UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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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, 2007
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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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Commission File Number:
000-52082
REPLIDYNE, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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84-1568247
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(State of
Incorporation)
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(I.R.S. Employer I.D.
No.)
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1450 Infinite Drive
Louisville, Colorado
(Address of Principal
Executive Offices)
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80027
(Zip
Code)
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303-996-5500
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Common
Stock, One-tenth of One Cent ($0.001) Par Value Per Share
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NASDAQ
Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer
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(Do not check if a smaller reporting company)
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Smaller reporting
company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
As of February 14, 2008, there were 27,059,110 shares
of the registrants common stock outstanding and the
approximate aggregate market value of such shares held by
non-affiliates of the registrant (based upon the closing sale
price of such shares on the NASDAQ Global Market on
June 29, 2007 of $5.80 per share) was
$95 million. Shares of the registrants common stock
held by each current executive officer and director and by each
stockholder who is known by the registrant to own 10% or more of
the outstanding common stock have been excluded from this
computation in that such persons may be deemed to be affiliates
of the registrant. Share ownership information of certain
persons known by the registrant to own greater than 10% of the
outstanding common stock for purposes of the preceding
calculation is based solely on information on Schedule 13D
or Schedule 13G filed with the Commission and is as of
December 31, 2007. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrants Definitive Proxy Statement to
be filed with the Commission pursuant to Regulation 14A in
connection with the 2008 Annual Meeting are incorporated herein
by reference into Part III of this report, which such proxy
statement will be filed with the Commission within 120 days
after registrants fiscal year ended December 31,
2007. Other references incorporated are listed in the exhibit
list in Part IV of this report.
PART I
ITEM 1.
BUSINESS
Special
Note Regarding Forward Looking Statements
This report contains plans, intentions, objectives, estimates
and expectations that constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are subject to the
safe harbor created by those sections.
Forward-looking statements are based on our managements
beliefs and assumptions and on information currently available
to our management. In some cases, you can identify
forward-looking statements by terms such as may,
will, should, could,
would, expect, plans,
anticipates, believes,
estimates, projects,
predicts, potential and similar
expressions intended to identify forward-looking statements.
Examples of these statements include, but are not limited to,
statements regarding the following: the timing and implications
of obtaining regulatory approval of any of our product
candidates; the progress of our research programs, including
clinical testing; our ability to identify new product
candidates; the potential of any product candidates to lead to
the development of commercial products; our anticipated timing
for initiation or completion of our clinical trials for any of
our product candidates and expectations regarding future results
of such trials; other statements regarding our future product
development activities and plans to develop or acquire and
commercialize product candidates, regulatory strategies and
clinical strategies, including our intent to develop or seek
regulatory approval for our product candidates in specific
indications; our future expenditures for research and
development and the conduct of clinical trials; the ability of
our third-party manufacturing parties to support our
requirements for drug supply; the extent to which our
intellectual property rights may protect our technology and
product candidates; the size and growth of the potential markets
for our product candidates and our plans to develop our sales
and marketing capabilities to serve those markets; the rate and
degree of market acceptance of any future products; the success
of competing drugs that are or become available; our plans and
ability to enter into collaboration arrangements; any statements
regarding our future financial performance, results of
operations or sufficiency of capital resources to fund our
operating requirements; and any other statements that are other
than statements of historical fact. Our actual results could
differ materially from those discussed in these forward-looking
statements due to a number of factors, including the success and
timing of preclinical studies and clinical trials; our ability
to obtain a new partner for faropenem medoxomil on acceptable
terms; our ability to obtain and maintain regulatory approval of
product candidates and the labeling under any approval that may
be obtained; plans to develop and commercialize product
candidates; the loss of key scientific or management personnel;
the size and growth of the potential markets for our product
candidates and our ability to serve those markets; regulatory
developments in the U.S. and foreign countries; the rate
and degree of market acceptance of any future products; the
accuracy of our estimates regarding expenses, future revenues
and capital requirements; our ability to obtain and maintain
intellectual property protection for our product candidates; the
successful development of our sales and marketing capabilities;
the success of competing drugs that are or become available; and
the performance of third party manufacturers. These and
additional risks and uncertainties are described more fully by
us in Part I, Item 1A and Part II, Item 7 of
this report and in our other filings with the Commission. You
should not place undue reliance on these forward-looking
statements, which apply only as of the date of this report. You
should read this report completely and with the understanding
that our actual future results may be materially different from
what we expect. Except as required by law, we assume no
obligation to update these forward-looking statements publicly,
or to update the reasons actual results could differ materially
from those anticipated in these forward-looking statements, even
if new information becomes available in the future.
Overview
We are a biopharmaceutical company focused on discovering,
developing, in-licensing and commercializing innovative
anti-infective products. Our most advanced product candidate,
faropenem medoxomil, is a novel oral, community antibiotic for
which we are currently seeking a development and
commercialization partner. Our second product candidate,
REP3123, is a new, narrow spectrum antibacterial agent for the
treatment of
2
Clostridium difficile
, or
C. difficile
, bacteria
and
C. difficile
-associated disease, an increasing health
care concern among elderly and hospitalized patients. We are
also pursuing the development of other novel compounds that
inhibit bacterial DNA replication, which we believe represents a
potentially promising drug target in antibiotic development.
In December 2005, we submitted a new drug application, or NDA,
for faropenem medoxomil based on 11 Phase III studies for
the following adult indications: acute bacterial sinusitis;
community-acquired pneumonia; acute exacerbation of chronic
bronchitis; and uncomplicated skin and skin structure
infections. In October 2006, the FDA issued a non-approvable
letter with respect to our NDA citing the need for further
clinical studies for all indications, including studies using a
superiority design for acute bacterial sinusitis and acute
exacerbation of chronic bronchitis, more extensive microbiologic
confirmation and consideration of alternate dosing regimens. A
superiority design trial requires demonstrating that a product
candidate is superior to placebo. Historically, all of our
trials were conducted using a non-inferiority design, which
required these trials to demonstrate that a product candidate is
not significantly less effective than an approved treatment. On
January 22, 2008, we received a Warning Letter from the FDA
related to our NDA filed in December 2005 for faropenem
medoxomil citing certain conditions found by the FDA during
their review of our role as the applicant of the NDA.
Specifically, the Warning Letter noted that certain raw data,
descriptions and analysis supporting clinical trials included in
the NDA were not available for the FDAs review and had not
been obtained or reviewed by us prior to submission of the NDA.
We intend to respond to the Warning Letter within the time
limits required by the FDA.
The focus of our activities following receipt of the
non-approvable letter from the FDA has been to clarify the
approval process for faropenem medoxomil in the treatment of
community respiratory tract infections. We do not expect to
pursue the indication for uncomplicated skin and skin structure
infections unless we enter into a collaboration with a partner
that wishes to do so. Based on the FDAs recommendations in
the non-approvable letter, as well as our ongoing discussions
with the FDA, we understand that at least two approved clinical
studies using faropenem medoxomil for the treatment of
community-acquired pneumonia will be required for approval in
this indication. If we or a future partner seek approval for
faropenem medoxomil to treat acute bacterial sinusitis and acute
exacerbation of chronic bronchitis in addition to
community-acquired pneumonia, the faropenem medoxomil adult
program may be anchored on at least two clinical trials for the
treatment of community-acquired pneumonia with single clinical
trials using a superiority clinical trial design in acute
bacterial sinusitis and acute exacerbation of chronic
bronchitis. We have completed a special protocol assessment, or
SPA, for the design of a Phase III clinical trial of
faropenem medoxomil compared to placebo for the treatment of
acute bacterial sinusitis. We plan to continue our ongoing
Phase III placebo-controlled clinical trial for treatment
of acute exacerbation of chronic bronchitis with faropenem
medoxomil which is intended to meet the FDAs requirements.
Until we have secured a partner for the faropenem medoxomil
program, which cannot be assured, we plan to limit our faropenem
medoxomil clinical activities to the ongoing Phase III
placebo-controlled clinical trial for the treatment of acute
exacerbation of chronic bronchitis. If we are delayed in
securing or are unable to secure a partner for the faropenem
medoxomil program, we may elect to discontinue our development
activities on this program, including to discontinue the
Phase III placebo-controlled clinical trial for the
treatment of acute exacerbation of chronic bronchitis. We have
licensed all rights to faropenem medoxomil from Asubio Pharma
Co., Ltd., or Asubio Pharma, in the U.S. and Canada. In
addition, we have the sole negotiation right to license such
rights for the rest of the world, except Japan.
We are also developing REP3123, our investigational narrow
spectrum antibacterial agent, to treat
C. difficile,
bacteria and
C. difficile
-associated disease.
C.
difficile
is a Gram-positive bacterium that causes diarrhea
and other intestinal conditions, such as colitis, and is a major
cause of morbidity among the elderly and hospitalized patients.
People generally contract
C. difficile
-associated disease
through the ingestion of
C. difficile
spores after
coming into contact with a contaminated item or surface. These
spores then germinate, grow and multiply in the digestive tract.
In
in vitro
preclinical studies, REP3123 displayed
an ability to inhibit growth of the
C. difficile
bacterium and prevent the bacterium from forming the spores
that allow it to be spread from person to person, but without
inhibiting other key organisms that are essential for normal
intestinal functioning. Also in preclinical studies, REP3123
exhibited signs it may be able to stop the
3
production of destructive intestinal toxins caused by
C.
difficile
bacteria. These results suggest that REP3123 has
the potential to reduce
C. difficile
-associated disease
outbreak and relapse rates through reducing the presence of
C. difficile
spores and reduce the severity of, or
possibly even prevent,
C. difficile
-associated disease
through inhibiting the growth of or stopping production of
toxins caused by
C. difficile
bacteria. We retain
worldwide rights to REP3123.
We have also developed assays that identify compounds that
inhibit bacterial DNA replication. The compounds may be useful
to treat bacterial infections. We believe that bacterial DNA
replication is an attractive target system for new antibacterial
drugs because it is an essential cellular process and stalled
DNA replication can trigger cell death. Our assays allow for
efficient screening of large libraries of small molecules and
are designed to mimic the bacterial DNA replication systems of
numerous bacteria, with the goal of identifying novel inhibitors
of bacterial DNA replication. We have identified compounds that
are able to inhibit bacterial DNA replication in these assays.
We believe that the novel mechanism of action of our technology
may reduce the risk that bacteria will develop resistance to
drugs based on this technology. We are currently optimizing the
initial inhibitors identified in the assays.
Strategy
Our goal is to discover, develop, in-license and commercialize
novel anti-infective compounds that address unmet medical needs
resulting from growing resistance to existing drug products. Key
elements of our strategy are:
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Maximize the commercial potential for faropenem medoxomil by
securing a development and commercialization
partner.
If approved, we believe that faropenem
medoxomil may become a leading community antibiotic and a
preferred branded oral beta-lactam in adult and pediatric
markets due to its safety profile and spectrum of activity. We
are seeking a partner for the development and commercialization
of faropenem medoxomil in the territories available to us under
our license agreement. We plan to limit our faropenem medoxomil
clinical trial activities to the ongoing Phase III
placebo-controlled clinical trial for treatment of acute
exacerbation of chronic bronchitis until we have secured a
partner for the faropenem medoxomil program, which cannot be
assured.
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Advance development of our novel anti-infective
products.
We intend to advance our pipeline of
novel anti-infective product candidates by continuing to pursue
discovery research programs. We have an active program to
develop a treatment for
C. difficile
bacterial infections
and
C. difficile
-associated disease
,
which are
major causes of morbidity among elderly and hospitalized
patients and are diseases for which existing therapies have
significant limitations. We also plan to use our DNA replication
inhibition expertise to develop anti-infective products with
novel mechanisms of action.
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Accelerate growth through acquiring or in-licensing
additional products or product candidates that augment our
research and development pipeline or through pursuing strategic
alternatives.
We maintain a strong business
development capability that will continue to pursue product
candidates that augment our research and development pipeline.
In executing these initiatives we expect to consider strategic
alternatives that could involve a merger or the acquisition of
some or all of our assets and reduce our current focus on the
development of anti-infective product candidates.
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We continuously reassess all of our research and development
efforts, including those for the anti-infective product
candidates described above. At any time, we may expand, delay,
terminate or dispose of all or any portion of our research and
development programs or we may develop or acquire rights to new
product candidates.
Antibiotic
Market Background and Opportunity
Bacterial infections occur when bacteria that naturally exist in
the body or that are inhaled, ingested or otherwise acquired are
not controlled by the immune system. The antibiotics used to
treat these infections are classified as either broad spectrum
or narrow spectrum. Broad spectrum antibiotics are typically
oral antibiotics used to treat community-acquired infections,
whereas narrow spectrum antibiotics are typically intravenous
4
antibiotics used to treat specific bacteria in the hospital
setting, with the exception of penicillin. According to IMS
Health, the annual worldwide market for antibiotics was
$28.0 billion in 2006, which includes U.S. sales of
$7.7 billion for oral antibiotics. The U.S. oral
antibiotics market in 2006 was comprised of $6.2 billion
for the adult market and $1.5 billion for the pediatric
market. IMS Health estimates that in 2006, beta-lactams had a
49% market share of the adult oral antibiotic market
representing over 90 million prescriptions and a 75% market
share of the pediatric oral antibiotic market representing over
40 million prescriptions. We believe that faropenem
medoxomils safety profile and activity against many common
bacterial infections suggest its potential to become a leading
branded oral beta-lactam antibiotic.
We believe the two primary factors that drive a physicians
choice to prescribe an oral antibiotic to treat
community-acquired infections are the drugs effectiveness
against a particular type of bacterial infection and the
drugs safety profile. We believe that an antibiotic with
good efficacy and an excellent safety profile may be used in
preference to a more powerful antibiotic that has the risk of
serious side effects, especially in non life-threatening
infections. As a patients condition becomes more serious,
the physician may be more willing to expose that patient to a
potentially increased risk of side effects and safety issues to
obtain the benefit of a drug that may be more potent against the
bacteria that caused the infection.
Oral antibiotics are classified as either first- or second-line
therapies for each disease state by key opinion leader
physicians who write the antibiotic treatment guidelines, such
as those published by the Sinus and Allergy Health Partnership
and American Academy of Pediatrics. First-line therapy includes
both branded and generic antibiotics and constitutes a larger
market than second-line therapy which currently is comprised
primarily of branded products.
According to IMS Health, over 90% of all bacterial infections
that occurred in 2006 were classified as upper respiratory tract
infections, lower respiratory tract infections and uncomplicated
skin and skin structure infections. There are three primary
classes of oral antibiotics that are prescribed to treat
respiratory tract and skin infections; the beta-lactam class,
the macrolide/ketolide class, and the quinolone class. Each
class has a distinctive chemical structure that is shared by the
various antibiotics included in that class.
Beta-lactam antibiotics have been the most widely prescribed
antibiotics for more than 50 years. This class of
antibiotics is well known for favorable efficacy, safety and
tolerability. Since the introduction of penicillin in 1942, only
two other sub-classes of beta-lactams have been introduced:
cephalosporins (1974) and carbapenems (1985). Carbapenems
are only available in intravenous form for use in the hospital
setting. Therefore, if approved, the introduction of the penem
sub-class will represent the first oral community beta-lactam
sub-class introduction in more than 30 years.
The penem sub-class of beta-lactam antibiotics has structural
features that resemble a fusion of the penicillin and
cephalosporin core structures. An advantage of penems is their
ability to resist degradation by commonly encountered
beta-lactamase enzymes. Bacteria commonly become resistant to
beta-lactam antibiotics by producing beta-lactamase enzymes that
inactivate the antibiotic. Beta-lactamase enzymes are known to
destroy some of the penicillin and cephalosporin antibiotics,
which can result in resistance to those sub-classes of
beta-lactam antibiotics.
Beta-lactam antibiotics are effective against a range of common
bacterial infections and do not exhibit many of the safety
issues common with the macrolide/ketolide and quinolone classes.
The beta-lactam class is recommended as first-line therapy for
treating acute bacterial sinusitis and uncomplicated skin and
skin structure infections in adults. According to the Infectious
Disease Society of America, macrolides are a preferred treatment
for acute exacerbation of chronic bronchitis while quinolones
are a preferred treatment for community-acquired pneumonia.
5
The following table shows the prescriptions and percentage use
of each class of oral antibiotics in 2006 for common adult
indications:
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Adult
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Drug Class Share of Indication
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Oral Market
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Beta-
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Macrolides/
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Other
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Bacterial Infection Type
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Indication
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Prescriptions
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Lactams
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Ketolides
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Quinolones
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Antibiotic
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(in millions)
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Upper Respiratory Tract Infections
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Acute Bacterial Sinusitis
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34.2
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48
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%
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32
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%
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16
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%
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4
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%
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Acute Bacterial Otitis Media
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8.2
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72
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%
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18
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%
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6
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%
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4
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%
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Tonsillitis/Pharyngitis
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17.8
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66
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%
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28
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%
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3
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%
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3
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%
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Lower Respiratory Tract Infections
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Acute Exacerbation of Chronic
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Bronchitis
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29.3
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19
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%
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51
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%
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21
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%
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9
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%
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Community-Acquired Pneumonia
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6.5
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12
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%
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31
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%
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55
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%
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2
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%
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Skin Infections
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Uncomplicated Skin & Skin Structure Infections
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31.8
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64
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%
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7
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%
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13
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%
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16
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%
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Total
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41
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%
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26
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%
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22
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%
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11
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%
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Source: IMS Health
The safety profile of the beta-lactam class has been
particularly important in the pediatric market. The beta-lactam
class is recommended by the American Academy of Pediatrics as
first-line therapy for acute bacterial otitis media,
tonsillitis/pharyngitis and acute bacterial sinusitis in
pediatric patients. Ketolides and quinolones are currently not
approved for pediatric indications. The following table shows
the prescriptions and percentage use of each class of oral
antibiotics in 2006 for common pediatric indications:
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Pediatric
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Drug Class Share of Indication
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Oral Market
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Beta-
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Other
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Bacterial Infection Type
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Indication
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Prescriptions
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Lactams
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Macrolides
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Quinolones
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Antibiotic
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(in millions)
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Upper Respiratory Tract Infections
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Acute Bacterial Sinusitis
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4.4
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85
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%
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14
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%
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1
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%
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1
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%
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Acute Bacterial Otitis Media
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20.8
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89
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%
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9
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%
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0
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%
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2
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%
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Tonsillitis/Pharyngitis
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7.7
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90
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%
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9
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%
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0
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%
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1
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%
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Lower Respiratory Tract Infections
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Acute Exacerbation of Chronic
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Bronchitis
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3.1
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43
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%
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54
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%
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0
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%
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3
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%
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Community-Acquired Pneumonia
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1.5
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55
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%
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44
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%
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1
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%
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0
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%
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Skin Infections
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Uncomplicated Skin & Skin
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Structure Infections
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2.9
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81
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%
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8
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%
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1
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%
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10
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%
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Total
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82
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%
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14
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%
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1
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%
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|
|
3
|
%
|
Source: IMS Health
We believe that in addition to efficacy and safety, prescribing
decisions in the pediatric market are also significantly
affected by the tolerability and taste of the antibiotic.
Because the efficacy of many antibiotics depends on the patient
taking the full course of therapy at the prescribed times, a
patients discontinuation of therapy or refusal to take the
drug due to tolerability issues can result in prolongation of
the infection and possibly serious complications.
We believe that three key factors are creating significant
opportunities for new branded antibiotics that are more
effective, better tolerated and safer than existing therapies:
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Emergence of drug-resistant bacteria.
Over the
past several decades, many of the most prevalent bacteria that
cause adult and pediatric respiratory and skin infections have
developed resistance to currently marketed antibiotics. If
bacteria are resistant, the infection can become difficult or
impossible to treat and may lead to serious complications,
including death. The two most prevalent bacteria in respiratory
infections include
Streptococcus pneumoniae
, or
S.
pneumoniae
and
Haemophilus influenzae
,
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6
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or
H. influenzae
. According to the 2006 PROTEKT
U.S. surveillance study, designed to track antibiotic
resistance, more than 29% of the Streptococcus species are
resistant to at least one of the drugs most commonly used to
treat these infections. Further, following the introduction in
February 2000 of the heptavalent pneumococcal pediatric vaccine
Prevnar
®
,
the emergence of non-vaccine serotypes has been observed. In
October 2007, the
Journal of the American Medical
Association
focused attention on
S. pneumoniae
serotype 19A, a serotype not included in the heptavalent
vaccine, and the limited treatment options available to
pediatric patients due to this serotypes resistance to
many antibiotics commonly used in children. The rate of
H.
influenzae
resistance to at least one of the drugs most
commonly used to treat infections caused by these bacteria has
reached 30%, as reported in the 2005
Journal of Clinical
Infectious Disease
. The U.S. Centers for Disease
Control has stated that antibiotic resistance is now among that
organizations top concerns.
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Tolerability.
Many current oral antibiotics
have been associated with tolerability issues that cause
patients extreme discomfort and poor compliance that can lead to
product failures. The most widely reported adverse event among
leading oral antibiotics is diarrhea. The prescribing label for
two of the leading oral beta-lactam antibiotics for use in
adults,
Augmentin
®
and
Omnicef
®
,
lists diarrhea incidence levels of approximately 15%.
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Safety.
Many of the common oral antibiotics in
the quinolone and macrolide/ketolide classes are burdened with
safety issues such as hepatotoxicity (drug related liver
damage), heart rhythm abnormalities, photosensitivity (increased
sensitivity to sunlight), hypoglycemia (low blood sugar),
hyperglycemia (high blood sugar) or rash. Macrolide and ketolide
antibiotics are also associated with clinically meaningful
drug/drug interactions with frequently prescribed drugs such as
cholesterol lowering agents. To date, four of the nine quinolone
antibiotics that have been marketed have been withdrawn from the
market due to safety concerns. Additionally, in February 2007
the labeled indication for
Ketek
®
,
a ketolide, was amended to remove approval for the treatment of
acute bacterial sinusitis and acute exacerbations of chronic
bronchitis after the FDA determined that drugs safety
profile, specifically related to hepatoxicity, no longer
justified approval for these indications.
|
7
Our
Product Candidates and Development Programs
Our current product candidate and development program portfolio
consists of the following:
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Product Candidate
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Target Indications
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Development Status
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Faropenem Medoxomil
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600 mg dose
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|
Acute exacerbation of chronic bronchitis
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Phase III clinical trial ongoing
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Acute bacterial sinusitis
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Special protocol assessment for design of placebo-controlled
Phase III clinical trial completed in October 2007
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Community-acquired Pneumonia
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|
Discussion on design of Phase III clinical trials ongoing with
the FDA
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Faropenem Medoxomil
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Oral liquid formulation
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Acute bacterial otitis media (pediatric)
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Phase II clinical trial completed
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REP3123
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C. difficile
bacteria and
C. difficile
-associated
disease
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|
Preclinical studies completed. IND targeted for the second half
of 2008
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REP8839
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Impetigo
Skin and wound infections
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Phase I studies completed development program on hold
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DNA Replication Inhibition
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Novel mechanism of action antibiotic targeting Gram-positive
bacteria maintaining oral bioavailability and bactericidal
activity
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Discovery
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Faropenem
Medoxomil Program
Faropenem medoxomil is a member of the penem class of
beta-lactam antibiotics. If approved by the FDA, it would be the
first oral penem available outside of Japan. We believe that
with its broad spectrum of activity, potency and safety and
tolerability profile, faropenem medoxomil would be appropriate
for use as a first-line therapy for the treatment of
community-acquired respiratory tract and skin infections in
adult primary care and pediatric settings. The following
characteristics differentiate faropenem medoxomil from existing
beta-lactam antibiotics:
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First oral penem available in the U.S.
If
approved by the FDA, faropenem medoxomil would represent the
first new sub-class of beta-lactams (penems) to be introduced in
oral form for community use in more than 30 years. Over the
years many bacteria have developed resistance to older
beta-lactam antibiotics. Penems intrinsically are able to resist
degradation by beta-lactamase enzymes. Because faropenem
medoxomil is a first product in a new class of antibiotics, its
introduction should not be burdened with resistance issues at
the levels associated with other existing antibiotics.
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Potency profile. In vitro
studies have
indicated that faropenem medoxomil is four times more active
than
Augmentin
®
(amoxicillin/clavulanate) against
S. pneumoniae,
including those strains that have evolved resistance to
penicillin or amoxicillin. Faropenem medoxomil is also generally
twice as active as
Augmentin
®
against
H. influenzae,
including those strains that have
evolved resistance to other beta-lactam antibiotics.
In
vitro
potency does not always correlate to clinical efficacy.
|
8
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Safety profile.
Due to its safety profile, we
believe that faropenem medoxomil would be appropriate as a
first-line treatment for common respiratory and skin infections
in the primary care setting. We believe that faropenem medoxomil
would allow physicians to reserve quinolones for second-line
therapy, reducing quinolone resistance and improving the
risk-to-benefit ratio for individual patients. Unlike
carbapenems, faropenem medoxomil has a low potential for
neurotoxicity. In Phase III clinical testing, faropenem
medoxomil has not exhibited the potentially serious safety
issues that affect the macrolide/ketolide and quinolone classes
of antibiotics.
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Tolerability profile.
In the Phase II and
Phase III clinical studies referenced in our December 2005
NDA that were completed at the 300 mg, twice per day dose,
the overall incidence of diarrhea was less than 5% in over
5,000 patients treated with faropenem medoxomil. This rate
of incidence compares favorably with the incidence of diarrhea
reported with other commonly used beta-lactam antibiotics. We
anticipate using the 600 mg, twice per day dose in future
clinical trials in adult settings.
|
Faropenem medoxomil is a prodrug form of the parent compound
faropenem and was initially discovered by Suntory Limited, now
known as Asubio Pharma. Faropenem medoxomil is metabolized by
the body to release faropenem sodium, a drug that has been
approved and sold in Japan by Asubio Pharma since 1997. Since
then, it is estimated that more than 69 million
prescriptions have been written. Prodrugs are designed to
improve the amount of drug reaching the bloodstream in which the
prodrug molecule is separated by the bodys natural
metabolic enzymes into its active component and an inactive
component. In clinical pharmacology studies, approximately 72%
to 84% of an orally administered dose of faropenem medoxomil was
absorbed into the bloodstream and then rapidly converted to the
active parent compound faropenem, resulting in three to four
times greater bioavailability compared to faropenem sodium.
Preclinical Data.
In preclinical studies,
faropenem medoxomil has exhibited broad spectrum activity that
includes bacteria commonly associated with respiratory
infections (
S. pneumoniae, H. influenzae
and
Moraxella
catarrhalis
, or
M. catarrhalis
) and uncomplicated
skin structure and skin infections (methicillin-susceptible
S. aureus
and
Streptococcus pyogenes,
or
S.
pyogenes
). The following table shows the antibacterial
activities of faropenem medoxomil and other antibiotics against
these common respiratory and skin bacterial pathogens in
in vitro
studies. The MIC(90) value shown is the
minimum inhibitory concentration of drug required to inhibit
growth of 90% of the bacterial isolates within a given
population. The lower the MIC(90) value for a given drug the
more potent it is against the population of bacteria.
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MIC(90)
(
m
g/mL)
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Faropenem
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Augmentin
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Omnicef
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Zithromax
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Levaquin
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Respiratory Pathogens
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S. pneumoniae
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Penicillin-susceptible
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0.008
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0.03
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0.12
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0.25
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1
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Penicillin-intermediate
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0.25
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1
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4
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m
512
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1
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Penicillin-resistant
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1
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4
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>4
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m
512
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1
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H. influenzae
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b
-Lactamase-positive
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0.5
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2
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0.5
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4
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0.015
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b
-Lactamase-negative
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1
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1
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1
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4
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0.015
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M. catarrhalis
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b
-Lactamase-positive
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0.5
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0.5
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0.25
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0.06
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0.06
|
|
b
-Lactamase-negative
|
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|
0.12
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0.03
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0.12
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0.06
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0.06
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Skin Pathogens
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S. aureus
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Methicillin-susceptible
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0.12
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1
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0.5
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>64
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0.25
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Methicillin-resistant
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>32
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>32
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>64
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S. pyogenes
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0.03
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0.015
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0.03
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0.25
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1
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9
Faropenem Medoxomil for the Adult Market.
We
submitted an NDA for faropenem medoxomil to the FDA in December
2005 seeking approval for four indications: acute bacterial
sinusitis, community-acquired pneumonia, acute exacerbation of
chronic bronchitis and uncomplicated skin and skin structure
infections. In October 2006, the FDA issued a non-approvable
letter for all indications included in the NDA. In the
non-approvable letter, the FDA recommended further clinical
studies for all indications, including studies using a
superiority design for the indications of acute bacterial
sinusitis and acute exacerbation of chronic bronchitis, more
extensive microbiologic confirmation and consideration of
alternate dosing regimens. The FDA did not raise any safety
concerns or chemistry, manufacturing or controls issues related
to the product. However, in January 2008 we received a Warning
Letter from the FDA pursuant to completion of the FDAs
review of clinical trials performed in connection with the NDA
for faropenem medoxomil filed in December 2005. The Warning
Letter noted that we failed to make available certain underlying
data and analyses from clinical trials performed by Bayer
Corporation, as the previous licensee of faropenem medoxomil,
and incorporated by us into the NDA for FDA review and failed to
adequately verify and ensure the integrity of clinical data or
information included in the NDA relevant to the evaluation of
faropenem medoxomil safety and effectiveness derived from
certain clinical sites. We intend to respond to the Warning
Letter within the time limits required by the FDA. We are
currently conducting a Phase III placebo-controlled
clinical trial for treatment of acute exacerbation of chronic
bronchitis with faropenem medoxomil.
Clinical Overview.
Regulatory requirements for
the approval of new drugs can change over time. Historically,
the FDA and foreign regulatory authorities have not required
clinical trials using a superiority design, including
placebo-controlled clinical trials, for the approval of
antibiotics but instead have relied on non-inferiority studies.
In a non-inferiority study, a drug candidate is compared with an
approved antibiotic treatment and it must be shown that the
product candidate is not significantly less effective than the
approved treatment. All efficacy studies upon which our NDA was
based were designed as non-inferiority studies. In September
2005, the FDA informed us that it would likely require clinical
trials using a superiority design such as a placebo-controlled
trial prior to approving faropenem medoxomil for acute
exacerbation of chronic bronchitis. Nevertheless, the FDA agreed
to review our application for this indication and accepted the
NDA for filing. In completing their review of the NDA, the FDA
established the requirement for superiority studies for approval
for this indication as well as for acute bacterial sinusitis. In
October 2007, we completed a special protocol assessment with
the FDA for the design of a placebo-controlled clinical trial
for the treatment of acute bacterial sinusitis with faropenem
medoxomil. Later in October 2007, the FDA issued a Draft
Guidance for Industry titled Acute Bacterial Sinusitis:
Developing Drugs for Treatment, which guidance generally
encompassed the protocols described in our special protocol
assessment for this indication.
The clinical trials that supported our NDA submitted in December
2005 were conducted by Bayer as a previous licensee of faropenem
medoxomil. The primary study objective in most of these studies
was to demonstrate that faropenem medoxomil was non-inferior to
a control antibiotic treatment approved for use in the
U.S. Faropenem medoxomil was shown to be non-inferior in
eight of nine randomized controlled studies and similar results
were demonstrated in two uncontrolled studies. The definition of
statistical non-inferiority was met if there was less than 5%
probability (a 95% confidence interval) that faropenem medoxomil
was 10% worse than the standard treatment. The choice of a 10%
delta conformed to standards for establishing non-inferiority of
antimicrobial agents that had previously been approved. Efficacy
evaluation, including clinical and microbiologic responses, was
determined by physician assessment and bacterial cultures. The
clinical outcome analysis was first conducted for subjects who
met all the protocol defined criteria or rules (the
clinically evaluable population) and subsequently on
all treated subjects (the intent-to-treat
population).
The Phase III clinical trials included in our December 2005
NDA were all conducted using a 300 mg, twice per day, dose.
In January 2006, we initiated a placebo-controlled
Phase III clinical trial for the acute exacerbation of
chronic bronchitis indication using the 600 mg, twice per
day, dose. We had previously evaluated the potential for adverse
events with the 600 mg, twice per day, dose in a Phase I
study and a Phase II study conducted in 2005. In the Phase
I study, the 600 mg, twice per day, dose was directly
compared to a 300 mg, twice per day, dose, both
administered for seven days. In the Phase II study, a
600 mg, twice per day dose was compared to a 300 mg,
twice per day, dose seven day treatment course in patients with
acute
10
bacterial sinusitis. In both trials, the adverse events were
similar in both type and frequency. Based on the results of
these two studies, together with prior Phase I studies that
included increased doses of faropenem medoxomil higher than
600 mg, we believe that the incidence and severity of
adverse events are unlikely to be substantially higher with the
600 mg, twice per day, dose than previously observed with
the 300 mg, twice per day, dose.
Clinical Studies for Acute Bacterial
Sinusitis.
The efficacy of faropenem medoxomil in
subjects with acute bacterial sinusitis was evaluated in three
Phase III studies at a 300 mg, twice per day dose. In
two comparative studies, where
seven-day
and
ten-day
courses of faropenem medoxomil were compared to cefuroxime
axetil, the primary endpoints were met and statistical
non-inferiority was demonstrated. The third study was an
open-label (no comparative control treatment) trial in which all
subjects received faropenem medoxomil after undergoing a needle
aspiration of the sinus cavity in order to obtain a direct sinus
specimen to culture for bacterial pathogens. The clinical and
microbiologic outcomes were consistent with the comparative
studies.
Clinical Studies for Community-Acquired
Pneumonia.
The efficacy of faropenem medoxomil in
subjects with community-acquired pneumonia was evaluated in four
Phase III studies at a 300 mg, twice per day, dose. In
three comparative studies, the primary endpoints were met and
non-inferiority was demonstrated for
10-day
therapy with faropenem medoxomil compared to
10-day
therapy with amoxicillin/clavulanate,
14-day
therapy with cefpodoxime and
10-day
therapy with amoxicillin. The fourth study was an open-label
trial in which bacterial samples were collected for culture. The
clinical and microbiologic outcomes were consistent with the
comparative studies at a dose of 300 mg taken two times per day.
In the clinical trials included in our December 2005 NDA,
evaluable microbiologic specimens were obtained approximately 9%
to 21% of the time. Based on the non-approvable letter we
received to our NDA in October 2006, in future clinical trials a
higher rate of microbiologic specimens for microbiologic
confirmation of both bacteriologic disease and bacteriologic
clearance will be required.
Clinical Studies for Acute Exacerbation of Chronic
Bronchitis.
The efficacy of faropenem medoxomil
in acute exacerbation of chronic bronchitis was evaluated in two
comparative, non-inferiority Phase III studies. The primary
endpoints were met in both studies and statistical
non-inferiority was demonstrated for
five-day
faropenem medoxomil compared to
five-day
azithromycin and
seven-day
clarithromycin, both macrolide antibiotics. In January 2006, we
initiated a placebo-controlled Phase III clinical trial in
this indication using the 600 mg, twice per day, dose. As
of March 5, 2008, we had enrolled 372 patients of a
target enrollment of approximately 610 patients in this clinical
trial.
Clinical Studies for Uncomplicated Skin and Skin Structure
Infections.
The efficacy of faropenem medoxomil
in subjects with uncomplicated skin and skin structure
infections was evaluated in two Phase III studies. The
results of one study met the protocol-specified criterion for
non-inferiority of faropenem medoxomil to
amoxicillin/clavulanate. A second study did not demonstrate
non-inferiority of faropenem medoxomil to cephalexin. When we
pooled the data from the two studies, the eradication rates for
the key pathogens in this indication,
S. aureus
and
S.
pyogenes,
were high (greater than 90%) and were similar for
faropenem medoxomil and the comparators. The focus of our
current faropenem medoxomil activities is to clarify the
approval process for faropenem medoxomil in the treatment of
community respiratory tract infections. We do not intend to
pursue development of faropenem medoxomil for uncomplicated skin
and skin structure infections unless we enter into a
collaboration with a partner who wishes to do so.
Other Studies.
Three Phase III studies
for other indications were also initiated, two in
tonsillitis/pharyngitis and one in uncomplicated urinary tract
infections.
The efficacy of
five-day
treatment with faropenem medoxomil in subjects with
tonsillitis/pharyngitis was evaluated in one Phase III
study. The comparator was a
10-day
treatment with penicillin VK. Another study was discontinued
shortly after enrollment began. In the completed study, a
five-day
treatment with faropenem medoxomil did not demonstrate
non-inferiority relative to the comparator. The bacteriological
cure rate was 87% in the faropenem medoxomil treated patients
and 94% in the penicillin VK patients. We believe that this
difference may be related to the shorter course of therapy in
the faropenem medoxomil arm. Multiple published reports suggest
that shorter course therapy with penicillin is associated with
lower bacteriological
11
cure rates in this indication. We currently do not intend to
conduct additional studies in adults for this indication.
