix. The purchase price includes a
$35.0 million payment to the holders of Predix stock,
options and warrants payable in cash, stock or a combination of
both based on Predix having achieved a certain strategic
milestone. Pursuant to the terms of the merger agreement,
$20.0 million of the milestone was paid in cash on
October 29, 2006. The remaining $15.0 million of the
milestone payment will be paid primarily in shares of EPIX
common stock on October 29, 2007, except to the extent that
such shares would cause the former Predix shareholders
collective voting interest to exceed 49.99% of outstanding
shares immediately after such milestone payment when combined
with all shares of EPIX common stock issued in the merger and
issuable upon exercise of all Predix options and warrants that
the Company assumed in the merger. The portion of the
$15.0 million milestone that cannot be paid in shares will
be paid in cash with interest accrued at a rate of 10%. In
addition, in connection with the merger, the Company effected a
1-for-1.5
reverse stock split of the Companys outstanding common
stock. All share and per share information in the financial
statements have been retroactively restated to reflect the
reverse stock split.
Following the merger, EPIX is a biopharmaceutical company
focused on discovering, developing and commercializing novel
pharmaceutical products through the use of proprietary
technologies to better diagnose, treat and manage patients. The
Company has four internally discovered therapeutic candidates in
clinical trials. In addition the Company has two imaging agents,
one of which is approved for marketing in 30 countries and one
that has completed Phase 2a clinical trial. These drug
candidates are targeting conditions such as depression,
Alzheimers disease, cardiovascular disease and obesity.
The Companys blood-pool imaging agent (Vasovist) is
approved in the European Union, Canada, Iceland, Norway,
Switzerland and Australia, and is currently marketed in the
Netherlands, Norway, Sweden, Denmark, United Kingdom, Austria
and Germany. The Company also has collaborations with leading
organizations, including GlaxoSmithKline, Amgen, Cystic Fibrosis
Foundation Therapeutics (CFFT), and Bayer Schering
Pharma, AG Germany.
The focus of the Companys therapeutic drug discovery and
development efforts is on the two classes of drug targets known
as G-protein Coupled Receptors or GPCRs and ion channels. GPCRs
and ion channels are classes of proteins embedded in the surface
membrane of all cells and are responsible for mediating much of
the biological signaling at the cellular level. The Company
believes that its proprietary drug discovery technology and
approach addresses many of the inefficiencies associated with
traditional GPCR and ion channel-targeted drug discovery. By
integrating computer-based, or in silico, technology with
in-house medicinal chemistry, the Company believes that it can
rapidly identify and optimize highly selective drug candidates.
The Companys focus on GPCR and ion channel drug targets
whose role in disease has already been demonstrated in clinical
trials or in preclinical studies. In each of the Companys
four clinical-stage therapeutic programs, the Company used its
drug discovery technology and approach to optimize a lead
compound into a clinical drug candidate in less than ten months,
synthesizing fewer than 80 compounds per program. The Company
moved each of these drug candidates into clinical trials in less
than 18 months from lead identification. The Company
believes its drug discovery technology and approach enables it
to efficiently and cost-effectively discover and develop GPCR
and ion channel-targeted drugs
F-7
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Significant
Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include the financial
statements of the Company and those of its wholly owned
subsidiary. All material intercompany balances and transactions
have been eliminated.
Translation
of Foreign Currencies
The functional currency of the Companys foreign subsidiary
is the U.S. dollar. The subsidiary financial statements are
remeasured into U.S. dollars using current rates of
exchange for monetary assets and liabilities and historical
rates of exchange for nonmonetary assets.
Cash
Equivalents
The Company considers investments with an original maturity of
three months or less when purchased to be cash equivalents. Cash
equivalents consist of money market accounts, commercial paper
and federal agency obligations.
Marketable
Securities
The Company accounts for marketable securities in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities
(SFAS 115). SFAS 115 establishes the
accounting and reporting requirements for all debt securities
and for investments in equity securities that have readily
determinable fair values. Marketable securities consist of
investment-grade corporate bonds, asset-backed debt securities
and government-sponsored agency debt securities. The Company
classifies its marketable securities as
available-for-sale
and, as such, carries the investments at fair value, with
unrealized holding gains and losses included in accumulated
other comprehensive income or loss. The cost of debt securities
is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion are
included in interest income. Realized gains or losses and
declines in value judged to be
other-than-temporary
on
available-for-sale
securities are included in interest income. The cost of
securities is based on the specific identification method.
Fair
Value of Financial Instruments
At December 31, 2006 and 2005, the Companys financial
instruments consisted of cash and cash equivalents,
available-for-sale
marketable securities, debt and a derivative resulting from the
merger consideration due to the former Predix shareholders. The
carrying value of cash equivalents approximates fair value due
to their short-term nature. The carrying value of the
available-for-sale
marketable securities, merger consideration payable and
convertible debt is further discussed in Notes 4, 5 and 9,
respectively. The fair value of the 3.0% convertible senior
notes, which is based on quoted market prices, was
$80.0 million at December 31, 2006.
As further discussed in Note 5, the Company has an embedded
derivative resulting from the terms of the $15.0 million
milestone payment due to the former Predix shareholders on
October 29, 2007. Under the terms of the merger agreement,
approximately $2.0 million of the milestone must be paid in cash
and approximately $13.0 million of the milestone must be paid in
shares to the extent allowable under the agreement. The number
of shares to be issued will be determined based on 75% of the
30-day average closing price of the Companys common stock
on the NASDAQ Global Market ending on the trading day that is
ten days prior to the payment date. The value of this embedded
derivative is $3.4 million as of December 31, 2006 and is
recorded as part of the merger consideration payable on the
accompanying balance sheet. If the milestone was payable as of
December 31, 2006, the Company would be limited under the terms
of the merger agreement to issuing 3,008,726 shares of its
common stock, which would satisfy $11,704,000 of the milestone
liability. The
F-8
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
remainder of the milestone liability would be paid in cash with
interest accrued at a rate of 10%. If the Company issues new
shares prior to the milestone payment date of October 29, 2007,
the maximum number of shares issuable as payment of the
milestone would increase by a similar amount.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk primarily consist of cash
equivalents and
available-for-sale
marketable securities. In accordance with the Companys
investment policy, marketable securities are principally
restricted to U.S. government securities, high-grade bank
obligations, high-grade corporate bonds, commercial paper and
certain money market funds. Although the vast majority of the
Companys $109.5 million of cash, cash equivalents and
available-for-sale
marketable securities were invested through one investment
advisor as of December 31, 2006, the credit risk exposure
of its investments was limited because of a diversified
portfolio that included debt of various government-sponsored
enterprises, such as Federal National Mortgage Association,
Federal Home Loan Mortgage Corporation and the Federal Home
Loan Bank; high-grade corporate bonds and commercial paper
and money market funds.
Property
and Equipment
Property and equipment are recorded at historical cost.
Depreciation on laboratory equipment, furniture and fixtures and
other equipment is determined using the straight-line method
over the estimated useful lives of the related assets, ranging
from 2 to 5 years. Leasehold improvements are amortized
using the straight-line method over the shorter of the asset
life or the remaining life of the lease. Expenditures for
maintenance and repairs are charged to expense as incurred;
improvements which extend the life or use of equipment are
capitalized.
Long-Lived
Assets
In accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
the Company recognizes impairment losses on long-lived
assets when indicators of impairment are present and future
undiscounted cash flows are insufficient to support the
assets recovery.
Other
Assets
Included in other assets at December 31, 2006 is restricted
cash in the amount of $1.2 million. Restricted cash
consists of amounts held in deposit with certain banks to
collateralize standby letters of credit in the name of the
Companys landlords in accordance with certain facility
lease agreements.
Goodwill
Goodwill is reviewed for impairment and the Company will perform
its annual test on July 1 of each year. As of
December 31, 2006, there were no indicators of impairment
to the recorded goodwill.
Income
Taxes
The Company provides for income taxes under
SFAS No. 109, Accounting for Income
Taxes. Under this method, deferred taxes are
recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences between carrying
amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are
based on when and how they are expected to affect the tax
return. A valuation allowance is provided to the extent that
there is uncertainty as to the Companys ability to
generate sufficient taxable income in the future to realize the
benefit from its net deferred tax asset.
F-9
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Information
SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, establishes
standards for reporting information regarding operating segments
and for related disclosures about products and services and
geographical areas. The Company operates in one business
segment, which is the development pharmaceutical products.
Revenue
For the years ended December 31, 2006, 2005 and 2004, Bayer
Schering Pharma AG, Germany represented 38%, 63% and 64%,
respectively, of total revenues and Bracco represented 28%, 36%
and 33%, respectively, of total revenues.
The Company recognizes revenue relating to collaborations in
accordance with the SECs Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition in
Financial Statements, (SAB 104).
Revenue under collaborations may include the receipt of
non-refundable license fees, milestone payments, research and
development payments and royalties.
The Company recognizes nonrefundable upfront license fees and
guaranteed, time-based payments that require continuing
involvement in the form of research and development as revenue:
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ratably over the development period; or
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based upon the level of research services performed during the
period of the research contract.
|
When the period of deferral cannot be specifically identified
from the contract, the Company estimates the period based upon
other critical factors contained within the contract. EPIX
continually reviews such estimates which could result in a
change in the deferral period and might impact the timing and
amount of revenue recognized.
Milestone payments are recognized as revenue when the
performance obligations, as defined in the contract, are
achieved. Performance obligations typically consist of
significant milestones in the development life cycle of the
related technology, such as initiation of clinical trials,
filing for approval with regulatory agencies and approvals by
regulatory agencies.
Royalties are recognized as revenue when earned and are
reasonably estimable, which is typically upon receipt of royalty
reports from the licensee or cash.
Reimbursements of research and development costs are recognized
as revenue as the related costs are incurred.
Product
development revenue
In June 2000, the Company entered into a strategic collaboration
agreement with Bayer Schering Pharma AG, Germany, whereby each
party to the agreement shares equally in Vasovist development
costs and U.S. operating profits and the Company will
receive royalties related to
non-U.S. sales.
The Company recognizes as revenue the cash consideration
received from Bayer Schering Pharma AG, Germany for amounts
expended by the Company in excess of the Companys
obligation under the agreement to expend 50% of the costs to
develop Vasovist. This revenue is recognized in the same period
in which the costs are incurred. With respect to payments due to
Bayer Schering Pharma AG, Germany, if any, in connection with
the Vasovist development program, the Company would recognize
such amounts as a reduction in revenue at the time Bayer
Schering Pharma AG, Germany performs the research and
development activities for which the Company is obligated to pay
Bayer Schering Pharma AG, Germany.
F-10
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On a monthly basis, the Company calculates the revenue or
reduction in revenue, as the case may be, with respect to the
collaboration with Bayer Schering Pharma AG, Germany for
Vasovist as follows:
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The Company calculates its development costs directly related to
Vasovist.
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The Company obtains cost reports, or an estimate of costs, from
Bayer Schering Pharma AG, Germany for costs incurred by Bayer
Schering Pharma AG, Germany related to the development of
Vasovist during the same period. Where estimates are used, the
Company reviews the estimates and records, as necessary,
adjustments in the subsequent quarter when the Company receives
actual results from Bayer Schering Pharma AG, Germany. To date,
there have been no material adjustments.
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The Company multiplies its and Bayer Schering Pharma AG,
Germanys development costs by approximately 50% based on
the contractual allocation of work contemplated under the
agreement.
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The Company then records the net difference as development
revenue if the balance results in a payment to the Company and
negative revenue if the balance results in a payment to Bayer
Schering Pharma AG, Germany.
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The result of this calculation is that the Company records
revenue only for amounts it is owed by Bayer Schering Pharma AG,
Germany in excess of 50% of development expenses of the project
in the particular period. The Company would record a reduction
in revenue for any amounts owed to Bayer Schering Pharma AG,
Germany in the particular period. To date, the Company has not
been required to make any payments to Bayer Schering Pharma AG,
Germany.
The additional payments made by Bayer Schering Pharma AG,
Germany to the Company represent revenue to the Company because
the Company is providing additional services to Bayer Schering
Pharma AG, Germany which Bayer Schering Pharma AG, Germany was
contractually obligated to perform itself. For example, the
Company performed substantial amounts of the work on behalf of
Bayer Schering Pharma AG, Germany required to prepare the
regulatory submission to the European regulatory authorities for
Vasovist which would otherwise have been Bayer Schering Pharma
AG, Germanys responsibility under the agreement. Had the
Company not performed these and other additional services, Bayer
Schering Pharma AG, Germany would have had to contract with a
third party to perform the work or Bayer Schering Pharma AG,
Germany would have had to perform the work itself.
In May 2003, the Company entered into a development agreement
with Bayer Schering Pharma AG, Germany for EP-2104R and a
collaboration agreement with Bayer Schering Pharma AG, Germany
for MRI research. Under the EP-2104R development agreement,
Bayer Schering Pharma AG, Germany agreed to make fixed payments
totaling approximately $9.0 million to the Company over a
two year period, which began in the second quarter of 2003 and
ended in the fourth quarter of 2004, to cover a portion of the
Companys expenditures for the EP-2104R feasibility
program. The Company recognized revenue from Bayer Schering
Pharma AG, Germany for the feasibility program in proportion to
actual cost incurred relative to the estimated total program
costs. During the third quarter of 2006, the Company completed
its work on the feasibility program. On July 13, 2006,
Bayer Schering Pharma AG, Germany determined not to exercise its
option for the development of EP-2104R. Under the terms of the
agreement, EPIX will retain full rights to the EP-2104R program.
Revenue under the MRI research collaboration was recognized at
the time services were provided. The MRI research program was
completed in the second quarter of 2006.
In connection with the acquisition of Predix, the Company is a
party to a collaboration agreement with CFFT. Under the
agreement, EPIX is entitled to continued cost reimbursements and
research funding and may earn milestone payments in accordance
with the terms of the agreement. Any additional revenue that
EPIX may receive in the future is expected to consist primarily
of milestone payments and payments for reimbursements of
research and development costs. The reimbursements of research
and development costs are being recognized as revenue as the
related costs are incurred. As EPIX is the party responsible for
providing
F-11
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the research services, EPIX is recognizing the reimbursement of
the costs associated with EPIXs research efforts as
revenue, not as a net research expense. EPIX will recognize any
milestone payments as revenue when the related performance
obligation, as defined in the agreement, is achieved.
Payments received by the Company from collaboration partners in
advance of EPIX performing research and development activities
are recorded as contract advances.
Royalty
revenue
The Company earns royalty revenue pursuant to its
sub-license
on certain of its patents to Bracco Imaging S.p.A.
(Bracco). Royalty revenue is recognized based on
actual revenues as reported by Bracco to the Company in the
period in which royalty reports are received. With the
expiration in 2006 of certain patents related to the sublicense
with Bracco, the Company expects royalty payments from Bracco to
end in the first quarter of 2007.
Massachusetts General Hospital (MGH) owns the
patents that are subject to the Companys agreement with
Bracco and has exclusively licensed those patents to the
Company, which has in turn
sub-licensed
the patents to Bracco. The Company owes MGH a percentage of all
royalties received from its
sub-licenses.
The Company is also entitled to receive a royalty on sales of
Vasovist outside of the United States by Bayer Schering Pharma
AG, Germany. Commercial launch of Vasovist in the European Union
began on a
country-by-country
basis in the second quarter of 2006. Vasovist has also received
regulatory approval in Canada, Iceland, Norway, Switzerland and
Australia. The Company recognizes royalty revenue from sales of
Vasovist outside the United States in the quarter when
Schering AG reports those sales to the Company.
License
fee revenue
The Company records license fee revenue in accordance with
SAB 104. Pursuant to SAB 104, the Company recognizes
revenue from non-refundable license fees and milestone payments,
not specifically tied to a separate earnings process, ratably
over the period during which the Company has a substantial
continuing obligation to perform services under the contract.
When milestone payments are specifically tied to a separate
earnings process, revenue is recognized when the specific
performance obligations associated with the payment are
completed.
In December 2006, the Company established a worldwide
multi-target strategic collaboration with GlaxoSmithKline to
discover, develop and market novel medicines targeting four
G-protein coupled receptors (GPCRs) for the treatment of a
variety of diseases, including EPIXs novel 5-HT4 partial
agonist program, PRX-03140, in early-stage clinical development
for the treatment of Alzheimers disease. EPIX received
$17.5 million of up front payments which is included in
deferred revenue and will be recorded as revenue ratably from
the time of payment until the expiration of the contract in
December 2020.
