ARIAD PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
In thousands, except share and per share data
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
310,039
|
|
|
$
|
237,179
|
|
Accounts receivable
|
|
|
4,970
|
|
|
|
1,305
|
|
Inventory
|
|
|
925
|
|
|
|
419
|
|
Other current assets
|
|
|
8,277
|
|
|
|
6,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
324,211
|
|
|
|
244,946
|
|
|
|
|
Restricted cash
|
|
|
11,357
|
|
|
|
11,357
|
|
Property and equipment, net
|
|
|
152,499
|
|
|
|
108,777
|
|
Intangible and other assets, net
|
|
|
4,743
|
|
|
|
5,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
492,810
|
|
|
$
|
370,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
9,607
|
|
|
$
|
11,363
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
4,200
|
|
Accrued compensation and benefits
|
|
|
12,688
|
|
|
|
12,778
|
|
Accrued product development expenses
|
|
|
14,213
|
|
|
|
16,740
|
|
Other accrued expenses
|
|
|
9,356
|
|
|
|
8,977
|
|
Current portion of deferred executive compensation
|
|
|
|
|
|
|
2,511
|
|
Current portion of deferred revenue
|
|
|
1,952
|
|
|
|
472
|
|
Other current liabilities
|
|
|
15,853
|
|
|
|
15,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
63,669
|
|
|
|
72,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible 3.625% senior notes, net
|
|
|
153,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term debt
|
|
|
|
|
|
|
4,900
|
|
|
|
|
|
|
|
|
|
|
Long-term facility lease obligation
|
|
|
144,329
|
|
|
|
99,412
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
8,737
|
|
|
|
8,580
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
192
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized 10,000,000 shares, none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; authorized, 450,000,000 shares in 2014 and 2013; issued and outstanding, 186,862,477 shares in 2014 and
185,896,080 shares in 2013
|
|
|
187
|
|
|
|
186
|
|
Additional paid-in capital
|
|
|
1,282,764
|
|
|
|
1,238,859
|
|
Accumulated other comprehensive loss
|
|
|
(1,451
|
)
|
|
|
(1,535
|
)
|
Accumulated deficit
|
|
|
(1,158,736
|
)
|
|
|
(1,051,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
122,764
|
|
|
|
185,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
492,810
|
|
|
$
|
370,894
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
1
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
In thousands, except per share data
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue, net
|
|
$
|
11,881
|
|
|
$
|
13,934
|
|
|
$
|
19,872
|
|
|
$
|
20,298
|
|
License revenue
|
|
|
231
|
|
|
|
69
|
|
|
|
4,020
|
|
|
|
162
|
|
Service revenue
|
|
|
2
|
|
|
|
8
|
|
|
|
3
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
12,114
|
|
|
|
14,011
|
|
|
|
23,895
|
|
|
|
20,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
2,395
|
|
|
|
228
|
|
|
|
3,683
|
|
|
|
497
|
|
Research and development expense
|
|
|
31,794
|
|
|
|
40,668
|
|
|
|
60,348
|
|
|
|
81,931
|
|
Selling, general and administrative expense
|
|
|
34,199
|
|
|
|
42,101
|
|
|
|
65,790
|
|
|
|
71,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
68,388
|
|
|
|
82,997
|
|
|
|
129,821
|
|
|
|
154,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(56,274
|
)
|
|
|
(68,986
|
)
|
|
|
(105,926
|
)
|
|
|
(133,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
21
|
|
|
|
31
|
|
|
|
44
|
|
|
|
80
|
|
Interest expense
|
|
|
(558
|
)
|
|
|
(39
|
)
|
|
|
(591
|
)
|
|
|
(80
|
)
|
Foreign exchange gain (loss)
|
|
|
(4
|
)
|
|
|
95
|
|
|
|
(45
|
)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(541
|
)
|
|
|
87
|
|
|
|
(592
|
)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(56,815
|
)
|
|
|
(68,899
|
)
|
|
|
(106,518
|
)
|
|
|
(133,510
|
)
|
|
|
|
|
|
Provision for income taxes
|
|
|
106
|
|
|
|
86
|
|
|
|
225
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,921
|
)
|
|
$
|
(68,985
|
)
|
|
$
|
(106,743
|
)
|
|
$
|
(133,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.30
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding basic and diluted
|
|
|
186,815