The efficacy of
five-day
treatment with faropenem medoxomil in subjects with
uncomplicated urinary tract infections was studied in one
Phase III study. The comparator was
five-day
treatment with trimethoprim-sulfamethoxazole. In this study,
five-day
treatment with faropenem medoxomil did not demonstrate
non-inferiority relative to the comparator. The clinical cure
rate was 86% in the faropenem medoxomil treated patients and 96%
in the trimethoprim-sulfamethoxazole patients. We believe that
this difference may be related at least in part to factors
specific to the kidneys. There is an enzyme in the kidneys known
to degrade carbapenem antibiotics as well as faropenem,
resulting in decreased drug concentrations in the region of the
infection. We do not consider this indication to be an important
commercial opportunity for a beta-lactam antibiotic such as
faropenem medoxomil. We currently do not intend to conduct
additional studies in this indication.
Safety and Tolerability Data.
We believe that
faropenem medoxomil has a favorable safety and tolerability
profile. The pharmacokinetics of faropenem medoxomil following
oral administration were evaluated in 27 Phase I studies, three
Phase II studies and one Phase III study. Faropenem
medoxomil was well absorbed, rapidly converted to faropenem and
reached maximum plasma concentrations approximately one hour
after administration. Single doses of faropenem medoxomil up to
3,000 mg and multiple doses up to 3,750 mg per day
were administered without notable safety issues.
We evaluated faropenem medoxomil in a Phase I study to determine
whether there was any potential of faropenem medoxomil to
prolong QT interval, a measure of electrocardiac function, which
has been problematic for the quinolone and macrolide classes of
antibiotics. This Thorough QT study, required for
all new drug applications, demonstrated that faropenem medoxomil
does not cause any electrocardiographic abnormalities, including
QT interval prolongation.
In Phase III clinical testing, faropenem medoxomil
exhibited the activity and safety profile typical of beta-lactam
antibiotics with improved tolerability. The Phase III
studies have accrued a safety database comprising
3,461 patients in respiratory tract infection indications
and 4,863 patients in all Phase III studies. Faropenem
medoxomil has been administered to over 5,000 people
including all Phase I, Phase II and Phase III
studies. The most common adverse events involved the
gastrointestinal tract, including diarrhea, nausea or abdominal
pain, or the central nervous system, including headaches and
dizziness.
We believe that the safety profile of faropenem medoxomil is
similar to that of penicillins and cephalosporins. Unlike some
carbapenems, faropenem medoxomil showed no proconvulsant effects
in animal models. There was only one incident of convulsion in
the faropenem medoxomil clinical studies (a rate of 0.02%),
which the treating physician did not attribute to faropenem
medoxomil. In comparison with amoxicillin/clavulanate, faropenem
medoxomil produced lower rates of adverse events, including
gastrointestinal events and liver enzyme abnormalities. Unlike
macrolides/ketolides and quinolones, faropenem medoxomil was not
associated with hepatotoxicity, heart rhythm abnormalities,
photosensitivity, hypoglycemia or hyperglycemia.
In the Phase II and Phase III clinical studies
referenced in our December 2005 NDA, the overall incidence of
diarrhea was less than 5% in over 5,000 patients treated
with faropenem medoxomil. We believe the safety and tolerability
profile of faropenem medoxomil make it a promising agent to be
used as a first-line antibiotic in the community setting.
Ongoing Clinical Development.
We have engaged
in discussions with the FDA to determine the clinical trial
designs and regulatory requirements that will be required for
faropenem medoxomil to be approved in the U.S. for
treatment of community respiratory tract infections. Based on
the FDAs recommendations in the non-approvable letter, as
well as our discussions with the FDA, we understand that at
least two approved clinical studies using faropenem medoxomil
for the treatment of community-acquired pneumonia will be
required for approval in this indication. If approval is sought
for faropenem medoxomil to treat acute bacterial sinusitis and
acute exacerbation of chronic bronchitis in addition to
community-acquired pneumonia, the faropenem medoxomil adult
program may be anchored on at least two clinical trials for the
treatment of community-
12
acquired pneumonia with single clinical trials using a
superiority clinical trial design in acute bacterial sinusitis
and acute exacerbation of chronic bronchitis. We have completed
an SPA for the design of a placebo-controlled Phase III
clinical trial for the treatment of acute bacterial sinusitis
with faropenem medoxomil. We plan to continue our ongoing
Phase III placebo-controlled clinical trial for treatment
of acute exacerbation of chronic bronchitis with faropenem
medoxomil, which is intended to meet the FDAs
requirements. We plan to limit our faropenem medoxomil clinical
trial activities to the ongoing Phase III
placebo-controlled clinical trial for the treatment of
exacerbation of chronic bronchitis until we have secured a
partner for the faropenem medoxomil program. If we are delayed
in securing or are unable to secure a partner for the faropenem
medoxomil program, we may elect to discontinue our development
activities on this program, including to discontinue the
Phase III placebo-controlled clinical trial for the
treatment of acute exacerbation of chronic bronchitis. We
further understand that clinical trials for community
respiratory indications will include a requirement for minimum
levels of microbiologic confirmation of physician assessed
clinical outcomes. Future clinical trials of faropenem medoxomil
in adult settings are expected to be conducted using the
600 mg, twice per day, dose of faropenem medoxomil.
Clinical trials at the 600 mg, twice per day dose will need
to accumulate a safety database of clinical trial participants
using faropenem medoxomil of approximately 1,500 patients.
Placebo-controlled Acute Exacerbation of Chronic Bronchitis
Study.
We have an ongoing Phase III trial in
acute exacerbation of chronic bronchitis. The clinical trial is
a placebo-controlled clinical trial of approximately
610 patients with a primary end point to demonstrate the
efficacy, as assessed by the treating physician, of treatment
with faropenem medoxomil over placebo. The initial comparators
we selected were placebo and Ketek (telithromycin). On
December 26, 2006, we announced that we had stopped
enrollment in this trial to exclude the Ketek comparator arm.
Ketek had initially been included in the study to generate
secondary data points to a product we had projected as a
competitor product to faropenem medoxomil. We based our decision
to exclude Ketek on the findings of a joint Advisory Meeting of
the FDAs Anti-Infective Drug and Drug Safety and Risk
Management committees held on December 14 and 15, 2006 that
recommended to the FDA that the risks of using Ketek outweigh
the benefits of using the drug for treatment of acute
exacerbation of chronic bronchitis. This recommendation was
adopted by the FDA on February 12, 2007. Following required
communication with investigational review boards overseeing the
clinical trial sites, we re-initiated this trial without the
Ketek comparator arm. Through March 5, 2008 we had enrolled
372 patients into this study and anticipate completing
enrollment in the second half of 2008.
In this study, we are using a 600 mg, twice per day dose.
Study subjects are taking two 300 mg tablets at each dose.
We anticipate using a single 600 mg tablet in commercial
settings, which will require that we demonstrate bioequivalence
of the two dosage forms. We have developed a single 600 mg
prototype tablet. The duration of therapy is five days. We
believe that this higher dose may offer the potential for
greater efficacy than the lower dose.
We have corresponded with the FDA regarding our ongoing
development work in treating acute exacerbations of chronic
bronchitis. Based on this correspondence, we believe that the
results of this single study may support filing for approval to
treat this indication as a component of a clinical trials
package to treat community respiratory tract infections that
includes two clinical trials using faropenem medoxomil for the
treatment of community-acquired pneumonia. Because the FDA has
not issued formal guidance regarding the design or conduct of
placebo-controlled studies for this indication, there can be no
assurance that the FDA will accept such a filing or grant
approval even if the results obtained from our study meet the
primary endpoint(s) defined in our protocol.
Faropenem
Medoxomil for the Pediatric Market
We are developing a faropenem medoxomil oral liquid formulation
for pediatric use. Faropenem medoxomil has performed well
in vitro
against many common pediatric pathogens. We
believe that the well-known safety of beta-lactam antibiotics
and the tolerability profile of faropenem medoxomil demonstrated
in extensive clinical testing in adults make faropenem medoxomil
a promising candidate for the pediatric market.
13
Formulation Development.
For pediatric
indications, it is important that faropenem medoxomil be
available as an oral liquid formulation. For example, the
majority of patients being treated for acute bacterial otitis
media are less than three years old and require an oral liquid
formulation. Any oral liquid formulation should have both a
competitive taste profile and the requisite stability. Like many
other medications, the active ingredient in faropenem medoxomil
is bitter. However, we have developed a prototype oral liquid
formulation that we believe has a competitive taste profile for
use in future Phase III clinical trials.
Phase II Acute Bacterial Otitis Media Clinical Trial
Completed.
We have completed a Phase II
clinical trial for treatment of acute bacterial otitis media
with an oral liquid formulation of faropenem medoxomil. The
study, which was completed at sites in Israel and Costa Rica,
was not conducted under our U.S. Investigational New Drug
Application, or IND, for faropenem medoxomil. The Phase II
clinical trial studied over 300 pediatric patients at four
different doses, administered twice daily, and was designed to
determine the dosage for use in Phase III clinical trials.
The clinical trial used a double tap design in which middle ear
fluid was obtained both prior to and during treatment through
tympanocentesis, then submitted for culture, which provided
microbiologic confirmation of the effectiveness of faropenem
medoxomil in eradicating bacteria from middle ear fluid. The
study met its primary endpoint of generating sufficient data to
permit dose selection for future Phase III clinical trials
in acute bacterial otitis media in that there was a demonstrated
dose response in bacteriological eradication of pathogens from
the middle ear. All doses examined were well tolerated and there
was no clear dose effect to tolerability. We believe that these
study results will provide the information to permit dose
selection in future Phase III clinical trials.
Regulatory Guidance for the Design of Future Clinical Studies
for Treatment of Acute Bacterial Otitis
Media.
Our plans to initiate additional clinical
trials using faropenem medoxomil for pediatric indications are
dependent on our securing a partner for the faropenem medoxomil
program. After both the assessment of Phase II clinical
trial results and consultation with the FDA, we believe we are
in a position to design Phase III clinical trials using an
improved oral liquid formulation to support an NDA for acute
bacterial otitis media in children. In January 2008, the FDA
issued a Draft Guidance for Industry titled Acute
Bacterial Otitis Media: Developing Drugs for Treatment.
The Draft Guidance for Industry outlines the FDAs
recommendation that only superiority clinical trials are
recommended for acute bacterial otitis media clinical studies.
Superiority clinical trials may include double blinded,
placebo-controlled studies with a background of optimized
antimicrobial therapy, delayed versus immediate therapy, dose
response using higher to lower doses and superiority of the
study drug to another drug. Additionally, the Draft Guidance
asserts the need for microbiologic confirmation of bacterial
infections through tympanocentesis in at least one superiority
clinical trial. The details of any study design will be
determined through an interactive process with the FDA.
Methionyl
tRNA Synthetase Inhibitor Program
Our methionyl tRNA synthetase inhibitor program includes
REP3123, our investigational narrow spectrum antibacterial agent
to treat
C. difficile
bacteria and
C.
difficile
-associated disease, and REP8839, our topical
antibiotic agent to treat skin and wound infections.
We acquired the worldwide rights to the methionyl tRNA
synthetase inhibitor program from GlaxoSmithKline, or GSK, in
June 2003 in exchange for 4,000,000 shares of our
Series B convertible preferred stock at a deemed fair value
of $1.25 per share and a final milestone payment of
$1.5 million in June 2006. As part of this asset purchase,
we acquired certain patents and patent applications and other
program intellectual property, supporting material and related
license rights. We retain the worldwide rights to this program
and have no royalty or other ongoing financial obligations to
GSK.
REP3123 and REP8839 are inhibitors of methionyl tRNA synthetase,
an enzyme that plays an essential role in protein synthesis.
Inhibition of methionyl tRNA synthetase results in reduced
protein synthesis and attenuation of bacterial growth. REP3123
and REP8839 are members of a novel group of structurally-related
molecules that selectively inhibit the activity of methionyl
tRNA synthetase. Methionyl tRNA synthetase is a specific
aminoacyl tRNA synthetase responsible for the attachment of the
amino acid methionine to its cognate tRNA. Aminocyl tRNA
synthetases are enzymes that play an essential role in protein
biosyntheses by attaching
14
amino acids to specific carrier molecules, called tRNAs, that
then carry the amino acid to the ribosome and donate it to the
growing polypeptide chain.
Clostridium difficile Program. C. difficile
is
a spore-forming Gram-positive bacterium present in the
intestinal tract. Toxin-producing strains of
C. difficile
can result in
C. difficile
-associated disease, or
CDAD, that can manifest itself in a wide spectrum of clinical
conditions, ranging from mild diarrhea to colitis (severe
inflammation of the colon), where serious complications can
occur. Oral vancomycin is the only antibiotic that is currently
approved by the FDA for the treatment of
C.
difficile-
associated disease. Metronidazole is also used
extensively in clinical practice following reports of its
efficacy in
C. difficile-
associated disease. However,
recent studies have noted relatively high and growing incidence
of treatment failure and relapse following treatment using each
of vancomycin and metronidazole therapy. Furthermore, widespread
vancomycin use raises resistance concerns. As a result, there
are limited clinical options for the treatment of
C.
difficile-
associated disease. In addition, there are few new
drugs in development to treat this condition and a need exists
for the development of new agents to address this emerging
problem.
Patients taking antibiotics are at risk of developing
C.
difficile-
associated disease. Antibiotics alter the normal
flora in the intestinal tract, causing it to be more susceptible
to overgrowth of
C. difficile
. Another risk factor for
C. difficile-
associated disease is prolonged
hospitalization. The spores of
C. difficile
can be
extremely difficult to eradicate in the hospital setting and
recently
C. difficile
infection has been associated with
health care worker transmissions to patients not receiving
antibiotics. People generally contract
C. difficile-
associated disease through the ingestion of
C. difficile
spores after coming into contact with a contaminated item or
surface. These spores then germinate, grow and multiply in the
digestive tract. This factor is believed to contribute to the
relapse rate of those treated for
C. difficile-
associated
disease with current therapies of approximately
15-20 percent.
As a result of these characteristics, in recent years
C.
difficile
-associated disease has emerged as a significant
health concern among elderly and hospitalized patients. In
addition, the incidence and severity of
C.
difficile
-associated disease is increasing worldwide along
with the emergence of epidemic strains of
C. difficile
with increased virulence. In U.S. hospitals, IMS Health
estimate that there are more than 250,000 cases of
C.
difficile-
associated disease per year, prolonging hospital
stays and associated health care costs. The health care costs
for treatment of patients with
C. difficile-
associated
disease have been estimated to exceed $1.1 billion annually.
We are developing REP3123, our investigational narrow spectrum
antibacterial agent, to treat
C. difficile
bacteria and
C. difficile
-associated disease. In
in vitro
preclinical studies, REP3123 has displayed an ability to
inhibit growth of the
C. difficile
bacterium and prevent
the bacterium from forming the spores that allow it to be spread
from person to person, but without inhibiting other key
organisms that are essential for normal intestinal functioning.
Also, in preclinical studies, REP3123 exhibited signs it may be
able to stop the production of destructive intestinal toxins
caused by
C. difficile
bacteria. These results suggest
that REP3123 has the potential to reduce
C.
difficile-
associated disease outbreak and relapse rates
through reducing the presence of
C. difficile
spores and
reduce the severity of, or possibly even prevent,
C.
difficile-
associated disease through inhibiting the growth
of or stopping production of toxins caused by
C. difficile
bacteria. We anticipate filing an IND with respect to a
candidate from our REP3123 program before the end of 2008.
REP8839 Program.
During 2007 we were
developing REP8839 as a topical agent for the treatment of skin
and wound infections, including MRSA infections. Our initial
target indication was the treatment of impetigo, one of the most
common skin infections among children. In December 2007 we
announced that we had suspended further development work on
REP8839 due to the incremental investment that would be required
to optimize the formulation of REP8839 and the size of the
initial target market being assessed. Preclinical studies have
indicated that REP8839 exhibits potent activity against major
skin pathogens such as
S. aureus
and
S. pyogenes,
including strains of
S. aureus
that are resistant to
methicillin, vancomycin, linezolid or mupirocin.
15
DNA
Replication Inhibitors Program.
DNA replication is one of the essential steps in bacterial
growth. To reproduce and perpetuate an infection, bacteria must
first replicate their DNA. Two copies must be made so that one
can be passed to each daughter cell. DNA replication is a highly
coordinated process. Inhibition of any step from the assembly of
protein complexes to the dissociation of the replication
machinery, offers the potential of interrupting bacterial growth
and providing the basis for a new class of antibacterial drugs.
Despite the complexity of the replication system, we have
developed robust high-throughput screening strategies through
which we were able to identify compounds that interfere with the
replication process.
We are advancing a lead series of novel DNA replication
inhibitors identified from our proprietary compound collection.
These inhibitors use a novel mechanism of action to block an
essential step in the DNA replication process.
Based on current preclinical data, our lead series of compounds
exhibits a novel mechanism of action that may block DNA
replication and exhibits oral bioavailability and bactericidal
activity against all major classes of antibiotic-resistant
Gram-positive bacteria, including clinically-relevant resistant
phenotypes such as methicillin-resistant
S. aureus
(MRSA), vancomycin-resistant enterococci (VRE) and
penicillin-resistant
S. pneumoniae
(PRSP). Based on the
preclinical results to date, we anticipate identifying an IND
candidate from within our lead series before the end of 2008.
Research
and Development Programs
Research and development expenditures made to advance our
product candidates and other research efforts during the last
three fiscal years were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Faropenem medoxomil
|
|
$
|
29,231
|
|
|
$
|
23,266
|
|
|
$
|
24,744
|
|
REP8839
|
|
|
4,550
|
|
|
|
8,363
|
|
|
|
3,589
|
|
Other research and development
|
|
|
9,532
|
|
|
|
6,666
|
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,313
|
|
|
$
|
38,295
|
|
|
$
|
29,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
Former Collaboration with Forest Laboratories
In February 2006, we entered into a collaboration and
commercialization agreement with Forest Laboratories to be our
exclusive partner for the development and marketing of faropenem
medoxomil in the U.S. On May 7, 2007, our
collaboration and commercialization agreement with Forest
Laboratories was terminated. This termination followed the
issuance in October 2006 of a non-approvable letter by the FDA
for our faropenem medoxomil NDA that was submitted to the FDA in
December 2005. As a result of the termination, we reacquired all
rights to faropenem medoxomil previously granted to Forest
Laboratories. Under the agreement, we received $60 million
in upfront and milestone payments and throughout the term of the
agreement, we generated approximately $14.6 million of
contract revenue for funded activities related to the
development of faropenem medoxomil. There were no penalty fees
incurred by either us or Forest Laboratories in connection with
the termination of the agreement and no amounts previously
received by us under the agreement are refundable.
Sales and
Marketing
As a community antibiotic, faropenem medoxomil would be
primarily marketed in the U.S. to primary care
practitioners, which for adults, include family practice,
general practice and internal medicine physicians, physician
assistants and nurse practitioners and for children, include
pediatricians and primary care practitioners. We do not
anticipate building sales capabilities to serve the primary care
or pediatric markets within the U.S. or outside the
U.S. and will seek a partner with respect to these sales
activities.
16
Our
License Agreement with Asubio Pharma
We entered into a license agreement with Daiichi Suntory Pharma
(now Daiichi Asubio Pharma Co., Ltd.) that was effective in
March 2004. Under this agreement, we have an exclusive license
to, with the right to sublicense, Asubio Pharmas patent
rights and know-how to develop and commercialize all forms of
faropenem medoxomil for adult and pediatric use in the
U.S. and Canada. The license includes rights to all
clinical and other data related to faropenem medoxomil generated
by Asubio Pharma and prior licensees, other than rights to
manufacture faropenem.
We also have a sole negotiation right to develop and
commercialize faropenem medoxomil in the rest of the world,
excluding Japan, until two years following the commercial
introduction of faropenem medoxomil in the U.S. or Canada.
Our license does not include the rights to other forms of
faropenem, such as faropenem sodium, but Asubio Pharma has
agreed not to license or market any other form of faropenem for
use in the U.S. or Canada.
In consideration for our licenses, we paid Asubio Pharma an
initial license fee of $3.8 million comprised of
$0.6 million paid in 2003 and $3.2 million paid in
2004. In December 2005, we submitted our first NDA for adult use
of faropenem medoxomil and, at that time, we recorded research
and development expense in the amount of $2.1 million for
the first milestone due to Asubio Pharma under this agreement.
In February 2006, in conjunction with our entering into the
license agreement with Forest Laboratories, this milestone
payment was increased to $3.2 million. The increased
milestone amount of $1.1 million was accounted for as
research and development expense in 2006 when the modified terms
of the license were finalized. Under the modified license
agreement we are further obligated to make future payments of
(i) up to ¥375 million (approximately
$3.3 million as of December 31, 2007) upon
initial FDA approval, (ii) ¥500 million (approximately
$4.5 million as of December 31, 2007) upon a
product launch and (iii) up to ¥750 million
(approximately $6.7 million as of December 31,
2007) in subsequent milestone payments for faropenem
medoxomil. If we terminate our license agreement with Asubio
Pharma, or if there is an intolerable delay in the commercial
launch of faropenem medoxomil, as defined, we will be obligated
to pay a termination fee of up to ¥375 million
(approximately $3.3 million as of December 31, 2007).
Additionally, we are responsible for royalty payments to Asubio
Pharma based upon net sales of faropenem medoxomil.
Our license agreement with Asubio Pharma extends until the last
relevant patent expires or 12 years after the first
commercial sale of faropenem medoxomil in the territory,
whichever is later. Each party has the right to terminate the
agreement in the event of the bankruptcy or dissolution of the
other party or a material breach of the agreement. We may also
terminate the license agreement upon six months written notice
in the event we conclude that development of faropenem
medoxomil, preparation or submission of applications or
registrations with respect thereto are to be canceled due to
issues of safety or efficacy or it becomes no longer
commercially reasonable to commercialize the product.
In periods after we or our licensee have marketed faropenem
medoxomil in the U.S. for at least twelve months, if we
substantially fail to meet our goals under our sales and
marketing plan over a period of two years, then we must make
certain payments to Asubio Pharma or Asubio Pharma may convert
our license to a non-exclusive license, in which case we would
be required to grant Asubio Pharma a license to use the
information and know-how we have developed under this agreement.
Under certain circumstances, we may be required to make certain
payments to Asubio Pharma upon termination of the agreement.
Manufacturing
We obtain the drug substance, or active pharmaceutical
ingredient, faropenem medoxomil, from Nippon Soda Company Ltd.,
or Nippon Soda. As a penem antibiotic, faropenem medoxomil
requires dedicated manufacturing facilities for the manufacture
of drug substance and drug product. For many years, beta-lactams
have been produced separately in segregated facilities due to
concerns about allergic reactions to these types of antibiotics.
During development, faropenem medoxomil was manufactured by
Nippon Soda in a segregated
17
building at its Takaoka facility in Japan and Bayer manufactured
the faropenem medoxomil tablet internally for its clinical
studies.
In anticipation of commercial production, Nippon Soda expanded
and equipped a new facility located in Nihongi, Japan. The
Nihongi facility is presently being used for the manufacture of
faropenem sodium for the Japanese market. Faropenem medoxomil is
produced from faropenem sodium by converting it into an ester
prodrug form. We have a requirements contract for the supply of
faropenem medoxomil at the Nihongi facility. Nippon Soda is
obliged to supply all of our requirements of faropenem medoxomil
and we are obligated to purchase all faropenem medoxomil
requirements from Nippon Soda. We have the right to transfer
manufacturing to a third party, with Nippon Sodas
cooperation, if Nippon Soda cannot assure supply and in certain
other circumstances. In the case of such a transfer, Nippon Soda
will be required to grant us the necessary licenses, including
the right to sublicense, under its intellectual property to
manufacture faropenem medoxomil. Nippon Soda has patent
protection for certain aspects of the manufacturing process
through 2014. After a commercial launch of faropenem medoxomil,
the parties have agreed to certain minimum purchase requirements
and pricing. In accordance with our supply agreement with Asubio
Pharma and Nippon Soda, as a result of the non-approvable letter
received from the FDA in October 2006 and subsequent activities
related to the development of faropenem medoxomil, we recorded
delay compensation fees of $0.9 million in the year ended
December 31, 2007 and delay compensation fees of
$0.9 million and an initial order cancellation fee of
$0.6 million in the year ended December 31, 2006.
These amounts were recorded as research and development expense.
If commercial launch of faropenem medoxomil is further delayed,
we may incur additional delay compensation fees of up to
¥105 million ($0.9 million as of
December 31, 2007) for 2008 and up to
¥280 million annually ($2.5 million as of
December 31, 2007) for all periods following
January 1, 2009. If we terminate this agreement, abandon
the development or commercialization of faropenem medoxomil or
are unable to notify Nippon Soda of the faropenem medoxomil
launch go date, as defined, by July 1, 2009, we will be
obligated to pay Nippon Soda prorated delay compensation fees
through the effective date of termination and reimburse Nippon
Soda for up to ¥65 million ($0.6 million as of
December 31, 2007) in engineering costs. The term of
this agreement is for the life of the Asubio Pharma patents on
faropenem medoxomil or 12 years after commercial launch,
whichever is longer. We believe that the capacity of this plant
is sufficient to provide commercial quantities of faropenem
medoxomil for the next several years.
In 2005, we and MEDA Manufacturing GmbH (formerly Tropon GmbH),
or MEDA, entered into a supply agreement for production of
finished 300 mg adult tablets of faropenem medoxomil, which
was amended as to certain terms in 2006. Beginning in 2006, we
became obligated to make annual minimum purchases of 300 mg
adult tablets from MEDA of 2.3 million (approximately
$3.4 million at December 31, 2007). If in any year we
did not satisfy our minimum purchase commitments, we were
required to pay MEDA the shortfall amount. Fifty percent (50%)
of the shortfall amount, if applicable, may have been credited
against future drug product purchases. We were required to buy
all of our requirements for 300 mg adult oral faropenem
medoxomil tablets from MEDA until cumulative purchases exceed
22 million (approximately $32.4 million at
December 31, 2007). This agreement was amended in March
2006 such that our obligations with respect to all purchase
commitments and facility decontamination costs were suspended
and deemed satisfied by Forest Laboratories pursuant to an
agreement between MEDA and Forest Laboratories. Under our
agreement with Forest Laboratories, we remained liable for any
shortfall amount in 2006 that may not have been credited against
future drug product purchases. In 2006, we incurred
$1.5 million relating to our portion of the 2006 shortfall
in minimum purchases under these agreements. The amount was
accounted for as research and development expense in 2006. In
May 2007, concurrent with Forest Laboratories termination of its
supply agreements with MEDA, the previously suspended provisions
in our agreements with MEDA were no longer suspended and our
obligations with respect to purchase commitments and facility
decontamination costs were no longer waived. In April 2007, we
provided notice to MEDA of our termination of the supply
agreement in accordance with the termination provisions of the
agreement as future clinical development of faropenem medoxomil
adult tablets would use 600 mg dosing. As a result of this
notice occurring before the termination date of our
collaboration agreement with Forest Laboratories, and as Forest
Laboratories, under the terms of the collaboration agreement,
was responsible for supply chain management of faropenem
medoxomil, including obligations under the MEDA agreement,
through May 7, 2007 (the term of the collaboration
agreement), we have not accrued for any minimum purchase or
termination fees under this
18
agreement. MEDA has indicated that it disputes our right to
terminate the agreement on the basis indicated in our notice of
termination. We believe that we had the right to terminate the
agreement. However, if it is determined that we have obligations
to MEDA beyond May 7, 2007 under the agreement, then
additional costs may be incurred which may include additional
amounts for minimum future drug purchases that were not made and
a termination fee for decontamination of MEDAs facility of
up to 1.7 million ($2.5 million as of
December 31, 2007).
We have built a small scale drug product manufacturing facility
at our Louisville, Colorado site. The facility is used for the
manufacture of development batches (oral tablets and liquid
suspensions) and for the manufacture of clinical supplies. The
facility is dedicated exclusively for faropenem medoxomil
manufacturing and will not be used for other product classes.
We currently have a small internal manufacturing group. For our
discovery programs, we generally conduct research and
development scale manufacturing in-house or use contract
manufacturers. We use contract manufacturers for scale up of
preclinical and clinical quantities of product. We anticipate
using contract manufacturers for commercial scale quantities of
product when this is commercially feasible.
Government
Regulation and Product Approval
Regulation by governmental authorities in the U.S. and
other countries is a significant factor in the development,
manufacture and marketing of pharmaceuticals and antibiotics.
All of our products will require regulatory approval by
governmental agencies prior to commercialization. In particular,
pharmaceutical drugs are subject to rigorous preclinical testing
and clinical trials and other pre-marketing approval
requirements by the FDA and regulatory authorities in other
countries. In the U.S., various federal, and, in some cases,
state statutes and regulations, also govern or impact the
manufacturing, safety, labeling, storage, record-keeping and
marketing of pharmaceutical products. The lengthy process of
seeking required approvals and the continuing need for
compliance with applicable statutes and regulations require the
expenditure of substantial resources. Regulatory approval, if
and when obtained for any of our product candidates, may be
limited in scope, which may significantly limit the indicated
uses for which our product candidates may be marketed. Further,
approved drugs and manufacturers are subject to ongoing review
and discovery of previously unknown problems that may result in
restrictions on their manufacture, sale or use or in their
withdrawal from the market.
Before testing any compounds with potential therapeutic value in
human subjects in the U.S., we must satisfy stringent government
requirements for preclinical studies. Preclinical testing
includes both
in vitro
and
in vivo
laboratory
evaluation and characterization of the safety and efficacy of a
drug and its formulation. Preclinical testing results obtained
from studies in several animal species, as well as data from
in vitro
studies, are submitted to the FDA as part
of an IND and are reviewed by the FDA prior to the commencement
of human clinical trials. These preclinical data must provide an
adequate basis for evaluating both the safety and the scientific
rationale for the initial trials in human volunteers.
In order to test a new drug in humans in the U.S., an IND must
be filed with the FDA. The IND will become effective
automatically 30 days after receipt by the FDA, unless the
FDA raises concern or questions about the conduct of the trials
as outlined in the IND prior to that time. In this case, the IND
sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed.
Upon request, the FDA will evaluate an SPA submitted by a
sponsor company. An SPA evaluation must be specifically
requested by a sponsor and be submitted for each specific
protocol individually. The SPA submission should include the
protocol detail, enough information for the FDA to assess the
role of the protocol within the overall clinical development
plan, supporting documentation, questions to the FDA from the
sponsor and the specific regulatory action anticipated through
the conduct of the study such as approval of an indication or a
labeling claim. If the SPA is accepted for review, the FDA
anticipates responding to the assessment within 45 days.
However, if an FDA question or response requires the SPA to be
revised, it is considered to be re-submitted thereby
re-initiating the 45 day review period. FDA guidance
documents suggest a 90 day total review period due to the
anticipated need for revisions. If a clinical trial has
commenced prior to an SPA being approved by the FDA, it will not
qualify for SPA review.
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Clinical trials are typically conducted in three sequential
phases, Phases I, II and III, with Phase IV
trials potentially conducted after initial marketing approval.
These phases may be compressed, may overlap or may be omitted in
some circumstances.
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Phase I.
After an IND becomes effective, Phase
I human clinical trials may begin. These trials evaluate a
drugs safety profile and the range of safe dosages that
can be administered to healthy volunteers
and/or
patients, including the maximum tolerated dose that can be given
to a trial subject with the target disease or condition. Phase I
trials also determine how a drug is absorbed, distributed,
metabolized and excreted by the body and the duration of its
action.
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Phase II.
Phase II clinical trials are
typically designed to evaluate the potential effectiveness of
the drug in patients and to further ascertain the safety of the
drug at the dosage given in a larger patient population.
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Phase III.
In Phase III clinical trials,
the drug is usually tested in one or more controlled, randomized
trials comparing the investigational new drug to an approved
form of therapy or placebo in an expanded and well defined
patient population and at multiple clinical sites. The goal of
these trials is to obtain definitive statistical evidence of
safety and effectiveness of the investigational new drug regimen
as compared to a placebo or an approved standard therapy in
defined patient populations with a given disease and stage of
illness.
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Phase IV.
Phase IV clinical trials are
studies required of or agreed to by a sponsor that are conducted
after the FDA has approved a product for marketing. These
studies are used to gain additional experience from the
treatment of patients in the intended therapeutic indication and
to document a clinical benefit in the case of drugs approved
under accelerated approval regulations. If the FDA approves a
product while a company has ongoing clinical trials that were
not necessary for approval, a company may be able to use the
data from these clinical trials to meet all or part of any
Phase IV clinical trial requirement. These clinical trials
are often referred to as Phase III/IV post approval clinical
trials. Failure to promptly conduct Phase IV clinical
trials could result in withdrawal of approval for products
approved under accelerated approval regulations.
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After completion of Phase I, II and III clinical
trials, if there is substantial evidence that the drug is safe
and effective, an NDA is prepared and submitted for the FDA to
review. The NDA must contain all of the essential information on
the drug gathered to that date, including data from preclinical
and clinical trials, and the content and format of an NDA must
conform to all FDA regulations and guidelines. Accordingly, the
preparation and submission of an NDA is a significant
undertaking for a company.
The FDA reviews all submitted NDAs before it accepts them for
filing and may request additional information from the sponsor
rather than accepting an NDA for filing. In this case, the NDA
must be re-submitted with the additional information and, again,
is subject to review before filing. Once the submission is
accepted for filing, the FDA begins an in-depth review of the
NDA. Most NDAs are reviewed by the FDA within 10 months of
submission. The review process is often significantly extended
by the FDA through requests for additional information and
clarification. The FDA may refer the application to an
appropriate advisory committee, typically a panel of clinicians,
for review, evaluation and a recommendation as to whether the
application should be approved. The FDA is not bound by the
recommendation but typically considers it strongly. If the FDA
evaluations of both the NDA and the manufacturing facilities are
favorable, the FDA may issue either an approval letter or an
approvable letter, the latter of which usually contains a number
of conditions that must be satisfied in order to secure final
approval. If the FDAs evaluation of the NDA submission or
manufacturing facility is not favorable, the FDA may refuse to
approve the NDA or issue a non-approvable letter.
Any products we manufacture or distribute under FDA approvals
are subject to pervasive and continued regulation by the FDA,
including record-keeping requirements and reporting of adverse
experiences. Drug manufacturers and their subcontractors are
required to register with the FDA and, where appropriate, state
agencies, and are subject to periodic unannounced inspections by
the FDA and state agencies for compliance
20
with cGMP regulations which impose procedural and documentation
requirements upon us and any third party manufacturers we
utilize.
The FDA closely regulates the marketing and promotion of drugs.
A company can make only those claims relating to safety and
efficacy that are approved by the FDA. Failure to comply with
these requirements can result in adverse publicity, warning
letters, corrective advertising and potential civil and criminal
penalties. Physicians may prescribe legally available drugs for
uses that are not described in the products labeling and
that differ from those tested by us and approved by the FDA.
Such off-label uses are common across medical specialties.
Physicians may believe that such off-label uses are the best
treatment for many patients in varied circumstances. The FDA
does not regulate the behavior of physicians in their choice of
treatments. The FDA does, however, restrict manufacturers
communications on the subject of off-label use.
The FDAs policies may change and additional government
regulations may be enacted that could prevent or delay
regulatory approval of our product candidates or approval of new
indications after the initial approval of our existing products.
We cannot predict the likelihood, nature or extent of adverse
governmental regulations that might arise from future
legislative or administrative action, either in the U.S. or
abroad.
We will also be subject to a wide variety of foreign regulations
governing the development, manufacture and marketing of our
products. Whether or not FDA approval has been obtained,
approval of a product by the comparable regulatory authorities
of foreign countries must still be obtained prior to
manufacturing or marketing the product in those countries. The
approval process varies from country to country and the time
needed to secure approval may be longer or shorter than that
required for FDA approval. We cannot assure you that clinical
trials conducted in one country will be accepted by other
countries or that approval in one country will result in
approval in any other country.
The Drug Price Competition and Patent Term Restoration Act of
1984, also known as the Hatch-Waxman Act, provides five years of
new chemical entity, or NCE, marketing exclusivity,
to the first applicant who obtains approval of an NDA for a
product that does not contain an active ingredient found in any
other FDA approved product. If the FDA approves our NDA for
faropenem, we will likely be entitled to five years of NCE
exclusivity for faropenem. This exclusivity period would not
prevent the submission by a generic competitor of an abbreviated
new drug application, or by a branded competitor of a new drug
application under Section 505(b)(2) of the Federal Food,
Drug and Cosmetic Act, for a compound that contains faropenem
medoxomil as the active ingredient as early as four years
following the FDAs approval of our NDA for faropenem
medoxomil. Such a competitor would likely be required to conduct
clinical trials to bring a faropenem medoxomil product, other
than faropenem medoxomil, to market in the U.S., though the
competitor may be able to rely in part on the FDAs prior
findings of safety and efficacy of faropenem. Similarly, data
exclusivity in Europe provides a period of up to 10 years
from the date a product is granted marketing approval, during
which the regulatory authorities are not permitted to
cross-refer to the data submitted by the original applicant for
approval when reviewing an application from a generic
manufacturer of the same approved product. Data exclusivity does
not prevent a generic manufacturer from filing for regulatory
approval of the same or similar drug, even in the same
indication for which that drug was previously approved in
Europe, based upon data generated independently by that
manufacturer.