In connection with the acquisition of Predix, the Company is
recognizing license fee revenue for arrangements that Predix had
with both Amgen and CFFT. The Company ascribed $3.4 million
and $0.2 million of value to these arrangements,
respectively, on the date of acquisition based upon the fair
value of the remaining services to be provided by EPIX. The
deferred revenue is being recognized ratably over the period in
which the Company is required to provide services.
In September 2001, the Company
sub-licensed
certain patents to Bracco and received a $2.0 million
license fee from Bracco. This license fee was included in
deferred revenue and was recorded as revenue ratably from the
time of the payment until the expiration of MGHs patents,
which occurred in the European Union in May 2006 and in the
United States in November 2006.
As part of the Companys strategic collaboration agreement
with Bayer Schering Pharma AG, Germany for Vasovist entered into
in 2000, the Company granted Bayer Schering Pharma AG, Germany
an exclusive
F-12
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
license to co-develop and market Vasovist worldwide, exclusive
of Japan. Later in 2000, the Company amended this strategic
collaboration agreement to grant Bayer Schering Pharma AG,
Germany exclusive rights to develop and market Vasovist in
Japan. The Company received a $3.0 million license fee from
Bayer Schering Pharma AG, Germany in connection with that
amendment. This license fee is included in deferred revenue and
is being recorded as revenue ratably from the time of the
payment until anticipated approval in Japan. The Company will
continue to review this estimate and make appropriate
adjustments as information becomes available. The Company
suspended recognition of this license fee in October 2006 due to
the uncertainty of the timing of approval in Japan.
Pursuant to an earlier collaboration agreement with Tyco
International, Ltd., the Company recorded $4.4 million of
deferred revenue that is being recognized as revenue ratably
from the time of payment until anticipated approval of Vasovist
in the United States. The Company suspended recognition of this
license fee in September 2006 due to the uncertainty of the
timing of approval in United States based upon recent
communications with the FDA. The Company will continue to review
this estimate and make appropriate adjustments as information
becomes available.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the
U.S. requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Research
and Development Expenses
Research and development costs, including those associated with
technology, licenses and patents, are expensed as incurred.
Research and development costs primarily include employee
salaries and related costs, third party service costs, the cost
of preclinical and clinical trials, supplies, consulting
expenses, facility costs and certain overhead costs.
In order to conduct research and development activities and
compile regulatory submissions, we enter into contracts with
vendors who render services over extended periods of time.
Typically, we enter into three types of vendor contracts:
time-based, patient-based or a combination thereof. Under a
time-based contract, using critical factors contained within the
contract, usually the stated duration of the contract and the
timing of services provided, we record the contractual expense
for each service provided under the contract ratably over the
period during which we estimate the service will be performed.
Under a patient-based contract, we first determine an
appropriate per patient cost using critical factors contained
within the contract, which include the estimated number of
patients and the total dollar value of the contract. We then
record expense based upon the total number of patients enrolled
during the period. On a quarterly basis, we review the
assumptions for each contract in order to reflect our most
current estimate of the costs incurred under each contract.
Adjustments are recorded in the period in which the revisions
are estimable. These adjustments could have a material effect on
our results of operations.
Loss
Per Share
The Company computes loss per share in accordance with the
provisions of SFAS No. 128, Earnings per
Share. Basic net loss per share is based upon the
weighted-average number of common shares outstanding and
excludes the effect of dilutive common stock issuable upon
exercise of stock options, convertible debt and merger
consideration. In computing diluted loss per share, only
potential common shares that are dilutive, or those that reduce
earnings per share, are included. The issuance of common stock
from the exercise of options, convertible debt and merger
consideration is not assumed if the result is anti-dilutive,
such as when a loss is reported.
F-13
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2004, the Company completed a sale, pursuant to
Rule 144A under the Securities Act of 1933, of
$100.0 million of 3% convertible senior notes due 2024
for net proceeds of approximately $96.4 million. Each
$1,000 of senior notes is convertible into 22.39 shares of
the Companys common stock representing a conversion price
of approximately $44.66 per share if (1) the price of
the Companys common stock trades above 120% of the
conversion price for a specified time period, (2) the
trading price of the senior notes is below a certain threshold,
(3) the senior notes have been called for redemption, or
(4) specified corporate transactions have occurred. None of
these conversion triggers has occurred as of December 31,
2006.
In connection with the acquisition of Predix, most of the
remaining merger consideration is payable in EPIX common stock
to the extent that such payment in shares would not cause the
former Predix shareholders, warrant holders and option
holders interest to exceed 49.99%.
Common stock potentially issuable but excluded from the
calculation of dilutive net loss per share for the years ended
December 31, 2006, 2005 and 2004 because their inclusion
would have been antidilutive consisted of the following:
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2006
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2005
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2004
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Stock options and awards
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3,427,107
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2,181,184
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2,373,592
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Shares issuable on conversion of
3% Convertible Senior Notes
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2,239,393
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2,239,393
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2,239,393
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Shares issuable in satisfaction of
merger consideration payable (1)
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3,008,726
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Total
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8,675,226
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4,420,577
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4,612,985
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(1) |
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Share amount calculated as if the merger consideration was
payable as of December 31, 2006. Actual settlement date for
the merger consideration is October 29, 2007. |
Comprehensive
Income (Loss)
In accordance with SFAS No. 130, Reporting
Comprehensive Income components of comprehensive
income (loss) include net loss and certain transactions that
have generally been reported in the statements of
stockholders equity (deficit). Other comprehensive income
(loss) is comprised of unrealized gains or losses on
available-for-sale
marketable securities.
Employee
Stock Compensation
The Company adopted the provisions of SFAS No. 123(R),
Share-Based Payment An Amendment of FASB
Statements No. 123 and 95
(SFAS 123(R)), beginning January 1,
2006, using the modified prospective transition method. Under
the modified prospective transition method, financial statements
for periods prior to the adoption date are not adjusted for the
change in accounting. Compensation expense is now recognized,
based on the requirements of SFAS 123(R), for (a) all
share-based payments granted after the effective date and
(b) all awards granted to employees prior to the effective
date that remain unvested on the effective date.
Prior to adopting SFAS 123(R), the Company used the
intrinsic value method to account for stock-based compensation
under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25). As a result of the adoption of
SFAS 123(R), the Company is amortizing the unamortized
stock-based compensation expense related to unvested option
grants issued prior to the adoption of SFAS 123(R). The
Company has elected to continue to use the Black-Scholes option
pricing model to determine the fair value of options.
SFAS 123(R) also requires companies to utilize an estimated
forfeiture rate when calculating the expense for the period,
whereas SFAS 123 permitted companies to record forfeitures
based on actual forfeitures, which was the Companys
historical policy under disclosure requirements of
SFAS 123. As a result, the Company has applied an estimated
forfeiture rate to remaining unvested awards
F-14
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
based on historical experience in determining the expense
recorded in the Companys consolidated statements of
operations. This estimate will be evaluated quarterly and the
forfeiture rate will be adjusted as necessary. The actual
expense recognized over the vesting period will only be for
those shares that vest during that period. The Company has also
elected to recognize compensation cost for awards with pro-rata
vesting using the straight-line method.
Reclassifications
Certain items in the prior years consolidated financial
statements have been reclassified to conform to the current
presentation of the financial statements. Specifically, the
Company has reclassified certain legal patent costs from
research and development to general and administrative expense.
In addition royalty expense has been reclassified from general
and administrative to a separate line on the statement of
operations.
Recent
Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
An Interpretation of FASB Statement No. 109,
(FIN 48), which prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 will be effective for
fiscal years beginning after December 15, 2006. The Company
does not believe the adoption of FIN 48 will have a
material impact on its overall financial position or results of
operations.
On September 15, 2006, the FASB issued
SFAS No. 157 Fair Value
Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expand disclosures about fair value
measurements. SFAS 157 is effective for the Company as of
January 1, 2008. The Company is currently evaluating the
potential impact of adopting SFAS 157.
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3.
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Restatement
of Consolidated Financial Statements
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On December 8, 2006 the Companys board of directors
created a special board committee of independent directors to
conduct a review of its historical stock option practices. The
review was initiated in response to a media inquiry the Company
received on December 8, 2006 concerning the exercise of
stock options during and prior to 2002 by a former Chief
Executive Officer of the Company, who left the Company in 2005.
Although the media inquiry only related to this former
executives exercise of stock options, the special
committee chose to review the Companys stock option
granting practices as well as the circumstances relating to the
exercise of stock options. The review was conducted with the
assistance of outside legal counsel and outside forensic
accounting consultants. All of the stock option grants requiring
adjustment were granted during the years 1997 through 2005 which
pre-dates the Companys merger with Predix. The
Companys current Chief Executive Officer and Chief
Financial Officer joined EPIX in connection with the merger with
Predix. None of the members of the Companys current senior
management participated in the approval, modification,
retrospective price selection or re-pricing of any stock option
grants requiring adjustment.
The special committee has completed its investigation and has
concluded that (1) there was not sufficient evidence to
support the conclusion that one or more exercises of stock
options by a former Chief Executive Officer had been backdated
to a date prior to the actual date of exercise and (2) certain
of the Companys employees, including certain members of
the Companys former senior management, prior to the change
in its senior management in connection with the merger with
Predix on August 16, 2006, participated in retrospective
date selection for the grant of certain stock options and
re-priced, as defined by financial accounting standards, certain
options during the period from 1997 through 2005. Accordingly,
the Companys audit committee has concluded that, pursuant
to APB 25 and related interpretations, the accounting
measurement date for the stock option grants for which those
members of the Companys former senior management had
restrospectively selected grant dates for certain grants awarded
between February 1997 and February 2004,
F-15
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
covering options to purchase approximately 1.4 million
shares of the Companys common stock, differed from the
measurement dates previously used for such stock awards. In
addition, the Company determined that, certain of the
Companys employees, including certain former senior
management participated in the re-pricing, as defined by
financial accounting standards, of approximately
0.9 million stock options awarded during the period between
June 1999 and March 2005. In addition, during the course of the
option review, the Company identified approximately
0.1 million options in which other dating errors resulted
in stock options with grants dates that failed to meet the
measurement date criteria of APB 25. As a result, revised
measurement dates were applied to the option grants with other
dating errors and option grants for which the certain of
Companys employees, including certain former senior
management had retrospectively selected grant dates and for the
options that were repriced, as defined by financial accounting
standards, the Company revised its accounting for such awards
from accounting for the grants as fixed awards to accounting for
the grants as variable awards. Accounting for variable awards
requires the Company to revalue the re-priced option to its
intrinsic value at the end of each reporting period until such
option has been exercised or canceled. In addition, the Company
has recorded adjustments to its financial statements to record
compensation expense for approximately 44,000 stock option
awards granted to non-employees to recognize the fair value of
such options. The Company also recorded compensation expense for
approximately 70,000 stock options for which the original terms
of the stock award had been modified. As a result of these
adjustments, the Company has recorded $7.4 million in
additional stock-based compensation expense for the years 1997
through 2005. The amount of compensation expense recorded for
stock awards in which the Company revised measurement dates is
net of forfeitures related to employee terminations. The
additional stock-based compensation expense for options with
revised measurement dates is being amortized over the service
period relating to each option, typically five years. The
Company has also accrued payroll tax expense of approximately
$0.9 million relating to employer and employee payroll
taxes, interest and penalties it estimates it will owe as a
result of the modifications to exercised options previously
considered incentive stock options that should have been taxed
as non-qualified stock options.
As a result of these adjustments, the Companys
consolidated balance sheet as of December 31, 2005 and the
related consolidated statements of operations,
stockholders equity (deficit) and cash flows for each of
the years ended December 31, 2005 and 2004 and the
Companys unaudited quarterly financial information for the
interim periods of 2005 have been restated. The effect on 2006
annual and interim financial statements is not material. In
addition, the Company has restated the stock-based compensation
expense footnote information calculated under SFAS 123 and
SFAS 148 under the disclosure only alternatives of those
pronouncements for the years 2005 and 2004. The adjustments did
not affect the Companys previously reported revenue, cash,
cash equivalents or marketable securities balances in any of the
restated periods. The adjustments relate exclusively to stock
option practices that predate the merger between the Company and
Predix. The Company believes that its current procedures,
controls and accounting practices are adequate to ensure that
the granting and exercising of options are executed in
accordance with its stock option plan requirements and accounted
for in accordance with Generally Accepted Accounting Principles.
Adjustments
to Measurement Dates Arising From Evidence of Retrospective
Selection of Grant Dates
During the course of the special committees stock option
review, the Company identified approximately 1.4 million
stock options with grant dates that failed to meet the
measurement date criteria of APB 25 due to the
retrospective selection of grant dates. The measurement date for
these twelve option grants covering approximately
1.4 million shares was adjusted in compliance with
APB 25 as a result of evidence indicating that the grant
date had been selected retrospectively, after the date reflected
in the documents approving these grants. Of these grants,
options to purchase approximately 0.5 million shares were
granted to former executive officers and options to purchase
approximately 0.9 million shares were granted to other
employees. Adjustments to the APB 25 measurement dates for
these grants resulted in the recording of additional stock-based
compensation of $3.7 million. None of the approximately
1.4 million stock options requiring
F-16
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
measurement date adjustments were made to any of the
Companys current executive officers. Each grant in
question was evaluated individually based on its particular
facts and circumstances in each case, in light of the electronic
and hard copy documentation and other evidence (including
information obtained from interviews of current and former
employees, officers, directors, among others) available to the
special committee. That documentation and information considered
in connection with the measurement date adjustments that the
Company has made included, but was not limited to:
|
|
|
|
|
Minutes of compensation committee meetings;
|
|
|
|
Unanimous written consents signed by compensation committee
members, and evidence relating to the date such consents were
circulated for signature
and/or
signed;
|
|
|
|
Information found in personnel files maintained for optionees;
|
|
|
|
Electronic mail messages and other electronic files maintained
in our computer system and in backup media;
|
|
|
|
Documentation prepared in connection with our annual performance
reviews of employees as part of the process of determining the
allocation of stock option grants to individual employees;
|
|
|
|
Information as to the date of hire of the optionee, including
(if the grant was a new hire grant) the date of any employment
agreement or offer letter:
|
|
|
|
Correspondence and other documentation supporting the option
grant (including, without limitation, memoranda, SEC Form 4
filings);
|
|
|
|
Information concerning the date or dates on which the stock
option was entered into our stock option tracking system, Equity
Edge; and
|
|
|
|
Information obtained during interviews conducted by the special
committee of numerous individuals, including former officers,
directors, employees, and outside professionals.
|
Based on the relevant facts and circumstances, electronic and
other documentation, and other available information relevant to
each grant, the Company applied the appropriate accounting
standards to determine the proper measurement date for each
grant at issue. If the measurement date was not the originally
assigned grant date, accounting adjustments were made as
required, resulting in stock-based compensation expense and
related tax effects.
Re-priced
Stock Options
Evidence collected by the special committee also indicated that
during the period June 1999 through March 2005, certain
employees, including certain former members of the
Companys senior management participated in the re-pricing,
as defined by financial accounting standards, of certain stock
option grants subsequent to their approval by the compensation
committee. Approximately 0.9 million stock options were
considered to be re-priced and resulted in the recording of
compensation expense during the years 1999 through 2005 totaling
approximately $2.5 million. These options were considered
to be re-priced, as defined by financial accounting standards,
as the prices at which these options were granted were selected
by certain employees, including former members of the
Companys senior management after their approval by the
compensation committee and at prices different than the original
price on the date the option was approved. The accounting for
stock awards that are considered to be re-priced requires the
option to be accounted for as a variable award and requires
revaluation of the option to its intrinsic value at the end of
each reporting period. Of these approximately 0.9 million
re-priced options, options to purchase approximately
0.8 million shares were granted to former executive
officers, and options to purchase approximately 0.1 million
shares were granted to other employees. Each grant in question
was evaluated individually based on its particular facts and
circumstances in each case, in light of the electronic and hard
copy documentation and other
F-17
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
evidence (including information obtained from interviews of
current and former employees, officers, directors, among others)
available to the special committee. For a description and
discussion of the documentation and information considered by
the committee and the Company, see the section above entitled
Adjustments to Measurement Dates Arising From Evidence of
Retrospective Selection of Grant Dates.