|
|
|
|
184,726
|
|
|
|
186,535
|
|
|
|
181,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
In thousands, except per share data
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,921
|
)
|
|
$
|
(68,985
|
)
|
|
$
|
(106,743
|
)
|
|
$
|
(133,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on marketable securities
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(12
|
)
|
Cumulative translation adjustment
|
|
|
3
|
|
|
|
(49
|
)
|
|
|
2
|
|
|
|
(26
|
)
|
Amortization of prior service cost included in net periodic pension cost
|
|
|
41
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
44
|
|
|
|
(56
|
)
|
|
|
84
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(56,877
|
)
|
|
$
|
(69,041
|
)
|
|
$
|
(106,659
|
)
|
|
$
|
(133,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
2
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
In thousands
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(106,743
|
)
|
|
$
|
(133,655
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment charges
|
|
|
2,822
|
|
|
|
1,769
|
|
Stock-based compensation
|
|
|
16,945
|
|
|
|
19,928
|
|
Deferred executive compensation expense
|
|
|
119
|
|
|
|
683
|
|
Increase (decrease) from:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,665
|
)
|
|
|
(4,888
|
)
|
Inventory
|
|
|
(506
|
)
|
|
|
(710
|
)
|
Vendor advances
|
|
|
401
|
|
|
|
(3,636
|
)
|
Other current assets
|
|
|
(2,633
|
)
|
|
|
(3,057
|
)
|
Other assets
|
|
|
1,876
|
|
|
|
(2,293
|
)
|
Accounts payable
|
|
|
(1,173
|
)
|
|
|
2,016
|
|
Accrued compensation and benefits
|
|
|
(90
|
)
|
|
|
1,849
|
|
Accrued product development expenses
|
|
|
(2,527
|
)
|
|
|
2,996
|
|
Other accrued expenses
|
|
|
(667
|
)
|
|
|
3,481
|
|
Other liabilities
|
|
|
1,012
|
|
|
|
2,049
|
|
Deferred revenue
|
|
|
1,364
|
|
|
|
3,277
|
|
Deferred executive compensation paid
|
|
|
(2,630
|
)
|
|
|
(3,953
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(96,095
|
)
|
|
|
(114,144
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from maturities of marketable securities
|
|
|
|
|
|
|
25,000
|
|
Change in restricted cash
|
|
|
|
|
|
|
(6,133
|
)
|
Investment in property and equipment
|
|
|
(2,010
|
)
|
|
|
(1,749
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2,010
|
)
|
|
|
17,118
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible debt
|
|
|
194,000
|
|
|
|
|
|
Proceeds from issuance of warrants
|
|
|
27,580
|
|
|
|
|
|
Purchase of convertible bond hedges
|
|
|
(43,220
|
)
|
|
|
|
|
Repayment of long-term borrowings and capital lease obligation
|
|
|
(9,100
|
)
|
|
|
(1,065
|
)
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
310,037
|
|
Proceeds from issuance of common stock pursuant to stock option and purchase plans
|
|
|
2,262
|
|
|
|
2,344
|
|
Payment of tax withholding obligations related to stock compensation
|
|
|
(558
|
)
|
|
|
(1,753
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
170,964
|
|
|
|
309,563
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
1
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
72,860
|
|
|
|
212,512
|
|
Cash and cash equivalents, beginning of period
|
|
|
237,179
|
|
|
|
119,379
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
310,039
|
|
|
$
|
331,891
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing disclosure:
|
|
|
|
|
|
|
|
|
Capitalization of construction-in-progress related to facility lease obligation
|
|
$
|
44,898
|
|
|
$
|
46,549
|
|
|
|
|
|
|
|
|
|
|
Investment in property and equipment included in accounts payable or accruals
|
|
$
|
121
|
|
|
$
|
1,478
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs included in accounts payable or accruals
|
|
$
|
1,079
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
3
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
ARIAD is a global oncology company whose vision is to transform the lives of cancer patients
with breakthrough medicines. The Companys mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest unmet medical need aggressive cancers where current therapies are inadequate.