Intellectual
Property
The proprietary nature of, and protection for, our product
candidates, processes and know-how are important to our
business. We seek patent protection in the U.S. and
internationally for our product candidates and other technology.
Our policy is to patent or in-license the technology, inventions
and improvements that we consider important to the development
of our business. In addition, we use license agreements to
selectively convey to others rights to our own intellectual
property. We also rely on trade secrets, know-how and continuing
innovation to develop and maintain our competitive position. 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, nor can we be sure that
any of our existing patents or any patents granted to us in the
future will be commercially useful in protecting our technology.
21
We have licensed two U.S. patents from Asubio Pharma
covering the faropenem medoxomil composition of matter and a
process for making faropenem medoxomil. Both of these patents
expire on November 3, 2015. The Canadian equivalent of
these patents expires in August 2011. The U.S. and Canadian
patents are licensed to us and we have the sole negotiation
right to license such rights in the rest of the world, excluding
Japan. We believe that patent term extension under Hatch-Waxman
Act should be available to extend our patent exclusivity for
faropenem medoxomil to at least 2020 in the U.S. We plan to
pursue development of alternative formulations of faropenem
medoxomil, such as a pediatric formulation. We have not
controlled and do not control the prosecution of the patents
licensed from Asubio Pharma. We cannot be certain that such
prosecution efforts have been or will be conducted in compliance
with applicable laws and regulations or will result in valid and
enforceable patents.
Asubio Pharma also owns patents related to faropenem sodium
composition of matter that expire in 2008 in the U.S. and
have expired in the rest of the world. We do not have a license
to the faropenem sodium patents but our agreement with Asubio
Pharma specifies that it will not license any form of faropenem
for use in the U.S. or Canada.
We acquired worldwide rights to the methionyl tRNA synthetase
inhibitor program from GSK in June 2003. Our agreement with GSK
included the assignment of patents and patent applications to us
relating to small molecule methionyl tRNA synthetase inhibitors
and the targets initially used to identify the inhibitors. We
have filed additional patent applications directed to small
molecule methionyl tRNA synthetase, uses, production methods and
the like. We have two issued U.S. patents that cover
REP8839 and additional patent applications directed to REP8839
and combinations of REP8839 and mupirocin. As of
December 31, 2006, we have 13 issued U.S. patents, 13
pending U.S. patent applications, 1 issued foreign patent
and 30 pending foreign patent applications related to the
methionyl tRNA synthetase programs including the REP8839
program. These patents expire from 2017 to 2025.
We have filed 4 pending U.S. patent applications, two
provisional patent applications, and four pending foreign patent
applications directed to composition of matter and methods of
use related to our REP3123 program that expire in 2027.
We have begun to file patent applications directed to compounds
that inhibit DNA replication that have been identified through
our in-house screening efforts. We also own a portfolio of
patents related to the DNA replication targets and drug
screening methods to identify inhibitors of DNA replication. As
of December 31, 2007, we have 1 issued U.S. patent, 8
pending U.S. patent applications, 3 issued foreign patents
and 16 pending foreign patent applications related to our
bacterial DNA replication program. These patents expire from
2021 to 2027.
Competition
The oral anti-infective marketplace has traditionally been one
of the most competitive within the pharmaceutical industry due
to the large number of products competing for market share and
significant levels of commercial resources being utilized to
promote brands. In addition, our ability to compete may be
affected because in some cases insurers and other third-parties
may seek to encourage the use of generic products. This may have
the effect of making branded products less attractive, from a
cost perspective, to buyers. Among the products with which we
will directly compete, we expect to differentiate on the basis
of greater potency, improved resistance profile, enhanced safety
and tolerability. Although we expect to face competition in the
future, we do not expect the level of competition from branded
products to be as intense as it has been in prior years due to
the recent and ongoing exclusivity expiration of many major
brands. Furthermore, we believe the pipeline of new oral
antibiotics to treat community-acquired respiratory tract
infections in development is weak, with a limited number of
products currently in Phase III development. Several
pharmaceutical and biotechnology companies are actively engaged
in research and development related to new generations of
antibiotics. We cannot predict the basis upon which we will
compete with new products marketed by others. Many of our
competitors have substantially greater financial, operation,
sales and marketing and research and development resources than
we have.
22
Employees
As of December 31, 2007, we had 53 full time employees, 23
of whom hold Ph.D., M.D. or Pharm.D. degrees. Of our total
employees, 28 were engaged in discovery research, 9 in clinical
and regulatory affairs, 5 in commercial and corporate
development and 11 in support administration, including finance,
information systems, facilities and human resources. We consider
our relationship with our employees to be good.
Corporate
Information
We were incorporated under the laws of the state of Delaware on
December 6, 2000. Our principal executive offices are
located at 1450 Infinite Drive, Louisville, Colorado 80027, and
our telephone number is
(303) 996-5500.
Our web site address is
http://www.replidyne.com.
The information contained in, or that can be accessed through,
our website is not part of this report and should not be
considered part of this report.
Web
Availability
We make available free of charge through our web site,
www.replidyne.com
, our annual report on
Form 10-K
and other reports required under the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such
reports are filed with, or furnished to, the Securities and
Exchange Commission (the SEC). These documents are
also available through the SECs website at
www.sec.gov
. Certain of our corporate governance
policies, including the charters for the Board of
Directors audit, compensation and nominating and corporate
governance committees and our code of ethics, corporate
governance guidelines and whistleblower policy can be found at
our website. We will provide to any person without charge, upon
request, a copy of any of the foregoing materials. Any such
request must be made in writing to Replidyne, Inc., 1450
Infinite Drive, Louisville, CO 80027, Attn: Investor Relations.
You should carefully consider the risks described below,
which we believe are the material risks of our business. Our
business could be harmed by any of these risks. The trading
price of our common stock could decline due to any of these
risks, and you may lose all or part of your investment. In
assessing these risks, you should also refer to the other
information contained in our SEC filings, including our
financial statements and related notes. Additional risks and
uncertainties not presently known to us or that we currently
deem immaterial also may impair our business operations. We are
relying upon the safe harbor for all forward-looking statements
in this annual report, and any such statements made by or on
behalf of the Company are qualified by reference to the
following cautionary statements, as well as to those set forth
elsewhere in this Report.
Risks
Related to our Business
We
have received both a non-approvable letter and a Warning Letter
from the FDA for our NDA filed in December 2005 for faropenem
medoxomil, our most advanced product candidate, and we are
currently evaluating our development program for faropenem
medoxomil and do not currently know if faropenem medoxomil will
ever receive regulatory approval, which is necessary before it
can be commercialized.
If we do not receive regulatory approval for faropenem medoxomil
and we are not able to commercialize faropenem medoxomil, we
will not generate revenue for several years, if at all, and we
may never generate sufficient revenue to achieve and sustain
profitability. We need approval from the FDA prior to marketing
our product candidates in the U.S. In December 2005, we
submitted our first NDA to the FDA for use of faropenem
medoxomil in four adult clinical indications. In October 2006,
the FDA issued a non-approvable letter for all four indications
in our NDA and recommended further clinical studies and
microbiologic evaluation for all indications. We are in the
planning stages with respect to our faropenem medoxomil clinical
trials program and have only a single ongoing clinical trial,
which clinical trial is studying the use of faropenem medoxomil
for treatment of acute exacerbation of chronic bronchitis.
Further clinical development of faropenem medoxomil for any
indications will require us to complete additional and more
extensive clinical trials, which will be costly and time
consuming. Such further development will require that we address
the
23
items identified in the Warning Letter described below to the
FDAs satisfaction, which results have not been reviewed to
date. The amount and timing of the increased costs related to
our clinical trials is difficult to predict due to the
uncertainty inherent in the timing of clinical trial
initiations, the rate of patient enrollment and the novel design
of future trials. However, we expect that at least two to three
years will be required to complete additional clinical trials.
If we continue our clinical development program for faropenem
medoxomil, we may not obtain necessary approvals from the FDA
even if our trials demonstrate the effectiveness of faropenem
medoxomil for any indication. The data we collect from any
additional clinical trials with larger patient populations may
not demonstrate sufficient safety and efficacy to support
regulatory approval of faropenem medoxomil, in which case we
would experience potentially significant delays in, or be
required to abandon, development of that product candidate. If
we continue our clinical development program for faropenem
medoxomil, we will have fewer resources to devote to the
research and development of other potential product candidates
and development stage programs. If we decide to terminate any
further development of faropenem medoxomil, we will be dependent
upon the success of the other product candidates in our pipeline
or other compounds we may in-license and the size of the
potential markets for such other product candidates may not be
as significant as the potential markets for faropenem medoxomil.
All of our other existing product candidates and development
stage programs are in Phase I clinical development or
preclinical development.
On January 22, 2008, we received a Warning Letter from the
Division of Scientific Investigation of the FDA, or DSI,
informing us of objectionable conditions found during its
investigation of our role as applicant for our NDA for faropenem
medoxomil. The FDAs observations were based on its
establishment inspection reports following on site inspections
in conjunction with the FDAs review of our NDA.
Specifically the DSI cited that we failed to make available the
underlying raw data from the investigation for the FDAs
audit and failed to provide the FDA adequate descriptions and
analyses of any other data or information relevant to the
evaluation of the safety and effectiveness of faropenem
medoxomil obtained or otherwise received by us from any source
derived from clinical investigations. The clinical trials that
supported our NDA were conducted by Bayer as a previous licensee
of faropenem medoxomil. If we are unable to sufficiently
establish that the clinical trials used in our NDA were
conducted in accordance with FDA regulations, we may be subject
to enforcement action by the FDA or required to complete
additional trials before we are able to obtain FDA approval for
faropenem medoxomil, which would be costly and time consuming
and could potentially result in the termination of further
development of faropenem medoxomil and cause us not to be able
to enter our other product candidates into clinical trials.
Even if we obtain FDA approval for faropenem medoxomil, it may
not cover all of the clinical indications for which we seek
approval. Also, an approval might contain significant
limitations with respect to conditions of use in the form of
narrow indications, incomplete activity against key bacterial
pathogens, warnings, precautions or contra-indications. We
cannot predict if or when we might again seek regulatory review
of faropenem medoxomil for any indication or of any of our other
product candidates.
The FDA has substantial discretion in the approval process and
may either refuse to accept an application for substantive
review or may conclude after review of our data that our
application is insufficient to allow approval of a product
candidate. If the FDA does not accept or approve our
application, it may require that we conduct additional clinical,
preclinical or manufacturing validation studies and submit that
data before it will reconsider our application. Depending on the
extent of these or any other studies, approval of any
application that we submit may be delayed by several years, or
may require us to expend more resources than we have available.
It is also possible that additional studies, if performed and
completed, may not be considered sufficient by the FDA to
approve our application for any particular indication for which
we are seeking approval. In addition, the FDA has and is likely
to continue to seek the advice of experts on specific topics by
convening advisory committees from time to time. In
April 2008, the FDA is scheduled to convene an
Anti-Infective Drugs Advisory Committee to discuss the
issues relating to the identification of an appropriate
noninferiority margin for an active controlled clinical trials
for the treatment of community-acquired pneumonia. If the
Advisory Committee were to recommend a noninferiority margin
within the noninferiority margins contemplated in our clinical
trials planning for this indication, or the adoption of
superiority studies in the indication, we would have to assess
the cost required to complete these expanded or novel clinical
trials. As
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our clinical trials program for community respiratory tract
infections may be anchored in community-acquired pneumonia, this
recommendation, if adopted by the FDA, would significantly
increase the costs of developing faropenem medoxomil for the
treatment of this indication. If any of these outcomes occur, we
may be forced to abandon our application for approval, which
might cause us to cease development of faropenem medoxomil.
Faropenem medoxomil has been in-licensed from another
pharmaceutical company, Asubio Pharma Co., Ltd., or Asubio
Pharma. A previous licensee, Bayer AG, or Bayer, completed
extensive preclinical studies and Phase II and
Phase III clinical trials for a particular dosage of
faropenem medoxomil. We may rely on some of the data from these
preclinical studies and clinical trials in a future application
or submission to the FDA for approval to market faropenem
medoxomil. We may seek to rely on some of the data from these
preclinical studies and clinical trials in a future application
or submission to the FDA for approval to market faropenem
medoxomil. If we are unable to address the items identified in
the Warning Letter received from the FDA or there are any
problems with these previous preclinical studies or clinical
trials, including problems with the design or statistical
analysis of such pre-clinical studies or clinical trials, this
could cause our application for regulatory approval to be
delayed or rejected, in which case we might need to conduct
additional trials.
Because
of the termination of our collaboration with Forest Laboratories
to develop and commercialize faropenem medoxomil, we are seeking
a new partner. If we do not obtain a new partner on acceptable
terms, we likely will not be able to develop and commercialize
faropenem medoxomil for adult or pediatric indications or
generate any future revenue from faropenem
medoxomil.
On May 7, 2007, Forest Laboratories exercised their right
to terminate our development and commercialization agreement,
under which Forest Laboratories had been granted an exclusive
sublicense for the development and sale of faropenem medoxomil
for all indications in the U.S. and a right of first
refusal to extend the territory to include Canada. As a result
of the termination we have reacquired all rights to faropenem
medoxomil previously granted to Forest Laboratories.
We are currently seeking another partner or partners to assist
us in the development and commercialization of faropenem
medoxomil. We face competition in our search for partners with
whom we may collaborate. Further, faropenem medoxomil has
previously been licensed to other licensees who have opted not
to develop and commercialize the product. As a result, we may
not be successful in finding another partner on acceptable
terms, or at all, and any failure to obtain a new partner on
acceptable terms may adversely affect faropenem medoxomil
development, commercialization and potential future sales.
Identifying a new partner and entering into a collaboration
agreement with it could cause delays in obtaining regulatory
approvals and commercializing faropenem medoxomil, which would
negatively impact our business. If we are delayed or do not
identify a new partner for the development and commercialization
of faropenem medoxomil, we will not commence further clinical
trials of it beyond the ongoing clinical trial for the treatment
of acute exacerbation of chronic bronchitis and may choose to
halt our ongoing clinical trial for the exacerbation of chronic
bronchitis. If it is determined that we have ceased development
or commercialization of faropenem medoxomil or are unable to
notify Nippon Soda of the faropenem medoxomil launch go date, as
defined, by July 1, 2009 in accordance with the definitions
contained in our license and supply agreements with Asubio
Pharma and Nippon Soda Company Ltd., or Nippon Soda, we will
incur a license termination fee of ¥375 million
(approximately $3.3 million as of December 31, 2007),
prorated delay compensation fees to Nippon Soda through the
effective date of termination and reimburse Nippon Soda for up
to ¥65 million ($0.6 million as of
December 31, 2007) in engineering costs.
If we
fail to enter into new strategic collaborations, we may have to
reduce or delay our rate of product development and
commercialization and/or increase our
expenditures.
Our business model is based in part upon entering into strategic
collaborations for discovery
and/or
development of some of our product candidates. Our strategy to
develop and commercialize our products includes entering into
various relationships with pharmaceutical or biotechnology
companies to advance our programs. We may not be able to
negotiate any of our collaborations on acceptable terms. If we
are not able to establish collaborative arrangements, we may
have to reduce or delay further development of some of our
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programs
and/or
increase our expenditures and undertake the development
activities at our own expense. If we are not able to establish
and maintain strategic collaborations on acceptable terms:
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the development of our current or future product candidates may
be reduced in scope, terminated or delayed which would require
us to further reduce the number of our employees;
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our cash expenditures related to development of our current or
future product candidates would increase significantly;
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we may be required to hire additional employees or otherwise
develop expertise, such as sales and marketing expertise, for
which we have not budgeted;
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we will bear all of the risk related to the development of each
of our current and future product candidates; and
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we may be unable to meet demand for any future products that we
may develop.
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In this event, we would likely be required to limit the size or
scope of one or more of our programs.
Securing
a strategic partner to develop and commercialize our product
candidates may require us to relinquish valuable rights and will
render us dependent on the efforts of any future partners, over
which we would have limited control, and if our collaborations
are unsuccessful, our potential to develop and commercialize
product candidates and to generate future revenue from our
product candidates would be significantly reduced.
In order to secure a strategic partner to develop and
commercialize our product candidates, we may be required to
relinquish valuable rights to our potential products or
proprietary technologies. If we are able to identify and reach
agreement with collaborators for our product candidates, those
relationships will be subject to a number of risks, including:
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collaborators may not pursue further development and
commercialization of compounds resulting from collaborations or
may elect not to renew research and development programs;
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collaborators may delay clinical trials, under fund a clinical
trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials, or require the
development of a new formulation of a product candidate for
clinical testing;
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a collaborator with marketing and distribution rights to one or
more of our product candidates may not commit sufficient
resources to the marketing and distribution of any future
products, limiting our potential revenues from the
commercialization of these products;
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disputes may arise delaying or terminating the research,
development or commercialization of our product candidates, or
result in significant litigation or arbitration;
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strategic partners could develop drugs which compete with our
future products, if any;
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strategic partners could turn their focus away from
anti-infective products and community respiratory tract
infection indications;
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strategic partners could fail to effectively manage
manufacturing relationships with suppliers;
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contracts with strategic partners may not provide significant
protection or may be difficult to enforce if a strategic partner
fails to perform; and
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if an arrangement with a strategic partner expires or is
terminated, we may not be able to replace it or the terms on
which we replace it may be unacceptable.
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If as a result of our financial condition or other factors we
enter into a strategic collaboration while a drug candidate
program is in early preclinical development, we may not generate
as much near or long-term revenue from such program as we could
have generated if we had the resources to further independently
develop such program. In addition, if we raise additional funds
through licensing arrangements, it may be
26
necessary to relinquish potentially valuable rights to our
potential products or proprietary technologies, or grant
licenses on terms that are not favorable to us.
The
type of trials that the FDA is recommending for faropenem
medoxomil will be novel in design without formally approved
guidance and may require alternative dosing
regimens.
In the non-approval letter we received in October 2006, the FDA
indicated that it recommends conducting additional large-scale
clinical trials at alternate doses for all indications covered
by our NDA, including superiority designed studies, which will
be costly, difficult and time consuming to conduct. All efficacy
studies upon which our NDA was based were designed as
non-inferiority studies. In addition, dosages of 300 mg,
twice per day, used in these studies were determined by the
prior licensee of faropenem medoxomil, Bayer. Historically, the
FDA and foreign regulatory authorities have not required
superiority studies, such as placebo-controlled clinical trials,
for approval of antibiotics but instead have relied on
non-inferiority studies. In a non-inferiority study, a drug
candidate is compared with an approved antibiotic and it must be
shown that the drug product candidate is not less effective than
the approved treatment within a defined non-inferiority margin.
In a superiority study, a drug candidate is compared either with
an approved antibiotic treatment or placebo and it must be shown
that the drug candidate is more effective than the approved
treatment or placebo, as the case may be. Although the FDA has
indicated that superiority designed trials will be required for
some indications and has issued Draft Guidances to Industry
regarding acute bacterial sinusitis and acute bacterial otitis
media, there is no formally approved guidance on the design of
these studies.
Conducting placebo-controlled trials for antibiotics is expected
to be time consuming and expensive and can be difficult to
complete. Institutional review boards may not grant approval for
placebo-controlled trials because of ethical concerns about
denying some participating patients access to any antibiotic
therapy during the course of the trial. It may be difficult to
enroll patients in placebo-controlled trials even if
institutional review board approval is obtained because certain
patients would receive no or delayed therapy during the course
of the trial. Although we are currently conducting a
placebo-controlled trial for acute exacerbation of chronic
bronchitis, we have not completed any placebo-controlled trials
for faropenem medoxomil for any indications. We may not be able
to show a statistically significant advantage over placebo or
another control treatment in any trials that we are able to
complete. These factors could delay for several years or
ultimately prevent commercialization of faropenem medoxomil for
any indications for which the FDA requires superiority designed
trials. Demonstration of superiority of a drug candidate over an
approved antibiotic is likely to be difficult and require a
large number of patients because clinical success rates for most
approved antibiotics that would serve as appropriate comparisons
are high, typically 70% to 90%.
If we choose, after discussion with the FDA, to pursue
additional clinical trials in an effort to gain approval from
the FDA for faropenem medoxomil, then our ongoing development
programs for faropenem medoxomil will be lengthy and expensive.
The amount of time and cost associated with these trials are
difficult to predict due to the uncertainty inherent in the
timing of clinical trial initiations, the rate of patient
enrollment and details of future trial designs. In addition, the
guidance we receive from the FDA in future meetings with them
will influence the number, size and duration of planned and
unplanned trials. Even if clinical trials show our product
candidates to be safe and effective in treating their target
conditions, we do not expect to be able to record commercial
sales of any of our product candidates until at least 2011. Even
if we conduct these trials in accordance with FDA
recommendations and achieve protocol defined end points,
faropenem medoxomil may not be approved.
Further
delays in clinical testing or approval could result in increased
costs to us and delay our ability to generate
revenue.
We may experience delays in clinical testing of our product
candidates. We currently plan to limit our faropenem medoxomil
clinical trial activities to completion of the ongoing
Phase III placebo-controlled clinical trial for treatment
of acute exacerbation of chronic bronchitis while we seek a
partner for the faropenem medoxomil program. Even in this trial,
we temporarily stopped enrollment to exclude
Ketek
®
.
We had included Ketek as a comparator in the clinical trial to
generate secondary data points versus a product projected to be
a competitor product to faropenem medoxomil. We based our
decision to exclude Ketek on the
27
findings of a joint Advisory Meeting of the FDAs
Anti-Infective Drug and Drug Safety and Risk Management
committees held on December 14 and 15, 2006 that recommended to
the FDA that the risks of using Ketek outweigh the benefits of
using the drug for treatment of acute exacerbation of chronic
bronchitis. This recommendation was adopted by the FDA on
February 12, 2007. Following required communication with
investigational review boards overseeing the clinical trial
sites, we re-initiated this trial without the Ketek comparator
arm in February 2007. We do not know whether potential future
clinical trials will begin on time, will need to be redesigned
or will be completed on schedule, if at all. Clinical trials can
be delayed for a variety of reasons, including delays in
obtaining regulatory approval to commence a trial, in reaching
agreement on acceptable clinical trial terms with prospective
sites, in obtaining institutional review board or ministry of
health approval at each site or country in which we seek to
conduct clinical trials, in recruiting patients to participate
in a trial, or in obtaining sufficient supplies of clinical
trial materials. Many factors affect patient enrollment,
including the size and nature of the patient population, the
proximity of patients to clinical sites, the eligibility
criteria for the trial, the design of the clinical trial,
competing clinical trials, clinicians and patients
perceptions as to the potential advantages of the drug being
studied in relation to other available therapies, including any
new drugs that may be approved for the indications we are
investigating, and whether the clinical trial design involves
comparison to placebo. Our antibiotics treat bacterial
infections which tend to be seasonal in nature. As a result,
during certain times of the year, it is difficult to find
patients to enroll in our trials. Prescribing physicians would
also face ethical issues associated with enrolling patients in
clinical trials of our product candidates over existing
antibiotics that have established safety and efficacy profiles
or in placebo-controlled trials. These ethical issues may be
even more pronounced in conducting clinical trials of
antibiotics in children. Any delays in completing our clinical
trials will increase our costs, slow down our product
development and approval process and delay our ability to
generate revenue or seek approval of faropenem medoxomil.
The
success of our strategy to identify a new partner for the
faropenem medoxomil program will depend in part on our ability
to obtain FDA regulatory clarity for the process of developing
an oral liquid formulation of faropenem medoxomil for pediatric
use.
The development of faropenem medoxomil for pediatric use is an
important component of the faropenem medoxomil program. We have
developed a prototype oral liquid formulation, completed a
Phase II clinical trial in acute bacterial otitis media
(middle ear infection) and are considering the design of future
studies in acute bacterial otitis media and
tonsillitis/pharyngitis. Our ability to identify a new partner
for this product candidate for pediatric use is subject to
various risks, including the following:
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It is unusual for the FDA to approve a drug for pediatric use
that has not been approved for adult use. As a result, in the
event that we abandon further development of faropenem medoxomil
for adult use, it may be difficult to obtain FDA approval for a
pediatric indication.
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In January 2008, the FDA issued a Draft Guidance for Industry
titled Acute Bacterial Sinusitis: Developing Drugs for
Treatment that described clinical trial design for
treatment of acute bacterial otitis media in pediatric patients.
By the terms of the FDA Authorization Act of 2007, the FDA is
required to issue final approval guidelines for developers of
antibiotics for this indication within twelve months of its
enactment, or approximately September 2008. Delays in
understanding the pediatric clinical trials program required for
the approval of faropenem medoxomil for treating pediatric
patients could result in our inability to identify a partner for
this program and could delay initiation of pivotal clinical
trials, its potential commercial launch and our ability to
generate future revenue.
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In January 2008, we received a Warning Letter from the FDA in
connection with the NDA we filed for faropenem medoxomil in
December 2005. If we are unable to address the conditions
identified in the Warning Letter, we may not be able to use
clinical data contained in the NDA to support future clinical
trials of faropenem medoxomil in pediatric patients which would
result in significant delays in the faropenem medoxomil
pediatric development program.
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Preclinical testing and clinical trials are protracted,
expensive and uncertain processes. It may take us and any future
collaboration partner several years to complete the testing and
trials, and failure can
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occur at any stage of the process. Success in preclinical
testing and early clinical trials does not ensure that later
clinical trials will be successful. These risks are potentially
more pronounced in clinical tests involving children.
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We have completed only one Phase II clinical trial in
children with acute bacterial otitis media to date and this
clinical trial was not completed under the U.S. IND for
faropenem medoxomil. A clinical trial conducted by Bayer for
tonsillitis/pharyngitis in adults and adolescents did not meet
its primary endpoint.
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Any NDA or other marketing authorization applications that we
may file might be denied by the FDA and analogous foreign
regulators.
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Any regulatory approval we ultimately obtain may be limited or
subject to post-approval commitments that render the product not
commercially viable.
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This product candidate, even if found to be safe and effective,
might be difficult to develop into a commercially viable drug or
to manufacture on a large scale. It may also prove to be
economically unfeasible to market commercially.
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Competitors may develop and market superior drugs or be more
effective in marketing equivalent drugs.
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Even if this product candidate is successfully developed and
effectively marketed, the size of the market may be smaller than
expected or may decrease over time, such that our sales revenue
is less than initially contemplated.
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Any failure to obtain regulatory approval of faropenem medoxomil
for pediatric use would have a material and adverse impact on
our ability to successfully partner the faropenem medoxomil
program and would significantly reduce the revenues that we
might generate from faropenem medoxomil.
All of
the Phase III clinical trials of faropenem medoxomil
included in our NDA submitted in December 2005 were conducted
using a 300 mg, twice per day, dose. We expect that future
clinical trials will be conducted at the 600 mg, twice per
day, dose. If the incidence of adverse events from use of
faropenem medoxomil at the 600 mg, twice per day, dose is
significantly higher than that observed in completed clinical
studies at the 300 mg, twice per day, dose we may not be
able to generate future revenue from faropenem
medoxomil.
The Phase III clinical trials included in our December 2005
NDA were all conducted using a 300 mg, twice per day, dose.
The dose was selected by the previous licensee of faropenem
medoxomil. We expect that future clinical trials will be
conducted at the alternate 600 mg, twice per day, dose. In
January 2006, we initiated a Phase III clinical trial for
the acute exacerbation of chronic bronchitis indication using
the higher dose. We have previously evaluated the potential for
adverse events with the 600 mg, twice per day, dose in a
Phase I study and a Phase II study conducted in 2005. In
the Phase I study, the 600 mg, twice per day, dose was
directly compared to a 300 mg, twice per day, dose, both
administered for seven days. In the Phase II study, a
600 mg, twice per day, dose for five day treatment course
was compared to a 300 mg, twice per day, dose seven day
treatment courses in patients with acute bacterial sinusitis. In
both trials, the adverse events were similar in both type and
frequency. If there is an increased level of adverse events
observed for faropenem medoxomil 600 mg, twice per day as
compared to 300 mg, twice per day, it will likely reduce
future potential product revenue from faropenem medoxomil.
We
have limited experience in acquiring or in-licensing product
candidates, and integrating third parties products,
businesses and technologies into our business infrastructure. If
we determine that future acquisition or in-licensing
opportunities are desirable and do not successfully execute on
and integrate such targets, we may incur costs and disruptions
to our business and we may be unable to grow our
business.
A key element of our strategy is to acquire or in-license
product candidates and integrate third party products,
businesses and technologies into our business infrastructure.
These efforts include potential licensing
29
and acquisition transactions. To date, we have in-licensed
rights to each of our product candidates. In addition to our
internal drug development efforts, we may seek to expand our
product pipeline and technologies by acquiring or in-licensing
products, businesses or technologies that we believe are a
strategic fit with our business and complement our existing
product candidates, research programs and technologies.
If we decide not to pursue the development of faropenem
medoxomil for any or all indications, then we may devote
substantial additional time and energy to the pursuit of
strategic opportunities, including potential licensing and
acquisition transactions. These transactions may include new
anti-infective products or product candidates as well as
products or product candidates outside of the anti-infective
area. The success of this strategy depends upon our ability to
identify, select and acquire the right pharmaceutical product
candidates and products on terms that are acceptable to us.
Proposing, negotiating and implementing an economically viable
product acquisition or license is a lengthy and complex process.
Other companies, including those with substantially greater
financial, marketing and sales resources, may compete with us
for the acquisition or license of product candidates and
approved products. We may not be able to acquire or license the
rights to additional product candidates and approved products on
terms that we find acceptable, or at all.
Any product candidate we license or acquire may require
additional development efforts prior to commercial sale,
including extensive clinical testing and approval by the FDA and
applicable foreign regulatory authorities. All product
candidates are prone to the risks of failure inherent in
pharmaceutical product development, including the possibility
that the product candidate will not be shown to be sufficiently
safe and effective for approval by regulatory authorities. In
addition, we cannot ensure that any such products that are
approved will be manufactured or produced economically,
successfully commercialized or widely accepted in the
marketplace.
In addition, future acquisitions may entail numerous operational
and financial risks including:
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exposure to unknown liabilities;
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disruption of our business and diversion of our
managements time and attention to the development of
acquired products or technologies;
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incurrence of substantial debt or dilutive issuances of
securities to pay for acquisitions;
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higher than expected acquisition and integration costs;
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difficulties in and costs of combining the operations and
personnel of any acquired businesses with our operations and
personnel;
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impairment of relationships with key suppliers or customers of
any acquired businesses due to changes in management and
ownership; and
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inability to retain key employees of any acquired businesses.
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Finally, we may devote resources to potential acquisitions or
in-licensing opportunities that are never completed or fail to
realize the anticipated benefits of such efforts.
Our
drug discovery approach and technologies and our product
candidates other than faropenem medoxomil are unproven and in
very early stages of development, which may not allow us to
establish or maintain a clinical development pipeline or
successful collaborations, and may never result in the discovery
or development of commercially viable products.
Because we do not currently know when or if we will continue
clinical development of faropenem medoxomil for certain adult
indications or any other indications, we are more dependent on
the potential success of our internal discovery research
programs and product candidates other than faropenem medoxomil.
Development of REP8839, one of our product candidates that has
completed its Phase I clinical trials, was suspended by us due
to the incremental investment that would be required to optimize
the formulation of REP8839 and the niche initial target market
being addressed by the product. As a significant part of our
growth strategy, we intend to develop and commercialize
additional products and product candidates through our discovery
research program. A significant portion of the research that we
are conducting involves new and
30
unproven technologies, and may not result in the discovery or
development of commercially viable products. Research programs
to identify new disease targets and product candidates require
substantial technical, financial and human resources whether or
not we ultimately identify any candidates. Our research programs
may initially show promise in identifying potential product
candidates, yet fail to yield product candidates for clinical
development. The process of successfully discovering product
candidates is expensive, time-consuming and unpredictable, and
the historical rate of failure for drug candidates is extremely
high. Data from our current research programs may not support
the clinical development of our lead compounds or other
compounds from these programs, and we may not identify any
compounds suitable for recommendation for clinical development.
Moreover, any compounds we recommend for clinical development
may not be effective or safe for their designated use, which
would prevent their advancement into clinical trials and impede
our ability to maintain or expand our clinical development
pipeline. If we are unable to identify new product candidates or
advance our lead compounds into clinical development, we may not
be able to establish or maintain a clinical development pipeline
or generate product revenue. Our ability to identify new
compounds and advance them into clinical development also
depends upon our ability to fund our research and development
operations, and we cannot be certain that additional funding
will be available on acceptable terms, or at all. If we continue
our clinical development program for faropenem medoxomil for
certain adult indications or any other indications we will have
fewer resources to devote to the further research and
development of other product candidates, such as REP3123, or
potential product candidates identified through our discovery
research program. There is no guarantee that we will be able to
successfully advance any product candidates identified through
our discovery research program into clinical trials or
successfully develop any product candidate we advance into
clinical trials for commercial sale. In addition, the size of
the potential markets for such other product candidates may not
be as attractive as the potential markets for faropenem
medoxomil. If we are unable to develop suitable potential
product candidates through internal research programs or are not
able to advance the development of our early stage product
candidates such as REP3123, our business will suffer and we may
be unable to grow our business.
We are
at an early stage of development as a company, with no current
sources of revenue, and we may never generate future revenue or
become profitable.
We are a biopharmaceutical company that emerged from the
development stage in February 2006 and have a limited operating
history. Currently, we have no products approved for commercial
sale and, to date, we have not generated any revenue from
product sales. Our ability to generate revenue depends heavily
on:
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our ability to obtain a new collaboration partner for faropenem
medoxomil on acceptable terms;
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obtaining U.S. and foreign regulatory approvals for our
most advanced product candidate, faropenem medoxomil;
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successfully developing or obtaining a collaboration partner for
our anti-bacterial agent addressing
C. difficile
bacteria and
C. difficile
-associated disease,
REP3123, or our inhibition of DNA replication program; and
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successfully commercializing any product candidates for which we
receive FDA approval.
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Our existing product candidates and development programs will
require extensive additional clinical evaluation, regulatory
approval, significant marketing efforts and substantial
investment before they can provide us with any revenue. If we do
not receive regulatory approval for and successfully
commercialize faropenem medoxomil, we will be unable to generate
any royalty revenue from product sales for many years, if at
all. If we are unable to generate revenue, we will not become
profitable, and we may be unable to continue our operations.
We
have incurred significant operating losses since inception and
anticipate that we will incur continued losses for the
foreseeable future.
We have experienced significant operating losses since our
inception in December 2000. At December 31, 2007, we had an
accumulated deficit of approximately $109.3 million. We
have generated no revenue from
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product sales to date. We have funded our operations to date
principally from the sale of our securities and payments by
Forest Laboratories under our former collaboration agreement. As
a result of the October 2006 FDA non-approval letter for our
December 2005 NDA for faropenem medoxomil and the termination of
our Forest Laboratories collaboration agreement in May 2007, our
prospects for near term future revenues are substantially
uncertain. We expect to continue to incur substantial additional
operating losses for the next several years as we pursue our
clinical trials and research and development efforts. Because of
the numerous risks and uncertainties associated with developing
and commercializing antibiotics, we are unable to predict the
extent of any future losses. We may never have any significant
future revenue or become profitable on a sustainable basis.
If we
fail to obtain additional financing, we may be unable to
complete the development and commercialization of faropenem
medoxomil and other product candidates, or continue our research
and development programs.
Our operations have consumed substantial amounts of cash since
inception. We currently expect to spend substantial amounts to:
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continue the clinical development of faropenem medoxomil while
we seek a partner for this program;
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continue our research and development programs;
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license or acquire additional product candidates; and
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launch and commercialize any product candidates for which we
receive regulatory approval, including building our own sales
force to address certain markets.
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We do not expect that our current capital resources will be
sufficient to fund the complete development of our faropenem
medoxomil product candidate and any product candidates generated
from our discovery research program. To date, our sources of
cash have been limited primarily to the proceeds from the sale
of our securities and payments by Forest Laboratories under our
former collaboration agreement. As a result of the termination
of our Forest Laboratories collaboration agreement on
May 7, 2007, our prospects for near term future revenues
are substantially uncertain. We are currently seeking a new
collaboration partner for faropenem medoxomil and using our cash
and cash equivalents, short-term investments and interest earned
on these balances toward the funding necessary to support our
planned activities. If we cannot find a new partner on
acceptable terms or if the funds provided from existing
resources are insufficient to satisfy our future capital needs,
or if we develop, in-license or acquire additional products or
product candidates or pursue additional applications for our
product candidates, we may seek to sell additional equity or
debt securities. We cannot be certain that additional funding
will be available on acceptable terms, or at all. To the extent
that we raise additional funds by issuing equity securities, our
stockholders may experience significant dilution. Any debt
financing, if available, may involve restrictive covenants, such
as limitations on our ability to incur additional indebtedness,
limitations on our ability to acquire or license intellectual
property rights and other operating restrictions that could
adversely impact our ability to conduct our business. If we are
unable to raise additional capital when required or on
acceptable terms, we may have to significantly delay, scale back
or discontinue the development
and/or
commercialization of one or more of our product candidates. We
also may be required to:
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seek collaborators for our product candidates at an earlier
stage than otherwise would be desirable and on terms that are
less favorable than might otherwise be available; and
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relinquish or license on unfavorable terms our rights to
technologies or product candidates that we otherwise would seek
to develop or commercialize ourselves.