Based on the relevant facts and circumstances, electronic and
other documentation, and other available information relevant to
each grant, the Company applied the appropriate accounting
standards to determine the proper accounting for the re-priced
options. If the exercise price of the option granted was
different than the fair value of our stock on the day the grant
was approved and was selected after the approval, the option was
considered to be re-priced and was accounted for as a variable
option award.
Other
Dating Errors
In addition, during the course of the stock option review, we
identified certain instances in which other dating errors
resulted in stock options with grant dates that failed to meet
the measurement date criteria of APB 25. Of these, the
measurement date for nine option grants covering approximately
0.1 million shares was adjusted in compliance with
APB 25 as a result of evidence indicating that the grant
date selected failed to meet the measurement date criteria for
APB 25. The compensation expense resulting from the change
in measurement dates for these 0.1 million stock options
was approximately $0.1 million, which is net of forfeitures
related to terminations. The additional stock-based compensation
expense for the options with revised measurement dates resulting
from other dating errors is being amortized over the service
period relating to each option, typically five years.
Included in these nine stock option grants that the Company
determined to require a measurement date adjustment as a result
of other dating errors is one grant for approximately 16,000
stock options made to two members of the Companys board of
directors, one former and one current. In this instance, the
grant date used was the day before the option grant was approved
by the Companys board of directors, and the difference in
the Companys stock price on the two dates differed only by
$0.18 per share. This was determined by the Company to be an
administrative error.
Other
Adjustments
In addition, during the course of the stock option review, the
Company identified certain instances in which adjustments to
stock-based compensation expense were required that were not
related to changes in measurement dates, as follows:
|
|
|
|
|
Grants made to consultants were erroneously accounted for under
APB 25 as if they had been made to employees. To correctly
account for these grants in accordance with
EITF 96-18,
the Company recorded $0.3 million in additional stock-based
compensation during 1996 through 2001.
|
|
|
|
With respect to seven option grants totaling approximately
44,000 shares, modifications were made to previously
granted employee and consultant stock options that were not
accounted for in accordance with APB 25 and related
interpretations,
EITF 96-18
and FAS 123, as applicable. The modifications included the
extension of the post-service exercise period for vested stock
options of terminated employees and or consultants. The Company
recorded $0.9 million in additional stock-based
compensation expense during 2000 through 2004, to properly
account for these modifications.
|
|
|
|
In 1999, the Company recorded approximately $0.1 million of
stock-based compensation expense equal to the gain recognized by
employees when those employees sold stock options that were
deemed to be disqualifying dispositions. Disqualifying
dispositions are potential tax deductions for companies and do
not require recognition as expense in a companys statement
of operations. As this accounting is not in accordance with
Generally Accepted Accounting Principles, the stock compensation
expense was reversed.
|
F-18
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Impact of the Stock Option Review
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
of Shares
|
|
|
Amount
|
|
Restrospective selection of grant
date
|
|
|
1,387,982
|
|
|
$
|
3,680,249
|
|
Re-priced options
|
|
|
867,893
|
|
|
|
2,518,291
|
|
Other dating errors
|
|
|
162,196
|
|
|
|
164,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418,071
|
|
|
|
6,363,246
|
|
Consultant grants
|
|
|
44,345
|
|
|
|
272,303
|
|
Stock option modifications
|
|
|
70,168
|
|
|
|
906,110
|
|
Correction of erroneous stock
compensation charge
|
|
|
|
|
|
|
(96,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,532,584
|
|
|
|
7,444,831
|
|
|
|
|
|
|
|
|
|
|
Employee income and payroll taxes
|
|
|
|
|
|
|
886,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,330,868
|
|
|
|
|
|
|
|
|
|
|
The $7.4 million total in stock compensation expense shown
above represents the aggregate stock-based compensation for the
affected options as a result of our stock option review and is
net of subsequent forfeitures related to employee terminations.
As EPIX has and continues to recognize a net loss annually,
there were no income tax adjustments necessary in connection
with the restatement of any prior year financial statements,
other than to record an increase in gross deferred tax assets
and a corresponding increase in the valuation allowance. The
Company has, however, in connection with this restatement,
recorded $0.9 million of tax expense to accrue for payroll
taxes for certain options that were exercised and previously
accounted for as incentive stock options that became
non-qualified stock options upon modification or re-pricing.
Restatement
of Our Consolidated Financial Statements
As a result of the findings of the Companys stock option
review, the Companys consolidated balance sheet as of
December 31, 2005 and the related consolidated statements
of operations, stockholders equity (deficit) and cash
flows for each of the years ended December 31, 2005 and
2004 have been restated. The findings of the Companys
stock option review did not have a material effect on our 2006
interim and annual financial statements. The Company has also
recorded additional stock-based compensation expense affecting
its previously-reported financial statements for 1996 through
2003, the effects of which are summarized in a cumulative
adjustment to its additional paid-in capital and accumulated
deficit accounts as of December 31, 2003, in the amount of
$8.5 million and $9.1 million, respectively. See the
Consolidated Statements of Shareholders Equity (Deficit).
F-19
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The incremental impact on the consolidated statements of
operations from recognizing stock-based compensation expense,
including $0.9 million of related payroll tax withholding
expense, through December 31, 2005 is as follows:
|
|
|
|
|
Fiscal Year
|
|
Expense (Credit)
|
|
|
Year ended December 31, 1996
|
|
$
|
57,182
|
|
Year ended December 31, 1997
|
|
|
280,609
|
|
Year ended December 31, 1998
|
|
|
614,966
|
|
Year ended December 31, 1999
|
|
|
435,269
|
|
Year ended December 31, 2000
|
|
|
1,091,267
|
|
Year ended December 31, 2001
|
|
|
2,262,350
|
|
Year ended December 31, 2002
|
|
|
(534,245
|
)
|
Year ended December 31, 2003
|
|
|
4,925,406
|
|
|
|
|
|
|
Sub-total
|
|
|
9,132,804
|
|
Year ended December 31, 2004
|
|
|
2,239,964
|
|
Year ended December 31, 2005
|
|
|
(3,041,900
|
)
|
|
|
|
|
|
Total
|
|
$
|
8,330,868
|
|
|
|
|
|
|
F-20
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the effects of the restatement
adjustments upon the Companys previously reported
consolidated statements of operations for the years 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
4,195,530
|
|
|
$
|
|
|
|
$
|
4,195,530
|
|
|
$
|
7,594,280
|
|
|
$
|
|
|
|
$
|
7,594,280
|
|
Royalty revenue
|
|
|
2,333,384
|
|
|
|
|
|
|
|
2,333,384
|
|
|
|
626,685
|
|
|
|
|
|
|
|
626,685
|
|
License fee revenue
|
|
|
660,747
|
|
|
|
|
|
|
|
660,747
|
|
|
|
4,037,636
|
|
|
|
|
|
|
|
4,037,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,189,661
|
|
|
|
|
|
|
|
7,189,661
|
|
|
|
12,258,601
|
|
|
|
|
|
|
|
12,258,601
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
98,089
|
|
|
|
|
|
|
|
98,089
|
|
|
|
31,000
|
|
|
|
|
|
|
|
31,000
|
|
Research and development
|
|
|
20,147,724
|
|
|
|
(1,853,803
|
)
|
|
|
18,293,921
|
|
|
|
21,873,991
|
|
|
|
1,308,489
|
|
|
|
23,182,480
|
|
General and administrative
|
|
|
10,774,229
|
|
|
|
(1,188,097
|
)
|
|
|
9,586,132
|
|
|
|
10,464,377
|
|
|
|
931,475
|
|
|
|
11,395,852
|
|
Restructuring costs
|
|
|
971,828
|
|
|
|
|
|
|
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
31,991,870
|
|
|
|
(3,041,900
|
)
|
|
|
28,949,970
|
|
|
|
32,369,368
|
|
|
|
2,239,964
|
|
|
|
34,609,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(24,802,209
|
)
|
|
|
3,041,900
|
|
|
|
(21,760,309
|
)
|
|
|
(20,110,767
|
)
|
|
|
(2,239,964
|
)
|
|
|
(22,350,731
|
)
|
Interest income
|
|
|
4,146,532
|
|
|
|
|
|
|
|
4,146,532
|
|
|
|
1,958,152
|
|
|
|
|
|
|
|
1,958,152
|
|
Interest expense
|
|
|
(3,613,190
|
)
|
|
|
|
|
|
|
(3,613,190
|
)
|
|
|
(2,128,738
|
)
|
|
|
|
|
|
|
(2,128,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(24,268,867
|
)
|
|
|
3,041,900
|
|
|
|
(21,226,967
|
)
|
|
|
(20,281,353
|
)
|
|
|
(2,239,964
|
)
|
|
|
(22,521,317
|
)
|
Provision for income taxes
|
|
|
41,991
|
|
|
|
|
|
|
|
41,991
|
|
|
|
99,905
|
|
|
|
|
|
|
|
99,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,310,858
|
)
|
|
$
|
3,041,900
|
|
|
$
|
(21,268,958
|
)
|
|
$
|
(20,381,258
|
)
|
|
$
|
(2,239,964
|
)
|
|
$
|
(22,621,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,505,458
|
|
|
|
|
|
|
|
15,505,458
|
|
|
|
15,259,115
|
|
|
|
|
|
|
|
15,259,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(1.57
|
)
|
|
$
|
0.20
|
|
|
$
|
(1.37
|
)
|
|
$
|
(1.34
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(1.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the effects of the restatement
adjustments upon the Companys previously reported
consolidated balance sheet as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
72,502,906
|
|
|
$
|
|
|
|
$
|
72,502,906
|
|
Available-for-sale
marketable securities
|
|
|
52,225,590
|
|
|
|
|
|
|
|
52,225,590
|
|
Accounts receivable
|
|
|
149,287
|
|
|
|
|
|
|
|
149,287
|
|
Prepaid expenses and other assets
|
|
|
346,919
|
|
|
|
|
|
|
|
346,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
125,224,702
|
|
|
|
|
|
|
|
125,224,702
|
|
Property and equipment, net
|
|
|
2,517,859
|
|
|
|
|
|
|
|
2,517,859
|
|
Other assets
|
|
|
2,973,155
|
|
|
|
|
|
|
|
2,973,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
130,715,716
|
|
|
$
|
|
|
|
$
|
130,715,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,268,325
|
|
|
$
|
|
|
|
$
|
1,268,325
|
|
Accrued expenses
|
|
|
4,310,003
|
|
|
|
886,037
|
|
|
|
5,196,040
|
|
Contract advances
|
|
|
6,112,549
|
|
|
|
|
|
|
|
6,112,549
|
|
Deferred revenue
|
|
|
435,861
|
|
|
|
|
|
|
|
435,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,126,738
|
|
|
|
886,037
|
|
|
|
13,012,775
|
|
Deferred revenue
|
|
|
755,647
|
|
|
|
|
|
|
|
755,647
|
|
Convertible debt
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
112,882,385
|
|
|
|
886,037
|
|
|
|
113,768,422
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value
|
|
|
155,232
|
|
|
|
|
|
|
|
155,232
|
|
Additional
paid-in-capital
|
|
|
197,388,929
|
|
|
|
7,444,831
|
|
|
|
204,833,760
|
|
Accumulated deficit
|
|
|
(179,644,632
|
)
|
|
|
(8,330,868
|
)
|
|
|
(187,975,500
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
(66,198
|
)
|
|
|
|
|
|
|
(66,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
17,833,331
|
|
|
|
(886,037
|
)
|
|
|
16,947,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
130,715,716
|
|
|
$
|
|
|
|
$
|
130,715,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the effects of the restatement
adjustments on each component of stockholders equity (deficit)
for the years 1996 through 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact to
|
|
|
|
Additional Paid-In
|
|
|
Accumulated
|
|
|
Stockholders
|
|
Fiscal Year
|
|
Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
1996
|
|
$
|
57,182
|
|
|
$
|
(57,182
|
)
|
|
$
|
|
|
1997
|
|
|
280,609
|
|
|
|
(280,609
|
)
|
|
|
|
|
1998
|
|
|
613,848
|
|
|
|
(614,966
|
)
|
|
|
(1,118
|
)
|
1999
|
|
|
432,536
|
|
|
|
(435,269
|
)
|
|
|
(2,733
|
)
|
2000
|
|
|
1,029,007
|
|
|
|
(1,091,267
|
)
|
|
|
(62,260
|
)
|
2001
|
|
|
2,238,867
|
|
|
|
(2,262,350
|
)
|
|
|
(23,483
|
)
|
2002
|
|
|
(593,335
|
)
|
|
|
534,245
|
|
|
|
(59,090
|
)
|
2003
|
|
|
4,412,355
|
|
|
|
(4,925,406
|
)
|
|
|
(513,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
8,471,069
|
|
|
|
(9,132,804
|
)
|
|
|
(661,735
|
)
|
2004
|
|
|
1,995,577
|
|
|
|
(2,239,964
|
)
|
|
|
(244,387
|
)
|
2005
|
|
|
(3,021,815
|
)
|
|
|
3,041,900
|
|
|
|
20,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,444,831
|
|
|
$
|
(8,330,868
|
)
|
|
$
|
(886,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the effects of the restatement
adjustments upon the Companys previously reported
consolidated statements of cash flows for the years 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
Year Ended December 31, 2004
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,310,858
|
)
|
|
$
|
3,041,900
|
|
|
$
|
(21,268,958
|
)
|
|
$
|
(20,381,258
|
)
|
|
$
|
(2,239,964
|
)
|
|
$
|
(22,621,222
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and
asset write offs
|
|
|
1,188,610
|
|
|
|
|
|
|
|
1,188,610
|
|
|
|
1,000,101
|
|
|
|
|
|
|
|
1,000,101
|
|
Stock compensation expense (credit)
|
|
|
3,419
|
|
|
|
(3,021,815
|
)
|
|
|
(3,018,396
|
)
|
|
|
97,308
|
|
|
|
1,995,577
|
|
|
|
2,092,885
|
|
Amortization of deferred financing
costs
|
|
|
475,115
|
|
|
|
|
|
|
|
475,115
|
|
|
|
260,188
|
|
|
|
|
|
|
|
260,188
|
|
Changes in operating assets and
liabilities, exclusive of amounts acquired from the merger with
Predix:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
173,259
|
|
|
|
|
|
|
|
173,259
|
|
|
|
(276,474
|
)
|
|
|
|
|
|
|
(276,474
|
)
|
Prepaid expenses and other current
assets
|
|
|
238,219
|
|
|
|
|
|
|
|
238,219
|
|
|
|
(191,459
|
)
|
|
|
|
|
|
|
(191,459
|
)
|
Other assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,943
|
|
|
|
|
|
|
|
4,943
|
|
Accounts payable
|
|
|
329,827
|
|
|
|
|
|
|
|
329,827
|
|
|
|
(999,867
|
)
|
|
|
|
|
|
|
(999,867
|
)
|
Accrued expenses
|
|
|
91,169
|
|
|
|
(20,085
|
)
|
|
|
71,084
|
|
|
|
(1,300,985
|
)
|
|
|
244,387
|
|
|
|
(1,056,598
|
)
|
Contract advances
|
|
|
(37,464
|
)
|
|
|
|
|
|
|
(37,464
|
)
|
|
|
2,977,306
|
|
|
|
|
|
|
|
2,977,306
|
|
Deferred revenue
|
|
|
(2,406,099
|
)
|
|
|
|
|
|
|
(2,406,099
|
)
|
|
|
(3,650,620
|
)
|
|
|
|
|
|
|
(3,650,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(24,254,803
|
)
|
|
|
|
|
|
|
(24,254,803
|
)
|
|
|
(22,460,817
|
)
|
|
|
|
|
|
|
(22,460,817
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for merger with Predix,
net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(88,618,059
|
)
|
|
|
|
|
|
|
(88,618,059
|
)
|
|
|
(93,663,936
|
)
|
|
|
|
|
|
|
(93,663,936
|
)
|
Sales or redemptions of marketable
securities
|
|
|
127,648,784
|
|
|
|
|
|
|
|
127,648,784
|
|
|
|
45,607,145
|
|
|
|
|
|
|
|
45,607,145
|
|
Purchases of fixed assets
|
|
|
(1,215,665
|
)
|
|
|
|
|
|
|
(1,215,665
|
)
|
|
|
(2,077,559
|
)
|
|
|
|
|
|
|
(2,077,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
37,815,060
|
|
|
|
|
|
|
|
37,815,060
|
|
|
|
(50,134,350
|
)
|
|
|
|
|
|
|
(50,134,350
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of
convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,350,000
|
|
|
|
|
|
|
|
96,350,000
|
|
Proceeds from loan payable from
strategic partner
|
|
|
45,000,000
|
|
|
|
|
|
|
|
45,000,000
|
|
|
|
52,500,000
|
|
|
|
|
|
|
|
52,500,000
|
|
Repayment of loan payable to
strategic partner
|
|
|
(60,000,000
|
)
|
|
|
|
|
|
|
(60,000,000
|
)
|
|
|
(45,000,000
|
)
|
|
|
|
|
|
|
(45,000,000
|
)
|
Proceeds from stock options
|
|
|
474,115
|
|
|
|
|
|
|
|
474,115
|
|
|
|
5,219,039
|
|
|
|
|
|
|
|
5,219,039
|
|
Proceeds from Employee Stock
Purchase Plan
|
|
|
103,996
|
|
|
|
|
|
|
|
103,996
|
|
|
|
232,109
|
|
|
|
|
|
|
|
232,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(14,421,889
|
)
|
|
|
|
|
|
|
(14,421,889
|
)
|
|
|
109,301,148
|
|
|
|
|
|
|
|
109,301,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
(861,632
|
)
|
|
|
|
|
|
|
(861,632
|
)
|
|
|
36,705,981
|
|
|
|
|
|
|
|
36,705,981
|
|
Cash and cash equivalents at
beginning of year
|
|
|
73,364,538
|
|
|
|
|
|
|
|
73,364,538
|
|
|
|
36,658,557
|
|
|
|
|
|
|
|
36,658,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
72,502,906
|
|
|
$
|
|
|
|
$
|
72,502,906
|
|
|
$
|
73,364,538
|
|
|
$
|
|
|
|
$
|
73,364,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,145,883
|
|
|
$
|
|
|
|
$
|
3,145,883
|
|
|
$
|
1,747,236
|
|
|
$
|
|
|
|
$
|
1,747,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
41,991
|
|
|
$
|
|
|
|
$
|
41,991
|
|
|
$
|
107,889
|
|
|
$
|
|
|
|
$
|
107,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash
financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in
connection with Intellectual Property Agreement
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,339,040
|
|
|
$
|
|
|
|
$
|
2,339,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated fair value of marketable securities is determined
based on broker quotes or quoted market prices or rates for the
same or similar instruments. The estimated fair value and cost
of marketable securities are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Government-sponsored agency
securities
|
|
$
|
61,036,088
|
|
|
$
|
61,002,190
|
|
|
$
|
19,559,610
|
|
|
$
|
19,584,572
|
|
Corporate bonds
|
|
|
16,348,698
|
|
|
|
16,342,795
|
|
|
|
25,112,035
|
|
|
|
25,153,272
|
|
Commercial paper
|
|
|
1,825,644
|
|
|
|
1,828,137
|
|
|
|
3,980,788
|
|
|
|
3,980,787
|
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
3,573,157
|
|
|
|
3,573,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,210,430
|
|
|
$
|
79,173,122
|
|
|
$
|
52,225,590
|
|
|
$
|
52,291,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of marketable securities classified as
available-for-sale
by contractual maturity are shown below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Due within one year
|
|
$
|
79,210,430
|
|
|
$
|
48,447,012
|
|
Due after one year through two
years
|
|
|
|
|
|
|
3,778,578
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,210,430
|
|
|
$
|
52,225,590
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains on marketable securities amounted to
$41,980 and $2,678 in 2006 and 2005, respectively. Gross
unrealized losses on marketable securities amounted to $4,672
and $68,876 in 2006 and 2005, respectively. The aggregate fair
value of investments with unrealized losses was
$15.0 million and $36.4 million at December 31,
2006 and 2005, respectively. All such investments have been in
an unrealized loss position for less than one year, except for a
small number of government-sponsored agency securities that had
a cumulative unrealized loss of $0 and $14,132 at
December 31, 2006 and 2005, respectively. The aggregate
fair value of investments that have been in an unrealized loss
position for a year or greater were $0 and $3.8 million at
December 31, 2006 and 2005, respectively. The Company has
reviewed those investments based on a number of factors,
including the reasons for the impairment, compliance with the
Companys investment policy, the severity and duration of
the impairment and the changes in value subsequent to year end,
and has concluded that no
other-than-temporary
impairment existed as of December 31, 2006 and 2005.