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We
have limited manufacturing capabilities and will depend on third
parties to manufacture faropenem medoxomil and future products.
If we cannot develop adequate manufacturing internally or
identify suitable third party manufacturers, or these
manufacturers fail to meet our requirements and strict
regulatory standards, we may be unable to develop or
commercialize our products.
We do not have the capability to manufacture commercial
quantities of faropenem medoxomil drug substance. If we decide
to pursue additional large scale clinical trials for faropenem
medoxomil or if our other product candidates advance into full
scale clinical trials, we may not have the capability to
manufacture quantities of faropenem medoxomil or such other
product candidates for our clinical trials. We originally
engaged Nippon Soda and MEDA as our sole suppliers of faropenem
medoxomil drug substance and faropenem medoxomil tablets,
respectively. Pursuant to the terms of our former collaboration
agreement with Forest Laboratories, Forest Laboratories had
agreed to assume responsibility for supply chain management for
faropenem medoxomil and entered into a direct relationship with
both Nippon Soda and MEDA as its sole supplier of faropenem
medoxomil drug substance. However, following termination of our
agreement with Forest Laboratories, the Nippon Soda and MEDA
obligations reverted directly to us. Further, in connection with
our determination that future clinical development of faropenem
medoxomil would be completed using the 600 mg tablet as
compared to the 300 mg tablet used in the clinical trials
included in the December 2005 NDA for which the FDA issued a
non-approval letter in April 2007, we notified MEDA that we
would terminate the agreement to manufacture 300 mg
tablets. We are contractually bound to purchase all of our
requirements for bulk drug substance from Nippon Soda and expect
Nippon Soda will be the sole supplier of faropenem medoxomil
drug substance for the foreseeable future. Nippon Soda may
terminate this supply agreement for a number of reasons, such as:
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an uncured material breach of the supply agreement by us;
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our liquidation or insolvency;
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in some circumstances, following a change of control; or
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our failure to notify Nippon Soda of a launch go date, as
defined, for faropenem medoxomil in the U.S. and Canada by
July 1, 2009.
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Nippon Soda will be subject to ongoing periodic unannounced
inspections by the FDA and corresponding state agencies for
compliance with good manufacturing practices regulations, or
cGMPs, and similar foreign standards. We do not have control
over compliance by Nippon Soda with these regulations and
standards.
Nippon Soda has only a single facility located in Nihongi, Japan
that can readily manufacture commercial quantities of faropenem
medoxomil. If that facility were to be damaged or destroyed, we
would have no readily available source of supply. Nippon Soda
has not yet manufactured faropenem medoxomil at commercial scale
on a consistent basis, nor has Nippon Soda completed the
manufacturing process validations that are part of the
regulatory requirements prior to obtaining marketing approval
for faropenem medoxomil. We may not be able to identify a
suitable third party manufacturer to manufacture 600 mg
faropenem medoxomil tablets or, if we do identify a manufacturer
for 600 mg faropenem medoxomil tablets, we may not be able
to obtain acceptable terms.
Reliance on a third party manufacturer entails risk, to which we
would not be subject if we manufactured products ourselves,
including:
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reliance on the third party for regulatory compliance and
quality assurance;
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delays or failure to manufacture sufficient quantities needed
for clinical trials in accordance with our specifications or to
deliver such quantities on the dates we require;
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the possible breach of the manufacturing agreement by the third
party because of factors beyond our control; and
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the possibility of termination or non-renewal of the agreement
by the third party because of our breach of the manufacturing
agreement or based on its own business priorities, and the
non-approvable letter
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we recently received from the FDA for our NDA for faropenem
medoxomil may adversely influence the business priorities of our
current suppliers.
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Any of these factors could cause delay or suspension of clinical
trials, regulatory submissions, required approvals or
commercialization of faropenem medoxomil and our other product
candidates under development or cause us to incur higher costs
and could prevent us from commercializing our product candidates
successfully. If we obtain regulatory approval for faropenem
medoxomil and our contract manufacturers fail to deliver the
required commercial quantities of bulk drug substance or
finished product on a timely basis and at commercially
reasonable prices and we are unable to find one or more
replacement manufacturers capable of production at a
substantially equivalent cost, in substantially equivalent
volumes and quality, and on a timely basis, we would likely be
unable to meet demand for faropenem medoxomil and we would lose
potential revenue. It may take several years to establish an
alternative source of supply for faropenem medoxomil and to have
any such new source approved by the FDA, especially because
faropenem medoxomil requires dedicated manufacturing facilities.
If the
FDA does not approve Nippon Sodas facility, we may be
unable to develop or commercialize faropenem
medoxomil.
We rely on Nippon Soda to manufacture faropenem medoxomil drug
substance and currently have no plans to develop our own
manufacturing facility. The facilities used by our contract
manufacturer to manufacture our product candidates must be
approved by the FDA. Nippon Sodas facility has undergone
its initial inspection by the FDA as part of the faropenem
medoxomil NDA review. Although no FDA Form 483 observations
were noted by the FDA site inspector, if Nippon Soda cannot
successfully manufacture material that conforms to our
specifications and strict regulatory requirements, Nippon Soda
will not be able to maintain FDA approval for its manufacturing
facility. If the FDA does not maintain approval of this facility
for the manufacture of faropenem medoxomil, we may need to find
alternative manufacturing facilities, which would result in
significant delay of up to several years in obtaining approval
for and manufacturing faropenem medoxomil. In addition, our
contract manufacturer will be subject to ongoing periodic
unannounced inspections by the FDA and corresponding state and
foreign agencies for compliance with cGMPs and similar
regulatory requirements. These regulations cover all aspects of
the manufacturing, testing, quality control and record-keeping
relating to our product candidates. We do not have control over
Nippon Sodas compliance with these regulations and
standards. Failure by Nippon Soda to comply with applicable
regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, failure to grant
approval to market our product candidates, delays, suspension or
withdrawals of approvals, operating restrictions and criminal
prosecutions, any of which could significantly and adversely
affect our business. In addition, we have no control over Nippon
Sodas ability to maintain adequate quality control,
quality assurance and qualified personnel. Failure by our
contract manufacturer to comply with or maintain any of these
standards could adversely affect our ability to develop, obtain
regulatory approval for or market our product candidates.
Any of
our product candidates that are in clinical trials or that we
advance into clinical trials are subject to extensive
regulation, which can be costly and time consuming, cause
unanticipated delays, or prevent the receipt of the required
approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, export, marketing and
distribution of any of our product candidates currently in
clinical trials or that we advance into clinical trials are
subject to extensive regulation by the FDA in the U.S. and
by comparable governmental authorities in foreign markets.
Currently, we are developing faropenem medoxomil for adult and
pediatric use and we have completed preclinical testing of
REP3123. In the U.S. and in many foreign jurisdictions,
rigorous preclinical testing and clinical trials and an
extensive regulatory review process must be successfully
completed before a new drug can be sold. Satisfaction of these
and other regulatory requirements is costly, time consuming,
uncertain and subject to unanticipated delays. Clinical testing
is expensive, can take many years to complete and its outcome is
uncertain. Failure can occur at any time during the clinical
trial process. The results of preclinical studies and early
clinical trials of our product candidates may not be predictive
of the results of later-stage clinical trials. Product
candidates in later stages of clinical trials may
34
fail to show the desired safety and efficacy traits despite
having progressed through initial clinical testing. The time
required to obtain approval by the FDA is unpredictable but
typically takes many years following the commencement of
clinical trials, depending upon numerous factors. In addition,
approval policies, regulations, or the type and amount of
clinical data necessary to gain approval may change. We have not
obtained regulatory approval for any product candidate.
Our product candidates may fail to receive regulatory approval
for many reasons, including the following:
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we may be unable 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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the results of clinical trials may not meet the level of
statistical significance required by the FDA or other regulatory
authorities for approval;
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the FDA or other regulatory authorities may disagree with the
design of our clinical trials;
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we may be unable to demonstrate that a product candidates
benefits outweigh its risks;
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we may be unable to demonstrate that the product candidate
presents an advantage over existing therapies, or over placebo
in any indications for which the FDA requires a
placebo-controlled trial;
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the FDA or comparable foreign regulatory authorities may
disagree with our interpretation of data from preclinical
studies or clinical trials;
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the data collected from clinical trials of our product
candidates may not be sufficient to support the submission of a
new drug application or to obtain regulatory approval in the
U.S. or elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to
approve the manufacturing processes or facilities of third-party
manufacturers with which we contract for clinical and commercial
supplies;
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we may not be able to satisfactorily address the objectionable
conditions identified in the Warning Letter we received from the
FDA in January 2008; and
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the approval policies or regulations of the FDA or comparable
foreign regulatory authorities may change.
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The FDA or comparable foreign regulatory authorities might
decide that our data is insufficient for approval and require
additional clinical trials or other studies. Furthermore, even
if we do receive regulatory approval to market a commercial
product, any such approval may be subject to limitations on the
indicated uses for which we may market the product. It is
possible that none of our existing product candidates or any
product candidates we may seek to develop in the future will
ever obtain the appropriate regulatory approvals necessary for
us or our collaborators to begin selling them.
Also, recent events have raised questions about the safety of
marketed drugs and may result in increased cautiousness by the
FDA in reviewing new drugs based on safety, efficacy or other
regulatory considerations and may result in significant delays
in obtaining regulatory approvals and more stringent product
labeling requirements. Further, the FDA has been granted new
authority to require additional clinical trials of license
holders of pharmaceutical products, including post approval
clinical trials, and modify previously approved product labels
under the FDA Amendments Act of 2007 that was enacted September
2007. Any delay in obtaining, or inability to obtain, applicable
regulatory approvals would prevent us from commercializing our
product candidates.
If we
fail to attract and keep senior management and key scientific
personnel, we may be unable to successfully develop our product
candidates, conduct our clinical trials and commercialize our
product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management, clinical and
scientific personnel and on our ability to develop and maintain
important relationships with leading academic institutions,
clinicians and scientists. We are highly dependent upon our
senior management and scientific staff, particularly Kenneth
Collins, our President and Chief Executive Officer,
35
Roger Echols, M.D., our Chief Medical Officer, Pete Letendre,
PharmD., our Chief Commercial Officer Nebojsa
Janjic, Ph.D., our Chief Scientific Officer, Mark Smith,
our Chief Financial Officer, and Donald Morrissey, our Senior
Vice President of Corporate Development. The loss of services of
any of Mr. Collins, Dr. Echols, Dr. Letendre,
Dr. Janjic, Mr. Smith or Mr. Morrissey could delay or
prevent the successful completion of our strategy or development
of our product candidates. In addition, we only recently formed
our clinical and regulatory group, the services of which we
highly depend upon to conduct our clinical programs and obtain
regulatory approvals.
Competition for qualified personnel in the biotechnology and
pharmaceutical fields is intense. We will need to hire
additional personnel as we expand our clinical development and
commercial activities. In addition, we may be required to grant
significant amounts of share-based compensation to certain
individuals to attract them, which could increase the related
non-cash compensation expense. We may not be able to attract and
retain qualified personnel on acceptable terms. We do not carry
key person insurance covering any members of our
senior management. Each of our officers and key employees may
terminate his or her employment at any time without notice and
without cause or good reason.
We
currently have no sales organization. If we are unable to
establish a direct sales force in the U.S. to promote our
product candidates, the commercial opportunity for our product
candidates may be diminished.
We currently have no sales organization. If our most advanced
product candidate, faropenem medoxomil, is approved by the FDA,
we will require a partner to market the product. If we elect to
rely on third parties to sell our product candidates in the
U.S., we may receive less revenue than if we sold our product
candidates directly. In addition, we may have little or no
control over the sales efforts of those third parties. In the
event we are unable to develop our own sales force or
collaborate with a third party to sell our product candidates,
we may not be able to commercialize our product candidates which
would negatively impact our ability to generate revenue.
The
commercial success of our product candidates will depend upon
attaining significant market acceptance of these products among
physicians, patients, health care payors and the medical
community.
None of our product candidates has been commercialized for any
indication. Even if approved for sale by the appropriate
regulatory authorities, physicians may not prescribe our product
candidates, in which case we would not generate revenue or
become profitable. Market acceptance of our most advanced
product candidate, faropenem medoxomil, and any future product
candidates by physicians, health care payors and patients will
depend on a number of factors, including:
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the clinical indications for which the product candidate is
approved;
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acceptance by physicians and patients of each product candidate
as a safe and effective treatment;
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perceived advantages over alternative treatments;
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the cost of treatment in relation to alternative treatments,
including numerous generic antibiotics;
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the extent to which the product candidate is approved for
inclusion on formularies of hospitals and managed care
organizations;
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the extent to which bacteria develop resistance to the product
candidate, thereby limiting its efficacy in treating or managing
infections;
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whether the product candidate is designated under physician
treatment guidelines as a first-line therapy or as a second- or
third-line therapy for particular infections;
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the availability of adequate reimbursement by third parties;
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relative convenience and ease of administration; and
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prevalence and severity of side effects.
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36
Even if faropenem medoxomil ultimately obtains regulatory
approval, many of the above factors may be adversely impacted by
the historical difficulty of obtaining any such approval and may
create a negative perception among physicians and health care
payors of the advantages or efficacy of faropenem medoxomil.
If
lawsuits or arbitration proceedings arising as a result of
termination of collaboration or other commercial contracts are
successfully brought against us, we may incur substantial
liabilities and may be unable to commercialize our product
candidates.
Between February 6, 2007 and May 7, 2007, we operated
under the termination provisions of our collaboration agreement
with Forest Laboratories. On April 27, 2007, under the
termination provisions of our agreement with Forest
Laboratories, we terminated our agreement with MEDA for the
manufacture of 300 mg tablets of faropenem medoxomil. MEDA
has indicated to us that it disputes our right to terminate the
agreement on the basis indicated in our notice of termination.
We believe we have acted in accordance with the terms of these
and other commercial agreements. However, if it is determined
that we have obligations to MEDA beyond May 7, 2007 under
the agreement, then we may incur additional costs. Consistent
with our position that we had the right to terminate this
agreement and that Forest Laboratories is responsible for all
supply chain obligations through May 7, 2007, we have not
accrued for any minimum purchases after that date or termination
fees, including potential plant
de-contamination
expenses, under this agreement.
The interpretation of the terms of our collaboration and
commercial agreements may be the subject of disagreement between
us and our collaborators and other commercial partners that
could result in lawsuits
and/or
arbitration proceedings. If former partners or other parties to
our commercial contracts are successful in lawsuits or
arbitration proceedings, we may incur judgments against us that
could have a material impact on our financial position and limit
our ability to complete development of and launch commercially
our product candidates.
If our
product candidates are unable to compete effectively with
generic and branded antibiotics, our commercial opportunity will
be reduced or eliminated.
If approved, our most advanced product candidate, faropenem
medoxomil, will compete against both generic and branded
community antibiotic therapies. The market for such products is
very competitive and includes generic products, such as
amoxicillin/clavulanate and cefdinir, and established branded
products, such as
Zithromax
®
,
Ketek
®
and
Levaquin
®
,
which are marketed by major pharmaceutical companies, all of
which have significantly greater financial resources and
expertise in research and development, preclinical testing,
conducting clinical trials, obtaining regulatory approvals,
manufacturing and marketing approved products than we do.
Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative
arrangements with large, established companies.
Over the next several years, our future products, if any, will
face more competition in the form of generic versions of branded
products competition that will lose their patent exclusivity.
Many of the currently branded antibiotics will be sold as
generics before we expect to be able to commercially launch
faropenem medoxomil. Generic antibiotic therapies typically are
sold at lower prices than branded antibiotics and are preferred
by managed care providers of health services. As a result,
managed care may place different constraints on formulary status
and reimbursement at the time we expect to be able to
commercially launch faropenem medoxomil. If we are unable to
demonstrate to physicians that, based on experience, clinical
data, side-effect profiles and other factors, our products are
preferable to these generic antibiotic therapies, we may have
limited revenue potential due to formulary status. Our
commercial opportunity will also be reduced or eliminated if our
competitors develop and commercialize generic or branded
antibiotics that are safer, more effective, have fewer side
effects or are less expensive than our product candidates.
Asubio Pharma owns a portfolio of patents related to faropenem
compounds, including the faropenem parent compound, medoxomil
and other faropenem prodrugs. We have licensed from Asubio
Pharma the patents to faropenem medoxomil and other faropenem
prodrugs. These patents may not prevent competitors from
developing other faropenem drugs that are not covered by the
Asubio Pharma patents. Beginning in 2008, when the Asubio Pharma
patents related to the faropenem parent compound expire,
competitors may
37
submit NDAs seeking approval of antibiotics containing the
faropenem parent compound as the active ingredient. These
applications would have to contain full reports of safety and
efficacy data conducted by or for the applicants and could not
in any way rely upon the safety and efficacy data utilized in
the approval of faropenem medoxomil. In addition, as early as
four years after the approval of a faropenem medoxomil NDA, if
any, competitors could also file NDAs seeking approval of
faropenem drugs that would likely require the applicant to
conduct clinical trials in order to bring the product to market
in the U.S., though the FDA may allow the applicant to rely in
part on the FDAs prior findings of safety and efficacy of
faropenem medoxomil.
If
product liability lawsuits are successfully brought against us
or any future collaboration partners, we may incur substantial
liabilities and may be required to limit commercialization of
our product candidates.
We face an inherent risk of product liability lawsuits related
to the testing of our product candidates, and will face an even
greater risk if product candidates are introduced commercially.
An individual may bring a liability claim against us if one of
our product candidates causes, or merely appears to have caused,
an injury. We have agreed to indemnify Nippon Soda from product
liability claims under our commercial arrangement. If we cannot
successfully defend ourselves against the product liability
claim, we may incur substantial liabilities. Regardless of merit
or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants;
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significant litigation costs;
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substantial monetary awards to or costly settlement with
patients;
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product recalls;
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loss of revenue; and
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the inability to commercialize our product candidates.
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We are highly dependent upon consumer perceptions of us, the
faropenem medoxomil brand and the safety and quality of our
products. We could be adversely affected if we or the faropenem
medoxomil brand is subject to negative publicity. We could also
be adversely affected if any of our products or any similar
products distributed by other companies prove to be, or are
asserted to be, harmful to consumers. Also, because of our
dependence upon consumer perceptions, any adverse publicity
associated with illness or other adverse effects resulting from
consumers use or misuse of our products or any similar
products distributed by other companies could have a material
adverse impact on our results of operations.
We have global clinical trial liability insurance that covers
our clinical trials up to a $10.0 million annual aggregate
limit. Our current or future insurance coverage may prove
insufficient to cover any liability claims brought against us.
We intend to expand our insurance coverage to include the sale
of commercial products if marketing approval is obtained for our
product candidates. In addition, because of the increasing costs
of insurance coverage, we may not be able to maintain insurance
coverage at a reasonable cost or obtain insurance coverage that
will be adequate to satisfy any liability that may arise.
We may
be required to suspend or discontinue clinical trials due to
side effects or other safety risks that could preclude approval
of our product candidates.
Our clinical trials may be suspended at any time for a number of
reasons. We may voluntarily suspend or terminate our clinical
trials if at any time we believe that they present an
unacceptable risk to participants. In addition, regulatory
agencies may order the temporary or permanent discontinuation of
our clinical trials at any time if they believe that the
clinical trials are not being conducted in accordance with
applicable regulatory requirements or that they present an
unacceptable safety risk to participants.
38
Many antibiotics can produce significant side effects. Side
effects associated with many current antibiotics include kidney
and liver toxicities, heart rhythm abnormalities,
photosensitivity, rash, and excessive flushing of the skin and
central nervous system toxicities, such as seizures. In clinical
trials, side effects of faropenem medoxomil have included
gastrointestinal disorders (such as diarrhea, nausea and
vomiting), nervous system disorders (such as dizziness and
headaches), as well as infections and infestations (such as
pneumonia and vaginal mycosis). Later clinical trials in a
larger patient population could reveal other side effects. These
or other side effects could interrupt, delay or halt clinical
trials of our product candidates and could result in the FDA or
other regulatory authorities stopping further development of or
denying approval of our product candidates for any or all
targeted indications. Even if we believe our product candidates
are safe, our data is subject to review by the FDA, which may
disagree with our conclusions. Moreover, we could be subject to
significant liability if any volunteer or patient suffers, or
appears to suffer, adverse health effects as a result of
participating in our clinical trials.
We
rely on third parties to conduct our clinical trials. If these
third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may not be able to obtain
regulatory approval for or commercialize our product
candidates.
We have agreements with third-party contract research
organizations to provide monitors for and to manage data for our
on-going clinical programs. We and our contract research
organizations are required to comply with current Good Clinical
Practices, or GCPs, regulations and guidelines enforced by the
FDA for all of our products in clinical development. The FDA
enforces GCPs through periodic inspections of trial sponsors,
principal investigators and trial sites. If we or our contract
research organizations fail to comply with applicable GCPs, the
clinical data generated in our clinical trials may be deemed
unreliable and the FDA may require us to perform additional
clinical trials before approving our marketing applications. We
cannot ensure that, upon inspection, the FDA will determine that
any of our clinical trials comply with GCPs. In addition, our
clinical trials must be conducted with product produced under
cGMP regulations, and will require a large number of test
subjects. Our failure to comply with these regulations may
require us to repeat clinical trials, which would delay the
regulatory approval process.
Our contract research organizations have the right to terminate
their agreements with us in the event of an uncured material
breach. In addition, some of our contract research organizations
have an ability to terminate their respective agreements with us
if it can be reasonably demonstrated that the safety of the
subjects participating in our clinical trials warrants such
termination, if we make a general assignment for the benefit of
our creditors, or if we are liquidated. If any of our
relationships with these third-party contract research
organizations terminate, we may not be able to enter into
arrangements with alternative contract research organizations.
If contract research organizations do not successfully carry out
their contractual duties or obligations or meet expected
deadlines, if they need to be replaced, or if the quality or
accuracy of the clinical data they obtain is compromised due to
the failure to adhere to our clinical protocols, regulatory
requirements, or for other reasons, our clinical trials may be
extended, delayed or terminated, and we may not be able to
obtain regulatory approval for or successfully commercialize our
product candidates. As a result, our financial results and the
commercial prospects for our product candidates would be harmed,
our costs could increase and our ability to generate revenue
could be delayed.
Our
ability to pursue the development and commercialization of our
product candidates depends upon the continuation of our licenses
from third parties.
Our license agreement with Asubio Pharma provides us with an
exclusive license to develop and sell any products with the
compound faropenem medoxomil as an active ingredient for any
indication in the U.S. and Canada. Either we or Asubio
Pharma may terminate the license agreement immediately upon the
bankruptcy or dissolution of the other party or upon a breach of
any material provision of the agreement if the breach is not
cured within 60 days following written notice. We are
currently in discussions with Asubio Pharma regarding the future
development plans for faropenem medoxomil. If there is any
dispute between us and Asubio Pharma regarding our rights or
obligations under the license agreement, including diligence
obligations, the achievement of milestones or interpretation of
other material provisions, we risk litigation and our
39
business may be adversely affected. If our license agreement
with Asubio Pharma were terminated, we would lose our rights to
develop and commercialize faropenem medoxomil.
If we
fail to gain and maintain approval for our product candidates in
international markets, our market opportunities will be
limited.
Sales of our product candidates outside of the U.S. will be
subject to foreign regulatory requirements governing clinical
trials and marketing approval. Even if the FDA grants marketing
approval for a product candidate, comparable regulatory
authorities of foreign countries must also approve the
manufacturing or marketing of the product candidate in those
countries. Approval in the U.S., or in any other jurisdiction,
does not ensure approval in other jurisdictions. Obtaining
foreign approvals could result in significant delays,
difficulties and costs for us and require additional trials and
additional expenses. Regulatory requirements can vary widely
from country to country and could delay the introduction of our
products in those countries. Clinical trials conducted in one
country may not be accepted by other countries and regulatory
approval in one country does not mean that regulatory approval
will be obtained in any other country. None of our product
candidates is approved for sale in international markets and we
do not have experience in obtaining regulatory approval in
international markets. If we fail to comply with these
regulatory requirements or to obtain and maintain required
approvals, our target market will be reduced and our ability to
generate revenue will be diminished.
We may
not be able to enter into acceptable agreements to market and
commercialize our product candidates in international
markets.
If appropriate regulatory approvals are obtained, we intend to
commercialize our product candidates in international markets
through collaboration arrangements with third parties. If we
decide to sell our product candidates in international markets,
we may not be able to enter into any arrangements on favorable
terms or at all. In addition, these arrangements could result in
lower levels of income to us than if we marketed our product
candidates entirely on our own. If we are unable to enter into a
marketing arrangement for our product candidates in
international markets, we may not be able to develop an
effective international sales force to successfully
commercialize those products in international markets. If we
fail to enter into marketing arrangements for our products and
are unable to develop an effective international sales force,
our ability to generate revenue would be limited.
Even
if we receive regulatory approval for our product candidates, we
will be subject to ongoing significant regulatory obligations
and oversight.
If we receive regulatory approval to sell our product
candidates, the FDA and foreign regulatory authorities may
impose significant restrictions on the indicated uses or
marketing of such products, or impose ongoing requirements for
post-approval studies. Following any regulatory approval of our
product candidates, we will be subject to continuing regulatory
obligations, such as safety reporting requirements, and
additional post-marketing obligations, including regulatory
oversight of the promotion and marketing of our products. If we
become aware of previously unknown problems with any of our
product candidates here or overseas or at our contract
manufacturers facilities, a regulatory agency may impose
restrictions on our products, our contract manufacturers or on
us, including requiring us to reformulate our products, conduct
additional clinical trials, make changes in the labeling of our
products, implement changes to, or obtain re-approvals of, our
contract manufacturers facilities, or withdraw the product
from the market. In addition, we may experience a significant
drop in the sales of the affected products, our reputation in
the marketplace may suffer and we may become the target of
lawsuits, including class action suits. Moreover, if we fail to
comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. Any of these events could
harm or prevent sales of the affected products or could
substantially increase the costs and expenses of commercializing
and marketing these products.
40
Our
corporate compliance program cannot guarantee that we are in
compliance with all potentially applicable
regulations.
The development, manufacturing, pricing, marketing, sales, and
reimbursement of our product candidates, together with our
general operations, are subject to extensive regulation by
federal, state and other authorities within the U.S. and
numerous entities outside of the U.S. If we fail to comply
with any of these regulations, we could be subject to a range of
regulatory actions, including suspension or termination of
clinical trials, the failure to approve a product candidate,
restrictions on our product candidates or manufacturing
processes, withdrawal of products from the market, significant
fines, or other sanctions or litigation, and exclusion of our
products from the Medicare/Medicaid payment system. As a
publicly traded company we are subject to significant
regulations, including the Sarbanes-Oxley Act of 2002, some of
which have only recently been adopted, and all of which are
subject to change. While we have developed and instituted a
corporate compliance program based on what we believe are the
current best practices and continue to update the program in
response to newly implemented or changing regulatory
requirements, we cannot ensure that we are or will be in
compliance with all potentially applicable regulations. For
example, we cannot assure that in the future our management will
not find a material weakness in connection with its annual
review of our internal control over financial reporting pursuant
to Section 404 of the Sarbanes-Oxley Act. We also cannot
ensure that we could correct any such weakness to allow our
management to assess the effectiveness of our internal control
over financial reporting as of the end of our fiscal year in
time to enable our independent registered public accounting firm
to attest that such assessment will have been fairly stated in
our annual reports filed with the Securities and Exchange
Commission or attest that we have maintained effective internal
control over financial reporting as of the end of our fiscal
year. If we fail to comply with the Sarbanes-Oxley Act or any
other regulations we could be subject to a range of
consequences, including restrictions on our ability to sell
equity or otherwise raise capital funds, significant fines,
enforcement or other civil or criminal actions by the Securities
and Exchange Commission or delisting by the NASDAQ Global Market
or other sanctions or litigation. In addition, if we disclose
any material weakness in our internal control over financial
reporting or other consequence of failing to comply with
applicable regulations, this may cause our stock price to
decline.
Reimbursement
may not be available for our product candidates, which could
diminish our sales or affect our ability to sell any future
products profitably.
Market acceptance and sales of our product candidates will
depend on reimbursement policies and may be affected by future
health care reform measures. Government authorities and
third-party payors, such as private health insurers and health
maintenance organizations, decide which drugs they will pay for
and establish reimbursement levels. We cannot be sure that
reimbursement will be available for any of our product
candidates. Also, we cannot be sure that reimbursement amounts
will not reduce the demand for, or the price of, our products.
We have not commenced efforts to have our product candidates
reimbursed by government or third-party payors. If reimbursement
is not available or is available only to limited levels, we may
not be able to commercialize our products.
In both the U.S. and certain foreign jurisdictions, there
have been a number of legislative and regulatory changes to the
health care system that could impact our ability to sell our
products profitably. In particular, the Medicare Modernization
Act of 2003 added an outpatient prescription drug benefit to
Medicare, which became effective on January 1, 2006. Drug
benefits under this provision are administered through private
plans that negotiate price concessions from pharmaceutical
manufacturers. We cannot be certain that faropenem medoxomil
will successfully be placed on the list of drugs covered by
particular health plans or plan formularies, nor can we predict
the negotiated price for faropenem medoxomil, which will be
determined by market factors. With respect to Medicaid, the
Deficit Reduction Act of 2005 made several changes to the way
pharmacies are reimbursed under Medicaid, most of which went
into effect on January 1, 2007. These changes could lead to
reduced drug prices. Many states have also created preferred
drug lists and include drugs on those lists only when the
manufacturers agree to pay a supplemental rebate. If faropenem
medoxomil or our other product candidates are not included on
these preferred drug lists, physicians may not be inclined to
prescribe them to their Medicaid patients.
41
As a result of legislative proposals and the trend towards
managed health care in the U.S., third-party payors are
increasingly attempting to contain health care costs by limiting
both coverage and the level of reimbursement of new drugs. They
may also refuse to provide any coverage of uses of approved
products for medical indications other than those for which the
FDA has granted market approvals. As a result, significant
uncertainty exists as to whether and how much third-party payors
will reimburse patients for their use of newly-approved drugs,
which in turn will put pressure on the pricing of drugs. The
availability of numerous generic antibiotics at lower prices
than branded antibiotics, such as faropenem medoxomil, if it
were approved for commercial introduction, can also be expected
to substantially reduce the likelihood of reimbursement for
faropenem medoxomil. We expect to experience pricing pressures
in connection with the sale of our products due to the trend
toward managed health care, the increasing influence of health
maintenance organizations and additional legislative proposals.
We may
need to modify the size of our organization, and we may
experience difficulties in managing either growth or
restructuring.
We are a small company with 53 full time employees as of
December 31, 2007. As our development and commercialization
plans and strategies develop, we may need to either reduce or
expand the size of our employee base for managerial,
operational, sales, financial and other reasons. In December
2007, we undertook an organizational restructuring that reduced
the number of employees in the clinical, commercial,
administrative and research functions by 27 employees.
Future growth would impose significant added responsibilities on
members of management, including the need to identify, recruit,
maintain and integrate additional employees. Future
restructuring activities may involve significant changes to our
drug development and growth strategies, our commercialization
plans and other operational matters, including a significant
reduction in our employee base. Any future restructuring
activity could result in disruption to our business, adversely
affecting the morale of our employees and making it more
difficult to retain qualified personnel. Also, our management
may have to divert a disproportionate amount of its attention
away from our day-to-day activities and devote a substantial
amount of time to managing either growth or restructuring
activities. Our future financial performance and our ability to
commercialize our product candidates and to compete effectively
will depend, in part, on our ability to effectively manage any
future growth or restructuring, as the case may be. To that end,
we must be able to:
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manage our development efforts effectively;
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manage our clinical trials effectively;
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integrate additional management, administrative, manufacturing
and sales and marketing personnel, or reorganize these personnel;
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maintain sufficient administrative, accounting and management
information systems and controls; and
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hire and train additional or replacement qualified personnel.
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We may not be able to accomplish these tasks, and our failure to
accomplish any of them could harm our financial results.
Risks
Related to our Intellectual Property
It is
difficult and costly to protect our proprietary rights, and we
may not be able to ensure their protection.
Our commercial success will depend in part on obtaining and
maintaining patent protection and trade secret protection of our
product candidates, and the methods used to manufacture them, as
well as successfully defending these patents against third-party
challenges. Our ability to protect our product candidates from
unauthorized making, using, selling, offering to sell or
importation by third-parties is dependent upon the extent to
which we have rights under valid and enforceable patents or
trade secrets that cover these activities.
As of December 31, 2007, we have exclusively licensed from
Asubio Pharma two issued U.S. patents; one issued foreign
patent and one pending U.S. patent application covering
faropenem medoxomil, a pro-drug of faropenem. The two issued
U.S. patents covering faropenem medoxomil also cover other
potential prodrugs
42
of faropenem but do not cover all potential faropenem-based
antibiotic compounds. We do not and have not had any control
over the filing or prosecution of these patents or patent
applications. We cannot be certain that such prosecution efforts
have been or will be conducted in compliance with applicable
laws and regulations or will result in valid and enforceable
patents. In addition, our enforcement of these faropenem
medoxomil patents or defense of any claims asserting the
invalidity of these patents would be subject to the cooperation
of Asubio Pharma. Although Asubio Pharma has agreed to cooperate
with us in such efforts, if requested, we cannot be assured that
Asubio Pharma would devote sufficient efforts to cooperate with
us in these circumstances.
The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal and
factual questions for which important legal principles remain
unresolved. No consistent policy regarding the breadth of claims
allowed in biotechnology patents has emerged to date in the
U.S. The biotechnology patent situation outside the
U.S. is even more uncertain. Changes in either the patent
laws or in interpretations of patent laws in the U.S. and
other countries may diminish the value of our intellectual
property. Accordingly, we cannot predict the breadth of claims
that may be allowed or enforced in our licensed patents, our
patents or in third-party patents.
Asubio Pharma owns a portfolio of patents related to faropenem
compounds, including the faropenem parent compound, faropenem
medoxomil and other faropenem prodrugs. We have licensed from
Asubio Pharma the patents to faropenem medoxomil and other
faropenem prodrugs. These patents may not prevent competitors
from developing other faropenem drugs that are not covered by
the Asubio Pharma patents. Beginning in 2008, when the Asubio
Pharma patents expire, competitors may submit NDAs seeking
approval of antibiotics containing the faropenem parent compound
as the active ingredient. These applications would have to
contain full reports of safety and efficacy data conducted by or
for the applicants and could not in any way rely upon the safety
and efficacy data utilized in the approval of faropenem
medoxomil. In addition, as early as four years after the
approval of a faropenem medoxomil NDA, if any, generic and
branded competitors could also file NDAs seeking approval of
faropenem drugs that would likely require the applicant to
conduct clinical trials in order to bring the product to market
in the U.S., though the FDA may allow the applicant to rely in
part on the FDAs prior findings of safety and efficacy of
faropenem medoxomil. To the extent that any competitor relies on
any of the findings of safety or efficacy with respect to
faropenem medoxomil, the competitor will have to certify that
its compound either does not infringe our patents or that our
patents are invalid.
The degree of future protection for our proprietary rights is
uncertain because legal means afford only limited protection and
may not adequately protect our rights or permit us to gain or
keep our competitive advantage. For example:
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others may be able to make compounds that are similar to our
product candidates but that are not covered by the claims of our
licensed patents, or for which we are not licensed under our
license agreements;
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we or our licensors might not have been the first to make the
inventions covered by our pending patent application or the
pending patent applications and issued patents of our licensors;
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we or our licensors might not have been the first to file patent
applications for these inventions;
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others may independently develop similar or alternative
technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not
result in issued patents;
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our issued patents and the issued patents of our licensors may
not provide us with any competitive advantages, or may be held
invalid or unenforceable as a result of legal challenges by
third-parties;
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we may not develop additional proprietary technologies that are
patentable; or
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the patents of others may have an adverse effect on our business.
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43
We also may rely on trade secrets to protect our technology,
especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult
to protect. Although we use reasonable efforts to protect our
trade secrets, our employees, consultants, contractors, outside
scientific collaborators and other advisors may unintentionally
or willfully disclose our information to competitors. Enforcing
a claim that a third-party illegally obtained and is using any
of our trade secrets is expensive and time consuming, and the
outcome is unpredictable. In addition, courts outside the
U.S. are sometimes less willing to protect trade secrets.
Moreover, our competitors may independently develop equivalent
knowledge, methods and know-how.
We may
incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property
rights and we may be unable to protect our rights to, or use,
our technology.
If we choose to go to court to stop someone else from using the
inventions claimed in our patents or our licensed patents, that
individual or company has the right to ask the court to rule
that these patents are invalid
and/or
should not be enforced against that third-party. These lawsuits
are expensive and would consume time and other resources even if
we were successful in stopping the infringement of these
patents. In addition, there is a risk that the court will decide
that these patents are not valid and that we do not have the
right to stop the other party from using the inventions. There
is also the risk that, even if the validity of these patents is
upheld, the court will refuse to stop the other party on the
ground that such other partys activities do not infringe
our rights to these patents.
Furthermore, a third-party may claim that we or our
manufacturing or commercialization partners are using inventions
covered by the third-partys patent rights and may go to
court to stop us from engaging in our normal operations and
activities, including making or selling our product candidates.
These lawsuits are costly and could affect our results of
operations and divert the attention of managerial and technical
personnel. There is a risk that a court would decide that we or
our commercialization partners are infringing the
third-partys patents and would order us or our partners to
stop the activities covered by the patents. In addition, there
is a risk that a court will order us or our partners to pay the
other party damages for having violated the other partys
patents. We have indemnified our commercial partners against
patent infringement claims. The biotechnology industry has
produced a proliferation of patents, and it is not always clear
to industry participants, including us, which patents cover
various types of products or methods of use. The coverage of
patents is subject to interpretation by the courts, and the
interpretation is not always uniform. If we are sued for patent
infringement, we would need to demonstrate that our products or
methods of use either do not infringe the patent claims of the
relevant patent
and/or
that
the patent claims are invalid, and we may not be able to do
this. Proving invalidity, in particular, is difficult since it
requires a showing of clear and convincing evidence to overcome
the presumption of validity enjoyed by issued patents.
Because some patent applications in the U.S. may be
maintained in secrecy until the patents are issued, because
patent applications in the U.S. and many foreign
jurisdictions are typically not published until eighteen months
after filing, and because publications in the scientific
literature often lag behind actual discoveries, we cannot be
certain that others have not filed patent applications for
technology covered by our licensors issued patents or our
pending applications or our licensors pending
applications, or that we or our licensors were the first to
invent the technology. Our competitors may have filed, and may
in the future file, patent applications covering technology
similar to ours. Any such patent application may have priority
over our or our licensors patent applications and could
further require us to obtain rights to issued patents covering
such technologies. If another party has filed a U.S. patent
application on inventions similar to ours, we may have to
participate in an interference proceeding declared by the
U.S. Patent and Trademark Office to determine priority of
invention in the U.S. The costs of these proceedings could
be substantial, and it is possible that such efforts would be
unsuccessful, resulting in a loss of our U.S. patent
position with respect to such inventions.
Some of our competitors may be able to sustain the costs of
complex patent litigation more effectively than we can because
they have substantially greater resources. In addition, any
uncertainties resulting from the initiation and continuation of
any litigation could have a material adverse effect on our
ability to raise the funds necessary to continue our operations.
44
Risks
Related to Ownership of our Common Stock
The
market price of our common stock is highly
volatile.
Prior to June 28, 2006, there was no public market for our
common stock. We cannot assure you that an active trading market
for our common stock will exist at any time. You may not be able
to sell your shares quickly or at the market price if trading in
our common stock is not active. The trading price of our common
stock has been highly volatile and could be subject to wide
fluctuations in price in response to various factors, many of
which are beyond our control, including:
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announcement of FDA approval or non-approval of our product
candidates, or specific label indications for their use, or
delays in the FDA review process;
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actions taken by regulatory agencies with respect to our product
candidates, clinical trials, manufacturing process or sales and
marketing activities;
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termination of significant agreements;
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changes in laws or regulations applicable to our products,
including but not limited to, clinical trial requirements for
approvals;
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the success of our development efforts and clinical trials;
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the success of our efforts to acquire or in-license additional
products or product candidates;
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developments concerning our collaborations, including but not
limited to, those with our sources of manufacturing supply and
our commercialization partners;
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actual or anticipated variations in our quarterly operating
results;
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announcements of technological innovations by us, our
collaborators or our competitors;
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new products or services introduced or announced by us or our
commercialization partners, or our competitors and the timing of
these introductions or announcements;
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actual or anticipated changes in earnings estimates or
recommendations by securities analysts;
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conditions or trends in the biotechnology and biopharmaceutical
industries;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
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general economic and market conditions and other factors that
may be unrelated to our operating performance or the operating
performance of our competitors;
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changes in the market valuations of similar companies;
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sales of common stock or other securities by us or our
stockholders in the future;
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additions or departures of key scientific or management
personnel;
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developments relating to proprietary rights held by us or our
competitors;
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disputes or other developments relating to proprietary rights,
including patents, litigation matters and our ability to obtain
patent protection for our technologies;
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trading volume of our common stock; and
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sales of our common stock by us or our stockholders.
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In addition, the stock market in general and the market for
biotechnology and biopharmaceutical companies in particular have
experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry
factors may seriously harm the market price of our common stock,
regardless of our operating performance. In the past, following
periods of volatility in the market, securities
class-action
litigation has often been instituted
45
against companies. Such litigation, if instituted against us,
could result in substantial costs and diversion of
managements attention and resources, which could
materially adversely affect our business and financial condition.
We are
at risk of securities class action litigation or may become
subject to stockholder activism efforts that each could cause
material disruption to our business.
In the past, securities class action litigation has often been
brought against a company following a decline in the market
price of its securities. This risk is especially relevant for us
because biotechnology and biopharmaceutical companies have
experienced significant stock price volatility in recent years.
Further, certain influential institutional investors and hedge
funds have taken steps to involve themselves in the governance
and strategic direction of certain companies that were perceived
to be operating sub-optimally due to governance or strategic
related disagreements with such stockholders. Our stock price
decreased significantly following our announcement that the FDA
had issued a non-approvable letter for our most advanced product
candidate, faropenem medoxomil. If we face such litigation or
stockholder activism efforts due to this development or any
future development affecting us, it could result in substantial
costs and a diversion of managements attention and
resources, which could harm our business.
Our
principal stockholders and management own a significant
percentage of our stock and are able to exercise significant
influence over matters subject to stockholder
approval.
Our executive officers, directors and principal stockholders,
together with their respective affiliates, currently own a
significant percentage of our voting stock, including shares
subject to outstanding options and warrants, and we expect this
group will continue to hold a significant percentage of our
outstanding voting stock. Accordingly, these stockholders will
likely be able to have a significant impact on the composition
of our board of directors and continue to have significant
influence over our operations. This concentration of ownership
could have the effect of delaying or preventing a change in our
control or otherwise discouraging a potential acquirer from
attempting to obtain control of us, which in turn could have a
material and adverse effect on the market value of our common
stock.
We
incur significant costs as a result of operating as a public
company, and our management is required to devote substantial
time to compliance initiatives.
As a public company, we incur significant legal, accounting and
other expenses that we did not incur as a private company. In
addition, the Sarbanes-Oxley Act, as well as rules subsequently
implemented by the Securities and Exchange Commission and the
NASDAQ Global Market, have imposed various requirements on
public companies, including requiring establishment and
maintenance of effective disclosure and financial controls and
changes in corporate governance practices. Our management and
other personnel devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations
have increased our legal and financial compliance costs and made
some activities more time-consuming and costly. For example,
these rules and regulations have made it more difficult and more
expensive for us to obtain director and officer liability
insurance coverage.
The Sarbanes-Oxley Act requires, among other things, that we
maintain effective internal controls for financial reporting and
disclosure controls and procedures. In particular, we must
perform system and process evaluation and testing of our
internal controls over financial reporting to allow management
and our independent registered public accounting firm to report
on the effectiveness of our internal controls over financial
reporting, as required by Section 404 of the Sarbanes-Oxley
Act. Our testing, or the subsequent testing by our independent
registered public accounting firm, may reveal deficiencies in
our internal controls over financial reporting that are deemed
to be material weaknesses. Our compliance with Section 404
may require that we incur substantial accounting expense and
expend significant management efforts. We currently do not have
an internal audit group, and have had to hire additional
accounting and financial staff with appropriate public company
experience and technical accounting knowledge. Moreover, if we
are not able to comply with the requirements of Section 404
in a timely manner, or if we or our independent registered
public accounting firm identifies deficiencies in our internal
controls over financial reporting that are deemed to be
46
material weaknesses, the market price of our stock could decline
and we could be subject to sanctions or investigations by
NASDAQ, the SEC or other regulatory authorities, which would
require additional financial and management resources.
Substantial
sales of our common stock in the public market could cause our
stock price to fall.
Sales of a substantial number of shares of our common stock in
the public market or the perception that these sales might
occur, could depress the market price of our common stock and
could impair our ability to raise capital through the sale of
additional equity securities. We are unable to predict the
effect that sales may have on the prevailing market price of our
common stock.
Certain holders of shares of our common stock and warrants to
purchase shares of our common stock are entitled to rights with
respect to the registration of their shares under the Securities
Act. Registration of these shares under the Securities Act would
result in the shares becoming freely tradable without
restriction under the Securities Act, except for shares
purchased by affiliates. Any sales of securities by these
stockholders could have a material adverse effect on the trading
price of our common stock.
Future
sales and issuances of our common stock or rights to purchase
common stock, including pursuant to our equity incentive plans,
could result in additional dilution of the percentage ownership
of our stockholders and could cause our stock price to
fall.
We expect that significant additional capital will be required
in the future to continue our planned operations. To the extent
we raise additional capital by issuing equity securities; our
stockholders may experience substantial dilution. We may sell
common stock in one or more transactions at prices and in a
manner we determine from time to time. If we sell common stock
in more than one transaction, stockholders who purchase stock
may be materially diluted by subsequent sales. Such sales may
also result in material dilution to our existing stockholders,
and new investors could gain rights superior to existing
stockholders. Pursuant to our 2006 Equity Incentive Plan, our
management is authorized to grant stock options to our
employees, directors and consultants, and our employees are
eligible to participate in our 2006 Employee Stock Purchase
Plan. The number of shares available for future grant under our
2006 Equity Incentive Plan can, subject to approval of our board
of directors, increase each April 1 by the lesser of five
percent of the number of total outstanding shares of our common
stock on December 31 of the preceding year or
1,325,448 shares, subject to the ability of our board of
directors to reduce such increase. Additionally, the number of
shares reserved for issuance under our 2006 Employee Stock
Purchase Plan can, subject to approval of our board of
directors, increase each April 1 by the lesser of one percent of
the number of total outstanding shares of our common stock on
December 31 of the prior year or 101,957 shares, subject to
the ability of our board of directors to reduce such increase.
In addition, we also have warrants outstanding to purchase
shares of our common stock. Our stockholders will incur dilution
upon exercise of any outstanding stock options or warrants.
All of the shares of common stock sold in our initial public
offering are freely tradable without restrictions or further
registration under the Securities Act of 1933, as amended,
except for any shares purchased by our affiliates as defined in
Rule 144 under the Securities Act. Rule 144 defines an
affiliate as a person who directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under
common control with, us and would include persons such as our
directors and executive officers.
Our
ability to utilize our net operating loss carryforwards and
certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code, if a
corporation undergoes an ownership change (generally
defined as a greater than 50% change (by value) in its equity
ownership over a three-year period), the corporations
ability to use its pre-change net operating loss carryforwards
and other pre-change tax attributes to offset its post-change
income may be limited. We believe that, based on an analysis of
historical equity transactions under the provisions of
Section 382, ownership changes have occurred at two points
since our inception. These ownership changes will limit the
annual utilization of our net operating losses in future
periods. We do not believe, however, that these ownership
changes will result in the loss of any of our net
47
operating loss carryforwards existing on the date of each of the
ownership changes. We may also experience ownership changes in
the future as a result of subsequent shifts in our stock
ownership, and such changes may result in the loss of net
operating loss carryforwards on such ownership change date.
Some
provisions of our charter documents and Delaware law may have
anti-takeover effects that could discourage an acquisition of us
by others, even if an acquisition would be beneficial to our
stockholders.
Provisions in our certificate of incorporation and bylaws, as
well as provisions of Delaware law, could make it more difficult
for a third party to acquire us, even if doing so would benefit
our stockholders. These provisions include:
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authorizing the issuance of blank check preferred
stock, the terms of which may be established and shares of which
may be issued without stockholder approval;
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limiting the removal of directors by the stockholders;
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prohibiting stockholder action by written consent, thereby
requiring all stockholder actions to be taken at a meeting of
our stockholders;
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eliminating the ability of stockholders to call a special
meeting of stockholders; and
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establishing advance notice requirements for nominations for
election to the board of directors or for proposing matters that
can be acted upon at stockholder meetings.
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In addition, we are subject to Section 203 of the Delaware
General Corporation Law, which generally prohibits a Delaware
corporation from engaging in any of a broad range of business
combinations with an interested stockholder for a period of
three years following the date on which the stockholder became
an interested stockholder, unless such transactions are approved
by our board of directors. This provision could have the effect
of delaying or preventing a change of control, whether or not it
is desired by or beneficial to our stockholders.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
Our facilities currently consist of approximately
52,000 square feet of laboratory and office facilities
located at our headquarters in Louisville, Colorado, which is
leased until September 2011, and approximately 8,000 square
feet of office facilities for our clinical and regulatory group
in Milford, Connecticut, which is leased until May 2010.
We believe that these facilities are adequate to meet our
current needs. We believe that if additional space beyond the
space currently under lease is needed in the future, such space
will be available on commercially reasonable terms as needed.
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ITEM 3.
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LEGAL
PROCEEDINGS
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We are not currently subject to any material pending legal
proceedings.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
48
Executive
Officers of the Registrant
Our executive officers are as follows:
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Name
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Age
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Position
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Kenneth J. Collins
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61
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President, Chief Executive Officer and Director
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Roger M. Echols, M.D.
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59
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Chief Medical Officer
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Nebojsa Janjic, Ph.D.
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47
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Chief Scientific Officer and Secretary
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Peter W. Letendre, Pharm.D.
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50
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Chief Commercial Officer
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Donald J. Morrissey, Jr.
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42
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Senior Vice President, Corporate Development
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Mark L. Smith
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46
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Chief Financial Officer and Treasurer
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Kenneth J. Collins
has served as our President, Chief
Executive Officer and a member of the board of directors since
January 2002. From 1997 to 2001, Mr. Collins served as
President of Pegasus Technology Ventures, a firm that advised
and raised seed capital for early stage life sciences companies.
From 1995 to 1996, Mr. Collins served as Chief Financial
Officer and a member of the board of directors of Quark, Inc., a
developer of desktop publishing software. Mr. Collins
served as an Executive Vice President from 1992 to 1994 and
Chief Financial Officer from 1983 to 1994 of Synergen, Inc., a
biotechnology company. Mr. Collins holds a B.S. from the
University of Notre Dame and an M.B.A. from the Harvard Business
School.
Roger M. Echols, M.D.
has served as our Chief
Medical Officer since January 2005. From 1997 to 2004,
Dr. Echols served as Vice President of Infectious Disease
Clinical Research and Development at Bristol Myers Squibb. He
served as Medical Director at Immunex Corporation from 1996 to
1997 and as Medical Director at Bayer Corporation from 1989 to
1996. Prior to joining the pharmaceutical industry,
Dr. Echols was Head of the Division of Infectious Diseases
at Albany Medical College and an attending physician at Albany
Medical Center. Dr. Echols holds a B.A. from Yale
University and an M.D. from Tufts University School of Medicine
and trained in internal medicine and infectious diseases at the
University of New Mexico.
Nebojsa Janjic, Ph.D.
has served as our Secretary
since December 2000 and as our Chief Scientific Officer since
June 2005. Dr. Janjic joined us at inception and served as
our Senior Vice President and Vice President, Research and
Development until June 2005. From 1992 to 1999, Dr. Janjic
held various positions at NeXstar Pharmaceuticals, Inc., a
biotechnology company, most recently serving as Senior Director,
Drug Discovery. Dr. Janjic holds B.S. and Ph.D. degrees
from the University of Washington and completed postdoctoral
training at the Scripps Research Institute.
Peter W. Letendre, Pharm.D.
has served as our Chief
Commercial Officer since March 2005. From October 2002 until
February 2005, Dr. Letendre held various positions at
Abbott Laboratories, most recently as Vice President and
General Manager of the anti-infective division from October 2002
until July 2004. From August 1990 to September 2002,
Dr. Letendre held a number of marketing positions with
SmithKline Beecham and GlaxoSmithKline Pharmaceuticals,
including Marketing Director for the diabetes and metabolism
division from 2000 to 2002. From 1988 to 1990, Dr. Letendre
served as the Associate Dean of Clinical Practice at
Southeastern University of the Health Sciences.
Dr. Letendre holds B.S. and Doctor of Pharmacy degrees from
the Massachusetts College of Pharmacy and Allied Health Sciences.
Donald J. Morrissey, Jr.
has served as our Senior
Vice President, Corporate Development since March 2006 and,
prior to that, as Vice President, Corporate Development and
General Counsel since 2002. From 1997 to 2002,
Mr. Morrissey held various positions with Caliper
Technologies, most recently as Vice President, Legal Affairs and
Business Development from September 2001 to November 2002. From
1992 to 1997, Mr. Morrissey was a business attorney with
Cooley Godward LLP. Mr. Morrissey holds a B.A. from the
University of Colorado and a J.D. from the University of
Southern California Law School.
Mark L. Smith
has served as our Chief Financial Officer
and Treasurer since March 2006. From August 1999 to March 2006,
Mr. Smith held financial executive capacities at Nabi
Biopharmaceuticals, including serving as Senior Vice President,
Finance, Chief Financial Officer and Chief Accounting Officer
from 2001 to March 2006. From 1998 to 1999, Mr. Smith
served as Vice President of Finance and Administration and Chief
Financial Officer of Neuromedical Systems, Inc. From 1996 to
1998, Mr. Smith served in various financial
49
executive capacities at Genzyme Corporation. From 1991 to 1996,
Mr. Smith held various positions at Genetrix, Inc., most
recently as its Chief Financial Officer. Before joining
Genetrix, Inc., Mr. Smith practiced with the accounting
firm of PricewaterhouseCoopers LLP in both the U.S. and
Australia. Mr. Smith holds a B.A. in Accounting from the
Canberra College of Advanced Education in Australia.
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Price
Range of Common Stock and Dividend Policy
The following table sets forth the high and low sales prices for
our common stock (based upon
intra-day
trading) as reported by the NASDAQ Global Market:
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Common Stock
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High
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Low
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Fiscal Year Ended December 31, 2007
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First quarter
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$
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6.28
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$
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4.28
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Second quarter
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6.07
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5.10
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Third quarter
|
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7.50
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5.23
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Fourth quarter
|
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6.66
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3.05
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Fiscal Year Ended December 31, 2006
|
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Second quarter
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$
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10.25
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$
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9.66
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Third quarter
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10.86
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8.40
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Fourth quarter
|
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10.74
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4.80
|
|
The number of record holders of our common stock on
February 14, 2008 was approximately 92. No cash dividends
have been previously paid on our common stock and none are
anticipated in 2008.
Comparative
Stock Performance Graph
The comparative stock performance graph below compares the
cumulative total stockholder return (assuming reinvestment of
dividends, if any) from investing $100 on June 28, 2006,
the date on which our common stock was first publicly traded, in
each of (i) our common stock, (ii) the NASDAQ
Composite Index and (iii) the RDG MicroCap Biotechnology
Index; except that, in the case of the NASDAQ Composite Index
and the RDG MicroCap Biotechnology Index, the stock performance
graph below reflects an investment date of May 31, 2006.
50
COMPARISON
OF 18 MONTH CUMULATIVE TOTAL RETURN*
Among Replidyne, Inc, The NASDAQ Composite Index
And The RDG MicroCap Biotechnology Index
|
|
*
|
$100 invested on 6/28/06 in stock or 5/31/06 in index-including
reinvestment of dividends. Fiscal year ending December 31.
|
Recent
Sales of Unregistered Securities
None
Issuer
Purchases of Equity Securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
Total Number of
|
|
Approximate Dollar
|
|
|
|
|
|
|
Shares Purchased as
|
|
Value) of Shares
|
|
|
|
|
|
|
Part of Publicly
|
|
That may Yet be
|
|
|
Total Number of
|
|
Average Price
|
|
Announced Plans or
|
|
Purchased Under the
|
Period
|
|
Shares Purchased
|
|
Paid per Share
|
|
Programs
|
|
Plans or Programs
|
|
10/31/07
|
|
|
5,778
|
(1)
|
|
$
|
0.61
|
|
|
|
None
|
|
|
|
Not Applicable
|
|
12/19/07
|
|
|
237
|
(2)
|
|
$
|
5.48
|
|
|
|
None
|
|
|
|
Not Applicable
|
|
|
|
|
(1)
|
|
Repurchase of unvested restricted stock from an employee at cost.
|
|
(2)
|
|
Shares acquired in payment of tax liabilities pursuant to the
partial vesting of a restricted stock award issued to an
Employee under our 2006 Equity Incentive Plan. The tax
liabilities were paid in 2007 and 2008.
|
The information included under the heading Comparative
Stock Performance Graph in this Item 5 of our annual
report on
Form 10-K
shall not be deemed to be soliciting material or
subject to Regulation 14A or 14C, shall not be deemed
filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the Exchange Act),
or otherwise subject to the liabilities of that section, nor
shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933, as amended, or the Exchange Act.
51
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data should be read together
with our financial statements and accompanying notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in
this Annual Report. The selected financial data in this section
is not intended to replace our financial statements and the
accompanying notes. Historical results are not necessarily
indicative of operating results to be expected in the future.
All amounts in the following table are expressed in thousands,
except for per share data.
The selected financial data presented below for each year in the
five years ended December 31, 2007, are derived from our
financial statements, which have been audited by KPMG LLP,
independent registered public accounting firm, and are qualified
by reference to such Financial Statements and Notes thereto. The
statements of operations data for the years ended
December 31, 2007, 2006 and 2005 and the balance sheet data
as of December 31, 2007 and 2006 are derived from our
audited financial statements appearing elsewhere in this Annual
Report on
Form 10-K.
The statements of operations data for the years ended
December 31, 2004 and 2003 and the balance sheet data as of
December 31, 2005, 2004 and 2003 are derived from our
audited financial statements not included in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
58,571
|
|
|
$
|
15,988
|
|
|
$
|
441
|
|
|
$
|
834
|
|
|
$
|
726
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
43,313
|
|
|
|
38,295
|
|
|
|
29,180
|
|
|
|
16,282
|
|
|
|
12,331
|
|
Sales, general and administrative
|
|
|
13,020
|
|
|
|
12,187
|
|
|
|
5,329
|
|
|
|
2,994
|
|
|
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
56,333
|
|
|
|
50,482
|
|
|
|
34,509
|
|
|
|
19,276
|
|
|
|
14,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,238
|
|
|
|
(34,494
|
)
|
|
|
(34,068
|
)
|
|
|
(18,442
|
)
|
|
|
(13,760
|
)
|
Other income (expense), net
|
|
|
5,454
|
|
|
|
5,245
|
|
|
|
399
|
|
|
|
(797
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7,692
|
|
|
|
(29,249
|
)
|
|
|
(33,669
|
)
|
|
|
(19,239
|
)
|
|
|
(13,950
|
)
|
Preferred stock dividends and accretion
|
|
|
|
|
|
|
(5,391
|
)
|
|
|
(7,191
|
)
|
|
|
(3,560
|
)
|
|
|
(1,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
7,692
|
|
|
$
|
(34,640
|
)
|
|
$
|
(40,860
|
)
|
|
$
|
(22,799
|
)
|
|
$
|
(15,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to common stockholders per
share(1):
|
|
$
|
0.29
|
|
|
$
|
(2.49
|
)
|
|
$
|
(39.20
|
)
|
|
$
|
(30.55
|
)
|
|
$
|
(20.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) attributable to common stockholders
per share(1):
|
|
$
|
0.28
|
|
|
$
|
(2.49
|
)
|
|
$
|
(39.20
|
)
|
|
$
|
(30.55
|
)
|
|
$
|
(20.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
90,266
|
|
|
$
|
125,567
|
|
|
$
|
59,420
|
|
|
$
|
27,018
|
|
|
$
|
692
|
|
Working capital
|
|
|
80,440
|
|
|
|
68,147
|
|
|
|
50,755
|
|
|
|
24,409
|
|
|
|
(1,657
|
)
|
Total assets
|
|
|
94,690
|
|
|
|
135,561
|
|
|
|
63,579
|
|
|
|
30,067
|
|
|
|
4,169
|
|
Long-term debt, net of current portion and discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
1,208
|
|
Accumulated deficit
|
|
|
(109,288
|
)
|
|
|
(116,980
|
)
|
|
|
(83,107
|
)
|
|
|
(42,235
|
)
|
|
|
(20,105
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
136,815
|
|
|
|
69,447
|
|
|
|
20,058
|
|
Total stockholders equity (deficit)
|
|
|
82,404
|
|
|
|
71,372
|
|
|
|
(82,632
|
)
|
|
|
(42,202
|
)
|
|
|
(20,115
|
)
|
52
|
|
|
(1)
|
|
Please see Note 2 to our financial statements for an
explanation of the method used to calculate the net loss
attributable to common stockholders per share and the number of
shares used in the computation of the per share amounts.
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
You should read the following discussion and analysis
together with our financial statements and the notes to those
statements included elsewhere in this report. This discussion
contains forward-looking statements that involve risks and
uncertainties. As a result of many factors, such as those set
forth under Part I, Item 1A and elsewhere in this
report, our actual results may differ materially from those
anticipated in these forward-looking statements. See
Special Note Regarding Forward-Looking Statements
under Part I, Item 1.
Overview
We are a biopharmaceutical company focused on discovering,
developing, in-licensing and commercializing innovative
anti-infective products. Our most advanced product candidate,
faropenem medoxomil, is a novel oral, community antibiotic for
which we are currently seeking a development and
commercialization partner. Our second product candidate,
REP3123, is a new narrow spectrum antibacterial agent for the
treatment of
Clostridium difficile
, or
C.
difficile
, bacteria and
C. difficile
-associated
disease, an increasing health care concern among elderly and
hospitalized patients. We are also pursuing the development of
other novel compounds that inhibit bacterial DNA replication,
which we believe represents a potentially promising drug target
in antibiotic development.
In December 2005, we submitted a new drug application, or NDA,
for faropenem medoxomil based on 11 Phase III studies for
the following adult indications: acute bacterial sinusitis;
community-acquired pneumonia; acute exacerbation of chronic
bronchitis; and uncomplicated skin and skin structure
infections. In October 2006, the FDA issued a non-approvable
letter with respect to our NDA citing the need for further
clinical studies for all indications, including studies using a
superiority design for acute bacterial sinusitis and acute
exacerbation of chronic bronchitis, more extensive microbiologic
confirmation and consideration of alternate dosing regimens. A
superiority design trial requires demonstrating that a product
candidate is superior to placebo. Historically, all of our
trials were conducted using a non-inferiority design, which
required these trials to demonstrate that a product candidate is
not significantly less effective than an approved treatment. On
January 22, 2008, we received a Warning Letter from the FDA
related to our NDA filed in December 2005 for faropenem
medoxomil citing certain conditions found by the FDA during
their review of our role as the applicant of the NDA.
Specifically, the Warning Letter noted that certain raw data,
descriptions and analysis supporting clinical trials included in
the NDA were not available for the FDAs review and had not
been obtained or reviewed by us prior to submission of the NDA.
We intend to respond to the Warning Letter within the time
limits required by the FDA.
The focus of our activities following receipt of the
non-approvable letter from the FDA has been to clarify the
approval process for faropenem medoxomil in the treatment of
community respiratory tract infections. We do not expect to
pursue the indication for uncomplicated skin and skin structure
infections unless we enter into a collaboration with a partner
that wishes to do so. Based on the FDAs recommendations in
the non-approvable letter, as well as our ongoing discussions
with the FDA, we understand that at least two approved clinical
studies using faropenem medoxomil for the treatment of
community-acquired pneumonia will be required for approval in
this indication. If we or a future partner seek approval for
faropenem medoxomil to treat acute bacterial sinusitis and acute
exacerbation of chronic bronchitis in addition to
community-acquired pneumonia, the faropenem medoxomil adult
program may be anchored on at least two clinical trials for the
treatment of community-acquired pneumonia with single clinical
trials using a superiority clinical trial design in acute
bacterial sinusitis and acute exacerbation of chronic
bronchitis. We have completed a special protocol assessment, or
SPA, for the design of a Phase III clinical trial of
faropenem medoxomil compared to placebo for the treatment of
acute bacterial sinusitis. We plan to continue our ongoing
Phase III placebo-controlled clinical trial for treatment
of acute exacerbation of chronic bronchitis with
53
faropenem medoxomil which is intended to meet the FDAs
requirements. Until we have secured a partner for the faropenem
medoxomil program, which cannot be assured, we plan to limit our
faropenem medoxomil clinical activities to the ongoing
Phase III placebo-controlled clinical trial for the
treatment of acute exacerbation of chronic bronchitis. If we are
delayed in securing or are unable to secure a partner for the
faropenem medoxomil program, we may elect to discontinue our
development activities on this program, including to discontinue
the Phase III placebo-controlled clinical trial for the
treatment of acute exacerbation of chronic bronchitis. We have
licensed all rights to faropenem medoxomil from Asubio Pharma
Co., Ltd., or Asubio Pharma, in the U.S. and Canada. In
addition, we have the sole negotiation right to license such
rights for the rest of the world, except Japan.
We are also developing REP3123, our investigational narrow
spectrum antibacterial agent to treat
C. difficile
bacteria and
C. difficile
-associated disease.
C.
difficile
is a Gram-positive bacterium that causes diarrhea
and other intestinal conditions, such as colitis, and is a major
cause of morbidity among the elderly and hospitalized patients.
People generally contract
C. difficile
-associated disease
through the ingestion of
C. difficile
spores after coming
into contact with a contaminated item or surface. These spores
then germinate, grow and multiply in the digestive tract. In
in vitro
preclinical studies, REP3123 displayed an
ability to inhibit growth of the
C. difficile
bacterium
and prevent the bacterium from forming the spores that allow it
to be spread from person to person, but without inhibiting other
key organisms that are essential for normal intestinal
functioning. Also in preclinical studies, REP3123 exhibited
signs it may be able to stop the production of destructive
intestinal toxins caused by
C. difficile
bacteria. These
results suggest that REP3123 has the potential to reduce
C.
difficile
-associated disease outbreak and relapse rates
through reducing the presence of
C. difficile
spores and
reduce the severity of, or possibly even prevent,
C.
difficile
-associated disease through inhibiting the growth
of or stopping production of toxins caused by
C. difficile
bacteria. We retain worldwide rights to
REP3123.
We have also developed assays that identify compounds that
inhibit bacterial DNA replication. The compounds may be useful
to treat bacterial infections. We believe that bacterial DNA
replication is an attractive target system for new antibacterial
drugs because it is an essential cellular process and stalled
DNA replication can trigger cell death. Our assays allow for
efficient screening of large libraries of small molecules and
are designed to mimic the bacterial DNA replication systems of
numerous bacteria, with the goal of identifying novel inhibitors
of bacterial DNA replication. We have identified compounds that
are able to inhibit bacterial DNA replication in these assays.
We believe that the novel mechanism of action of our technology
may reduce the risk that bacteria will develop resistance to
drugs based on this technology. We are currently optimizing the
initial inhibitors identified in the assays.
We had also been developing REP8839, a topical antibiotic that
had exhibited activity in preclinical studies against
S.
aureus
, including methicillin resistant
S. aureus
or
MRSA, and mupirocin resistant strains of
S. aureus.
As a
result of prioritizing our preclinical programs, in December
2007, we suspended the development of REP8839 due to the
incremental investment required to optimize the formulation and
the niche market opportunity for its initial target indication
of treatment of impetigo.
We have incurred significant operating losses since our
inception on December 6, 2000, and, as of December 31,
2007, we had an accumulated deficit of $109 million. We
have generated no revenue from product sales to date. We have
funded our operations to date principally from the sale of our
securities and payments received from Forest Laboratories under
our former collaboration and commercialization agreement.
Although we reported net income for the year ended
December 31, 2007 as a result of the termination of our
agreement with Forest Laboratories, as discussed below, we
expect to incur substantial operating losses for the next
several years as we pursue our clinical trials and research and
development efforts.
Former
Collaboration with Forest Laboratories
In February 2006, we entered into a collaboration and
commercialization agreement with Forest Laboratories to be our
exclusive partner for the development and marketing of faropenem
medoxomil in the U.S. On May 7, 2007, Forest
Laboratories exercised its right to terminate this agreement.
The termination followed issuance in October 2006 of a
non-approvable letter by the FDA for our NDA for faropenem
54
medoxomil. As a result, we reacquired all rights to faropenem
medoxomil previously granted to Forest Laboratories. There were
no penalty fees incurred by either us or Forest Laboratories in
connection with the termination of the agreement and no amounts
previously received by us under the agreement are refundable. We
received $60 million in upfront and milestone payments and
approximately $14.6 million of contract revenue for funded
activities related to the development of faropenem medoxomil
from Forest Laboratories during the period of our collaboration.
In accordance with our revenue recognition policy for upfront
and milestone payments received under collaboration and
commercialization agreements, we had recognized revenue in prior
periods for the payments received from Forest Laboratories on a
straight-line basis over a period of approximately
15 years, which was the estimated period of benefit. These
upfront and milestone payments received are non-refundable. As
no further obligations existed beyond the termination date of
May 7, 2007, we recognized the remaining unamortized
deferred upfront and milestone fees of approximately
$55 million as revenue on that date. We also received
reimbursements from Forest Laboratories for research and
development and sales and marketing activities during 2007.
These amounts have been recorded as revenue. This treatment
reflected our role as principal in these transactions whereby we
were responsible for selecting vendors, performing significant
duties and bearing credit risk.
Comparison
of Years Ended December 31, 2007 and 2006
Revenue.
We recognized $58.6 million in
revenue during 2007 compared to $16.0 million in 2006. The
increase was due to the recognition of previously deferred
revenue as a result of the termination of our collaboration and
commercialization agreement with Forest Laboratories in 2007.
Revenue recognized during 2007 included $56.2 million of
license revenue, representing the unamortized portion of
$60 million in upfront and milestone payments we received
under our collaboration agreement with Forest Laboratories, as
compared to $3.8 million of license revenue recognized in
2006. Revenue recognized during 2007 also included
$2.4 million of contract revenue for funded activity under
our former collaboration and commercialization agreement with
Forest Laboratories, as compared to $12.2 million of
contract revenue recognized in 2006. Due to the termination of
our collaboration and commercialization agreement with Forest
Laboratories, our prospects for other near term future revenues
are substantially uncertain. Our ability to generate future
revenue depends heavily on our ability to obtain a new
collaboration partner for faropenem medoxomil on acceptable
terms, which cannot be assured.
Research and Development Expense.
Research and
development expenses were $43.3 million for 2007 as
compared to $38.3 million in 2006. Research and development
expenditures made to advance our product candidates and other
research efforts during 2007 and 2006 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
Faropenem medoxomil
|
|
$
|
29,231
|
|
|
$
|
23,266
|
|
|
$
|
5,965
|
|
|
|
26
|
%
|
REP8839
|
|
|
4,550
|
|
|
|
8,363
|
|
|
|
(3,813
|
)
|
|
|
(46
|
)%
|
Other research and development
|
|
|
9,532
|
|
|
|
6,666
|
|
|
|
2,866
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,313
|
|
|
$
|
38,295
|
|
|
$
|
5,018
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs to support our faropenem medoxomil program were
$6.0 million higher in 2007 as compared to 2006. The
increase primarily reflects expenditures related to increased
external clinical trial activity and clinical trial preparations
with a clinical research organization of $10.4 million.
This increase was partially offset by a $1.4 million
decrease in preclinical research and outside services, a
$1.2 million decrease in contingent supply agreement fees
and a $1.1 million decrease in program acquisition fees.
Research and development activities in 2007 were focused on the
ongoing Phase III clinical trial for the treatment of acute
exacerbation of chronic bronchitis as well as planning
activities in preparation for potential future Phase III
clinical trials for the treatment of acute bacterial sinusitis
and community-acquired pneumonia. Research and development
activities in 2006 were focused on the Phase III
placebo-controlled acute exacerbation of chronic
55
bronchitis clinical trial as well as the Phase II clinical
trial in pediatric patients with acute bacterial otitis media
which results were reported in the first quarter of 2007.
In 2007, costs to support our REP8839 program decreased by
$3.8 million as compared to 2006 primarily reflecting
decreased clinical and preclinical development costs of
$2.0 million. This program was suspended in December 2007
due to the incremental investment required to optimize the
formulation compared to the niche market opportunity represented
by the product candidates initial target indication of
impetigo. Additionally, in 2006 we incurred $1.5 million
under our June 2003 purchase agreement with GlaxoSmithKline PLC,
or GSK to complete the purchase of the inhibition of tRNA
synthetase technology underlying REP8839 and REP3123.
In 2007, other research and development costs increased by
$2.9 million as compared to 2006. Costs of internal
research and development personnel and related costs increased
by $2.1 million as we increased the activity levels of our
research and development personnel in support of our
C.
difficile
program
,
or REP3123, and DNA replication
inhibition program. Other costs in support of these programs
included external preclinical research, consulting and other
services that increased by $0.4 million in 2007 compared to
2006.
Clinical development timelines, likelihood of success and
associated costs are uncertain and therefore vary widely.