There were no realized gains or losses on marketable securities
in 2006, 2005 and 2004.
On August 16, 2006, EPIX completed its acquisition of
Predix pursuant to the terms of the merger agreement. Pursuant
to the merger agreement, Predix merged with and into EPIX
Delaware, Inc. and became a wholly-owned subsidiary of EPIX. The
merger with Predix was primarily a stock transaction valued at
approximately $125.0 million, including the assumption of
net debt at closing. As part of the merger, the Company also
assumed all outstanding options and warrants to purchase capital
stock of Predix. The purchase price includes a milestone payment
of $35.0 million in cash, stock or a combination of both
based on Predix having achieved a strategic milestone under the
merger agreement. Specifically, on July 31, 2006, Predix
entered into an exclusive worldwide license agreement with Amgen
Inc. (Amgen) to develop and commercialize products
based on Predixs compounds which modulate the GPCR known
as
sphingosine-1-phosphate
receptor-1, or S1P1, and compounds and products that may be
identified by or acquired by Amgen and that are active against
the S1P1 receptor. Pursuant to the terms of the merger
agreement, the Company paid
F-25
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$20.0 million of the milestone payment in cash on
October 29, 2006. The remaining $15.0 million of the
milestone payment will be paid primarily in shares of EPIX
common stock on October 29, 2007, except to the extent that
such shares would cause the former Predix shareholders,
warrant and option holders ownership interest to exceed
49.99% of EPIXs outstanding shares immediately after such
milestone payment when combined with all shares of EPIX common
stock issued in the merger and issuable upon exercise of all
Predix options and warrants that the Company assumed in the
merger. The number of shares to be issued as part of the
$15.0 million final payment will be determined based on 75%
of the
30-day
average closing price of the Companys common stock on The
NASDAQ Global Market ending on the trading day that is ten days
prior to the payment date. Included in the December 31,
2006 balance sheet is a liability for the $15.0 million
milestone payment due in October 2007 as well as a related
liability for the fair value of the embedded derivative in the
merger consideration payable due to the potential stock
settlement. The value of this embedded derivative of
$2.1 million on the date of the acquisition was included in
the purchase price of Predix. The fair value of this derivative
increased by $1.3 million to $3.4 million at December 31,
2006. The increase in the value of the derivative from the date
of the acquisition has been recorded as interest expense in the
statement of operations for the year ended December 31,
2006. The portion of the $15.0 million milestone payment
that can not be paid in EPIX common stock will be paid in cash
with interest accrued at a rate of 10%. The results of Predix
have been included in the statements of operations from
August 16, 2006.
The following table summarizes the purchase price as follows:
|
|
|
|
|
Fair value of EPIX shares issued
|
|
$
|
80,402,420
|
|
Fair value of vested Predix stock
options exchanged for EPIX options
|
|
|
5,697,540
|
|
Milestone payment due to Predix
stockholders
|
|
|
35,000,000
|
|
Fair value of milestone payment
embedded derivative
|
|
|
2,090,000
|
|
Cash paid in lieu of fractional
shares
|
|
|
1,389
|
|
Direct acquisition costs
|
|
|
3,580,643
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
126,771,992
|
|
|
|
|
|
|
The value of the 13,621,338 shares of EPIX common stock
issued in the merger was $5.97 per share, which represents
the five-day
average closing price of EPIX common stock beginning two days
immediately preceding the public announcement of the merger on
April 3, 2006. The aggregate value of the common stock
issued was reduced by approximately $917,000, representing the
costs to register the EPIX shares, which is included in direct
acquisition costs. The fair value of the stock options assumed
in the merger was determined by using the Black-Scholes option
pricing model with the following assumptions: stock price of
$5.97, which is the value ascribed to the EPIX common stock in
determining the purchase price; volatility of 70%; risk-free
interest rate of 4.62%; and an expected life of 4.9 years.
F-26
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the allocation of purchase price
to the estimated fair values of the assets acquired and
liabilities assumed as of August 16, 2006, the date of the
merger, in accordance with SFAS No. 141,
Business Combinations. The amount allocated
to goodwill is non-deductible for tax purposes.
|
|
|
|
|
In-process research and development
|
|
$
|
123,500,000
|
|
Cash and cash equivalents
|
|
|
16,426,010
|
|
Other current assets
|
|
|
2,695,520
|
|
Property and equipment
|
|
|
1,308,759
|
|
Other assets
|
|
|
1,664,547
|
|
Goodwill
|
|
|
4,939,814
|
|
|
|
|
|
|
Total assets acquired
|
|
|
150,534,650
|
|
|
|
|
|
|
Current liabilities
|
|
|
12,241,986
|
|
Notes payable
|
|
|
9,516,380
|
|
Other liabilities
|
|
|
2,004,292
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
23,762,658
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
126,771,992
|
|
|
|
|
|
|
The fair value attributed to in-process research and development
represents the fair value of purchased in-process technology for
research projects that, as of the closing date of the merger,
have not reached technological feasibility and have no
alternative future use. Only those research projects that had
advanced to a stage of development where the Company believed
reasonable net future cash flow forecasts could be prepared and
a reasonable likelihood of technical success existed were
included in the fair value. Accordingly, the in-process research
and development primarily represents the fair value of the
following drug candidates: PRX-00023 ($70.9 million),
Predixs drug candidate that, as of the date of the merger,
was in Phase 3 clinical trials for the treatment of
generalized anxiety disorder; PRX-03140 ($23.5 million),
Predixs drug candidate that had completed Phase 1
clinical trials for the treatment of Alzheimers disease as
of the date of the merger; PRX-08066 ($20.2 million),
Predixs drug candidate that had entered Phase 2
clinical trials for the treatment of pulmonary hypertension in
association with chronic obstructive pulmonary disease as of the
date of the merger; and PRX-07034 ($8.9 million),
Predixs drug candidate that had entered Phase 1
clinical trials for the treatment of obesity at the time of the
merger. The fair value of the in-process research and
development was determined based on a discounted forecast of the
estimated net future cash flows for each project, adjusted for
the estimated probability (for these purposes) of technical
success and U.S. Food and Drug Administration or European
Agency for Evaluation of Medicinal Products approval for each
research project. In-process research and development has been
expensed as of the merger date.
In determining the fair value to attribute to intangible assets,
the Company considered several categories of intangible assets
including the contract-based and technology-based intangible
assets described below. In accordance with paragraph 39 and
Appendix A of SFAS 141, identifiable intangible assets
will be recognized if they arise from contractual or legal
rights or if they are otherwise separable. Intangible assets
that are not specifically identifiable, have indeterminate lives
or are inherent in continuing business and related to the
enterprise as a whole will be classified as goodwill.
|
|
|
|
|
Contract-based intangible assets (licensing arrangements):
Predixs contractual relationship with Amgen and CFFT. The
terms of the agreements were considered to be ostensibly fair to
both parties thus having no value separable from goodwill.
|
|
|
|
Technology-based intangible assets (technology platform,
existing product candidates and patents, in-process research and
development): Existing clinical compounds and related patents
were determined to
|
F-27
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
be separable from goodwill and were valued as in-process
research and development. The technology platforms value
in the development of future yet to be identified compounds was
not considered reliably quantifiable.
|
In identifying the acquired in-process research and development,
the developmental projects were evaluated in the context of
interpretation 4 and paragraph 11 of SFAS No. 2,
Accounting for Research and Development
Costs, along with reference to the American Institute
of Certified Public Accountants Guide, Assets Acquired in a
Business Combination to be Used in Research and Development
Activities: A Focus on Software, Electronic Devices and
Pharmaceutical Industries.
The following unaudited pro forma financial information presents
the results of operations as if the merger had occurred at the
beginning of 2005 and 2006. All periods exclude the write-off of
in-process research and development of $123,500,000 as it has no
continuing impact after the merger. The pro forma information
does not purport to indicate the results that would have
actually been obtained had the merger been completed on the
assumed dates or which may be realized in the future.
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Note
|
|
|
Consolidated
|
|
|
|
EPIX
|
|
|
Predix
|
|
|
Adjustments
|
|
|
Ref
|
|
|
Pro Forma
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
4,196
|
|
|
$
|
1,737
|
|
|
$
|
|
|
|
|
|
|
|
$
|
5,933
|
|
Royalty revenue
|
|
|
2,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333
|
|
License fee revenue
|
|
|
661
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues:
|
|
|
7,190
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
9,490
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
Research and development
|
|
|
18,294
|
|
|
|
29,351
|
|
|
|
725
|
|
|
|
(A
|
)
|
|
|
48,370
|
|
General and administrative
|
|
|
9,586
|
|
|
|
7,031
|
|
|
|
1,616
|
|
|
|
(A
|
)
|
|
|
18,233
|
|
Restructuring costs
|
|
|
972
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
1,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,950
|
|
|
|
36,587
|
|
|
|
2,341
|
|
|
|
|
|
|
|
67,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,760
|
)
|
|
|
(34,287
|
)
|
|
|
(2,341
|
)
|
|
|
|
|
|
|
(58,388
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,146
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
4,760
|
|
Interest expense
|
|
|
(3,613
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(21,227
|
)
|
|
|
(33,703
|
)
|
|
|
(2,341
|
)
|
|
|
|
|
|
|
(57,271
|
)
|
Provision for income taxes
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,269
|
)
|
|
$
|
(33,703
|
)
|
|
$
|
(2,341
|
)
|
|
|
|
|
|
$
|
(57,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic and
diluted
|
|
|
15,505
|
|
|
|
|
|
|
|
13,621
|
|
|
|
(D
|
)
|
|
|
29,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predix (January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 through
|
|
|
Pro Forma
|
|
|
Note
|
|
|
Consolidated
|
|
|
|
EPIX
|
|
|
August 15, 2006)
|
|
|
Adjustments
|
|
|
Ref
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
2,909
|
|
|
$
|
3,692
|
|
|
$
|
|
|
|
|
|
|
|
$
|
6,601
|
|
Royalty revenue
|
|
|
1,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,603
|
|
License fee revenue
|
|
|
1,528
|
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
2,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues:
|
|
|
6,040
|
|
|
|
4,825
|
|
|
|
|
|
|
|
|
|
|
|
10,865
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
1,063
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
2,183
|
|
Research and development
|
|
|
26,255
|
|
|
|
18,204
|
|
|
|
577
|
|
|
|
A
|
|
|
|
45,036
|
|
Acquired in-process research and
development
|
|
|
123,500
|
|
|
|
|
|
|
|
(123,500
|
)
|
|
|
B
|
|
|
|
|
|
General and administrative
|
|
|
12,257
|
|
|
|
7,154
|
|
|
|
902
|
|
|
|
A
|
|
|
|
19,551
|
|
|
|
|
|
|
|
|
|
|
|
|
(762
|
)
|
|
|
C
|
|
|
|
|
|
Restructuring costs
|
|
|
633
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
163,708
|
|
|
|
26,538
|
|
|
|
(122,783
|
)
|
|
|
|
|
|
|
67,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(157,668
|
)
|
|
|
(21,713
|
)
|
|
|
122,783
|
|
|
|
|
|
|
|
(56,598
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5,496
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
5,622
|
|
Interest expense
|
|
|
(5,076
|
)
|
|
|
(1,395
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(157,248
|
)
|
|
|
(22,982
|
)
|
|
|
122,783
|
|
|
|
|
|
|
|
(57,447
|
)
|
Provision for income taxes
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(157,393
|
)
|
|
$
|
(22,982
|
)
|
|
$
|
122,783
|
|
|
|
|
|
|
$
|
(57,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(7.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic and
diluted
|
|
|
20,789
|
|
|
|
|
|
|
|
11,376
|
|
|
|
D
|
|
|
|
32,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
To record compensation expense relating to the unvested Predix
options exchanged for unvested EPIX options. |
|
(B) |
|
To eliminate the charge for the fair value of in-process
research and development acquired in the merger, which was
recorded as an expense immediately following the completion of
the merger. Because this expense is directly attributable to the
acquisition and will not have a continuing impact, it is not
reflected in the pro forma condensed statement of operations. |
|
(C) |
|
To eliminate the merger-related costs incurred by Predix and
recorded as general and administrative expense. |
|
(D) |
|
To record the weighted average issuance of EPIX shares to Predix
shareholders to effect the merger. |
F-29
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Leasehold improvements
|
|
$
|
4,444,244
|
|
|
$
|
3,880,443
|
|
Laboratory equipment
|
|
|
2,524,697
|
|
|
|
2,669,880
|
|
Furniture, fixtures and other
equipment
|
|
|
2,164,636
|
|
|
|
1,052,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,133,577
|
|
|
|
7,603,026
|
|
Less accumulated depreciation and
amortization
|
|
|
(5,541,007
|
)
|
|
|
(5,085,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,592,570
|
|
|
$
|
2,517,859
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued contractual product
development expenses
|
|
$
|
2,021,998
|
|
|
$
|
1,680,790
|
|
Accrued compensation
|
|
|
1,968,127
|
|
|
|
1,768,330
|
|
Other accrued expenses
|
|
|
3,705,423
|
|
|
|
1,746,920
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,695,548
|
|
|
$
|
5,196,040
|
|
|
|
|
|
|
|
|
|
|
During the twelve months ended December 31, 2006, the
Company incurred charges related to actions announced prior to
the merger with Predix to control costs and improve the focus of
the Companys operations to reduce losses and conserve
cash. In addition, during the third quarter of 2006 the Company
incurred additional restructuring charges in conjunction with
the merger for the consolidation of the Companys former
headquarters into the former Predix headquarters location in
Lexington, Massachusetts. These charges were for vacated lease
space and fixed asset write-offs. The Company is accounting for
the restructuring costs in accordance with
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.