Although we focused primarily on faropenem medoxomil for the
treatment of community-acquired respiratory tract infections in
2006 and 2007, we anticipate that we will make determinations as
to which research and development projects to pursue and how
much funding to direct toward each project on an on-going basis
in response to the guidance we receive through meetings with the
FDA regarding each intended indication for faropenem medoxomil
and the scientific and clinical success of each of our product
candidates and research and development programs.
Due to the risks inherent in the clinical trial process,
development completion dates and costs will vary significantly
for each product candidate and are difficult to estimate. The
lengthy regulatory approval process for our current and
potential product candidates requires substantial additional
resources. Any failure by us to obtain, or any delay in
obtaining, regulatory approvals for our product candidates could
cause the costs of our research and development to increase and
have a material adverse effect on our results of operations. We
cannot be certain when any cash flows from our current product
candidates will commence.
Selling, General and Administrative
Expenses.
Selling, general and administrative
expenses were $13.0 million for 2007, compared to
$12.2 million for 2006. In 2007, we incurred incremental
personnel costs of $0.9 million associated with personnel
hired during 2006 to support our commercial, finance and
administrative activities, compensation costs of
$0.5 million related to our organizational restructuring
announced in December 2007 and increased costs associated with
the adoption of SFAS 123(R),
Share-Based Payment
of
$0.7 million. We also incurred increased legal, accounting
and insurance fees resulting from our first full year of
compliance with Section 404 of the Sarbanes-Oxley Act.
These increases were partially offset by reductions in market
research costs of $1.4 million primarily related to the
faropenem medoxomil program. In 2008, we expect that selling,
general and administrative expenses will be lower than 2007
levels.
Investment Income, net.
Investment income was
$5.5 million for 2007, compared to $6.0 million for
2006. The decrease was primarily due to lower overall cash
available for investing in 2007. In 2006, we received cash of
$60 million under our former collaboration and
commercialization agreement with Forest Laboratories and
$44.5 million in net proceeds from our initial public
offering.
Interest Expense.
In 2006 we incurred interest
expense of $14 thousand. The equipment loan and security
agreement was paid in full in 2006.
Other Expense, net.
Other expense was
$0.1 million for 2007, compared to $0.7 million in
2006. The decrease was primarily due to $0.4 million lower
foreign currency losses associated with our foreign currency
denominated payables and $0.1 million in losses to adjust
derivatives in 2006 to market value.
Comparison
of Years Ended December 31, 2006 and 2005
Revenue.
Revenue was $16 million for the
year ended December 31, 2006, as compared to
$0.4 million for the year ended December 31, 2005. The
increase was due to revenue generated from our collaboration and
56
commercialization agreement with Forest Laboratories which began
in 2006. Revenue recognized during 2006 includes
$3.8 million of license revenue, representing a portion of
the upfront and milestone payments totaling $60 million,
which was being recognized in our financial statements as of
December 31, 2006 as revenue over the estimated period of
performance of approximately 14 years, and
$12.2 million of contract revenue for funded activity under
our collaboration and commercialization agreement with Forest
Laboratories. Revenue recognized in 2005 consists solely of
license revenue generated from a research and development
project that was completed in 2005.
Research and Development Expense.
Research and
development expenses were $38.3 million for the year ended
December 31, 2006 compared to $29.2 million for the
year ended December 31, 2005. Research and development
expenditures made to advance our product candidates and other
research efforts during 2006 and 2005 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
$
|
|
|
%
|
|
|
Faropenem medoxomil
|
|
$
|
23,266
|
|
|
$
|
24,744
|
|
|
$
|
(1,478
|
)
|
|
|
(6
|
)%
|
REP8839
|
|
|
8,363
|
|
|
|
3,589
|
|
|
|
4,774
|
|
|
|
133
|
%
|
Other research and development
|
|
|
6,666
|
|
|
|
847
|
|
|
|
5,819
|
|
|
|
687
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,295
|
|
|
$
|
29,180
|
|
|
$
|
9,115
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs incurred for the development of faropenem medoxomil were
lower in 2006 compared to 2005 primarily reflecting decreased
external clinical trial activity of $2.5 million, a
$1.6 million decrease in costs of our internal research and
development personnel and related costs and a $1 million
decrease in expense incurred under our license agreement with
Asubio Pharma. These decreases were partially offset by
$2.9 million of supply agreement contingencies that were
recognized on October 20, 2006 when the FDA issued a
non-approvable letter for the NDA we filed for faropenem
medoxomil. During 2006, we continued to support our ongoing
placebo controlled Phase III trial among patients with
acute exacerbation of chronic bronchitis and our Phase II
dose ranging clinical trial among pediatric patients with acute
bacterial otitis media. During 2005, in addition to the thorough
QT study completed for faropenem medoxomil in connection with
our NDA submission we incurred significant external clinical
research organization expenses supporting preparation of the NDA
for faropenem medoxomil that was filed with the FDA in December
2005.
In 2006, costs to support our REP8839 program increased by
$4.8 million compared to 2005 following initiation of our
Phase I clinical trials program for this compound in July 2006,
which resulted in increased external clinical trial costs of
$1.9 million and internal personnel costs of
$0.7 million. In 2006 we also incurred $1.5 million
under our June 2003 purchase agreement with GlaxoSmithKline PLC,
or GSK, due upon filing of our IND related to REP8839 with the
FDA that was accounted for as research and development expense.
We have no further financial obligations due to GSK under this
agreement.
In 2006, other research and development costs increased by
$5.8 million compared to 2005. Costs of internal research
and development personnel and related costs increased by
$2.2 million as we increased our research and development
personnel in support of our expanded development activities
specifically related to our
C. difficile
program and DNA
replication inhibition program. Other costs in support of these
activities included external preclinical research, consulting,
services and chemicals, compounds and laboratory costs that
increased by $2 million.
Selling, General and Administrative
Expenses.
Selling, general and administrative
expenses were $12.2 million for the year ended
December 31, 2006, as compared to $5.3 million for the
year ended December 31, 2005. The increase was primarily
due to increased personnel and related costs of
$4.3 million which resulted from additional staff required
to support our commercial organization and administrative and
finance personnel, costs of recruiting and relocating personnel,
costs associated with the initial adoption of SFAS 123(R),
Share-Based Payment
, of $0.8 million, as well as
$0.8 million in additional legal, accounting, insurance and
other professional costs related to compliance obligations
associated with being a public
57
company. Market research expenses also increased by
$1 million, principally related to market research
associated with faropenem medoxomil and REP8839.
Investment Income, net.
Investment income was
$6 million for the year ended December 31, 2006, as
compared to $0.7 million for the year ended
December 31, 2005. The increase was primarily due to higher
overall cash available for investing following receipt of
$60 million under our collaboration and commercialization
agreement with Forest Laboratories in the first quarter of 2006
and $44.5 million in net proceeds from our initial public
offering completed in the third quarter of 2006.
Interest Expense.
Interest expense was $14
thousand for the year ended December 31, 2006, as compared
to $0.1 million for the year ended December 31, 2005.
The decrease was due to payment in full of our equipment loan
and security agreement during the first quarter of 2006.
Other Expense, net.
Other expense was
$0.7 million for the year ended December 31, 2006, as
compared to $0.2 million for the year ended
December 31, 2005. The increase was primarily due to the
recognition of approximately $0.4 million in foreign
currency losses associated with our foreign currency denominated
payables.
Liquidity
and Capital Resources
As of December 31, 2007, we had $90.3 million in cash,
cash equivalents and short-term investments. While we reported
net income for the year ended December 31, 2007, we have
accumulated significant operating losses since our inception in
2000 and as of December 31, 2007 we had an accumulated
deficit of $109.3 million. We have funded our operations to
date principally from private placements of equity securities
and convertible notes totaling $121.5 million, receipt of
payments from Forest Laboratories under our former collaboration
and commercialization agreement totaling $74.6 million and
net proceeds received from our initial public offering of
$44.5 million.
As described above, our collaboration and commercialization
agreement with Forest Laboratories was terminated on May 7,
2007, and as a result, our prospects for other near term future
revenues are uncertain. Our ability to generate future revenue
depends heavily on our ability to obtain a new collaboration
partner for faropenem medoxomil on acceptable terms.
In October 2006, the FDA issued a non-approvable letter for our
NDA for faropenem medoxomil that had been filed in December
2005. According to the non-approvable letter, the FDA recommends
further clinical studies for all four indications that were the
subject of the NDA including studies using superiority design
for the indications of acute bacterial sinusitis and acute
exacerbation of chronic bronchitis, additional microbiologic
testing and consideration of alternate dosing regimens. We are
discussing clinical plans with the FDA including the number of
clinical trials needed for each indication, and currently expect
that at least two to three years will be required for completion
of the clinical studies. We do not intend to initiate additional
clinical trials using faropenem medoxomil beyond the ongoing
placebo-controlled Phase III clinical trial for acute
exacerbation of chronic bronchitis until we have secured a
partner for this program, which cannot be assured. We continue
to evaluate the impact this FDA action will have on our
liquidity and capital resources including costs of additional
clinical trials and delays in product launch.
In 2004, we entered into a license agreement with Asubio Pharma
to develop and commercialize faropenem medoxomil in the
U.S. and Canada and we have the sole negotiation right to
license such rights for the rest of the world except Japan which
was modified in December 2005. Under the modified license
agreement we are further obligated to future payments of up to
¥375 million (approximately $3.3 million as of
December 31, 2007) upon filing of a new NDA at a
higher dose of faropenem medoxomil than was studied in the prior
NDA and up to ¥1,250 million (approximately
$11.1 million as of December 31, 2007) in
subsequent regulatory and commercial milestone payments for
faropenem medoxomil. If we terminate our license agreement with
Asubio Pharma, or if there is an intolerable delay in the
commercial launch of faropenem medoxomil, as defined, we will be
obligated to pay a termination fee of up to
¥375 million (approximately $3.3 million as of
December 31, 2007). Additionally, we are responsible for
royalty payments to Asubio Pharma based upon net sales of
faropenem medoxomil. The license term extends to the later of:
(i) the
58
expiration of the last to expire of the licensed patents owned
or controlled by Asubio Pharma or (ii) 12 years after
the first commercial launch of faropenem medoxomil. We have
recorded payments made to date as research and development
expense, as faropenem medoxomil has not been approved by the FDA.
Under a supply agreement entered into in December 2004 between
Asubio Pharma, Nippon Soda and us, we are obligated to purchase,
and Nippon Soda is obligated to supply, all our commercial
requirements of the active pharmaceutical ingredient in
faropenem medoxomil. During the three years following placement
of an initial purchase order by us, which has not occurred, with
Nippon Soda, we are obligated to make certain annual minimum
purchase commitments to be determined initially by us and Nippon
Soda at the time of a commercial launch. Since full commercial
launch of faropenem medoxomil has been delayed, we are currently
obligated to pay Nippon Soda escalating annual delay
compensation fees of up to ¥280 million (approximately
$2.5 million as of December 31, 2007) per year,
which commenced on July 1, 2007. As a result of the
non-approvable letter we received from the FDA in October 2006
and subsequent activities related to the development of
faropenem medoxomil, we recorded delay compensation fees of
$0.9 million in the year ended December 31, 2007 and
delay compensation fees of $0.9 million and an initial
order cancellation fee of $0.6 million in the year ended
December 31, 2006. These amounts were recorded as research
and development expense. If commercial launch of faropenem
medoxomil is further delayed or if we are unable to obtain a
collaboration partner for faropenem medoxomil under our current
expected timeframe, we may incur additional delay compensation
fees of up to ¥105 million ($0.9 million as of
December 31, 2007) for 2008 and up to
¥280 million annually ($2.5 million as of
December 31, 2007) for all periods following
January 1, 2009. If we terminate this agreement, abandon
the development or commercialization of faropenem medoxomil or
are unable to notify Nippon Soda of the faropenem medoxomil
launch go date, as defined, by July 1, 2009, we will be
obligated to pay Nippon Soda prorated delay compensation fees
through the effective date of termination and reimburse Nippon
Soda for up to ¥65 million ($0.6 million as of
December 31, 2007) in engineering costs. We continue
to evaluate amounts which may become payable to Asubio Pharma
and Nippon Soda under the terms of the agreement, and adjust our
accrual accordingly.
In April 2005, we entered into a supply agreement for production
of 300 mg adult tablets of faropenem medoxomil with MEDA,
which was amended in March 2006. Beginning in 2006, we became
obligated to make annual minimum purchases of MEDAs
product of 2.3 million (approximately
$3.4 million as of December 31, 2007). If in any year
we did not satisfy this minimum purchase commitment, we were
required to pay MEDA the shortfall amount. Fifty percent (50%)
of the shortfall amount, if applicable, would have been credited
against future drug product purchases. We were required to buy
all of our requirements for adult oral faropenem medoxomil
tablets from MEDA until cumulative purchases exceeded
22 million (approximately $32.4 million at
December 31, 2007). Upon termination of the agreement,
under certain circumstances, we would have been obligated to pay
up to 1.7 million (approximately $2.5 million as
of December 31, 2007) in facility decontamination
costs incurred by MEDA. In March 2006 when the agreement was
amended, our obligations with respect to all purchase
commitments and facility decontamination costs were suspended
and deemed satisfied by Forest Laboratories pursuant to an
agreement between MEDA and Forest Laboratories. Under our
agreement with Forest Laboratories, we remained responsible for
any shortfall amount in 2006 that may not be credited against
future drug product purchases. In May 2007, following
termination of our collaboration agreement with Forest
Laboratories and the termination by Forest Laboratories of its
supply agreement with MEDA, all previously suspended provisions
in our direct agreement with MEDA were no longer suspended. In
April 2007, we provided MEDA notice of termination of the supply
agreement in accordance with the terms of the agreement. We
believe that supply chain obligations, including fees that may
arise from this agreement with MEDA, incurred through
May 7, 2007 are the responsibility of Forest Laboratories
under the commercialization and collaboration agreement. MEDA
has indicated to us that it disputes our right to terminate the
agreement on the basis indicated in our notice of termination.
We believe that we had the right to terminate the agreement.
However, if it is determined that we have obligations to MEDA
beyond May 7, 2007 under the agreement, we may incur
additional minimum purchase commitments
and/or
decontamination costs. We incurred expenses of $0.8 million
and $1.5 million under this agreement in 2007 and 2006,
respectively.
59
In May 2007, we entered into an arrangement with an investment
bank to assist us in identifying a licensing partner for our
faropenem medoxomil program and to provide other investment
banking services. Under the terms of the agreement, we may incur
transaction fees of up to $6 million based on the value of
a license or strategic transaction as defined.
We have entered into employment agreements with our chief
executive officer and other named executive officers that
provide for base salary, eligibility for bonuses and other
generally available benefits. The employment agreements provide
that we may terminate the named executive officer employment at
any time with or without cause. If a named executive officer is
terminated by us without cause or such officer resigns for good
reason, then the named executive officer is entitled to receive
a severance package consisting of salary continuation for a
period of twelve months from the date of termination among other
benefits. If such termination occurs one month before or
thirteen months following a change of control, then the
executive is entitled to salary continuation for a period of
twelve months (or eighteen months with respect to Mr. Collins
and Dr. Janjic) from the date of termination and acceleration of
vesting of all of the executives outstanding unvested
options to purchase our common stock among other benefits. In
addition, during 2007 we established a severance benefit plan
that defines termination benefits for all eligible employees, as
defined, not under an employment contract, if the employee is
terminated without cause. Under this plan, employees whose
employment is terminated without cause are provided a severance
benefit of between nine and eighteen weeks pay, based on grade
level, plus an additional two weeks pay for each year of service.
We have not yet commercialized our product candidates or
generated any revenue from product sales. We anticipate that we
will continue to incur substantial net losses in the next
several years as we develop our products, conduct and complete
clinical trials, pursue additional product candidates, expand
our clinical development team and corporate infrastructure and
prepare for the potential commercial launch of our product
candidates including faropenem medoxomil. We do not anticipate
generating any product related revenue until we obtain FDA
approval for faropenem medoxomil and we or a future partner
launches the product, which may not occur.
The pace and outcome of our clinical development programs and
the progress of our discovery research program are difficult to
predict. These projects may require several years and
substantial expenditures to complete and may ultimately be
unsuccessful. If we enter into additional third party
collaborations or acquire new product candidates, the timing and
amounts of any related licensing cash flows or expenses are
likely to be highly variable. As a result, we anticipate that
our quarterly results will fluctuate for the foreseeable future.
In view of this variability and of our limited operating
history, we believe that period-to-period comparisons of our
operating results are not meaningful and you should not rely on
them as indicative of our future performance.
Based on the current status of our product development and
commercialization plans, we believe that our current cash, cash
equivalents, short-term investments and interest earned on these
balances will be sufficient to satisfy our anticipated cash
needs for working capital and capital expenditures through at
least the next 12 months. This forecast of the period in
which our financial resources will be adequate to support
operations is a forward-looking statement and involves risks,
uncertainties and assumptions. Our actual results and the timing
of selected events may differ materially from those anticipated
as a result of many factors, including but not limited to those
discussed under Risk Factors in Part I,
Item 1A of this annual report.
Our future capital uses and requirements depend on a number of
factors, including but not limited to the following:
|
|
|
|
|
the rate of progress and cost of our preclinical studies,
clinical trials and other research and development activities;
|
|
|
|
our ability to obtain a new partner for development and
commercialization of faropenem medoxomil on acceptable terms;
|
|
|
|
the scope and number of clinical development and research
programs we pursue;
|
|
|
|
the costs, timing and outcomes of regulatory approvals;
|
|
|
|
the costs of establishing or contracting for marketing and sales
capabilities, including the establishment of our own sales force;
|
60
|
|
|
|
|
the extent to which we acquire or in-license new products,
technologies or businesses;
|
|
|
|
the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights; and
|
|
|
|
the terms and timing of any additional collaborative, strategic
partnership or licensing agreements that we may establish.
|
If our available cash, cash equivalents, short-term investments
and interest earned on these balances are insufficient to
satisfy our liquidity requirements, or if we develop additional
products or pursue additional applications for our products or
conduct additional clinical trials beyond those currently
contemplated, we may seek to sell additional equity or debt
securities or acquire a credit facility. The sale of additional
equity may result in additional dilution to our stockholders. If
we raise additional funds through the issuance of debt
securities, those securities could have rights senior to those
of our common stock and could contain covenants that would
restrict our operations. We may require additional capital
beyond our currently forecasted amounts. Any such required
additional capital may not be available on reasonable terms, if
at all. If we are unable to obtain additional financing, we may
be required to modify our planned research, development and
commercialization strategy, which could adversely affect our
business.
Our future contractual obligations, including financing costs,
at December 31, 2007, include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
Over
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Operating lease obligations(1)
|
|
$
|
2,759
|
|
|
$
|
737
|
|
|
$
|
1,508
|
|
|
$
|
514
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDA Purchase Commitments(2)
|
|
$
|
770
|
|
|
$
|
770
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nippon Soda Delay Compensation(3)
|
|
$
|
7,795
|
|
|
$
|
935
|
|
|
$
|
6,860
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease obligations represent future minimum rental
commitments for non-cancelable operating leases for our office
and laboratory facilities in Colorado and Connecticut.
|
|
(2)
|
|
Purchase obligations represent annual minimum purchase
requirements of adult tablets of faropenem medoxomil with MEDA
under our April 2005 supply agreement, through the termination
of this agreement on May 11, 2007. This amount was paid in
the first quarter of 2008.
|
|
(3)
|
|
Delay compensation assumes, for this purpose only, that a full
commercial launch of an approved faropenem medoxomil drug does
not occur for three years and the agreement is not terminated.
|
The table above reflects only payment obligations that are fixed
and determinable, based on certain of the assumptions described
in the footnotes to the table. The table above does not include
information with respect to the following contractual
obligations because the amounts of the obligations are not
currently determinable:
|
|
|
|
|
contractual obligations for clinical trials;
|
|
|
|
royalty obligations, which would be payable based on any future
sales of faropenem medoxomil;
|
|
|
|
amounts due to Asubio Pharma under our license agreement, which
amounts are uncertain as to timing and dependent on the
achievement of milestones or termination of the
agreement; and
|
|
|
|
contingent amounts that may become due under supply agreements,
including minimum purchase commitments not yet established, the
extent of delay compensation amounts determined based on the
timing of a commercial launch and fees that may become due in
termination.
|
We enter into agreements with clinical research organizations
and other vendors related to our clinical trials. Certain
payments are made based upon the number of patients enrolled.
For the years ended December 31, 2007 and 2006, we incurred
external costs of approximately $20.4 million and
$11.4 million, respectively, associated with conducting our
clinical trials. At this time, due to the variability associated
with
61
these agreements, we are unable to estimate the future patient
enrollment costs we will incur and therefore have excluded these
costs from the table above.
Under our license agreement with Asubio Pharma, we are obligated
to future payments of (i) up to ¥375 million
(approximately $3.3 million as of December 31,
2007) upon filing of an NDA at a higher dose and up to
¥1,250 million (approximately $11.1 million as of
December 31, 2007) in subsequent regulatory and
commercial milestone payments for faropenem medoxomil.
Additionally, we are responsible for royalty payments to Daiichi
Asubio based upon net sales of faropenem medoxomil.
Under our supply agreement with Nippon Soda, we are obligated to
purchase, and Nippon Soda is obligated to supply, all our
commercial requirements of the faropenem medoxomil active
pharmaceutical ingredient. During the three years following
placement of an initial purchase order by us with Nippon Soda,
which has not occurred, we are obligated to make certain annual
minimum purchase commitments to be determined initially by us
and Nippon Soda at the time of a commercial launch. Since full
commercial launch of an approved faropenem drug has been
delayed, we are currently obligated for certain annual delay
compensation to Nippon Soda up to ¥280 million
(approximately $2.5 million as of December 31, 2007).
If we terminate this agreement, abandon the development or
commercialization of faropenem medoxomil or are unable to notify
Nippon Soda of the faropenem medoxomil launch go date, as
defined, by July 1, 2009, we will be obligated to pay
Nippon Soda prorated delay compensation fees through the
effective date of termination and reimburse Nippon Soda for up
to ¥65 million ($0.6 million as of
December 31, 2007) in engineering costs.
Critical
Accounting Policies and Estimates
This 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 the reported amounts of assets,
liabilities, contingent assets and liabilities, revenues,
expenses and related disclosures. Actual results may differ from
these estimates. Our significant accounting policies are
described in Note 2 of Notes to Financial
Statements included elsewhere in this annual report. We
believe the following accounting policies affect our more
significant judgments and estimates used in the preparation of
our financial statements.
Revenue Recognition.
We have generated revenue
through research, license, collaboration and commercialization
agreements. These arrangements can contain multiple elements,
including non-refundable upfront fees, payments for
reimbursement of research and commercialization costs,
non-refundable payments associated with achieving specific
milestones, and royalties based on specified percentages of net
product sales.
In determining when to recognize revenue related to upfront and
milestone payments under these arrangements we apply the revenue
recognition criteria as outlined in the Emerging Issues Task
Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
In applying these criteria, we consider a variety of factors to
determine the appropriate method of revenue recognition,
including whether the elements of the arrangement are separable,
whether payments received are subject to refund or forfeiture,
whether there are determinable fair values and whether there is
a unique earnings process associated with each element of an
arrangement.
When a payment is specifically tied to a separate earnings
process and the amount to be received is fixed and determinable,
revenue is recognized when the performance obligation associated
with the payment is completed. Performance obligations typically
consist of significant and substantive milestones. Revenues from
milestone payments may be considered separable from funding for
research, development or commercial activities because of the
uncertainty surrounding the achievement of the milestones.
Accordingly, these payments could be recognized as revenue when
the performance milestone is achieved as described in
EITF 00-21.
In circumstances where we cannot identify a separate earnings
process related to an upfront or milestone payment, we record
deferred revenue and recognize revenue ratably over the period
of expected benefit, which is generally the unexpired contract
term.
Revenues derived from reimbursement of expenses for research,
development and commercial activities under our collaboration
and commercialization agreements are recorded in compliance with
EITF Issue
62
No. 99-19,
Reporting Revenue Gross as Principal Versus Net as an Agent
(EITF 99-19).
In accordance with the criteria established by
EITF 99-19,
in transactions where we act as principal, with discretion to
choose suppliers, bear credit risk and perform a substantive
part of the services, revenue is recorded at the gross amount of
the reimbursement. Costs associated with these reimbursements
are reflected as a component of operating expenses in our
statements of operations.
Under our former agreement with Forest Laboratories entered into
in February 2006, we recorded the initial $50 million
upfront payment received in February 2006 as deferred revenue
and were recognizing this amount into revenue ratably over the
expected term of the agreement. In addition, we received a
development milestone payment of $10 million in March 2006.
Due to this milestone being achieved within one month of
entering into the collaboration and commercialization agreement
with Forest Laboratories, we could not identify a separate
earnings process related to this milestone payment and were
recognizing revenue related to this payment over the expected
term of the agreement. In February 2007, we and Forest
Laboratories announced that our agreement would terminate, and
as a result, we reacquired all U.S. adult and pediatric
rights previously granted to Forest Laboratories. As no further
obligations exist beyond May 7, 2007, the effective date of
the termination, we recognized the remaining unamortized
deferred revenue balance as revenue in the second quarter of
2007.
We have also received amounts from Forest Laboratories as
reimbursement for certain research and development. We believe
that, as it relates to these activities, we act as the
principal, performing a substantive part of the services
directly, having the discretion to choose our suppliers and
bearing all credit risk associated with the performance of these
activities. We therefore have recorded these amounts as revenue
in accordance with our revenue recognition policy. See
Note 2 to our financial statements for more information
about our revenue recognition policies.
Clinical Trial and Other Accrued Expenses.
As
part of the process of preparing our financial statements, we
are required to estimate accrued expenses. This process involves
identifying services that third parties have performed on our
behalf and estimating the level of service performed and the
associated cost incurred on these services as of each balance
sheet date in our financial statements. We are party to
agreements which include provisions that require payments to the
counterparty under certain circumstances. We develop estimates
of liabilities using our judgement based upon the facts and
circumstances known and accounts for these estimates in
accordance with accounting principles involving accrued expenses
generally accepted in the U.S. In regards to our clinical
trials, we record expenses based on estimates of the services
received and efforts expended pursuant to contracts with
clinical research organizations (CROs) and other third party
vendors associated with our clinical trials. We contract with
third parties to perform a range of clinical trial activities in
the ongoing development of our product candidates. The terms of
these agreements vary and may result in uneven payments.
Payments under these contracts depend on factors such as the
achievement of certain defined milestones, the successful
enrollment of patients and other events. The objective of our
clinical trial accrual policy is to match the recording of
expenses in our financial statements of the actual services
received and efforts expended. In doing so, we rely on
information from CROs and our clinical operations group
regarding the status of our clinical trials to calculate our
accrual for clinical expenses at the end of each reporting
period. Our estimates and assumptions could differ significantly
from the amounts that we actually may incur.
Share-Based Compensation.
Effective
January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123(R),
Share-Based Payment
(SFAS 123(R)), which requires compensation costs
related to share-based transactions, including employee stock
options, to be recognized in the financial statements based on
fair value. SFAS 123(R) revises SFAS 123, as amended,
Accounting for Stock-Based Compensation
, and supersedes
Accounting Principles Board Opinion No. 25,
Accounting
for Stock Issued to Employees
. We adopted SFAS 123(R)
using the prospective method. Under this method, compensation
cost is recognized for all share-based awards granted or
modified on or after January 1, 2006.
We selected the Black-Scholes option pricing model as the most
appropriate valuation method for option grants with service
and/or
performance conditions. The Black-Scholes model requires inputs
for risk-free interest rate, dividend yield, volatility and
expected lives of the options. Since the Company has a limited
history of stock activity, expected volatility is based on
historical data from several public companies similar in size
and value to
63
us. We will continue to use a weighted average approach using
historical volatility and other similar public entity volatility
information until our historical volatility is relevant to
measure expected volatility for future option grants. We
estimate the forfeiture rate based on historical data. Based on
an analysis of historical forfeitures, we applied an annual
forfeiture rate of 4.48% during 2007. The forfeiture rate is
re-evaluated on a quarterly basis. The risk-free rate for
periods within the contractual life of the option is based on
the U.S. Treasury yield curve in effect at the time of the
grant. The expected lives for options granted represents the
period of time that options granted are expected to be
outstanding and is derived from historical exercise behavior.
During 2007, we estimated the fair value of option grants as of
the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions. Expected
volatility was estimated to be 75%. The weighted average risk
free interest rate was 4.46% and the dividend yield was 0.00%.
The weighted average expected lives for each individual vesting
tranche under the graded vesting attribution method discussed
below was estimated to be 3.05 years.
We had a choice of two attribution methods for allocating
compensation costs under SFAS No. 123(R): the
straight-line method, which allocates expense on a
straight-line basis over the requisite service period of the
last separately vesting portion of an award, or the graded
vesting attribution method, which allocates expense on a
straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in
substance, multiple awards. We chose the graded vesting
attribution method and accordingly, amortize the fair value of
each option over each options vesting period (requisite
service period).
Deferred Tax Asset Valuation Allowance.
In
establishing a valuation allowance on our deferred tax assets we
are required to make significant estimates and judgments about
our future operating results. Our ability to realize deferred
tax assets depends on our future taxable income as well as
limitations on utilization primarily of net operating losses and
tax credits. We are required to reduce our deferred tax assets
by a valuation allowance if it is more likely than not that some
portion or all of our deferred tax asset will not be realized.
Although we reported net income for the year ended
December 31, 2007 as a result of the termination of our
agreement with Forest Laboratories, we expect to incur
substantial operating losses for the next several years as we
pursue our clinical trials and research and development efforts.
Accordingly, we have recorded a full valuation allowance on our
net deferred tax assets since inception due to uncertainties
related to our ability to realize deferred tax assets in the
foreseeable future. See Note 11 to our financial statements.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 157,
Fair Value Measurements
(SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in applying generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS 157 applies whenever an entity is
measuring fair value under other accounting pronouncements that
require or permit fair value measurement. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007; however, the FASB
provided a one year deferral for implementation of the standard
for non-financial assets and liabilities. We do not expect that
the adoption of SFAS 157 will have a material impact on our
financial statements.
In June 2007, the FASB ratified EITF Issue
No. 07-03,
Accounting for Advance Payments for Goods or Services to Be
Used in Future Research and Development Activities
(EITF 07-03).
The scope of
EITF 07-03
is limited to nonrefundable advance payments for goods and
services to be used or rendered in future research and
development activities pursuant to an executory contractual
arrangement. This issue provides that nonrefundable advance
payments for goods or services that will be used or rendered for
future research and development activities should be deferred
and capitalized. Such amounts should be recognized as an expense
as the related goods are delivered or the related services are
performed. We will be required to adopt
EITF 07-03
for new contracts entered into in 2008. We do not expect that
the adoption of
EITF 07-03
will have a material impact on our financial statements.
In December 2007, the FASB ratified EITF Issue
No. 07-01
,
Accounting for Collaborative Arrangements
(EITF 07-01).
EITF 07-01
defines collaborative arrangements and establishes reporting
requirements for transactions between participants in a
collaborative arrangement and between participants in the
arrangement
64
and third parties.
EITF 07-01
also establishes the appropriate income statement presentation
and classification for joint operating activities and payments
between participants, as well as disclosures related to these
arrangements.
EITF 07-01
is effective for fiscal years beginning after December 15,
2008. We do not expect that the adoption of
EITF 07-01
will have an impact on our financial statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our exposure to market risk is primarily limited to our cash,
cash equivalents, and short-term investments. We have attempted
to minimize risk by investing in quality financial instruments,
primarily money market funds, federal agency notes, commercial
paper, bank and corporate debt securities and U.S. treasury
notes, with no security having an effective duration in excess
of two years. The primary objective of our investment activities
is to preserve our capital for the purpose of funding operations
while at the same time maximizing the income we receive from our
investments without significantly increasing risk. To achieve
these objectives, our investment policy allows us to maintain a
portfolio of cash equivalents and short-term investments in a
variety of marketable securities, including
U.S. government, money market funds and under certain
circumstances, derivative financial instruments. Our cash and
cash equivalents as of December 31, 2007 included a liquid
money market account. The securities in our investment portfolio
are classified as available-for-sale or held-to-maturity and
are, due to their short-term nature, subject to minimal interest
rate risk.
65
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS
|
Replidyne,
Inc.
Index to
Financial Statements
|
|
|
|
|
|
|
Page(s)
|
|
|
|
|
67
|
|
|
|
|
69
|
|
|
|
|
70
|
|
|
|
|
71
|
|
|
|
|
73
|
|
|
|
|
74
|
|
66
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Replidyne, Inc.:
We have audited the accompanying balance sheets of Replidyne,
Inc. as of December 31, 2007 and 2006, and the related
statements of operations, stockholders equity (deficit),
preferred stock and comprehensive income (loss), and cash flows
for each of the years in the three-year period ended
December 31, 2007. 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 (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Replidyne, Inc. as of December 31, 2007 and 2006, and
the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2007, in
conformity with U.S. generally accepted accounting
principles.
As discussed in note 2 to the accompanying financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 123(R),
Share-Based
Payment
, effective January 1, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Replidyne, Inc.s internal control over financial reporting
as of December 31, 2007, based on criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 13, 2008
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
KPMG LLP
Boulder, Colorado
March 13, 2008
67
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Replidyne, Inc.:
We have audited Replidyne, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Replidyne,
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, included in the accompanying Managements Report
on Internal Control over Financial Reporting (Item 9A). Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included 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, Replidyne, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Replidyne, Inc. as of December 31, 2007
and 2006, and the related statements of operations,
stockholders equity (deficit), preferred stock and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2007, and
our report dated March 13, 2008 expressed an unqualified
opinion on those financial statements.
KPMG LLP
Boulder, Colorado
March 13, 2008
68
REPLIDYNE,
INC.
BALANCE
SHEETS
(in thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,969
|
|
|
$
|
24,091
|
|
Short-term investments
|
|
|
46,297
|
|
|
|
101,476
|
|
Receivable from Forest Laboratories
|
|
|
|
|
|
|
4,634
|
|
Prepaid expenses and other current assets
|
|
|
2,429
|
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
92,695
|
|
|
|
132,280
|
|
Property and equipment, net
|
|
|
1,905
|
|
|
|
3,170
|
|
Other assets
|
|
|
90
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
94,690
|
|
|
$
|
135,561
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
12,255
|
|
|
$
|
7,957
|
|
Deferred revenue
|
|
|
|
|
|
|
56,176
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,255
|
|
|
|
64,133
|
|
Other long-term liabilities
|
|
|
31
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,286
|
|
|
|
64,189
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value. Authorized
100,000 shares; issued 27,085 and 27,010 shares;
outstanding 27,077 and 26,979 shares at December 31,
2007 and 2006, respectively
|
|
|
27
|
|
|
|
27
|
|
Treasury stock, $0.001 par value; 8 and 31 shares at
December 31, 2007 and 2006, respectively, at cost
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Additional paid-in capital
|
|
|
191,570
|
|
|
|
188,334
|
|
Accumulated other comprehensive income (loss)
|
|
|
96
|
|
|
|
(7
|
)
|
Accumulated deficit
|
|
|
(109,288
|
)
|
|
|
(116,980
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
82,404
|
|
|
|
71,372
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
94,690
|
|
|
$
|
135,561
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
69
REPLIDYNE,
INC.
STATEMENTS
OF OPERATIONS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
58,571
|
|
|
$
|
15,988
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
43,313
|
|
|
|
38,295
|
|
|
|
29,180
|
|
Sales, general and administrative
|
|
|
13,020
|
|
|
|
12,187
|
|
|
|
5,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
56,333
|
|
|
|
50,482
|
|
|
|
34,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,238
|
|
|
|
(34,494
|
)
|
|
|
(34,068
|
)
|
Investment income, net
|
|
|
5,535
|
|
|
|
5,953
|
|
|
|
722
|
|
Interest expense
|
|
|
|
|
|
|
(14
|
)
|
|
|
(100
|
)
|
Other expense, net
|
|
|
(81
|
)
|
|
|
(694
|
)
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7,692
|
|
|
|
(29,249
|
)
|
|
|
(33,669
|
)
|
Preferred stock dividends and accretion
|
|
|
|
|
|
|
(5,391
|
)
|
|
|
(7,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
7,692
|
|
|
$
|
(34,640
|
)
|
|
$
|
(40,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per
share basic
|
|
$
|
0.29
|
|
|
$
|
(2.49
|
)
|
|
$
|
(39.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per
share diluted
|
|
$
|
0.28
|
|
|
$
|
(2.49
|
)
|
|
$
|
(39.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
26,730
|
|
|
|
13,908
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
27,666
|
|
|
|
13,908
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
70
REPLIDYNE,
INC.
COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
Series A
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Series D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
Series B
|
|
|
Redeemable
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
Stockholders
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-In
|
|
|
Stock-Based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Balances, January 1, 2005
|
|
|
13,000
|
|
|
$
|
15,886
|
|
|
|
4,000
|
|
|
$
|
5,630
|
|
|
|
36,800
|
|
|
$
|
47,931
|
|
|
|
|
|
|
$
|
|
|
|
|
790
|
|
|
$
|
1
|
|
|
|
(31
|
)
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
41
|
|
|
$
|
(42,235
|
)
|
|
$
|
(42,202
|
)
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,108
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291
|
|
Issuance of Series D redeemable, convertible preferred
stock in August 2005 for cash, net of issuance costs of $2,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,722
|
|
|
|
60,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to stock option grants to an
employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Stock-based compensation related to stock option grants to
non-employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Reclassification of warrants on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(345
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(357
|
)
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Accretion of offering costs on redeemable preferred stock
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
|
|
(207
|
)
|
Non-cash dividends on preferred stock
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
3,680
|
|
|
|
|
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,984
|
)
|
|
|
(6,984
|
)
|
Realized gain on available-for-sale equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(41
|
)
|
Unrealized gain on available-for-sale equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
479
|
|
|
|
|
|
|
|
479
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,669
|
)
|
|
|
(33,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
13,000
|
|
|
|
16,940
|
|
|
|
4,000
|
|
|
|
6,030
|
|
|
|
36,800
|
|
|
|
51,635
|
|
|
|
34,722
|
|
|
|
62,210
|
|
|
|
1,898
|
|
|
|
2
|
|
|
|
(31
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
479
|
|
|
|
(83,107
|
)
|
|
|
(82,632
|
)
|
Issuance of Series C preferred stock upon exercise of stock
purchase warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
Reclassification of warrants on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
446
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
Issuance of common stock in initial public offering, net of
offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,006
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
44,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,539
|
|
Changes in restricted stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Reclassification of deferred stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense related to options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,180
|
|
Accretion of offering costs on redeemable preferred stock
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
Non-cash dividends on preferred stock
|
|
|
|
|
|
|
528
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
1,873
|
|
|
|
|
|
|
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,624
|
)
|
|
|
(5,146
|
)
|
Conversion of preferred stock into common stock upon initial
public offering
|
|
|
(13,000
|
)
|
|
|
(12,930
|
)
|
|
|
(4,000
|
)
|
|
|
(5,000
|
)
|
|
|
(36,880
|
)
|
|
|
(45,980
|
)
|
|
|
(34,722
|
)
|
|
|
(60,578
|
)
|
|
|
18,067
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
124,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,488
|
|
Settlement of accrued dividends on preferred stock with common
stock upon initial public offering
|
|
|
|
|
|
|
(4,543
|
)
|
|
|
|
|
|
|
(1,233
|
)
|
|
|
|
|
|
|
(7,637
|
)
|
|
|
|
|
|
|
(4,404
|
)
|
|
|
1,782
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
17,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,819
|
|
Reversal of unrealized gain on available-for-sale equity
securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(486
|
)
|
|
|
|
|
|
|
(486
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,249
|
)
|
|
|
(29,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
27,010
|
|
|
$
|
27
|
|
|
|
(31
|
)
|
|
$
|
(2
|
)
|
|
$
|
188,334
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
(116,980
|
)
|
|
$
|
71,372
|
|
(continued)
See notes to financial statements.
71
REPLIDYNE,
INC.
STATEMENTS
OF STOCKHOLDERS EQUITY (DEFICIT), PREFERRED STOCK,
AND
COMPREHENSIVE INCOME (LOSS) (continued)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
Series A
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Series D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
Series B
|
|
|
Redeemable
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
Stockholders
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-In
|
|
|
Stock-Based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Balances, December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
27,010
|
|
|
$
|
27
|
|
|
|
(31
|
)
|
|
$
|
(2
|
)
|
|
$
|
188,334
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
(116,980
|
)
|
|
$
|
71,372
|
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
Release of restrictions on restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
Vested shares of restricted stock returned to the company for
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Return of unvested restricted stock by employee upon termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense related to options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,784
|
|
Issuance of restricted stock to an employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale equity securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
Retirement of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
58
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,692
|
|
|
|
7,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
27,085
|
|
|
$
|
27
|
|
|
|
(8
|
)
|
|
$
|
(1
|
)
|
|
$
|
191,570
|
|
|
$
|
|
|
|
$
|
96
|
|
|
$
|
(109,288
|
)
|
|
$
|
82,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
72
REPLIDYNE,
INC.
STATEMENTS
OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,692
|
|
|
$
|
(29,249
|
)
|
|
$
|
(33,669
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,474
|
|
|
|
1,418
|
|
|
|
1,258
|
|
Stock-based compensation
|
|
|
2,784
|
|
|
|
1,180
|
|
|
|
58
|
|
Amortization of debt discount and issuance costs
|
|
|
|
|
|
|
9
|
|
|
|
35
|
|
Amortization of discounts and premiums on short-term investments
|
|
|
779
|
|
|
|
(744
|
)
|
|
|
(469
|
)
|
Other
|
|
|
15
|
|
|
|
105
|
|
|
|
28
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable from Forest Laboratories
|
|
|
4,634
|
|
|
|
(4,634
|
)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(349
|
)
|
|
|
(1,695
|
)
|
|
|
(182
|
)
|
Other assets
|
|
|
21
|
|
|
|
150
|
|
|
|
(288
|
)
|
Accounts payable and accrued expenses
|
|
|
4,435
|
|
|
|
(518
|
)
|
|
|
6,996
|
|
Deferred revenue
|
|
|
(56,175
|
)
|
|
|
56,175
|
|
|
|
(307
|
)
|
Other long-term liabilities
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(34,715
|
)
|
|
|
22,172
|
|
|
|
(26,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments classified as
available-for-sale
|
|
|
(26,803
|
)
|
|
|
(169,827
|
)
|
|
|
(157,281
|
)
|
Purchases of short-term investments classified as
held-to-maturity
|
|
|
(74,870
|
)
|
|
|
(60,854
|
)
|
|
|
|
|
Maturities of short-term investments classified as
available-for-sale
|
|
|
59,489
|
|
|
|
147,504
|
|
|
|
125,500
|
|
Maturities of short-term investments classified as
held-to-maturity
|
|
|
96,686
|
|
|
|
36,916
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
7
|
|
|
|
45
|
|
|
|
1
|
|
Acquisitions of property and equipment
|
|
|
(232
|
)
|
|
|
(1,214
|
)
|
|
|
(1,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
54,277
|
|
|
|
(47,430
|
)
|
|
|
(33,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
|
|
|
|
(169
|
)
|
|
|
(1,173
|
)
|
Proceeds from issuance of common stock from the exercise of
stock options and under the employee stock purchase plan
|
|
|
346
|
|
|
|
397
|
|
|
|
291
|
|
Proceeds from repayment of principal on notes receivable from
officers
|
|
|
|
|
|
|
356
|
|
|
|
|
|
Proceeds from exercise of preferred stock warrants
|
|
|
|
|
|
|
100
|
|
|
|
|
|
Proceeds from sale of common stock from initial public offering,
net of underwriters discount and offering costs
|
|
|
|
|
|
|
44,539
|
|
|
|
|
|
Bank overdraft
|
|
|
|
|
|
|
(227
|
)
|
|
|
227
|
|
Purchase of unvested restricted stock from employees upon
termination
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of Series D redeemable convertible
preferred stock, net
|
|
|
|
|
|
|
|
|
|
|
60,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
316
|
|
|
|
44,996
|
|
|
|
59,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
19,878
|
|
|
|
19,738
|
|
|
|
(287
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
24,091
|
|
|
|
4,353
|
|
|
|
4,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
43,969
|
|
|
$
|
24,091
|
|
|
$
|
4,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable issued to officers for the exercise of stock
options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of warrants from accrued liabilities to equity
|
|
$
|
|
|
|
$
|
629
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
73
REPLIDYNE,
INC.
NOTES TO
FINANCIAL STATEMENTS
|
|
(1)
|
Business
and Organization
|
Replidyne, Inc. (Replidyne or the Company) is a
biopharmaceutical company focused on discovering, developing,
in-licensing and commercializing anti-infective products. The
Companys most advanced product candidate, faropenem
medoxomil, is a novel oral community antibiotic for which the
Company submitted a New Drug Application (NDA) with the
U.S. Food and Drug Administration (FDA) in December 2005
for treatment of acute bacterial sinusitis, community-acquired
pneumonia, acute exacerbation of chronic bronchitis, and
uncomplicated skin and skin structure infections in adults. In
October 2006, the FDA issued a non-approvable letter for the
NDA. According to the non-approvable letter, the FDA recommends
further clinical studies for all indications included in the
NDA, additional microbiologic confirmation and consideration of
alternate dosing of faropenem medoxomil.
The Companys research and development product pipeline
also includes REP3123, an investigational narrow-spectrum
antibacterial agent for the treatment of
Clostridium
difficile
(
C. difficile
) bacteria and
C. difficile
-associated disease (CDAD), and its
bacterial DNA replication inhibitor technology. Additionally,
the Company had also been developing REP8839, a topical
antibiotic for the treatment of skin and wound infections,
including methicillin-resistant
Staphylococcus aureus
(MRSA) infections. As a result of prioritizing its
preclinical programs in December 2007, the Company suspended the
development of REP8839 due to the incremental investment
required to optimize the formulation and the niche market
opportunity for its initial indication of treating impetigo.
In February 2006, the Company entered into a collaboration and
commercialization agreement with Forest Laboratories Holding
Limited (Forest Laboratories) for the commercialization,
development and distribution of faropenem medoxomil in the
U.S. Under this agreement, in 2006 the Company received
nonrefundable upfront and milestone payments of $60 million
and during the term of the agreement received $14.6 million
of contract revenue from funded activities related to the
development of faropenem medoxomil. On May 7, 2007, the
collaboration and commercialization agreement with Forest
Laboratories terminated. As a result, the Company reacquired all
rights to faropenem medoxomil previously granted to Forest
Laboratories and recognized as revenue in 2007 all remaining
unamortized deferred revenue under this agreement totaling
$55 million.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
Accounting Estimates in the Preparation of Financial
Statements.
The preparation of financial
statements in conformity with accounting principles generally
accepted in the U.S. requires management 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 revenue and expenses during the reporting period.
Actual results could differ from these estimates.
Cash and Cash Equivalents.
The Company
considers all highly liquid investments purchased with
maturities of 90 days or less when acquired to be cash
equivalents. Cash equivalents are carried at amortized cost,
which approximates fair value.
Short-Term Investments.
Short-term
investments are investments purchased with maturities of longer
than 90 days held at a financial institution. At
December 31, 2007, contractual original maturities of the
Companys short-term investments were less than two years
for investments classified as available-for-sale and less than
one year for investments classified as held-to-maturity. At
December 31, 2007, the current weighted average days to
maturity was approximately thirteen months for investments
classified as available-for-sale and approximately two months
for investments classified as held-to-maturity.
Management determines the classification of securities at
purchase based on its intent. In accordance with
SFAS No. 115,
Accounting for Certain Investments in
Debt and Equity Securities
, the Company classifies its
securities as held-to-maturity or available-for-sale.
Held-to-maturity securities are those which the Company
74
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
has the positive intent and ability to hold to maturity and are
reported at amortized cost. Available-for-sale securities are
those the Company may decide to sell if needed for liquidity,
asset/liability management, or other reasons.
Available-for-sale securities are recorded at estimated fair
value. The estimated fair value amounts are determined by the
Company using available market information. Unrealized holding
gains and losses on available-for-sale securities are excluded
from earnings and are reported as a separate component of other
comprehensive income or loss until realized. Cost is adjusted
for amortization of premiums and accretion of discounts from the
date of purchase to maturity. Such amortization is included in
investment income and other. Realized gains and losses and
declines in value judged to be other than temporary on
available-for-sale securities are also included in investment
income and other. The cost of securities sold is based on the
specific-identification method. A decline in the market value of
any available-for-sale security below cost that is deemed to be
other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new
cost basis for the security is established. To determine whether
an impairment is other than temporary, the Company considers
whether it has the ability and intent to hold the investment
until a market price recovery and considers whether evidence
indicating the cost of the investment is recoverable outweighs
evidence to the contrary. Evidence considered in this assessment
includes the reasons for the impairment, the severity and
duration of the impairment, changes in value subsequent to
period end, and forecasted performance of the investee. No
impairments were recorded as a result of this analysis during
2007, 2006 or 2005. The Companys investments were
classified as follows at December 31, 2007 and 2006 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Available-for-sale securities recorded at fair value
|
|
$
|
16,213
|
|
|
$
|
49,525
|
|
Held-to-maturity securities recorded at amortized
cost
|
|
|
30,084
|
|
|
|
51,951
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
46,297
|
|
|
$
|
101,476
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the types of short-term
investments classified as available-for-sale securities (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
U.S. government agencies
|
|
$
|
3,998
|
|
|
$
|
4,005
|
|
|
$
|
40,599
|
|
|
$
|
40,601
|
|
U.S. bank and corporate notes
|
|
|
12,119
|
|
|
|
12,208
|
|
|
|
8,933
|
|
|
|
8,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,117
|
|
|
$
|
16,213
|
|
|
$
|
49,532
|
|
|
$
|
49,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains and losses on available-for-sale
securities as of December 31, 2007 were $0.1 million
and $7 thousand, respectively. Unrealized holding gains and
losses on available-for-sale securities as of December 31,
2006 were $5 thousand and $12 thousand, respectively. Net
unrealized holding gains or losses are recorded in accumulated
other comprehensive income or loss.
75
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
The following is a summary of short-term investments classified
as held-to-maturity securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
U.S. bank and corporate notes
|
|
$
|
30,084
|
|
|
$
|
30,091
|
|
|
$
|
42,962
|
|
|
$
|
42,951
|
|
U.S. government agencies
|
|
|
|
|
|
|
|
|
|
|
8,989
|
|
|
|
8,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,084
|
|
|
$
|
30,091
|
|
|
$
|
51,951
|
|
|
$
|
51,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains and losses on held-to-maturity
investments as of December 31, 2007 were $10 thousand and
$3 thousand, respectively. Unrealized holding gains and losses
on held-to-maturity investments as of December 31, 2006
were $3 thousand and $18 thousand, respectively.
Concentrations of Credit
Risk.
Financial instruments that potentially
subject the Company to concentrations of credit risk consist
primarily of cash, cash equivalents and short-term investments.
The Company has established guidelines to limit its exposure to
credit risk by placing investments with high credit quality
financial institutions, diversifying its investment portfolio,
and making investments with maturities that maintain safety and
liquidity.
Property and Equipment.
Property and
equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets, generally three to seven years. Leasehold improvements
are amortized over the shorter of the life of the lease or the
estimated useful life of the assets. Repairs and maintenance
costs are expensed as incurred.
Long-Lived Assets and Impairments.
The Company
periodically evaluates the recoverability of its long-lived
assets in accordance with SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets
, and, if
appropriate, reduces the carrying value whenever events or
changes in business conditions indicate the carrying amount of
the assets may not be fully recoverable. SFAS No. 144
requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the fair value
less costs to sell such assets. The Company has not yet
generated positive cash flows from operations on a sustained
basis, and such cash flows may not materialize for a significant
period in the future, if ever. Additionally, the Company may
make changes to its business plan that will result in changes to
the expected cash flows from long-lived assets. As a result, it
is reasonably possible that future evaluations of long-lived
assets may result in impairment.
Accrued Expenses.
As part of the
process of preparing its financial statements, the Company is
required to estimate accrued expenses. This process involves
identifying services that third parties have performed on the
Companys behalf and estimating the level of service
performed and the associated cost incurred on these services as
of each balance sheet date in the Companys financial
statements. Examples of estimated accrued expenses include
contract service fees, such as amounts due to clinical research
organizations, professional service fees, such as attorneys and
independent accountants, and investigators in conjunction with
preclinical and clinical trials, and fees payable to contract
manufacturers in connection with the production of materials
related to product candidates. Estimates are most affected by
the Companys understanding of the status and timing of
services provided relative to the actual level of services
incurred by the service providers. The date on which certain
services commence, the level of services performed on or before
a given date, and the cost of services is often subject to
judgment. Additionally, the Company is a party to agreements
which include provisions that require payments to the
counterparty under certain circumstances. The Company develops
estimates of liabilities using its judgment based upon the facts
and circumstances known and accounts for these estimates in
accordance with accounting principles involving accrued expenses
generally accepted in the U.S.
76
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
Segments.
The Company operates in one
segment. Management uses one measure of profitability and does
not segment its business for internal reporting purposes.
Share-Based Compensation.
Effective
January 1, 2006, the Company adopted
SFAS No. 123(R),
Share-Based Payment
, using the
prospective method of transition. Under that transition method,
compensation cost recognized after adoption includes:
(a) compensation costs for all share-based payments granted
prior to January 1, 2006, based on the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion
No. 25,
Accounting for Stock Issued to Employees,
and (b) compensation cost for all share-based payments
granted or modified subsequent to January 1, 2006, based on
the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R).
The Company selected the Black-Scholes option pricing model as
the most appropriate valuation method for option grants with
service
and/or
performance conditions. The Black-Scholes model requires inputs
for risk-free interest rate, dividend yield, volatility and
expected lives of the options. Since the Company has a limited
history of stock activity, expected volatility is based on
historical data from several public companies similar in size
and nature of operations to the Company. The Company will
continue to use historical volatility and other similar public
entity volatility information until its historical volatility is
relevant to measure expected volatility for future option
grants. The Company estimates the forfeiture rate based on
historical data. Based on an analysis of historical forfeitures,
the Company applied an annual forfeiture rate of 4.48% during
2007 and applied an annual forfeiture rate of 6.97% during 2006.
The forfeiture rate is re-evaluated on a quarterly basis. The
risk-free rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect
at the time of the grant for a period commensurate with the
expected term of the grant. The expected term (without regard to
forfeitures) for options granted represents the period of time
that options granted are expected to be outstanding and is
derived from the contractual terms of the options granted and
historical option exercise behaviors.
For options granted during 2007, the Company estimated the fair
value of option grants as of the date of grant using the
Black-Scholes option pricing model with the following weighted
average assumptions. Expected volatility was estimated to be
75%. The weighted average risk-free interest rate was 4.46%, and
the dividend yield was 0.00%. The weighted average expected
lives for each individual vesting tranche under the graded
vesting attribution method discussed below was estimated to be
3.05 years.
For certain options granted during 2006, the Company estimated
the fair value of option grants as of the date of grant using
the Black-Scholes option pricing model with the following
weighted average assumptions. Expected volatility was estimated
to be 75%. The weighted average risk-free interest rate was
4.58%, and the dividend yield was 0.00%. The weighted average
expected lives for each individual vesting tranche under the
graded vesting attribution method discussed below was estimated
to be 2.18 years.
During 2006, the Company also issued options which vest over the
earlier to be achieved service or market condition. In
determining the estimated fair value of these option awards on
the date of grant, the Company elected to use a binomial lattice
option pricing model together with Monte Carlo simulation
techniques using the following weighted average assumptions
during 2006: risk-free interest rate of 5.08%, expected dividend
yield of 0%, expected volatility of 75%, forfeiture rate of
6.97%, suboptimal exercise factor of 2, and post-vesting exit
rate of 6.97%. An expected life of 7.01 years was derived
from the model.
The lattice model requires inputs for risk-free interest rate,
dividend yield, volatility, contract term, average vesting
period, post-vest exit rate and suboptimal exercise factor. Both
the fair value and expected life are outputs from the model. The
risk-free interest rate was determined based on the yield
available on U.S. Treasury Securities over the life of the
option. The dividend yield and volatility factor was determined
in the same manner as described above for the Black-Scholes
model. The lattice model assumes that employees exercise
behavior is a function of the options remaining vested
life and the extent to which the option is in-the-money. The
lattice model estimates the probability of exercise as a
function of the suboptimal exercise
77
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
factor and the post-vesting exit rate. The suboptimal exercise
factor and post-vesting exit rate were based on actual
historical exercise behavior.
The Company had a choice of two attribution methods for
allocating compensation costs under SFAS No. 123(R):
the straight-line method, which allocates expense on
a straight-line basis over the requisite service period of the
last separately vesting portion of an award, or the graded
vesting attribution method, which allocates expense on a
straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in
substance, multiple awards. The Company chose the graded vesting
attribution method and accordingly, amortizes the fair value of
each option over each options vesting period (requisite
service period).
Employee stock options granted by the Company are generally
structured to qualify as incentive stock options
(ISOs). Under current tax regulations, the Company does not
receive a tax deduction for the issuance, exercise or
disposition of ISOs if the employee meets certain holding
requirements. If the employee does not meet the holding
requirements, a disqualifying disposition occurs, at which time
the Company will receive a tax deduction. The Company does not
record tax benefits related to ISOs unless and until a
disqualifying disposition occurs. In the event of a
disqualifying disposition, the entire tax benefit is recorded as
a reduction of income tax expense. The Company has not
recognized any income tax benefit or related tax asset for
share-based compensation arrangements as the Company does not
believe, based on its history of operating losses, that it is
more likely than not it will realize any future tax benefit from
such compensation cost recognized since inception of the Company.
Under SFAS 123(R), the estimated fair value of share-based
compensation, including stock options granted under the
Companys Equity Incentive Plan and discounted purchases of
common stock by employees under the Employee Stock Purchase
Plan, is recognized as compensation expense. The estimated fair
value of stock options is expensed over the requisite service
period as discussed above. Compensation expense under the
Companys Employee Stock Purchase Plan is calculated based
on participant elected contributions and estimated fair values
of the common stock and the purchase discount at the date of the
offering. See Note 10 for further information on
share-based compensation under these plans. Share-based
compensation included in the Companys statement of
operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Research and development
|
|
$
|
1,234
|
|
|
$
|
385
|
|
|
$
|
58
|
|
Sales, general and administrative
|
|
|
1,550
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,784
|
|
|
$
|
1,180
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 123(R) was applied only to awards granted or
modified after the required effective date of January 1,
2006. Awards granted prior to the Companys implementation
of SFAS No. 123(R) are accounted for under the
recognition and measurement provisions of APB Opinion
No. 25 and related interpretations.
Stock-Based Compensation under APB
No. 25.
Prior to January 1, 2006,
the Company applied the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25,
Accounting for Stock Issued to
Employees
, and related interpretations, including Financial
Accounting Standards Board (FASB) Interpretation No. 44,
Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25
,
in accounting for its employee stock options. Under this method,
compensation expense is generally recorded on the date of grant
only if the estimated fair value of the underlying stock exceeds
the exercise price. Given the absence of an active market for
the Companys common stock prior to its initial public
offering, the board of directors historically determined the
estimated fair value of common stock on the dates of grant based
on several factors, including progress against regulatory,
clinical and product development milestones; sales of redeemable
convertible preferred stock and
78
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
the related liquidation preference associated with such
preferred stock; progress toward establishing a collaborative
development and commercialization partnership for faropenem
medoxomil; changes in valuation of comparable publicly-traded
companies; overall equity market conditions; and the likelihood
of achieving a liquidity event such as an initial public
offering or sale of the Company. The Company also considered the
guidance set forth in the American Institute of Certified Public
Accountants Practice Guide,
Valuation of Privately
Held-Company Equity Securities Issued As Compensation.
In
addition, the Company obtained independent valuations of its
common stock at September, November and December 2005. These
independent valuations supported the fair value of the
Companys common stock established by the board of
directors in 2005. Based on these factors, during 2005 the
Company valued its common stock and set exercises prices for
common stock options at each date of grant within the range of
$0.61 to $1.32 per share.
SFAS No. 123,
Accounting for Stock-Based
Compensation
, and SFAS No. 148,
Accounting for
Stock-Based Compensation Transition and Disclosure,
an amendment of FASB Statement No. 123
, established
accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation
plans. As permitted by existing accounting standards, the
Company elected to continue to apply the intrinsic-value-based
method of accounting described above, for options granted
through December 31, 2005. The following table illustrates
the effect on net loss as if the fair-value-based method had
been applied to all outstanding and unvested awards in the year
ended December 31, 2005, prior to the adoption of
SFAS 123(R), on January 1, 2006 (in thousands, except
per share data):
|
|
|
|
|
Net loss attributable to common stockholders, as reported
|
|
$
|
(40,860
|
)
|
Add: stock-based employee compensation expense included in
reported net loss attributable to common stockholders
|
|
|
57
|
|
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards
|
|
|
(98
|
)
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$
|
(40,901
|
)
|
|
|
|
|
|
Net loss attributable to common stockholders per
share basic and diluted, as reported
|
|
$
|
(39.20
|
)
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders per
share basic and diluted
|
|
$
|
(39.24
|
)
|
|
|
|
|
|
Prior to January 1, 2006, the fair value of each employee
stock option award was estimated on the date of grant based on
the minimum value method using the Black-Scholes option pricing
valuation model. For options granted during 2005, the Company
used the following weighted average assumptions: weighted
average risk-free interest rate of 4.19%; dividend yield of
0.00%; expected life of 5 years and volatility, under the
minimum value method, of .0001%.
Clinical Trial Expenses.
The Company
records clinical trial expenses based on estimates of the
services received and efforts expended pursuant to contracts
with clinical research organizations (CROs) and other third
party vendors associated with its clinical trials. The Company
contracts with third parties to perform a range of clinical
trial activities in the ongoing development of its product
candidates. The terms of these agreements vary and may result in
uneven payments. Payments under these contracts depend on
factors such as the achievement of certain defined milestones,
the successful enrollment of patients and other events. The
objective of the Companys clinical trial accrual policy is
to match the recording of expenses in its financial statements
to the actual services received and efforts expended. In doing
so, the Company relies on information from CROs and its clinical
operations group regarding the status of its clinical trials to
calculate the accrual for clinical expenses at the end of each
reporting period.
Net Income (Loss) Per Share.
Net income
(loss) per share is computed using the weighted average number
of shares of common stock outstanding and is presented for basic
and diluted net income (loss) per share. Basic net income (loss)
per share is computed by dividing net income (loss) attributable
to common
79
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
stockholders by the weighted average number of common shares
outstanding during the period, excluding common stock subject to
vesting provisions. Diluted net income (loss) per share is
computed by dividing net income (loss) attributable to common
stockholders by the weighted average number of common shares
outstanding during the period increased to include, if dilutive,
the number of additional common shares that would have been
outstanding if the potential common shares had been issued or
restrictions lifted on restricted stock. The dilutive effect of
common stock equivalents such as outstanding stock options,
warrants and restricted stock is reflected in diluted net income
(loss) per share by application of the treasury stock method.
The following table sets forth the computation of basic and
diluted net income (loss) per share (amounts in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,692
|
|
|
$
|
(29,249
|
)
|
|
$
|
(33,669
|
)
|
Preferred stock dividends and accretion
|
|
|
|
|
|
|
(5,391
|
)
|
|
|
(7,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,692
|
|
|
$
|
(34,640
|
)
|
|
$
|
(40,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding, excluding unvested
restricted stock
|
|
|
26,730
|
|
|
|
13,908
|
|
|
|
1,042
|
|
Effect of dilutive securities
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
|
|
|
27,666
|
|
|
|
13,908
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) earnings per share
|
|
$
|
0.29
|
|
|
$
|
(2.49
|
)
|
|
$
|
(39.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) earnings per share
|
|
$
|
0.28
|
|
|
$
|
(2.49
|
)
|
|
$
|
(39.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities representing approximately
1.5 million, 2.5 million and 19.4 million shares
of common stock for the years ended December 31, 2007, 2006
and 2005, respectively, were excluded from the computation of
diluted earnings per share for these periods because their
effect would have been antidilutive. Potentially dilutive
securities include stock options, warrants, shares to be
purchased under the employee stock purchase plan, restricted
stock and shares which would be issued under convertible
preferred stock.
Fair Value of Financial
Instruments.
The carrying amounts of
financial instruments, including cash and cash equivalents,
receivables from Forest Laboratories, and accounts payable
approximate fair value due to their short-term maturities.
Revenue Recognition.
The Companys
commercial collaboration agreements can contain multiple
elements, including nonrefundable upfront fees, payments for
reimbursement of research costs, payments for ongoing research,
payments associated with achieving specific milestones and
royalties based on specified percentages of net product sales,
if any. The Company applies the revenue recognition criteria
outlined in Emerging Issues Task Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21),
in accounting for upfront and milestone payments under the
agreement. In applying the revenue recognition criteria within
EITF 00-21,
the Company considers a variety of factors in determining the
appropriate method of revenue recognition under these
arrangements, such as whether the elements are separable,
whether there are determinable fair values and whether there is
a unique earnings process associated with each element of a
contract.
Where the Company does not believe that an upfront fee or
milestone payment is specifically tied to a separate earnings
process, revenues are recognized ratably over the estimated term
of the agreement. When
80
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
the Companys obligations under such arrangements are
completed, any remaining deferred revenue is recognized.
Payments received by the Company for the reimbursement of
expenses for research, development and commercial activities
under commercial collaboration and commercialization agreements
are recorded in accordance with EITF Issue
99-19,
Reporting Revenue Gross as Principal Versus Net as an Agent
(EITF 99-19).
Per
EITF 99-19,
in transactions where the Company acts as principal, with
discretion to choose suppliers, bears credit risk and performs a
substantive part of the services, revenue is recorded at the
gross amount of the reimbursement. Costs associated with these
reimbursements are reflected as a component of operating
expenses in the Companys statements of operations.
Research and Development.
Research and
development costs are expensed as incurred. These costs consist
primarily of salaries and benefits, licenses to technology,
supplies and contract services relating to the development of
new products and technologies, allocated overhead, clinical
trial and related clinical manufacturing costs, and other
external costs.
The Company is currently producing clinical and commercial grade
product in its facilities and through third parties. Prior to
filing for regulatory approval of its products for commercial
sale, and such approval being assessed as probable, these costs
are expensed as incurred to research and development.
Comprehensive Income (Loss).
The
Company applies the provisions of SFAS No. 130,
Reporting Comprehensive Income
, which establishes
standards for reporting comprehensive income or loss and its
components in financial statements. The Companys
comprehensive income (loss) is comprised of its net income or
loss and unrealized gains and losses on securities
available-for-sale. For the year ended December 31, 2007
comprehensive income was $7.8 million and for the years
ended December 31, 2006 and 2005, the Company reported
comprehensive losses of $29.7 million and
$33.2 million, respectively.
Income Taxes.
The Company accounts for
income taxes pursuant to SFAS No. 109,
Accounting
for Income Taxes
, which requires the use of the asset and
liability method of accounting for deferred income taxes.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. A valuation
allowance is recorded to the extent it is more likely than not
that a deferred tax asset will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in operations in the period that
includes the enactment date.
Based on an analysis of historical equity transactions under the
provisions of Section 382 of the Internal Revenue Code, the
Company believes that ownership changes have occurred at two
points since its inception. These ownership changes limit the
annual utilization of the Companys net operating losses in
future periods. The Company does not believe that these
ownership changes will result in the loss of any of its net
operating loss carryforwards existing on the date of each
ownership change. The Companys only significant deferred
tax assets are its net operating loss carryforwards. The Company
has provided a valuation allowance for its entire net deferred
tax asset since its inception as, due to uncertainty as to
future utilization of its net operating loss carryforwards, due
primarily to its history of operating losses, the Company has
concluded that it is more likely than not that its deferred tax
asset will not be realized.
FASB Interpretation No. 48 (FIN 48),
Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109,
defines 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 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. At the
adoption date of January 1, 2007, the Company had no
unrecognized tax benefits which would affect its effective tax
rate if recognized. At December 31, 2007, the Company has
no
81
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
unrecognized tax benefits. The Company classifies interest and
penalties arising from the underpayment of income taxes in the
statements of operations as general and administrative expenses.
As of December 31, 2007, the Company has no accrued
interest or penalties related to uncertain tax positions. The
tax years 2003 to 2006 federal returns remain open to
examination, and the tax years 2002 to 2006 remain open to
examination by other taxing jurisdictions to which we are
subject.
Recent Accounting Pronouncements.
In
September 2006, the FASB issued Statement of Financial
Accounting Standard (SFAS) No. 157,
Fair Value
Measurements
(SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value in
applying generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 applies
whenever an entity is measuring fair value under other
accounting pronouncements that require or permit fair value
measurement. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
but the FASB provided a one year deferral for implementation of
the standard for non-financial assets and liabilities. The
Company does not expect that the adoption of SFAS 157 will
have a material impact on its financial statements.
In June 2007, the FASB ratified EITF Issue
No. 07-03,
Accounting for Advance Payments for Goods or Services to Be
Used in Future Research and Development Activities
(EITF 07-03).
The scope of
EITF 07-03
is limited to nonrefundable advance payments for goods and
services to be used or rendered in future research and
development activities pursuant to an executory contractual
arrangement. This issue provides that nonrefundable advance
payments for goods or services that will be used or rendered for
future research and development activities should be deferred
and capitalized. Such amounts should be recognized as an expense
as the related goods are delivered or the related services are
performed. The Company will be required to adopt
EITF 07-03
for new contracts entered into in 2008. The Company does not
expect that the adoption of
EITF 07-03
will have a material impact on its financial statements.
In December 2007, the FASB ratified EITF Issue
No. 07-01
,
Accounting for Collaborative Arrangements
(EITF 07-01).
EITF 07-01
defines collaborative arrangements and establishes reporting
requirements for transactions between participants in a
collaborative arrangement and between participants in the
arrangement and third parties.
EITF 07-01
also establishes the appropriate income statement presentation
and classification for joint operating activities and payments
between participants, as well as disclosures related to these
arrangements.
EITF 07-01
is effective for fiscal years beginning after December 15,
2008. The Company does not expect that the adoption of
EITF 07-01
will have a material impact on its financial statements.
|
|
(3)
|
Property
and Equipment
|
Property and equipment at December 31, 2007 and 2006
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Equipment
|
|
$
|
5,011
|
|
|
$
|
4,760
|
|
Furniture and fixtures
|
|
|
700
|
|
|
|
820
|
|
Leasehold improvements
|
|
|
2,220
|
|
|
|
2,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,931
|
|
|
|
7,775
|
|
Less accumulated depreciation and amortization
|
|
|
(6,026
|
)
|
|
|
(4,605
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,905
|
|
|
$
|
3,170
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2006 and 2005
depreciation and amortization expense was $1.5 million,
$1.4 million and $1.3 million, respectively.
82
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
|
|
(4)
|
Agreement
with Forest Laboratories Holdings Limited
|
In February 2006, the Company entered into a collaboration and
commercialization agreement with Forest Laboratories for the
commercialization, development and distribution of faropenem
medoxomil in the U.S. In October 2006, the Company received
a non-approvable letter from the FDA for the NDA it submitted
for faropenem medoxomil in December 2005. According to the
non-approvable letter, the FDA recommended further clinical
studies for all indications included in the NDA, additional
microbiologic confirmation and consideration of alternate dosing
of faropenem medoxomil. In May 2007, the collaboration and
commercialization agreement with Forest Laboratories was
terminated. In accordance with the terms of the agreement,
following the termination, all of Forest Laboratories
rights and licenses with respect to faropenem medoxomil have
ceased.
The Company received $60 million in upfront and milestone
payments from Forest Laboratories in 2006, which the Company was
recognizing into revenue through 2020, the then estimated term
of the agreement. Effective May 7, 2007, the termination
date of the agreement with Forest Laboratories, the Company
recognized all remaining deferred revenue related to the upfront
and milestone payments of approximately $55 million.
|
|
(5)
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses at December 31, 2007
and 2006 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accounts payable trade
|
|
$
|
4,553
|
|
|
$
|
3,223
|
|
Accrued employee compensation
|
|
|
2,692
|
|
|
|
1,313
|
|
Accrued clinical trial costs
|
|
|
1,227
|
|
|
|
894
|
|
Accrued contingent supply agreement fees
|
|
|
2,641
|
|
|
|
882
|
|
Other accrued expenses
|
|
|
1,142
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,255
|
|
|
$
|
7,957
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Commitments
and Contingencies
|
Operating Leases.
The Company has
entered into a
74-month
sub-lease agreement for its Colorado corporate office and
laboratory facility and a
60-month
lease agreement for its Connecticut office facility. These lease
agreements include rent concessions and escalating rent payments
throughout the term of the lease. The rent expense related to
these leases is recorded monthly on a straight-line basis in
accordance with U.S. generally accepted accounting
principles. Additionally, the Company received leasehold
incentives which have been recorded as a deferred credit and are
being amortized monthly on a straight-line basis to rent expense
over the term of the lease.
83
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
At December 31, 2007, future minimum lease payments under
the Companys noncancelable operating leases are as follows
(in thousands):
|
|
|
|
|
For the Year Ending December 31,
|
|
|
|
|
2008
|
|
$
|
737
|
|
2009
|
|
|
779
|
|
2010
|
|
|
729
|
|
2011
|
|
|
514
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
2,759
|
|
|
|
|
|
|
During the years ended December 31, 2007, 2006 and 2005 the
Company recognized $0.7 million, $0.6 million and
$0.6 million in rent expense, respectively.
Indemnifications.
The Company has
agreements whereby it indemnifies directors and officers for
certain events or occurrences while the director or officer is,
or was, serving in such capacity at the Companys request.
The maximum potential amount of future payments the Company
could be required to make under these indemnification agreements
is unlimited.
Employment Agreements.
The Company has
entered into employment agreements with its chief executive
officer and other named executive officers that provide for base
salary, eligibility for bonuses and other generally available
benefits. The employment agreements provide that the Company may
terminate the named executive officer employment at any time
with or without cause. If a named executive officer is
terminated by the Company without cause or such officer resigns
for good reason, then the named executive officer is entitled to
receive a severance package consisting of salary continuation
for a period of twelve months from the date of termination among
other benefits. If such termination occurs one month before or
thirteen months following a change of control, then the
executive is entitled to salary continuation for a period of
twelve months (or eighteen months with respect to Mr. Collins
and Dr. Janjic) from the date of termination and acceleration of
vesting of all of the executives outstanding unvested
options to purchase the Companys common stock among other
benefits. In addition, during 2007 the Company established a
severance benefit plan that defines termination benefits for all
eligible employees, as defined, not under an employment
contract, if the employee is terminated without cause. Under
this plan, employees whose employment is terminated without
cause are provided a severance benefit of between nine and
eighteen weeks pay, based on grade level, plus an additional two
weeks pay for each year of service.
Asubio Pharma License Agreement.
In
2004, the Company entered into a license agreement with Asubio
Pharma Co., Ltd., or Asubio Pharma to develop and commercialize
faropenem medoxomil in the U.S. and Canada for adult and
pediatric use, which was amended as to certain terms in 2006.
The Company has an exclusive option to license rights to
faropenem medoxomil for the rest of the world excluding Japan.
The Company bears the cost of and manages development,
regulatory approvals and commercialization efforts. Asubio
Pharma is entitled to upfront fees, milestone payments and
royalties.
In consideration for the license, in 2003 and 2004 the Company
paid Asubio Pharma an initial license fee of
¥400 million ($3.8 million). In December 2005,
the Company submitted its first NDA for adult use of faropenem
medoxomil and, at that time, recorded an accrual in the amount
of ¥250 million ($2.1 million) for the first
milestone due to Asubio Pharma under this agreement. This amount
was expensed to research and development in 2005 and paid in
2006. In February 2006, this milestone payment was increased to
¥375 million (approximately $3.2 million). The
increased milestone amount of ¥125 million
($1.1 million) was accounted for as research and
development expense in the quarter ended March 31, 2006
when the modified terms of the license were finalized. Under the
modified license agreement the Company is further obligated to
make future payments of up to ¥375 million
(approximately $3.3 million at December 31,
2007) upon filing of an NDA at a higher dose and up to
¥1,250 million (approximately $11.1 million at
84
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
December 31, 2007) in subsequent regulatory and
commercial milestone payments for faropenem medoxomil. If it is
determined that the Company has ceased development or
commercialization of faropenem medoxomil as defined, or the
Company terminates its license agreement with Asubio Pharma, it
will be obligated to pay a termination fee of up to
¥375 million (approximately $3.3 million as of
December 31, 2007). Additionally, the Company is
responsible for royalty payments to Asubio Pharma based upon net
sales of faropenem medoxomil. The license term extends to the
later of: (i) the expiration of the last to expire of the
licensed patents owned or controlled by Asubio Pharma or
(ii) 12 years after the first commercial launch of
faropenem medoxomil. The Company has recorded payments made to
date as research and development expense, as faropenem medoxomil
has not been approved by the FDA.
Asubio Pharma and Nippon Soda Supply
Agreement.
Under a supply agreement entered
into in December 2004 between Asubio Pharma, Nippon Soda Company
Ltd., or Nippon Soda, and the Company, the Company is obligated
to purchase, and Nippon Soda is obligated to supply, all of the
Companys commercial requirements of the active
pharmaceutical ingredient in faropenem medoxomil for the
U.S. and Canadian markets. During the three years following
placement of an initial purchase order by the Company, which has
not occurred, with Nippon Soda, the Company becomes obligated to
make certain annual minimum purchases of drug substance to be
determined initially by the Company and Nippon Soda at the time
of a commercial launch. Since full commercial launch of
faropenem medoxomil has been delayed, the Company is currently
obligated to pay Nippon Soda escalating annual delay
compensation fees of up to ¥280 million (approximately
$2.5 million as of December 31, 2007) per year,
which commenced on July 1, 2007. As a result of the
non-approvable letter the Company received from the FDA in
October 2006 and subsequent activities related to the
development of faropenem medoxomil, the Company recorded delay
compensation fees of $0.9 million in the year ended
December 31, 2007 and delay compensation fees of
$0.9 million and an initial order cancellation fee of
$0.6 million in the year ended December 31, 2006.
These amounts were recorded as research and development expense.
If commercial launch of faropenem medoxomil is further delayed
or if the Company is unable to obtain a collaboration partner
for faropenem medoxomil under its current expected timeframe,
the Company may incur additional delay compensation fees of up
to ¥105 million ($0.9 million as of
December 31, 2007) for 2008 and up to
¥280 million annually ($2.5 million as of
December 31, 2007) for all periods following
January 1, 2009. If the Company terminates this agreement,
abandons the development or commercialization of faropenem
medoxomil or is unable to notify Nippon Soda of the faropenem
medoxomil launch go date, as defined, by July 1, 2009, the
Company will be obligated to pay Nippon Soda prorated delay
compensation fees through the effective date of termination and
reimburse Nippon Soda for up to ¥65 million
($0.6 million as of December 31, 2007) in
engineering costs. As of December 31, 2007, the Company has
accrued $1.9 million in delay compensation under this
agreement, $0.9 million of which is based upon the
Companys expectations as to the timing of activities
related to the faropenem medoxomil program. The Company
continues to evaluate amounts which may become payable to Asubio
Pharma and Nippon Soda under the terms of the agreement, and
adjusts its accrual accordingly.
MEDA Supply Agreement.
In 2005, the
Company and MEDA Manufacturing GmbH (formerly Tropon GmbH), or
MEDA, entered into a supply agreement for production of
300 mg adult tablets of faropenem medoxomil, which was
amended as to certain terms in 2006. Beginning in 2006, the
Company became obligated to make annual minimum purchases of
300 mg adult tablets from MEDA of 2.3 million
(approximately $3.4 million at December 31, 2007). If
in any year the Company did not satisfy its minimum purchase
commitments, the Company was required to pay MEDA the shortfall
amount. Fifty percent (50%) of the shortfall amount, if
applicable, may be credited against future drug product
purchases. The Company was required to buy all of its
requirements for 300 mg adult oral faropenem medoxomil
tablets from MEDA until cumulative purchases exceed
22 million (approximately $32.4 million at
December 31, 2007). The agreement provided that, upon
termination, up to 1.7 million (approximately
$2.5 million at December 31, 2007) would be
payable for decontamination fees.
85
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
This agreement was amended in March 2006 such that the
Companys obligations with respect to all purchase
commitments and facility decontamination costs were suspended
and deemed satisfied by Forest Laboratories pursuant to an
agreement between MEDA and Forest Laboratories. Under its
agreement with Forest Laboratories, the Company remained liable
for any shortfall amount in 2006 that may not have been credited
against future drug product purchases. In 2006, the Company
incurred $1.5 million relating to its portion of the 2006
shortfall in minimum purchases under these agreements. The
amount was accounted for as research and development expense in
2006. In May 2007, concurrent with Forest Laboratories
termination of its supply agreements with MEDA, the previously
suspended provisions in the Companys agreements with MEDA
were no longer suspended, and the Companys obligations
with respect to purchase commitments and facility
decontamination costs were no longer waived. In April 2007, the
Company provided notice to MEDA of its termination of the supply
agreement in accordance with the termination provisions of the
agreement as future clinical development of faropenem medoxomil
adult tablets would use 600 mg dosing. As this notice
occurred before the termination date of the Companys
collaboration agreement with Forest Laboratories, the Company
believes that Forest Laboratories, under the terms of the
collaboration agreement, was responsible for supply chain
obligations related to faropenem medoxomil, including minimum
purchase commitments and decontamination obligations under the
MEDA agreement, through May 7, 2007 (the term of the
collaboration agreement). At December 31, 2007, the Company
accrued for minimum purchase fees and interest through date of
termination of its agreement with MEDA. MEDA has indicated that
it disputes the Companys right to terminate the agreement
on the basis indicated in its notice of termination. The Company
believes that it terminated the agreement in accordance with its
terms. If it is determined that the Company has obligations to
MEDA beyond May 7, 2007 under the agreement, then
additional costs may be incurred which may include additional
amounts for minimum future drug purchases that were not made and
for decontamination of MEDAs facility.
Other.
The Company entered into an
arrangement with an investment bank to assist the Company in
identifying a licensing partner for its faropenem medoxomil
program and to provide other investment banking services. Under
the terms of the agreement, the Company may incur transaction
fees of up to $6 million based on the value of a license or
strategic transaction as defined.
During the fourth quarter of 2007, the Company announced plans
to restructure its operations to align critical resources with
strategic priorities. As a result, the Company reduced its
headcount, primarily in the administrative, clinical, commercial
and regulatory functions. The aggregate charge to the
Companys net earnings to restructure its operations was
$1.4 million. The restructuring costs related primarily to
employee severance and benefits which are expected to be paid in
2008. All expenses are recorded as operating expenses in the
Companys statement of operations for the year ended
December 31, 2007.
|
|
(8)
|
Employee
Benefit Plans
|
The Company has a 401(k) plan and matches an amount equal to
50 percent of the employees current contributions,
limited to $2 thousand per participant annually. The Company
commenced its matching contribution program in 2006 and
contributed $0.1 million during each of the years ended
December 31, 2007 and 2006.
The Companys Certificate of Incorporation, as amended and
restated on July 3, 2006, authorizes the Company to issue
105,000,000 shares of $0.001 par value stock which is
comprised of 100,000,000 shares of common stock and
5,000,000 shares of preferred stock. Each share of common
stock is entitled to one vote on each matter properly submitted
to the stockholders of the Company for their vote. The holders
of common
86
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
stock are entitled to receive dividends when and as declared or
paid by the board of directors, subject to prior rights of the
Preferred Stockholders, if any.
Common Stock Warrants.
In connection
with the issuance of debt and convertible notes in 2002 and
2003, the Company issued warrants to certain lenders and
investors to purchase shares of the Companys then
outstanding redeemable convertible preferred stock. The warrants
were initially recorded as liabilities at their fair value. In
July 2006, upon completion of the Companys initial public
offering, all outstanding preferred stock warrants were
automatically converted into common stock warrants and
reclassified to equity at the then current fair value. As of
December 31, 2007 and 2006, warrants for the purchase of
53,012 shares of common stock were outstanding and
exercisable with exercise prices ranging from $4.90 to $6.13 per
share.
|
|
(10)
|
Share-Based
Compensation
|
Stock Option Plan.
The Companys
Equity Incentive Plan, as amended (the Option Plan), provides
for issuances of up to 7,946,405 shares of common stock for
stock option grants. Options granted under the Option Plan may
be either incentive or nonqualified stock options. Incentive
stock options may only be granted to Company employees,
including its officers. Nonqualified stock options may be
granted to Company employees, which include its officers,
directors, and consultants to the Company. Generally, options
granted under the Option Plan expire ten years from the date of
grant and vest over four years: 25% on the first anniversary
from the grant date and ratably in equal monthly installments
over the remaining 36 months. This plan is considered a
compensatory plan and subject to the provisions of
SFAS No. 123(R).
Stock options outstanding at December 31, 2007, changes
during the year then ended and options exercisable at
December 31, 2007 are presented below (share amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Options outstanding at January 1, 2007
|
|
|
2,068
|
|
|
$
|
4.10
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,150
|
|
|
|
5.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(52
|
)
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(286
|
)
|
|
|
6.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007
|
|
|
2,880
|
|
|
|
4.42
|
|
|
|
8.37
|
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2007
|
|
|
823
|
|
|
$
|
3.56
|
|
|
|
7.75
|
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
Additional information regarding outstanding common stock
options as of December 31, 2007 is presented below (in
thousands, except for exercise price and weighted average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Exercisable
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Exercise Price
|
|
Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
$ 0.49
|
|
|
21
|
|
|
|
5.03
|
|
|
$
|
0.49
|
|
|
|
21
|
|
|
$
|
0.49
|
|
0.61
|
|
|
413
|
|
|
|
7.08
|
|
|
|
0.61
|
|
|
|
270
|
|
|
|
0.61
|
|
1.32
|
|
|
37
|
|
|
|
7.77
|
|
|
|
1.32
|
|
|
|
23
|
|
|
|
1.32
|
|
3.19
|
|
|
861
|
|
|
|
8.05
|
|
|
|
3.19
|
|
|
|
273
|
|
|
|
3.19
|
|
5.20
|
|
|
172
|
|
|
|
8.19
|
|
|
|
5.20
|
|
|
|
80
|
|
|
|
5.20
|
|
5.35
|
|
|
907
|
|
|
|
9.18
|
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
5.40
|
|
|
10
|
|
|
|
9.58
|
|
|
|
5.40
|
|
|
|
|
|
|
|
|
|
5.46
|
|
|
57
|
|
|
|
9.36
|
|
|
|
5.46
|
|
|
|
|
|
|
|
|
|
5.54
|
|
|
27
|
|
|
|
9.36
|
|
|
|
5.54
|
|
|
|
|
|
|
|
|
|
6.11
|
|
|
5
|
|
|
|
9.79
|
|
|
|
6.11
|
|
|
|
|
|
|
|
|
|
6.18
|
|
|
32
|
|
|
|
8.96
|
|
|
|
6.18
|
|
|
|
8
|
|
|
|
6.18
|
|
8.97
|
|
|
141
|
|
|
|
8.37
|
|
|
|
8.97
|
|
|
|
64
|
|
|
|
8.97
|
|
9.00
|
|
|
20
|
|
|
|
8.76
|
|
|
|
9.00
|
|
|
|
8
|
|
|
|
9.00
|
|
9.38
|
|
|
16
|
|
|
|
8.78
|
|
|
|
9.38
|
|
|
|
5
|
|
|
|
9.38
|
|
9.51
|
|
|
10
|
|
|
|
8.79
|
|
|
|
9.51
|
|
|
|
4
|
|
|
|
9.51
|
|
9.64
|
|
|
50
|
|
|
|
8.79
|
|
|
|
9.64
|
|
|
|
14
|
|
|
|
9.64
|
|
9.82
|
|
|
1
|
|
|
|
8.69
|
|
|
|
9.82
|
|
|
|
1
|
|
|
|
9.82
|
|
10.00
|
|
|
93
|
|
|
|
8.51
|
|
|
|
10.00
|
|
|
|
45
|
|
|
|
10.00
|
|
10.03
|
|
|
7
|
|
|
|
8.62
|
|
|
|
10.03
|
|
|
|
7
|
|
|
|
10.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,880
|
|
|
|
|
|
|
$
|
4.42
|
|
|
|
823
|
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted
during the years ended December 31, 2007, 2006 and 2005 was
$2.75, $2.52 and $0.15 per share, respectively. The total
intrinsic value of options exercised during 2007, 2006 and 2005
was $0.2 million, $0.5 million, and $0.2 million,
respectively.
Restricted Shares of Common
Stock.
Historically, the Company had granted
options for shares of common stock that were eligible to be
exercised prior to vesting, provided that the shares issued upon
such exercise are subject to restrictions which will be released
consistent with the original option vesting period. In the event
of termination of the service of an employee, the Company may
repurchase all unvested shares from the optionee at the original
issue price. Options granted under the Option Plan expire no
later than 10 years from the date of grant.
A summary of the changes in these restricted shares of common
stock during 2007 is presented below (in thousands):
|
|
|
|
|
Restricted, non-vested shares outstanding at December 31,
2006
|
|
|
400
|
|
Shares vested upon release of restrictions
|
|
|
(151
|
)
|
Restricted stock repurchased upon termination
|
|
|
(26
|
)
|
|
|
|
|
|
Restricted, non-vested shares outstanding at December 31,
2007
|
|
|
223
|
|
|
|
|
|
|
88
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
As of December 31, 2007, restrictions on approximately
145,000 of these shares will be released at an accelerated rate
if an NDA for faropenem medoxomil is approved by the FDA.
Stock Based Compensation Stock
Options.
During the years ended
December 31, 2007, 2006 and 2005, the Company recognized
$2.6 million, $1.1 million and $0.1 million of
stock based compensation for employee awards, respectively. As
of December 31, 2007, the Company had $2.6 million of
total unrecognized compensation costs (net of expected
forfeitures) from options granted under the Option Plan to be
recognized over a weighted average remaining period of
approximately 1.77 years.
Employee Stock Purchase Plan.
The
Company has reserved 305,872 shares of common stock for
issuance under its Employee Stock Purchase Plan (the Purchase
Plan). The Purchase Plan allows eligible employees to purchase
common stock of the Company at the lesser of 85% of its market
value on the offering date or the purchase date as established
by the Board of Directors. Employee purchases are funded through
after-tax payroll deductions, which participants can elect from
one percent to twenty percent of compensation, subject to the
federal limit. The Purchase Plan is considered a compensatory
plan and subject to the provisions of SFAS No. 123(R).
To date, 111,679 shares have been issued pursuant to the
Purchase Plan. During the years ended December 31, 2007 and
2006, the Company recognized $0.2 million and $39 thousand
in share-based compensation expense under
SFAS No. 123(R) related to the Purchase Plan,
respectively.
SFAS No. 109 requires that a valuation allowance be
provided if it is more likely than not that some portion or all
of the Companys deferred tax assets will not be realized.
The Companys ability to realize the benefit of its
deferred tax assets will depend on the generation of future
taxable income through profitable operations. Due to the
uncertainty of future profitable operations, the Company has
recorded a full valuation allowance against its net deferred tax
assets.
The Company has had no provision for income taxes since
inception due to its net operating losses.
The income tax effects of temporary differences that give rise
to significant portions of the Companys net deferred tax
assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
32,632
|
|
|
$
|
36,702
|
|
Research and experimentation credits
|
|
|
4,540
|
|
|
|
2,383
|
|
Depreciation and amortization
|
|
|
681
|
|
|
|
455
|
|
Accrued expenses and other
|
|
|
739
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
38,592
|
|
|
|
40,045
|
|
Valuation allowance
|
|
|
(38,592
|
)
|
|
|
(40,045
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
89
REPLIDYNE,
INC.
NOTES TO FINANCIAL
STATEMENTS (continued)
The benefit for income taxes differs from the amount computed by
applying the United States of America federal income tax rate of
35% to the loss before income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S. federal income tax benefit at statutory rates
|
|
$
|
2,692
|
|
|
$
|
(10,237
|
)
|
|
$
|
(11,784
|
)
|
State income tax benefit, net of federal impact
|
|
|
250
|
|
|
|
(951
|
)
|
|
|
(1,094
|
)
|
Non-deductable expenses
|
|
|
588
|
|
|
|
235
|
|
|
|
39
|
|
Research and experimentation credits
|
|
|
(2,157
|
)
|
|
|
(940
|
)
|
|
|
(905
|
)
|
Other items
|
|
|
81
|
|
|
|
69
|
|
|
|
12
|
|
Change in valuation allowance
|
|
|
(1,454
|
)
|
|
|
11,824
|
|
|
|
13,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the Company had approximately
$85 million of net operating loss carryforwards and
approximately $4.5 million of research and experimentation
credits which may be used to offset future taxable income. The
carryforwards will expire in 2020 through 2027. The Internal
Revenue Code places certain limitations on the annual amount of
net operating loss carryforwards that can be utilized if certain
changes in the Companys ownership occur. The Company
believes, based on an analysis of historical equity transactions
under the provisions of Section 382, that ownership changes
have in fact occurred at two points since its inception. These
ownership changes will limit the annual utilization of the
Companys net operating losses in future periods. The
Company does not believe, however, that these ownership changes
will result in the loss of any of its net operating loss
carryforwards existing on the date of the ownership changes.
|
|
(12)
|
Selected
Quarterly Financial Data (unaudited)
|
The following is a summary of the quarterly results of
operations for the years ended December 31, 2007 and 2006
(unaudited, in thousands, except for income (loss) per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Basic Net Income
|
|
|
Diluted Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
(Loss) Attributable
|
|
|
(Loss) Attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
|
|
|
to Common
|
|
|
to Common
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
to Common
|
|
|
Stockholders
|
|
|
Stockholders
|
|
|
|
|
|
|
Revenue
|
|
|
(Loss)
|
|
|
Stockholders
|
|
|
per Share
|
|
|
per Share
|
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2,925
|
|
|
$
|
(8,552
|
)
|
|
$
|
(8,552
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
Second quarter
|
|
|
55,646
|
|
|
|
45,490
|
|
|
|
45,490
|
|
|
|
1.71
|
|
|
|
1.65
|
|
|
|
|
|
Third quarter
|
|
|
|
|
|
|
(12,303
|
)
|
|
|
(12,303
|
)
|
|
|
(0.46
|
)
|
|
|
(0.46
|
)
|
|
|
|
|
Fourth quarter
|
|
|
|
|
|
|
(16,943
|
)
|
|
|
(16,943
|
)
|
|
|
(0.63
|
)
|
|
|
(0.63
|
)
|
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2,877
|
|
|
$
|
(7,702
|
)
|
|
$
|
(10,355
|
)
|
|
$
|
(7.21
|
)
|
|
$
|
(7.21
|
)
|
|
|
|
|
Second quarter
|
|
|
4,045
|
|
|
|
(6,208
|
)
|
|
|
(8,862
|
)
|
|
|
(5.79
|
)
|
|
|
(5.79
|
)
|
|
|
|
|
Third quarter
|
|
|
3,679
|
|
|
|
(5,722
|
)
|
|
|
(5,806
|
)
|
|
|
(0.23
|
)
|
|
|
(0.23
|
)
|
|
|
|
|
Fourth quarter
|
|
|
5,387
|
|
|
|
(9,617
|
)
|
|
|
(9,617
|
)
|
|
|
(0.36
|
)
|
|
|
(0.36
|
)
|
|
|
|
|
On January 22, 2008, the Company received a Warning Letter
from the FDA. The Warning Letter was issued pursuant to the
completion of the FDAs review of clinical trials performed
in connection with the December 2005 NDA filed by the Company in
support of faropenem medoxomil 300 mg tablets twice per day
dose, in respect of which the FDA issued a non-approvable letter
in October 2006. The Company intends to respond to the Warning
Letter within the time limits required by the FDA
90
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Based on this evaluation, our
principal executive officer and our principal financial officer
concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this annual
report.
Management
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control over financial reporting was designed to provide
reasonable assurance to our management and board of directors
regarding the preparation and fair presentation of published
financial statements. Internal control over financial reporting
is promulgated under the Exchange Act 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 and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and dispositions
of our assets;
|
|
|
|
Provide reasonable assurance that our 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
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition or disposition of our
assets that could have a material effect on the financial
statements.
|
Internal control over financial reporting, no matter how well
designed, has inherent limitations and 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 policies or procedures may
deteriorate. Therefore, even effective internal control over
financial reporting can only provide reasonable assurance with
respect to financial statement preparation and presentation.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2007.
In making this assessment, it used the criteria based on the
framework set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control
Integrated Framework. Based on our assessment we believe
that, as of December 31, 2007, our internal control over
financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2007 has been audited by KPMG
LLP, an independent registered public accounting firm, as stated
in their report which is included herein.
91
No
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial
reporting during the quarter ended December 31, 2007 that
have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
We have adopted a Code of Business Conduct and Ethics (the
Code) that applies to all of our employees
(including executive officers) and directors. The Code is
available on our website at www.replidyne.com under the heading
Investor Information. We intend to satisfy the
disclosure requirement regarding any waiver of a provision of
the Code applicable to any executive officer or director, by
posting such information on such website. We shall provide to
any person without charge, upon request, a copy of the Code. Any
such request must be made in writing to Replidyne, Inc.,
c/o Investor
Relations, 1450 Infinite Drive, Louisville, CO 80027.
Except for information relating to executive officers under the
heading Executive Officers of the Registrant, which
can be found in Part I following Item 4, all
additional information required by this item will be contained
in our definitive Proxy Statement (Proxy Statement)
for our 2008 Annual Meeting of Stockholders to be held on
May 8, 2008 under the headings Election of
Directors and Section 16(a) Beneficial
Ownership Reporting Compliance and is incorporated herein
by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item will be contained in the
Proxy Statement under the headings Executive
Compensation and Information Regarding the Board of
Directors and Corporate Governance and is incorporated
herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item will be contained in the
Proxy Statement under the headings Securities Authorized
for Issuance under Equity Compensation Plans and
Security Ownership of Certain Beneficial Owners and
Management and is incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
The information required by this item will be contained in the
Proxy Statement under the heading Transactions with
Related Persons and Information Regarding the Board
of Directors and Corporate Governance and is incorporated
herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item will be contained in the
Proxy Statement under the heading Ratification of
Selection of Independent Auditors and is incorporated
herein by reference.
92
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
a.
Financial Statements
.
The
following financial statements are submitted as part of this
report:
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm,
Balance Sheets at December 31, 2007 and 2006,
Statements of Operations for 2007, 2006 and 2005,
Statements of Stockholders Equity (Deficit), Preferred
Stock and Comprehensive Income (Loss)
for 2007, 2006 and 2005,
Statements of Cash Flows for 2007, 2006 and 2005,
Notes to Financial Statements.
|
b.
Financial Statement Schedules
No financial statement schedules are included because they are
not required or the information is included in the financial
statements or notes thereto.
c.
Exhibits
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Note
|
|
Description of Document
|
|
|
3
|
.1
|
|
|
(1)
|
|
|
Restated Certificate of Incorporation.
|
|
3
|
.2
|
|
|
(1)
|
|
|
Amended and Restated Bylaws.
|
|
4
|
.1
|
|
|
(1)
|
|
|
Reference is made to exhibits 3.1 and 3.2.
|
|
4
|
.2
|
|
|
(1)
|
|
|
Specimen Common Stock Certificate.
|
|
4
|
.3
|
|
|
(1)
|
|
|
Form of Warrant to purchase shares of Series A Convertible
Preferred Stock (together with schedule prepared in accordance
with Instruction 2 to Item 601 of
Regulation S-K).
|
|
4
|
.4
|
|
|
(1)
|
|
|
Form of Warrant to purchase shares of Series C Preferred
Stock (together with schedule prepared in accordance with
Instruction 2 to Item 601 of
Regulation S-K).
|
|
4
|
.5
|
|
|
(1)
|
|
|
Fourth Amended and Restated Stockholders Agreement, dated
August 17, 2005, between the Registrant and certain of its
stockholders, as amended March 7, 2006.
|
|
10
|
.1+
|
|
|
(1)
|
|
|
Form of Indemnification Agreement for Directors.
|
|
10
|
.2+
|
|
|
(1)
|
|
|
Form of Indemnification Agreement for Executive Officers.
|
|
10
|
.3+
|
|
|
(1)
|
|
|
2006 Equity Incentive Plan.
|
|
10
|
.4+
|
|
|
(1)
|
|
|
Form of Option Grant Notice and Form of Option Agreement under
2006 Equity Incentive Plan.
|
|
10
|
.5+
|
|
|
(1)
|
|
|
2006 Employee Stock Purchase Plan.
|
|
10
|
.6+
|
|
|
(1)
|
|
|
Form of Offering Document under 2006 Employee Stock Purchase
Plan.
|
|
10
|
.7+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Kenneth J. Collins.
|
|
10
|
.7.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Kenneth J.
Collins.
|
|
10
|
.8+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Nebojsa Janjic, Ph.D.
|
|
10
|
.8.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Nebojsa
Janjic, Ph.D.
|
|
10
|
.9+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Peter Letendre, Pharm.D.
|
|
10
|
.9.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Peter
Letendre, Pharm.D.
|
|
10
|
.10+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Roger M. Echols, M.D.
|
93
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Note
|
|
Description of Document
|
|
|
10
|
.10.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Roger M.
Echols, M.D.
|
|
10
|
.11+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Mark Smith.
|
|
10
|
.11.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Mark Smith.
|
|
10
|
.12+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Donald Morrissey.
|
|
10
|
.13+
|
|
|
(1)
|
|
|
Summary of Director Compensation Program.
|
|
10
|
.14*
|
|
|
(1)
|
|
|
License Agreement, dated March 15, 2004, between the
Registrant and Daiichi Suntory Pharma Co., Ltd.
|
|
10
|
.14.1*
|
|
|
(1)
|
|
|
Amendment, dated April 5, 2005, to License Agreement, dated
March 15, 2004, between the Registrant and Daiichi Suntory
Pharma Co., Ltd.
|
|
10
|
.14.2*
|
|
|
(1)
|
|
|
Second Amendment, dated February 10, 2006, to License
Agreement, dated March 15, 2004, between the Registrant and
Daiichi Suntory Pharma Co., Ltd.
|
|
10
|
.15*
|
|
|
(1)
|
|
|
Supply Agreement, dated December 20, 2004, among the
Registrant, Daiichi Suntory Pharma Co., Ltd. and Nippon Soda
Co., Ltd.
|
|
10
|
.16
|
|
|
(1)
|
|
|
Lease Agreement, dated March 22, 2005, by and between the
Registrant and Crown Milford LLC.
|
|
10
|
.17
|
|
|
(1)
|
|
|
Lease Agreement, dated October 25, 2005, by and between the
Registrant and Triumph 1450 LLC.
|
|
10
|
.18*
|
|
|
(1)
|
|
|
Collaboration and Commercialization Agreement, dated
February 10, 2006, between the Registrant and Forest
Laboratories Holdings Limited.
|
|
10
|
.19+
|
|
|
(2)
|
|
|
Replidyne Inc. Variable Incentive Bonus Plan for Calendar Year
2007.
|
|
23
|
.1
|
|
|
|
|
|
Consent of KPMG LLP.
|
|
24
|
.1
|
|
|
|
|
|
Power of Attorney (included on signature page hereto).
|
|
31
|
.1
|
|
|
|
|
|
Certification of principal executive officer required by
Rule 13a-14(a).
|
|
31
|
.2
|
|
|
|
|
|
Certification of principal financial officer required by
Rule 13a-14(a).
|
|
32
|
.1
|
|
|
|
|
|
Section 1350 Certification.
|
|
|
|
+
|
|
Indicates management contract or compensatory plan.
|
|
*
|
|
Confidential treatment has been granted with respect to certain
portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange Commission.
|
|
(1)
|
|
Incorporated by reference to the same numbered exhibit filed
with our Registration Statement on
Form S-1
(File No. 333-133021),
as amended, declared effective June 29, 2006.
|
|
(2)
|
|
Incorporated by reference to our Current Report on
Form 8-K
filed on March 9, 2007.
|
|
(3)
|
|
Incorporated by reference to our Current Report on
Form 8-K
filed on June 19, 2007.
|
94
SIGNATURES
Pursuant to the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REPLIDYNE, INC.
Kenneth Collins
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities indicated and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Kenneth
J. Collins
Kenneth
J. Collins
|
|
President, Chief Executive Officer and Member of the Board of
Directors (Principal Executive Officer)
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Mark
L. Smith
Mark
L. Smith
|
|
Chief Financial Officer, Treasurer, (Principal Financial and
Accounting Officer)
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kirk
K. Calhoun
Kirk
K. Calhoun
|
|
Member of the Board of Directors
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Edward
Brown
Edward
Brown
|
|
Member of the Board of Directors
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Geoffrey
Duyk
Geoffrey
Duyk, MD, Ph.D.
|
|
Member of the Board of Directors
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Christopher
D. Earl
Christopher
D. Earl, Ph.D.
|
|
Member of the Board of Directors
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Augustine
Lawlor
Augustine
Lawlor
|
|
Member of the Board of Directors
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Daniel
J. Mitchell
Daniel
J. Mitchell
|
|
Member of the Board of Directors
|
|
March 14, 2008
|
95
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Note
|
|
Description of Document
|
|
|
3
|
.1
|
|
|
(1)
|
|
|
Restated Certificate of Incorporation.
|
|
3
|
.2
|
|
|
(1)
|
|
|
Amended and Restated Bylaws.
|
|
4
|
.1
|
|
|
(1)
|
|
|
Reference is made to exhibits 3.1 and 3.2.
|
|
4
|
.2
|
|
|
(1)
|
|
|
Specimen Common Stock Certificate.
|
|
4
|
.3
|
|
|
(1)
|
|
|
Form of Warrant to purchase shares of Series A Convertible
Preferred Stock (together with schedule prepared in accordance
with Instruction 2 to Item 601 of
Regulation S-K).
|
|
4
|
.4
|
|
|
(1)
|
|
|
Form of Warrant to purchase shares of Series C Preferred
Stock (together with schedule prepared in accordance with
Instruction 2 to Item 601 of
Regulation S-K).
|
|
4
|
.5
|
|
|
(1)
|
|
|
Fourth Amended and Restated Stockholders Agreement, dated
August 17, 2005, between the Registrant and certain of its
stockholders, as amended March 7, 2006.
|
|
10
|
.1+
|
|
|
(1)
|
|
|
Form of Indemnification Agreement for Directors.
|
|
10
|
.2+
|
|
|
(1)
|
|
|
Form of Indemnification Agreement for Executive Officers.
|
|
10
|
.3+
|
|
|
(1)
|
|
|
2006 Equity Incentive Plan.
|
|
10
|
.4+
|
|
|
(1)
|
|
|
Form of Option Grant Notice and Form of Option Agreement under
2006 Equity Incentive Plan.
|
|
10
|
.5+
|
|
|
(1)
|
|
|
2006 Employee Stock Purchase Plan.
|
|
10
|
.6+
|
|
|
(1)
|
|
|
Form of Offering Document under 2006 Employee Stock Purchase
Plan.
|
|
10
|
.7+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Kenneth J. Collins.
|
|
10
|
.7.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Kenneth J.
Collins.
|
|
10
|
.8+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Nebojsa Janjic, Ph.D.
|
|
10
|
.8.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Nebojsa
Janjic, Ph.D.
|
|
10
|
.9+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Peter Letendre, Pharm.D.
|
|
10
|
.9.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Peter
Letendre, Pharm.D.
|
|
10
|
.10+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Roger M. Echols, M.D.
|
|
10
|
.10.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Roger M.
Echols, M.D.
|
|
10
|
.11+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Mark Smith.
|
|
10
|
.11.1+
|
|
|
(3)
|
|
|
Amendment, dated June 15, 2007, to Employment Agreement,
dated April 3, 2006, between the Registrant and Mark Smith.
|
|
10
|
.12+
|
|
|
(1)
|
|
|
Employment Agreement, dated April 3, 2006, between the
Registrant and Donald Morrissey.
|
|
10
|
.13+
|
|
|
(1)
|
|
|
Summary of Director Compensation Program.
|
|
10
|
.14*
|
|
|
(1)
|
|
|
License Agreement, dated March 15, 2004, between the
Registrant and Daiichi Suntory Pharma Co., Ltd.
|
|
10
|
.14.1*
|
|
|
(1)
|
|
|
Amendment, dated April 5, 2005, to License Agreement, dated
March 15, 2004, between the Registrant and Daiichi Suntory
Pharma Co., Ltd.
|
|
10
|
.14.2*
|
|
|
(1)
|
|
|
Second Amendment, dated February 10, 2006, to License
Agreement, dated March 15, 2004, between the Registrant and
Daiichi Suntory Pharma Co., Ltd.
|
|
10
|
.15*
|
|
|
(1)
|
|
|
Supply Agreement, dated December 20, 2004, among the
Registrant, Daiichi Suntory Pharma Co., Ltd. and Nippon Soda
Co., Ltd.
|
|
10
|
.16
|
|
|
(1)
|
|
|
Lease Agreement, dated March 22, 2005, by and between the
Registrant and Crown Milford LLC.
|
|
10
|
.17
|
|
|
(1)
|
|
|
Lease Agreement, dated October 25, 2005, by and between the
Registrant and Triumph 1450 LLC.
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Note
|
|
Description of Document
|
|
|
10
|
.18*
|
|
|
(1)
|
|
|
Collaboration and Commercialization Agreement, dated
February 10, 2006, between the Registrant and Forest
Laboratories Holdings Limited.
|
|
10
|
.19+
|
|
|
(2)
|
|
|
Replidyne Inc. Variable Incentive Bonus Plan for Calendar Year
2007.
|
|
23
|
.1
|
|
|
|
|
|
Consent of KPMG LLP.
|
|
24
|
.1
|
|
|
|
|
|
Power of Attorney (included on signature page hereto).
|
|
31
|
.1
|
|
|
|
|
|
Certification of principal executive officer required by
Rule 13a-14(a).
|
|
31
|
.2
|
|
|
|
|
|
Certification of principal financial officer required by
Rule 13a-14(a).
|
|
32
|
.1
|
|
|
|
|
|
Section 1350 Certification.
|
|
|
|
+
|
|
Indicates management contract or compensatory plan.
|
|
*
|
|
Confidential treatment has been granted with respect to certain
portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange Commission.
|
|
(1)
|
|
Incorporated by reference to the same numbered exhibit filed
with our Registration Statement on
Form S-1
(File No. 333-133021),
as amended, declared effective June 29, 2006.
|
|
(2)
|
|
Incorporated by reference to our Current Report on
Form 8-K
filed on March 9, 2007.
|
|
(3)
|
|
Incorporated by reference to our Current Report on
Form 8-K
filed on June 19, 2007.
|
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