Restructuring costs amounted to $0.6 million and
$1.0 million for the years ended December 31, 2006 and
2005, respectively. The costs incurred in 2005 related to
severance and related benefits for actions taken by management
to control costs and improve the focus of operations in order to
reduce losses and conserve cash. The Company reduced its
workforce by 48 employees, or approximately 50%, in response to
the FDAs second approvable letter regarding Vasovist. The
reductions, which were completed in January 2006, affected both
the research and development and the general and administrative
areas of the Company. The 2006 costs included approximately
$0.4 million related to the 2005 restructuring plan for
additional severance costs as well as costs related to vacating
certain leased space and the write-off of leasehold
improvements. In addition, in the third quarter of 2006, the
Company recorded additional restructuring charges of
$0.2 million for facility exit costs related to the
consolidation of the Companys Cambridge, MA headquarters
into the former Predix headquarters in Lexington, MA. These
costs primarily consist of future lease payments through the end
of 2007 and the write off of leasehold improvements. Additional
restructuring costs are expected to be incurred in 2007 for the
consolidation of the Companys leased laboratory facility
in Cambridge to our Lexington location. The timing and amount of
the additional restructuring costs will depend upon the
completion of laboratory construction at the Companys
Lexington facility, which is currently anticipated to be in
mid-2007.
F-30
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table displays the restructuring activity and
liability balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
Lease
|
|
|
|
|
|
|
Severance
|
|
|
Write Off
|
|
|
Obligation
|
|
|
Total
|
|
|
Restructuring charges in fourth
quarter of 2005
|
|
$
|
971,828
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
971,828
|
|
Restructuring charge
|
|
|
134,642
|
|
|
|
177,906
|
|
|
|
320,690
|
|
|
|
633,238
|
|
Cash payments
|
|
|
(1,106,470
|
)
|
|
|
|
|
|
|
(90,714
|
)
|
|
|
(1,197,184
|
)
|
Non-cash items
|
|
|
|
|
|
|
(177,906
|
)
|
|
|
|
|
|
|
(177,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
229,976
|
|
|
$
|
229,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Financing
Arrangements
|
Convertible
Debt
In June 2004, the Company completed a sale, pursuant to
Rule 144A under the Securities Act of 1933, of
$100.0 million of 3% convertible senior notes due 2024
for net proceeds of approximately $96.4 million. Each
$1,000 of senior notes is convertible into 22.39 shares of
the Companys common stock representing a conversion price
of approximately $44.66 per share if (1) the price of
the Companys common stock trades above 120% of the
conversion price for a specified time period, (2) the
trading price of the senior notes is below a certain threshold,
(3) the senior notes have been called for redemption, or
(4) specified corporate transactions have occurred. None of
these conversion triggers has occurred as of December 31,
2006. Each of the senior notes is also convertible into the
Companys common stock in certain other circumstances. The
senior notes bear an interest rate of 3%, payable semiannually
on June 15 and December 15. Interest payments of
$3.0 million, $3.0 million and $1.6 million were
made during the years ended December 31, 2006, 2005 and
2004, respectively. The senior notes are unsecured.
The Company has the right to redeem the notes on or after
June 15, 2009 at an initial redemption price of 100.85%,
plus accrued and unpaid interest. Noteholders may require the
Company to repurchase the notes at par, plus accrued and unpaid
interest, on June 15, 2011, 2014 and 2019 and upon certain
other events, including a change of control and termination of
trading of the Companys common stock on the NASDAQ Global
Market.
In connection with the issuance of the senior notes, the Company
incurred $3.65 million of issuance costs, which primarily
consisted of investment banker fees and legal and other
professional fees. The costs are being amortized as interest
expense using the effective interest method over the term from
issuance through the first date that the holders are entitled to
require repurchase of the senior notes (June 2011). For the
years ended December 31, 2006, 2005 and 2004, amortization
of the issuance costs was $492,337, $475,115 and $260,188,
respectively.
Loan
Agreement to Strategic Partner
In May 2003, the Company entered into a Non-Negotiable Note and
Security Agreement (the Loan Agreement) with Bayer
Schering Pharma AG, Germany under which the Company was eligible
to borrow up to a total of $15.0 million. The Loan
Agreement carried a variable, market-based interest rate. In
January 2006, the Company and Bayer Schering Pharma AG, Germany
agreed to terminate the Loan Agreement.
F-31
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Leases
The Company leases its facilities in Lexington, MA, Cambridge,
MA and Princeton, NJ and facilities and vehicles in Ramat Gan,
Israel under agreements that are accounted for as operating
leases. On August 31, 2006, the Company entered into an
amended lease agreement for its Lexington facility, which
expanded the space under lease from approximately 29,000 square
feet to approximately 57,000 square feet. The Companys
facility leases generally provide for a base rent plus real
estate taxes and certain operating expenses related to the
leases. Certain of the Companys leases contain renewal
options, escalating payments over the life of the lease and
landlord allowances. Scheduled rent increases and landlord
allowances are being amortized over the terms of the agreements
using the straight-line method, and are included in other
liabilities in the accompanying consolidated balance sheet. The
Company has vacated its Princeton, NJ facility and one of its
locations in Cambridge, MA. The Company leases certain equipment
under capital lease agreements. The Company has assets under
capital lease obligations amounting to $191,960 as of
December 31, 2006. Amortization of such equipment is
included in depreciation expense.
At December 31, 2006, future minimum commitments under all
noncancellable capital and operating leases with initial or
remaining terms of more than one year are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
2007
|
|
$
|
102,008
|
|
|
$
|
3,600,142
|
|
2008
|
|
|
72,794
|
|
|
|
2,687,279
|
|
2009
|
|
|
32,115
|
|
|
|
2,499,312
|
|
2010
|
|
|
6,628
|
|
|
|
2,466,642
|
|
2011
|
|
|
|
|
|
|
2,126,775
|
|
Thereafter
|
|
|
|
|
|
|
5,541,768
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
213,545
|
|
|
|
18,921,918
|
|
Less aggregate future sublease
income
|
|
|
|
|
|
|
(2,595,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
213,545
|
|
|
$
|
16,326,543
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(26,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease
payment
|
|
|
186,710
|
|
|
|
|
|
Less current portion of capital
lease obligation
|
|
|
(84,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of
current portion
|
|
$
|
102,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company executed an agreement in February 2006 to sublease a
portion of its office space in Cambridge and expects to offset
approximately $140,000 of its lease commitments over the
two-year period ending in December 2007. Total rental expense
amounted to $1.5 million, $1.3 million and
$1.2 million for the years ended December 31, 2006,
2005 and 2004, respectively.
Late
SEC Filings and NASDAQ Delisting Proceedings
Due to the special committee investigation and the resulting
restatement, the Company did not file on time this Annual Report
on Form 10-K. As a result, the Company received a NASDAQ
Staff Determination letter, dated April 3, 2007, stating
that it was not in compliance with the filing requirements of
Marketplace Rule 4310(c)(14) and, therefore, that the
Companys stock was subject to delisting from the NASDAQ
Global Market. The Company expects to appeal this determination
and request a hearing within the prescribed time period before a
NASDAQ Listing Qualifications Panel.
F-32
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Commitments
In November 2003, the Company entered into an intellectual
property agreement with Dr. Martin R. Prince (the
Prince Agreement). Under the terms of the Prince
Agreement, Dr. Prince granted the Company certain
discharges, licenses and releases in connection with the
historic and future use of Vasovist by the Company and agreed
not to sue the Company for intellectual property infringement
related to the use of Vasovist. In consideration for
Dr. Prince entering into this agreement, the Company paid
him an upfront fee of $850,000, issued him 88,000 shares of
common stock valued at $2.3 million (at the date of the
agreement), agreed to pay him future royalties on sales of
Vasovist and agreed to provide him with $140,000 worth of
Vasovist annually for the life of the agreement. The Company
recorded a $3.2 million charge to research and development
expense in the fourth quarter of 2003 for the value of the cash
and common stock consideration paid to Dr. Prince. During
the third quarter of 2006, the obligation to provide
Dr. Prince with $140,000 of Vasovist annually was triggered
and the Company recorded a $0.9 million charge to research
and development expense representing the present value of this
obligation. Under the terms of the Prince Agreement,
Dr. Prince may decide to defer delivery of all or a portion
of the amount of Vasovist due to him in any given year to future
years. The Prince Agreement expires based upon the last to
expire patent or patent application as listed in the agreement,
which is currently estimated to be in 2026. As of
December 31, 2006 no Vasovist product had been requested by
or provided to Dr. Prince.
Common
Stock
In December 2006, the Company filed a shelf registration
statement on
Form S-3
with the Securities and Exchange Commission to allow the Company
to issue, in one or more offerings, up to $75 million in
common stock, preferred stock or warrants. Due to the special
committee investigation and the resulting restatement, the
Company did not file on time this Annual Report on
Form 10-K. Accordingly, any take downs on this shelf
registration statement are prohibited until such time that the
Company has timely filed its quarterly and annual reports for a
consecutive
12-month
period and the Company has met the other requirements of
Form S-3
at the time it files its annual report on
Form 10-K
for fiscal 2007.
In conjunction with the Company entering into a collaboration
agreement with GlaxoSmithKline on December 11, 2006, the
Company entered into a stock purchase agreement with
GlaxoSmithKline for the sale of 3,009,027 shares of common
stock for $17,500,000.
In connection with the merger with Predix on August 16,
2006, the EPIX stockholders approved a
1-for-1.5
reverse split of its common stock. The reverse split occurred
immediately prior to the completion of the merger. All
references in the financial statements and notes to the number
of shares outstanding, per share amounts, and stock options have
been restated to reflect the effect of the reverse stock split
for all periods presented. Stockholders equity (deficit)
as of December 31, 2006 and December 31, 2005 reflects
the stock split by reclassifying from Common Stock
to Additional paid-in capital an amount equal to the
change in par value resulting from the stock split.
Equity
Plans
The Company has in place an Amended and Restated 1992 Equity
Incentive Plan (the Equity Plan), which provides
stock awards to purchase shares of common stock to be granted to
employees and consultants. In June 2005, the Company amended the
Equity Plan to increase the number of shares reserved for
issuance pursuant to future grants by 333,333. The Equity Plan
provides for the grant of stock options (incentive and
non-statutory),
stock appreciation rights, performance shares, restricted stock
or stock units, for the purchase of an aggregate of
4,733,266 shares of common stock since the Equity Plan
inception, subject to adjustment for stock-splits and similar
capital changes. Awards under the Equity Plan may be granted to
officers, employees
F-33
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and other individuals as determined by the compensation
committee. The compensation committee also selects the
participants and establishes the terms and conditions of each
option or other equity right granted under the Equity Plan,
including the exercise price, the number of shares subject to
options or other equity rights and the time at which such
options become exercisable. The stock options have a contractual
term of ten years and generally vest over a period of four or
five years. As of December 31, 2006, 1,201,507 shares
of common stock are available for grant under the Equity Plan.
The Company has in place an Amended and Restated
1996 Director Stock Option Plan (the Director
Plan). All of the directors who are not employees of the
Company are currently eligible to participate in the Director
Plan. In June 2005, the Company amended the Director Plan to
increase the number of shares reserved for issuance pursuant to
future grants by 66,666. The number of shares underlying the
option granted to each eligible director upon election or
re-election is 16,666 shares. Each option becomes
exercisable with respect to 5,555 shares on each
anniversary date of grant for a period of three years, provided
that the option holder is still a director of the Company at the
opening of business on such date. In addition, each eligible
director is automatically granted an option to purchase
3,333 shares annually during the years in which such
director is not up for reelection. Such options become
exercisable in full on the first anniversary date of the grant,
provided the option holder is still a director of the Company at
the opening of business on such date. The term of each option
granted under the Director Plan is ten years from the date of
grant. The exercise price for the options is equal to the fair
value of the underlying shares at the date of grant. As of
December 31, 2006, 49,788 shares of common stock are
available for grant under the Director Plan.
In conjunction with the merger with Predix, the Company assumed
the Predix Pharmaceuticals Holdings, Inc. Amended and Restated
2003 Stock Incentive Plan (the 2003 Plan). The 2003
Plan provides for the grant of stock options (incentive and
non-statutory), restricted stock and other stock awards having
such terms and conditions as the board may determine. Under the
2003 Plan, stock awards may be granted to employees and to
consultants of the Company. The options may be granted at a
price not less than fair value of the common stock on the date
of grant. At December 31, 2006, 1,120,864 shares of
common stock were available for grant under the 2003 Plan. The
Company assumed options to purchase 1,891,721 shares of
Predix common stock as part of the merger. The value of the
unvested portion of the options assumed amounted to
$5.4 million and is being recognized as compensation
expense over the remaining vesting term of the options.
The Company has recorded $4.2 million of stock-based
compensation expense, which includes a charge for the shares
issued under the Companys Employee Stock Purchase Plan
(the ESPP), for the year ended December 31,
2006. The stock-based compensation expense included
$2.7 million in research and development and
$1.5 million in general and administrative expense. The
compensation expense increased both basic and diluted net loss
per share for the year ended December 31, 2006 by $0.20. As
of December 31, 2006, there was $12.5 million of
unrecognized compensation expense related to non-vested awards
that is expected to be recognized over a weighted average period
of 1.5 years.
F-34
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net loss and net
loss per share for the years ended December 31, 2005 and
2004 as if the Company had applied the fair value provisions of
SFAS 123 to options granted under the Companys stock
option plans. In addition, the tables below present the impact
of the additional stock-based compensation expense-related
adjustments on the Companys previously reported pro forma
information for the stated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
Year Ended December 31, 2004
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Net loss as reported
|
|
$
|
(24,310,858
|
)
|
|
$
|
3,041,900
|
|
|
$
|
(21,268,958
|
)
|
|
$
|
(20,381,258
|
)
|
|
$
|
(2,239,964
|
)
|
|
$
|
(22,621,222
|
)
|
Add: employee stock-based
compensation expense included in net loss
|
|
|
|
|
|
|
(3,021,815
|
)
|
|
|
(3,021,815
|
)
|
|
|
97,308
|
|
|
|
1,967,395
|
|
|
|
2,064,703
|
|
Less: pro forma adjustment for
stock-based compensation
|
|
|
(4,141,790
|
)
|
|
|
(370,192
|
)
|
|
|
(4,511,982
|
)
|
|
|
(6,047,438
|
)
|
|
|
(707,543
|
)
|
|
|
(6,754,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss pro forma
|
|
$
|
(28,452,648
|
)
|
|
$
|
(350,107
|
)
|
|
$
|
(28,802,755
|
)
|
|
$
|
(26,331,388
|
)
|
|
$
|
(980,112
|
)
|
|
$
|
(27,311,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(1.57
|
)
|
|
$
|
0.20
|
|
|
$
|
(1.37
|
)
|
|
$
|
(1.34
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(1.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(1.84
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(1.86
|
)
|
|
$
|
(1.73
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(1.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each stock option is estimated on the date of
grant using the Black-Scholes option pricing model using the
assumptions noted in the following table. The risk-free interest
rate is based on a treasury instrument whose term is consistent
with the expected life of the stock options. Expected volatility
is based on historical volatility data of the Companys
stock and comparable companies to the expected option term. The
Company uses the simplified method, as prescribed by
the SECs SAB No. 107, to calculate the expected
term, or life, of these options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
ESPP
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected life of options (in years)
|
|
|
6.3
|
|
|
|
6.9
|
|
|
|
7.3
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Expected stock price volatility
|
|
|
70
|
%
|
|
|
83
|
%
|
|
|
85
|
%
|
|
|
71
|
%
|
|
|
82
|
%
|
|
|
84
|
%
|
Weighted average risk-free
interest rate
|
|
|
4.69
|
%
|
|
|
3.77
|
%
|
|
|
3.25
|
%
|
|
|
4.93
|
%
|
|
|
3.51
|
%
|
|
|
1.40
|
%
|
Expected annual dividend per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The weighted-average grant date fair value of stock options
granted during 2006, 2005 and 2004 was $4.54, $8.34 and
$23.49 per share, respectively. The total intrinsic value
of options exercised during 2006, 2005 and 2004 was
$1.8 million, $0.2 million and $9.0 million
respectively.
F-35
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of option activity as of December 31, 2006 and
changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (In Years)
|
|
|
Value
|
|
|
Outstanding at December 31,
2005
|
|
|
2,181,184
|
|
|
$
|
17.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,226,553
|
|
|
|
6.75
|
|
|
|
|
|
|
|
|
|
Exchanged in Predix merger
|
|
|
1,891,721
|
|
|
|
1.46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(360,018
|
)
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,512,333
|
)
|
|
|
15.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
3,427,107
|
|
|
$
|
7.14
|
|
|
|
8.07
|
|
|
$
|
8,448,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
1,397,273
|
|
|
$
|
7.56
|
|
|
|
6.89
|
|
|
$
|
4,660,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
December 31, 2006
|
|
|
3,163,026
|
|
|
$
|
7.14
|
|
|
|
7.98
|
|
|
$
|
8,064,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
Employee Stock Purchase Plan
The Company sponsors the Amended and Restated 1996 Employee
Stock Purchase Plan (the Purchase Plan) under which
employees may purchase shares of common stock at a discount from
fair market value at specified dates. Employees purchased
11,165 shares in 2006 at an average price of $5.37 per
share and 12,772 shares in 2005 at an average price of
$8.15 per share. At December 31, 2006, no common
shares remained available for issuance under the Purchase Plan.
The Purchase Plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the
Internal Revenue Code of 1986, as amended (the
Code). Rights to purchase common stock under the
Purchase Plan are granted at the discretion of the compensation
committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when
stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time
before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price
per share of common stock in an offering is 85% of the lesser of
its fair market value at the beginning of the offering period or
on the applicable exercise date and is paid through payroll
deductions.
F-36
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has reported losses since inception and, due to the
degree of uncertainty related to the ultimate use of the net
operating loss carryforwards, has fully reserved this tax
benefit. The Company has the following deferred tax assets as of
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
122,730,000
|
|
|
$
|
71,710,000
|
|
Research and development tax
credits
|
|
|
12,160,000
|
|
|
|
8,381,000
|
|
Book over tax depreciation and
amortization
|
|
|
4,090,000
|
|
|
|
2,582,000
|
|
Deferred revenue
|
|
|
7,323,000
|
|
|
|
451,000
|
|
Other
|
|
|
1,487,000
|
|
|
|
208,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
147,790,000
|
|
|
|
83,332,000
|
|
Valuation allowance
|
|
|
(147,790,000
|
)
|
|
|
(83,332,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, the Company had approximately
$456.3 million of domestic NOL carry forwards and
$0.2 million of foreign NOL carryforwards, which either
expire on various dates through 2026 or can be carried forward
indefinitely. These loss carry forwards are available to reduce
future federal and foreign taxable income, if any. The valuation
allowance relates to U.S. NOLs and deferred tax assets and
certain other foreign deferred tax assets and is recorded based
upon the uncertainty surrounding their realizability, as these
assets can only be realized via profitable operations in the
respective tax jurisdictions.
As a result of ownership changes resulting from sales of equity
securities, the Companys ability to use the net operating
loss carry forwards is subject to limitations as defined in
section 382 and 383 of the Code. The Company currently
estimates that the annual limitation on its use of net operating
losses generated through May 31, 1996 will be approximately
$900,000. Pursuant to Section 382 and 383 of the Code, the
change in ownership resulting from public equity offerings in
1997, the issuance of shares in the merger with Predix in 2006,
the sale of equity securities to GlaxoSmithKline in 2006, and
other subsequent ownership changes may further limit utilization
of losses and credits in any one year. The Company is also
eligible for research and development tax credits, which can be
carried forward to offset federal taxable income. The annual
limitation and the timing of attaining profitability may result
in the expiration of net operating loss and tax credit carry
forwards before utilization.
In accordance with SFAS No. 109, the accounting for
tax benefits of acquired deductible temporary differences and
NOL carry forwards, which are not recognized at the acquisition
date because a valuation allowance is established and which are
recognized subsequent to acquisitions, will be applied first to
reduce to zero any goodwill and other non-current intangible
assets related to the acquisitions. Any remaining benefits would
be recognized as a reduction of income tax expense. As of
December 31, 2006, $44.2 million of the Companys
deferred tax asset pertains to acquired companies, the future
benefits of which will be applied first to reduce to zero any
goodwill and other non-current intangible assets related to the
acquisitions, prior to reducing our income tax expense.
F-37
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of income tax computed at the
U.S. federal statutory rate to income tax expense is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Tax at U.S. statutory rate
|
|
$
|
(53,464,281
|
)
|
|
$
|
(7,217,169
|
)
|
|
$
|
(7,657,248
|
)
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
Permanent differences, net of
federal benefit
|
|
|
43,305,862
|
|
|
|
18,185
|
|
|
|
248,973
|
|
|
|
27.54
|
%
|
|
|
0.09
|
%
|
|
|
1.11
|
%
|
Foreign taxes
|
|
|
145,313
|
|
|
|
41,991
|
|
|
|
99,905
|
|
|
|
0.09
|
%
|
|
|
0.20
|
%
|
|
|
0.44
|
%
|
Operating losses not benefited
|
|
|
10,158,419
|
|
|
|
7,198,984
|
|
|
|
7,408,275
|
|
|
|
6.46
|
%
|
|
|
33.91
|
%
|
|
|
32.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
145,313
|
|
|
$
|
41,991
|
|
|
$
|
99,905
|
|
|
|
0.09
|
%
|
|
|
0.20
|
%
|
|
|
0.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Defined
Contribution Plan
|
The Company offers a defined contribution 401(k) plan, which
covers substantially all US employees. The plan permits
participants to make contributions from 1% to 15% of their
compensation. The Company matches up to 3% of employees
contributions. During 2006, 2005 and 2004, the Companys
match amounted to $170,499, $243,486, and $227,994, respectively.
|
|
14.
|
Strategic
Alliances and Collaborations
|
The Companys business strategy includes entering into
alliances with companies primarily in the pharmaceutical
industry to facilitate the development, manufacture, marketing,
sale and distribution of EPIX products.
GlaxoSmithKline
On December 11, 2006, the Company entered into a
development and license agreement with SmithKline Beecham
Corporation, doing business as GlaxoSmithKline, and Glaxo Group
Limited to develop and commercialize medicines targeting four
G-protein coupled receptors, or GPCRs, for the treatment of a
variety of diseases, including an option to license the
Companys
5-HT4
partial agonist,
PRX-03140,
and other medicines arising from the four research programs. The
other three GPCR targets are new discovery programs.
GlaxoSmithKline does not have options to any of the
Companys other clinical programs besides PRX-03140. The
collaboration with GlaxoSmithKline is being conducted through
its Center of Excellence for External Drug Discovery.
Pursuant to the collaboration agreement, the Company granted
GlaxoSmithKline an exclusive option to obtain exclusive,
worldwide license rights to complete the development and to
commercialize the products initially developed under each of the
Companys four research programs under the collaboration
agreement. In return for those options and in consideration of
the development work to be performed by the Company under the
collaboration agreement, GlaxoSmithKline paid the Company an
initial payment of $17.5 million. As part of the
collaboration, on December 11, 2006 the Company entered
into a stock purchase agreement with GlaxoSmithKline providing
for the issuance and sale to GlaxoSmithKline of
3,009,027 shares of the Companys common stock for an
aggregate purchase price of $17.5 million. In addition, the
Company may be eligible for up to an aggregate of
$1.2 billion in additional nonrefundable option fees and
milestone payments that relate to the achievement of certain
development, regulatory and commercial milestones across the
four research programs. The Company is also eligible to receive
tiered, double-digit royalties based on net sales by
GlaxoSmithKline of any products developed under the
collaboration agreement. The specific royalty rates will vary
depending upon a number of factors, including the total annual
net sales of the product and whether it is covered by one of the
Companys patents. GlaxoSmithKlines royalty
obligation under the collaboration
F-38
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
agreement generally terminates on a
product-by-product
and
country-by-country
basis upon the later of (i) the expiration of the
Companys last patent claiming the manufacture, use, sale
or importation of the product in the relevant country and
(ii) twelve years after the first commercial sale of the
product in the relevant country.
If GlaxoSmithKline does not exercise any of the four options,
the collaboration agreement will expire upon the expiration of
the last such option. Otherwise, the collaboration agreement
will expire on a
product-by-product
and
country-by-country
basis upon the expiration of the royalty payment obligations for
each product in each country.
Under the collaboration agreement, the Company has agreed to
design, discover and develop, at its own cost, small molecule
drug candidates targeting one of the four GPCRs on which the
research programs are focused. The design, discovery and
development efforts will be guided by a joint steering committee
formed pursuant to the collaboration agreement. The first
program is focused on the 5-HT4 receptor and will include the
Companys 5-HT4 partial agonist drug candidate, PRX-03140,
which is currently in early-stage clinical development for the
treatment of Alzheimers disease. The Company has retained
an option to co-promote products successfully developed from the
5-HT4 program in the United States. Under any such co-promotion
arrangement, the collaboration agreement provides for
GlaxoSmithKline to direct the promotional strategy and
compensate the Company for its efforts in co-promoting the
product.
The Company has responsibility and control for filing,
prosecution or maintenance of any of its patents that are the
subject of an option to GlaxoSmithKline under the collaboration
agreement, provided that in the event an option is exercised,
responsibility and control of the patents subject to such option
transfers to GlaxoSmithKline.
The parties each have the right to terminate the collaboration
agreement if the other party becomes insolvent or commits an
uncured material breach of the collaboration agreement. In
addition, GlaxoSmithKline has the right to terminate the
collaboration agreement in its entirety, and to terminate its
rights to any program developed under the collaboration
agreement on a regional or worldwide basis, in each case without
cause. Upon a termination of the collaboration agreement,
depending upon the circumstances, the parties have varying
rights and obligations with respect to the grant of continuing
license rights, continued commercialization rights and
continuing royalty obligations.
Amgen
As part of the Predix merger, the Company assumed an obligation
for an exclusive license agreement with Amgen Inc., entered into
on July 31, 2006, to develop and commercialize products
based on its pre-clinical compounds that modulate the S1P1
receptor and compounds and products that may be identified by or
acquired by Amgen and that modulate the S1P1 receptor. The S1P1
receptor is a cell surface GPCR found on white blood cells and
in other tissues that is associated with certain autoimmune
diseases, such as rheumatoid arthritis and multiple sclerosis.
Pursuant to the license agreement, the Company granted Amgen an
exclusive worldwide license to its intellectual property and
know-how related to the compounds in the Companys S1P1
program that modulate the S1P1 receptor, for the development and
commercialization of those compounds and other compounds and
products that modulate the S1P1 receptor. Amgen has limited
rights to sublicense its rights under the license. In return for
the license, Amgen paid the Company a nonrefundable, up-front
payment of $20 million and will pay royalties based on
aggregate annual net sales of all S1P1-receptor-modulating
products developed by Amgen under the license agreement. In
addition, the Company may be eligible for up to an aggregate of
$287.5 million of nonrefundable milestone payments that
relate to milestones associated with the commencement of
clinical trials, regulatory approvals and annual net sales
thresholds of the products under the license
F-39
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
agreement. These royalty rates and milestone amounts are subject
to reduction in the event that, among other things:
|
|
|
|
|
Amgen is required to obtain third-party rights to develop and
commercialize a product that incorporates an EPIX compound; and
|
|
|
|
Amgen develops and commercializes products that are not covered
by the intellectual property rights the Company licensed to
Amgen, such as for example, S1P1-modulating products that may be
acquired by Amgen from a third party.
|
Generally, Amgens royalty obligation under the agreement
terminates on a
product-by-product
and
country-by-country
basis upon the later of (a) the expiration or termination
of the last claim within the patents (whether such patents are
patents EPIX licensed to Amgen or are patents owned or
in-licensed by Amgen) covering such product and (b) ten
years following the first commercial sale of the product. The
agreement expires when all of Amgens royalty obligations
have terminated.
The Company has the option to co-promote one product from the
collaboration in the United States for one indication to be
jointly selected by EPIX and Amgen. During the first
15 months of the agreement, the Company will design,
discover and develop, at its own cost, additional compounds that
modulate the S1P1 receptor and that are within the same family
of compounds as those identified in its patent applications
licensed to Amgen under the agreement. The collaboration
agreement provides Amgen with a license to these additional
compounds to further its development efforts. The Company may
undertake additional research under the agreement, at its own
expense, as approved by a joint steering committee formed
pursuant to the agreement. The Company has responsibility and
control for filing, prosecution or maintenance for any of its
patents licensed to Amgen for 24 months or until the start
of Phase 1 clinical trials for the first product developed
under the agreement, at which time, responsibility and control
of such patents transfers to Amgen. Amgen has responsibility and
control for filing, prosecution or maintenance for all other
patents covered by the agreement, including patents jointly
developed under the agreement. Amgen will have final decision
making authority on all other research matters and will be
responsible for non-clinical and clinical development,
manufacturing, regulatory activities and commercialization of
the compounds and products developed under the license
agreement, at its own expense.
The parties each have the right to terminate the agreement (in
whole or for specified products or countries, depending upon the
circumstances) upon a material uncured breach by the other party
and Amgen has the right to terminate the agreement for
convenience upon varying periods of at least three months
advance notice. Upon a termination of the agreement, depending
upon the circumstances, the parties have varying rights and
obligations with respect to the grant of continuing license
rights, continued commercialization rights and continuing
royalty obligations.
Cystic
Fibrosis Foundation Therapeutics Incorporated
In March 2005, Predix entered into a research, development and
commercialization agreement with Cystic Fibrosis Foundation
Therapeutics Incorporated, or CFFT, the drug discovery and
development affiliate of the Cystic Fibrosis Foundation. In
August 2006, the Company expanded the research, development and
commercialization agreement with CFFT. Under the terms of the
amended agreement, the Company may be eligible for up to an
additional $3.5 million in research funding and milestone
payments, bringing the total value of the research collaboration
with CFFT to $16 million.
Through December 31, the Company
and/or
Predix have received approximately $8.3 million from CFFT
under this agreement, consisting of a $2.0 million upfront
payment, approximately $4.1 million of reimbursed research
and development costs and milestone payments totaling
approximately $2.2 million. The milestone payments, which
were earned in July and August 2006, relate to the first
development program described below.
F-40
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
The first program is focused on correcting a malfunction of the
Cystic Fibrosis Transmembrane conductance Regulator, or CFTR,
ion channel protein. The Company is using its proprietary
structure-based technologies to model the structure of this ion
channel protein target and identify binding sites in the channel
for therapeutic intervention. Once these sites are identified,
the Company aims to use its drug discovery capabilities to
discover a drug that restores proper functionality to the
channel in patients with cystic fibrosis. If the preliminary
program is successful, the Company and CFFT have agreed to
negotiate towards a follow-on agreement under which the Company
will explore a structure-based approach for the discovery and
commercialization of a drug that will target CFTR, with the
financial support of CFFT and subject to a royalty payable to
CFFT.
|
|
|
|
The second program is focused on the discovery of a
small-molecule agonist to the G-Protein Coupled Receptor known
as P2Y(2), which plays a role in cystic fibrosis, using the
Companys proprietary structure-based drug design system.
The Company retains the right to develop and commercialize any
drug candidates discovered through this second program, and is
obligated to make aggregate royalty payments of up to
$15 million to CFFT for the first drug candidate that
reaches particular regulatory and sales milestones.
|
The agreement expires with respect to the first program on
August 2, 2009 and with respect to the second program on
March 7, 2007, unless extended by the parties or terminated
by either party beforehand. The second program has been extended
through December 31, 2007. CFFT may terminate either or
both programs without cause upon 120 days notice or if the
Company suspends or discontinues its business. Either party may
terminate the agreement for an uncured material breach.
Bayer
Schering Pharma AG, Germany
In June 2000, the Company entered into a strategic collaboration
agreement with Bayer Schering Pharma AG, Germany (formerly known
as Schering AG) pursuant to which it granted Bayer Schering
Pharma AG, Germany an exclusive license to co-develop and market
Vasovist worldwide, excluding Japan. In December 2000, the
Company amended this strategic collaboration agreement to grant
to Bayer Schering Pharma AG, Germany the exclusive rights to
develop and market Vasovist in Japan. Generally, each party to
the agreement will share equally in Vasovist costs and profits
in the United States. Under the agreement, the Company retained
responsibility for completing clinical trials and filing for FDA
approval in the United States and Bayer Schering Pharma AG,
Germany is responsible for clinical and regulatory activities
for the product outside the United States. In addition, the
Company granted Bayer Schering Pharma AG, Germany an exclusive
option to develop and market an unspecified vascular MRI blood
pool agent from its product pipeline. In connection with this
strategic collaboration and the amendment to its strategic
collaboration agreement with Tyco, as further described below,
Bayer Schering Pharma AG, Germany paid the Company an up-front
fee of $10.0 million, which the Company then paid to Tyco.
Under the agreement, Bayer Schering Pharma AG, Germany also paid
the Company $20.0 million in exchange for shares of the
Companys common stock. The Company may receive up to an
additional $23.2 million upon the achievement of certain
milestones, including $1.3 million that may be earned upon
U.S. product approval. The Company also is entitled to
receive a royalty on products sold outside the United States
and, if and when Vasovist is launched in the United States, a
percentage of Bayer Schering Pharma AG, Germanys operating
profit margin on products sold in the United States.
Under the terms of the strategic collaboration agreement with
Bayer Schering Pharma AG, Germany, either party may terminate
the agreement upon thirty days notice if there is a material
breach of the contract. In addition, Bayer Schering Pharma AG,
Germany may terminate the agreement at any time on a
region-by-region
basis or in its entirety, upon six months written notice to the
Company.
In May 2003, the Company entered into a broad alliance with
Bayer Schering Pharma AG, Germany for the discovery, development
and commercialization of molecularly-targeted contrast agents
for MRI. The
F-41
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
alliance was composed of two areas of collaboration, with one
agreement generally providing for exclusive development and
commercialization collaboration for EP-2104R, the Companys
product candidate for the detection of thrombus, and the second
agreement covering an exclusive research collaboration to
discover novel compounds for diagnosing human disease using MRI.
Under the first agreement, Bayer Schering Pharma AG, Germany had
an option to the late stage development and worldwide marketing
rights for EP-2104R. On July 12, 2006, Bayer Schering
Pharma AG, Germany notified the Company that it declined to
exercise this option. As a result, the Company retained
commercial rights to EP-2104R. In the event EP-2104R is
commercialized, the Company is obligated to pay Bayer Schering
Pharma AG, Germany a minimal royalty limited to a portion of the
funding the Company received for this program from Bayer
Schering Pharma AG, Germany. The second agreement related to the
broader research collaboration concluded in May 2006. The
Company is currently discussing with Bayer Schering Pharma AG,
Germany the allocation of rights to intellectual property
generated during the research effort.
On May 8, 2000, the Company granted to Bayer Schering
Pharma AG, Germany a worldwide, royalty-bearing license to
patents covering Bayer Schering Pharma AG, Germanys
development project, Primovist, an MRI contrast agent for
imaging the liver, that was approved in the European Union in
2004. Under this agreement, Bayer Schering Pharma AG, Germany is
required to pay the Company royalties based on sales of products
covered by this agreement. This agreement expires upon the
last-to-expire
patent covered by the agreement unless terminated earlier by
either party because of the material breach of the agreement by
the other party. Also on May 8, 2000, Bayer Schering Pharma
AG, Germany granted the Company a non-exclusive, royalty-bearing
license to certain of its Japanese patents. Under this
agreement, the Company is required to pay Bayer Schering Pharma
AG, Germany royalties based on sales of products covered by this
agreement. This agreement expires upon the
last-to-expire
patent covered by the agreement unless terminated earlier by
either party because of the material breach of the agreement by
the other party.
Technology
Agreements
Ramot
The Companys proprietary drug discovery technology and
approach is in part embodied in technology that it licenses from
Ramot at Tel Aviv University Ltd., the technology transfer
company of Tel Aviv University. Pursuant to this license, the
Company has exclusive, worldwide rights to certain technology
developed at Tel Aviv University to develop, commercialize and
sell products for the treatment of diseases or conditions in
humans and animals. The licensed technology, as continually
modified, added to and enhanced by the Company, consists in
large part of computer-based models of biological receptors and
methods of designing drugs to bind to those receptors.
All of the Companys current clinical-stage therapeutic
drug candidates, PRX-00023, PRX-03140, PRX-08066 and
PRX-07034,
were, at least in part, identified, characterized or developed
using the licensed technology, and the Company would be required
to make payments to Ramot, as described below, as and when
rights to any such drug candidates are ever sublicensed or any
such drug candidates are commercialized. In addition, the
Company has used the licensed technology in all of its
preclinical-stage programs and would expect to make payments to
Ramot if rights to any drug candidates were ever commercialized
from any of these programs. One of our former employees and a
current employee, Oren Becker, former Chief Scientific Officer,
and Sharon Shacham, Vice President of Product Leadership,
respectively were inventors of the technology that the Company
licenses from Ramot. The Company believes that Ramot shares a
portion of any royalty income received with the respective
inventors and, accordingly, they receive a portion of the
amounts the Company pays Ramot.
The Company paid Ramot an upfront fee of $40,000 upon the grant
of the license. Under the license, the Company has an obligation
to make royalty payments to Ramot on the Companys net
sales of products that are identified, characterized or
developed through the use of the licensed technology that are
either 1.5% or
F-42
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2.5% of such net sales (depending upon the degree to which the
product needed to be modified after being identified,
characterized or developed through the use of the licensed
technology) and decrease as the volume of sales increases. The
royalty obligation for each product expires on a
country-by-country
basis twelve years after the first commercial sale. There is
also an annual minimum royalty payment obligation of
$10,000 per year.
The Company also is required to share between 5% and 10% of the
consideration it receives from parties to whom it grants
sublicenses of rights in the Ramot technology or sublicenses of
rights in products identified, characterized or developed with
the use of such technology and between 2% and 4% of
consideration the Company receives from performing services
using such technology. In connection with the Companys
collaborations with Cystic Fibrosis Foundation Therapeutics
Incorporated, Amgen and GlaxoSmithKline, the Company has paid
$2,192,000 in total royalties to Ramot primarily for the total
payments received to date for the upfront payments and milestone
payments received under these license agreements.
The license may be terminated by either party upon a material
breach by the other party unless cured within 30 days, in
the case of a payment breach, and 90 days in the case of
any other breach. The license may also be terminated by either
party in connection with the bankruptcy or insolvency of the
other party. The license expires upon the expiration of the
Companys obligation to make payments to Ramot. Therefore,
since the Company has an ongoing obligation to pay annual
minimum royalties to Ramot as described above, the license may
not expire and may only terminate upon a breach by, or
bankruptcy of, a party.
Tyco
In August 1996, the Company entered into a strategic
collaboration agreement with Mallinckrodt Inc. (subsequently
acquired by Tyco International Ltd.), involving research,
development and marketing of MRI vascular contrast agents
developed or in-licensed by either party. In June 2000, in
connection with the exclusive license that the Company granted
to Bayer Schering Pharma AG, Germany under its strategic
collaboration agreement, the Company amended its strategic
collaboration with Tyco. The amendment enabled the Company to
sublicense certain technology from Tyco to Bayer Schering Pharma
AG, Germany which allowed the Company to enter into the
strategic collaboration agreement for Vasovist with Bayer
Schering Pharma AG, Germany. Pursuant to that amendment, the
Company also granted to Tyco a non-exclusive, worldwide license
to manufacture Vasovist for clinical development and commercial
use on behalf of Bayer Schering Pharma AG, Germany in accordance
with a manufacturing agreement entered into in June 2000 between
Tyco and Bayer Schering Pharma AG, Germany. In connection with
this amendment, the Company paid Tyco an up-front fee of
$10.0 million and is obligated to pay up to an additional
$5.0 million in milestone payments, of which
$2.5 million was paid following NDA filing in February 2004
and $2.5 million will be paid upon U.S. product
approval. The Company will also pay Tyco a share of its Vasovist
operating profit margins in the United States and a percentage
of the royalty that the Company receives from Bayer Schering
Pharma AG, Germany on Vasovist gross profits outside the United
States.
Massachusetts
General Hospital
In July 1995, the Company entered into a license agreement with
MGH pursuant to which MGH granted the Company an exclusive
worldwide license to patents and patent applications which
relate to Vasovist. The MGH license imposed certain due
diligence obligations with respect to the development of
products covered by the license, all of which have been
fulfilled to date. The MGH license requires the Company to pay
royalties on the net sales of products covered by this license,
including Primovist, MultiHance and Vasovist. The Company has
paid MGH approximately $552,000 in royalty payments, primarily
related to the sale of Primovist and MultiHance, through 2006
under this license agreement. The license agreement expires on a
country-by-country
basis when the patents covered by the license agreement expire.
The majority of the patents covered by this license agreement
expired in November 2006. The license agreement does not contain
F-43
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a renewal provision. The Company believes that the expiration of
these patents does not compromise its proprietary position with
respect to Vasovist because Vasovist is covered by composition
of matter patents independent of its license with MGH. These
composition of matter patents extend into 2015 in the United
States, although the life of these patents may be extended.
|
|
15.
|
Quarterly
Financial Information (unaudited)
|
The tables below set forth unaudited quarterly financial data
for each of the last two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
June 30, 2006
|
|
|
September 30, 2006
|
|
|
December 31, 2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,082,867
|
|
|
$
|
731,191
|
|
|
$
|
569,378
|
|
|
$
|
525,966
|
|
Royalty revenue
|
|
|
457,778
|
|
|
|
462,718
|
|
|
|
362,449
|
|
|
|
320,285
|
|
License fee revenue
|
|
|
161,597
|
|
|
|
161,597
|
|
|
|
413,802
|
|
|
|
790,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,702,242
|
|
|
|
1,355,506
|
|
|
|
1,345,629
|
|
|
|
1,637,165
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
43,795
|
|
|
|
28,233
|
|
|
|
31,778
|
|
|
|
959,296
|
|
Research and development
|
|
|
3,865,001
|
|
|
|
3,135,417
|
|
|
|
7,881,361
|
|
|
|
11,373,221
|
|
Acquired in-process research and
development
|
|
|
|
|
|
|
|
|
|
|
123,500,000
|
|
|
|
|
|
General and administrative
|
|
|
2,422,528
|
|
|
|
1,777,927
|
|
|
|
3,146,316
|
|
|
|
4,910,549
|
|
Restructuring costs
|
|
|
289,633
|
|
|
|
61,472
|
|
|
|
282,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,620,957
|
|
|
|
5,003,049
|
|
|
|
134,841,588
|
|
|
|
17,243,066
|
|
Operating loss
|
|
|
(4,918,715
|
)
|
|
|
(3,647,543
|
)
|
|
|
(133,495,959
|
)
|
|
|
(15,605,901
|
)
|
Other income, net
|
|
|
435,210
|
|
|
|
535,297
|
|
|
|
436,958
|
|
|
|
(987,232
|
)
|
Income taxes
|
|
|
43,816
|
|
|
|
43,818
|
|
|
|
31,551
|
|
|
|
26,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,527,321
|
)
|
|
$
|
(3,156,064
|
)
|
|
$
|
(133,090,552
|
)
|
|
$
|
(16,619,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic and
diluted
|
|
|
15,523,207
|
|
|
|
15,523,207
|
|
|
|
22,193,441
|
|
|
|
29,917,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(6.00
|
)
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005
|
|
|
June 30, 2005
|
|
|
September 30, 2005
|
|
|
December 31, 2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,475,819
|
|
|
$
|
314,026
|
|
|
$
|
1,297,720
|
|
|
$
|
1,107,965
|
|
Royalty revenue
|
|
|
444,289
|
|
|
|
578,321
|
|
|
|
798,484
|
|
|
|
512,290
|
|
License fee revenue
|
|
|
165,896
|
|
|
|
165,896
|
|
|
|
165,894
|
|
|
|
163,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,086,004
|
|
|
|
1,058,243
|
|
|
|
2,262,098
|
|
|
|
1,783,316
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
19,646
|
|
|
|
26,335
|
|
|
|
32,463
|
|
|
|
19,645
|
|
Research and development
|
|
|
3,439,936
|
|
|
|
5,726,480
|
|
|
|
5,282,224
|
|
|
|
3,845,281
|
|
General and administrative
|
|
|
1,765,096
|
|
|
|
2,885,082
|
|
|
|
2,551,024
|
|
|
|
2,384,930
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,224,678
|
|
|
|
8,637,897
|
|
|
|
7,865,711
|
|
|
|
7,221,684
|
|
Operating loss
|
|
|
(3,138,674
|
)
|
|
|
(7,579,654
|
)
|
|
|
(5,603,613
|
)
|
|
|
(5,438,368
|
)
|
Other income, net
|
|
|
(64,703
|
)
|
|
|
53,634
|
|
|
|
193,940
|
|
|
|
350,471
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,203,377
|
)
|
|
$
|
(7,526,020
|
)
|
|
$
|
(5,409,673
|
)
|
|
$
|
(5,129,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic and
diluted
|
|
|
15,484,451
|
|
|
|
15,504,798
|
|
|
|
15,515,383
|
|
|
|
15,516,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the effects of the restatement
adjustments upon the Companys previously reported
condensed consolidated statements of operations and balance
sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005
|
|
|
June 30, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,475,819
|
|
|
$
|
|
|
|
$
|
1,475,819
|
|
|
$
|
314,026
|
|
|
$
|
|
|
|
$
|
314,026
|
|
Royalty revenue
|
|
|
444,289
|
|
|
|
|
|
|
|
444,289
|
|
|
|
578,321
|
|
|
|
|
|
|
|
578,321
|
|
License fee revenue
|
|
|
165,896
|
|
|
|
|
|
|
|
165,896
|
|
|
|
165,896
|
|
|
|
|
|
|
|
165,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,086,004
|
|
|
|
|
|
|
|
2,086,004
|
|
|
|
1,058,243
|
|
|
|
|
|
|
|
1,058,243
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
19,646
|
|
|
|
|
|
|
|
19,646
|
|
|
|
26,335
|
|
|
|
|
|
|
|
26,335
|
|
Research and development
|
|
|
5,339,318
|
|
|
|
(1,899,382
|
)
|
|
|
3,439,936
|
|
|
|
5,449,209
|
|
|
|
277,271
|
|
|
|
5,726,480
|
|
General and administrative
|
|
|
2,917,892
|
|
|
|
(1,152,796
|
)
|
|
|
1,765,096
|
|
|
|
2,732,417
|
|
|
|
152,665
|
|
|
|
2,885,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses:
|
|
|
8,276,856
|
|
|
|
(3,052,178
|
)
|
|
|
5,224,678
|
|
|
|
8,207,961
|
|
|
|
429,936
|
|
|
|
8,637,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,190,852
|
)
|
|
|
3,052,178
|
|
|
|
(3,138,674
|
)
|
|
|
(7,149,718
|
)
|
|
|
(429,936
|
)
|
|
|
(7,579,654
|
)
|
Other income, net
|
|
|
(64,703
|
)
|
|
|
|
|
|
|
(64,703
|
)
|
|
|
53,634
|
|
|
|
|
|
|
|
53,634
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,255,555
|
)
|
|
$
|
3,052,178
|
|
|
$
|
(3,203,377
|
)
|
|
$
|
(7,096,084
|
)
|
|
$
|
(429,936
|
)
|
|
$
|
(7,526,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,484,451
|
|
|
|
|
|
|
|
15,484,451
|
|
|
|
15,504,798
|
|
|
|
|
|
|
|
15,504,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(0.40
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005
|
|
|
December 31, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development revenue
|
|
$
|
1,297,720
|
|
|
$
|
|
|
|
$
|
1,297,720
|
|
|
$
|
1,107,965
|
|
|
$
|
|
|
|
$
|
1,107,965
|
|
Royalty revenue
|
|
|
798,484
|
|
|
|
|
|
|
|
798,484
|
|
|
|
512,290
|
|
|
|
|
|
|
|
512,290
|
|
License fee revenue
|
|
|
165,894
|
|
|
|
|
|
|
|
165,894
|
|
|
|
163,061
|
|
|
|
|
|
|
|
163,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,262,098
|
|
|
|
|
|
|
|
2,262,098
|
|
|
|
1,783,316
|
|
|
|
|
|
|
|
1,783,316
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty expense
|
|
|
32,463
|
|
|
|
|
|
|
|
32,463
|
|
|
|
19,645
|
|
|
|
|
|
|
|
19,645
|
|
Research and development
|
|
|
5,416,276
|
|
|
|
(134,052
|
)
|
|
|
5,282,224
|
|
|
|
3,942,921
|
|
|
|
(97,640
|
)
|
|
|
3,845,281
|
|
General and administrative
|
|
|
2,667,056
|
|
|
|
(116,032
|
)
|
|
|
2,551,024
|
|
|
|
2,456,864
|
|
|
|
(71,934
|
)
|
|
|
2,384,930
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
971,828
|
|
|
|
|
|
|
|
971,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,115,795
|
|
|
|
(250,084
|
)
|
|
|
7,865,711
|
|
|
|
7,391,258
|
|
|
|
(169,574
|
)
|
|
|
7,221,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,853,697
|
)
|
|
|
250,084
|
|
|
|
(5,603,613
|
)
|
|
|
(5,607,942
|
)
|
|
|
169,574
|
|
|
|
(5,438,368
|
)
|
Other income, net
|
|
|
193,940
|
|
|
|
|
|
|
|
193,940
|
|
|
|
350,471
|
|
|
|
|
|
|
|
350,471
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,991
|
|
|
|
|
|
|
|
41,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,659,757
|
)
|
|
$
|
250,084
|
|
|
$
|
(5,409,673
|
)
|
|
$
|
(5,299,462
|
)
|
|
$
|
169,574
|
|
|
$
|
(5,129,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,515,383
|
|
|
|
|
|
|
|
15,515,383
|
|
|
|
15,516,736
|
|
|
|
|
|
|
|
15,516,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and
diluted
|
|
$
|
(0.36
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
June 30, 2006
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
75,963,558
|
|
|
$
|
|
|
|
$
|
75,963,558
|
|
|
$
|
66,740,536
|
|
|
$
|
|
|
|
$
|
66,740,536
|
|
Available-for-sale
marketable securities
|
|
|
42,882,538
|
|
|
|
|
|
|
|
42,882,538
|
|
|
|
47,277,256
|
|
|
|
|
|
|
|
47,277,256
|
|
Accounts receivable
|
|
|
94,699
|
|
|
|
|
|
|
|
94,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
479,906
|
|
|
|
|
|
|
|
479,906
|
|
|
|
537,297
|
|
|
|
|
|
|
|
537,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
119,420,701
|
|
|
|
|
|
|
|
119,420,701
|
|
|
|
114,555,089
|
|
|
|
|
|
|
|
114,555,089
|
|
Property and equipment, net
|
|
|
2,107,960
|
|
|
|
|
|
|
|
2,107,960
|
|
|
|
1,919,158
|
|
|
|
|
|
|
|
1,919,158
|
|
Other assets
|
|
|
3,492,867
|
|
|
|
|
|
|
|
3,492,867
|
|
|
|
4,336,863
|
|
|
|
|
|
|
|
4,336,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,021,528
|
|
|
$
|
|
|
|
$
|
125,021,528
|
|
|
$
|
120,811,110
|
|
|
$
|
|
|
|
$
|
120,811,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
541,148
|
|
|
$
|
|
|
|
$
|
541,148
|
|
|
$
|
326,432
|
|
|
$
|
|
|
|
$
|
326,432
|
|
Accrued expenses
|
|
|
3,894,527
|
|
|
|
886,037
|
|
|
|
4,780,564
|
|
|
|
3,263,484
|
|
|
|
886,037
|
|
|
|
4,149,521
|
|
Contract advances
|
|
|
5,425,318
|
|
|
|
|
|
|
|
5,425,318
|
|
|
|
4,754,808
|
|
|
|
|
|
|
|
4,754,808
|
|
Deferred revenue
|
|
|
330,598
|
|
|
|
|
|
|
|
330,598
|
|
|
|
225,335
|
|
|
|
|
|
|
|
225,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,191,591
|
|
|
|
886,037
|
|
|
|
11,077,628
|
|
|
|
8,570,059
|
|
|
|
886,037
|
|
|
|
9,456,096
|
|
Deferred revenue
|
|
|
699,314
|
|
|
|
|
|
|
|
699,314
|
|
|
|
642,980
|
|
|
|
|
|
|
|
642,980
|
|
Convertible debt
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
110,890,905
|
|
|
|
886,037
|
|
|
|
111,776,942
|
|
|
|
109,213,039
|
|
|
|
886,037
|
|
|
|
110,099,076
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value
|
|
|
155,232
|
|
|
|
|
|
|
|
155,232
|
|
|
|
155,307
|
|
|
|
|
|
|
|
155,307
|
|
Additional
paid-in-capital
|
|
|
198,181,684
|
|
|
|
7,444,831
|
|
|
|
205,626,515
|
|
|
|
198,805,907
|
|
|
|
7,444,831
|
|
|
|
206,250,738
|
|
Accumulated deficit
|
|
|
(184,171,953
|
)
|
|
|
(8,330,868
|
)
|
|
|
(192,502,821
|
)
|
|
|
(187,328,017
|
)
|
|
|
(8,330,868
|
)
|
|
|
(195,658,885
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
(34,340
|
)
|
|
|
|
|
|
|
(34,340
|
)
|
|
|
(35,126
|
)
|
|
|
|
|
|
|
(35,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
14,130,623
|
|
|
|
(886,037
|
)
|
|
|
13,244,586
|
|
|
|
11,598,071
|
|
|
|
(886,037
|
)
|
|
|
10,712,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
125,021,528
|
|
|
$
|
|
|
|
$
|
125,021,528
|
|
|
$
|
120,811,110
|
|
|
$
|
|
|
|
$
|
120,811,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,825,143
|
|
|
$
|
|
|
|
$
|
66,825,143
|
|
Available-for-sale
marketable securities
|
|
|
46,270,036
|
|
|
|
|
|
|
|
46,270,036
|
|
Prepaid expenses and other assets
|
|
|
1,817,866
|
|
|
|
|
|
|
|
1,817,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
114,913,045
|
|
|
|
|
|
|
|
114,913,045
|
|
Property and equipment, net
|
|
|
2,951,882
|
|
|
|
|
|
|
|
2,951,882
|
|
Other assets
|
|
|
4,309,797
|
|
|
|
|
|
|
|
4,309,797
|
|
Goodwill
|
|
|
3,506,274
|
|
|
|
|
|
|
|
3,506,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,680,998
|
|
|
$
|
|
|
|
$
|
125,680,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,389,737
|
|
|
$
|
|
|
|
$
|
5,389,737
|
|
Accrued expenses
|
|
|
8,236,974
|
|
|
|
886,037
|
|
|
|
9,123,011
|
|
Contract advances
|
|
|
4,506,710
|
|
|
|
|
|
|
|
4,506,710
|
|
Merger consideration payable
|
|
|
20,000,000
|
|
|
|
|
|
|
|
20,000,000
|
|
Other current liabilities
|
|
|
380,387
|
|
|
|
|
|
|
|
380,387
|
|
Deferred revenue
|
|
|
3,699,119
|
|
|
|
|
|
|
|
3,699,119
|
|
Current portion of capital lease
obligation
|
|
|
42,801
|
|
|
|
|
|
|
|
42,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
42,255,728
|
|
|
|
886,037
|
|
|
|
43,141,765
|
|
Deferred revenue
|
|
|
947,779
|
|
|
|
|
|
|
|
947,779
|
|
Capital lease obligation
|
|
|
79,705
|
|
|
|
|
|
|
|
79,705
|
|
Merger consideration payable
|
|
|
15,000,000
|
|
|
|
|
|
|
|
15,000,000
|
|
Other liabilities
|
|
|
1,845,108
|
|
|
|
|
|
|
|
1,845,108
|
|
Convertible debt
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
160,128,320
|
|
|
|
886,037
|
|
|
|
161,014,357
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value
|
|
|
291,528
|
|
|
|
|
|
|
|
291,528
|
|
Additional
paid-in-capital
|
|
|
285,668,130
|
|
|
|
7,444,831
|
|
|
|
293,112,961
|
|
Accumulated deficit
|
|
|
(320,418,569
|
)
|
|
|
(8,330,868
|
)
|
|
|
(328,749,437
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
11,589
|
|
|
|
|
|
|
|
11,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
(34,447,322
|
)
|
|
|
(886,037
|
)
|
|
|
(35,333,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity (deficit)
|
|
$
|
125,680,998
|
|
|
$
|
|
|
|
$
|
125,680,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005
|
|
|
June 30, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
69,446,753
|
|
|
$
|
|
|
|
$
|
69,446,753
|
|
|
$
|
74,318,112
|
|
|
$
|
|
|
|
$
|
74,318,112
|
|
Available-for-sale
marketable securities
|
|
|
89,172,287
|
|
|
|
|
|
|
|
89,172,287
|
|
|
|
77,107,458
|
|
|
|
|
|
|
|
77,107,458
|
|
Accounts receivable
|
|
|
664,183
|
|
|
|
|
|
|
|
664,183
|
|
|
|
361,609
|
|
|
|
|
|
|
|
361,609
|
|
Prepaid expenses and other assets
|
|
|
716,191
|
|
|
|
|
|
|
|
716,191
|
|
|
|
764,374
|
|
|
|
|
|
|
|
764,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
159,999,414
|
|
|
|
|
|
|
|
159,999,414
|
|
|
|
152,551,553
|
|
|
|
|
|
|
|
152,551,553
|
|
Property and equipment, net
|
|
|
2,384,659
|
|
|
|
|
|
|
|
2,384,659
|
|
|
|
2,630,883
|
|
|
|
|
|
|
|
2,630,883
|
|
Other assets
|
|
|
3,333,409
|
|
|
|
|
|
|
|
3,333,409
|
|
|
|
3,212,827
|
|
|
|
|
|
|
|
3,212,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
165,717,482
|
|
|
$
|
|
|
|
$
|
165,717,482
|
|
|
$
|
158,395,263
|
|
|
$
|
|
|
|
$
|
158,395,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,021,759
|
|
|
$
|
|
|
|
$
|
1,021,759
|
|
|
$
|
1,078,226
|
|
|
$
|
|
|
|
$
|
1,078,226
|
|
Accrued expenses
|
|
|
5,110,668
|
|
|
|
906,972
|
|
|
|
6,017,640
|
|
|
|
4,428,126
|
|
|
|
907,821
|
|
|
|
5,335,947
|
|
Contract advances
|
|
|
5,999,672
|
|
|
|
|
|
|
|
5,999,672
|
|
|
|
6,921,611
|
|
|
|
|
|
|
|
6,921,611
|
|
Loan payable to strategic partner
|
|
|
15,000,000
|
|
|
|
|
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
|
|
|
|
|
|
15,000,000
|
|
Deferred revenue
|
|
|
1,951,304
|
|
|
|
|
|
|
|
1,951,304
|
|
|
|
1,424,598
|
|
|
|
|
|
|
|
1,424,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
29,083,403
|
|
|
|
906,972
|
|
|
|
29,990,375
|
|
|
|
28,852,561
|
|
|
|
907,821
|
|
|
|
29,760,382
|
|
Deferred revenue
|
|
|
1,043,829
|
|
|
|
|
|
|
|
1,043,829
|
|
|
|
877,934
|
|
|
|
|
|
|
|
877,934
|
|
Convertible debt
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
130,127,232
|
|
|
|
906,972
|
|
|
|
131,034,204
|
|
|
|
129,730,495
|
|
|
|
907,821
|
|
|
|
130,638,316
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value
|
|
|
155,047
|
|
|
|
|
|
|
|
155,047
|
|
|
|
155,114
|
|
|
|
|
|
|
|
155,114
|
|
Additional
paid-in-capital
|
|
|
197,248,395
|
|
|
|
7,413,619
|
|
|
|
204,662,014
|
|
|
|
197,322,986
|
|
|
|
7,842,705
|
|
|
|
205,165,691
|
|
Accumulated deficit
|
|
|
(161,589,329
|
)
|
|
|
(8,320,591
|
)
|
|
|
(169,909,920
|
)
|
|
|
(168,685,413
|
)
|
|
|
(8,750,526
|
)
|
|
|
(177,435,939
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
(223,863
|
)
|
|
|
|
|
|
|
(223,863
|
)
|
|
|
(127,919
|
)
|
|
|
|
|
|
|
(127,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
35,590,250
|
|
|
|
(906,972
|
)
|
|
|
34,683,278
|
|
|
|
28,664,768
|
|
|
|
(907,821
|
)
|
|
|
27,756,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
165,717,482
|
|
|
$
|
|
|
|
$
|
165,717,482
|
|
|
$
|
158,395,263
|
|
|
$
|
|
|
|
$
|
158,395,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
EPIX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
81,502,706
|
|
|
$
|
|
|
|
$
|
81,502,706
|
|
Available-for-sale
marketable securities
|
|
|
64,431,943
|
|
|
|
|
|
|
|
64,431,943
|
|
Accounts receivable
|
|
|
251,746
|
|
|
|
|
|
|
|
251,746
|
|
Prepaid expenses and other assets
|
|
|
694,374
|
|
|
|
|
|
|
|
694,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
146,880,769
|
|
|
|
|
|
|
|
146,880,769
|
|
Property and equipment, net
|
|
|
2,842,161
|
|
|
|
|
|
|
|
2,842,161
|
|
Other assets
|
|
|
3,095,861
|
|
|
|
|
|
|
|
3,095,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
152,818,791
|
|
|
$
|
|
|
|
$
|
152,818,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,151,074
|
|
|
$
|
|
|
|
$
|
1,151,074
|
|
Accrued expenses
|
|
|
5,560,570
|
|
|
|
885,188
|
|
|
|
6,445,758
|
|
Contract advances
|
|
|
6,610,619
|
|
|
|
|
|
|
|
6,610,619
|
|
Loan payable to strategic partner
|
|
|
15,000,000
|
|
|
|
|
|
|
|
15,000,000
|
|
Deferred revenue
|
|
|
618,997
|
|
|
|
|
|
|
|
618,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
28,941,260
|
|
|
|
885,188
|
|
|
|
29,826,448
|
|
Deferred revenue
|
|
|
796,249
|
|
|
|
|
|
|
|
796,249
|
|
Convertible debt
|
|
|
100,000,000
|
|
|
|
|
|
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
129,737,509
|
|
|
|
885,188
|
|
|
|
130,622,697
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value
|
|
|
155,166
|
|
|
|
|
|
|
|
155,166
|
|
Additional
paid-in-capital
|
|
|
197,355,294
|
|
|
|
7,615,254
|
|
|
|
204,970,548
|
|
Accumulated deficit
|
|
|
(174,345,170
|
)
|
|
|
(8,500,442
|
)
|
|
|
(182,845,612
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
(84,008
|
)
|
|
|
|
|
|
|
(84,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
23,081,282
|
|
|
|
(885,188
|
)
|
|
|
22,196,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
152,818,791
|
|
|
$
|
|
|
|
$
|
152,818,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50