The Companys lead cancer medicine is Iclusig
®
(ponatinib) which is approved in the
United States and Europe for the treatment of adult patients with chronic myeloid leukemia (CML) and Philadelphia chromosome-positive acute lymphoblastic leukemia (Ph+ ALL). The Company is pursuing regulatory approval of
Iclusig in additional geographies and developing Iclusig in additional cancer indications. The Company has two other product candidates in development, AP26113 and ridaforolimus. AP26113 is being studied in patients with advanced solid tumors,
including non-small cell lung cancer. Ridaforolimus is being developed for cardiovascular indications by Medinol, Ltd. and ICON Medical Corp. In addition to its clinical development programs, the Company has a focused drug discovery program centered
on small-molecule therapies that are molecularly targeted to cell-signaling pathways implicated in cancer.
Following regulatory approvals, the Company
commenced sales and marketing of Iclusig in the United States in January 2013 and in Europe in the second half of 2013.
On October 9, 2013, the
Company announced results of its review of updated clinical data from the pivotal PACE (
P
onatinib Ph+
A
LL and
C
ML
E
valuation) trial of Iclusig and actions that it was taking following consultations with the
U.S. Food and Drug Administration (FDA). Based upon its review and the FDA consultations, the Company paused patient enrollment in all clinical trials of Iclusig and the FDA placed a partial clinical hold on all additional patient
enrollment in clinical trials of Iclusig. In response to a request by the FDA, on October 31, 2013, the Company announced that it temporarily suspended the marketing and commercial distribution of Iclusig in the United States. On
December 20, 2013, the Company announced that the FDA approved revised U.S. prescribing information (USPI), and a Risk Evaluation and Mitigation Strategy (REMS), that allowed for the immediate resumption of marketing and
commercial distribution of Iclusig. Sales of Iclusig in the United States resumed in January 2014.
Based upon the announcements and actions taken in
October 2013 noted above, the Company engaged in discussions with the European Medicines Agency (EMA), regarding potentially revised prescribing information for Iclusig. On November 8, 2013, the EMA announced that Iclusigs
product information should be updated to include strengthened warnings for cardiovascular risk and guidance on optimizing the patients cardiovascular therapy before starting treatment. In addition, the EMA is conducting an in-depth review,
known as an Article 20 referral, of the benefits and risks of Iclusig to better understand the nature, frequency and severity of events obstructing the arteries or veins, the potential mechanism that leads to these side effects and whether there
needs to be a revision in the European prescribing information for Iclusig. The results of this review are expected in October 2014.
4
Basis of Presentation
In the opinion of the Companys management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of
items of a normal and recurring nature) necessary to present fairly the financial position as of June 30, 2014, the results of operations and comprehensive loss for the three-month and six-month periods ended June 30, 2014 and 2013 and the
cash flows for the six-month periods ended June 30, 2014 and 2013, in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this Quarterly Report on
Form 10-Q should be read in conjunction with the Companys consolidated financial statements and the accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2013 (the 2013
Form 10-K). The Companys accounting policies are described in the Notes to Consolidated Financial Statements in the 2013 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end consolidated balance
sheet data presented for comparative purposes were derived from the audited financial statements included in the 2013 Form 10-K. The results of operations for the three-month and six-month periods ended June 30, 2014 are not necessarily
indicative of the operating results for the full year or for any other subsequent interim period.
Accounting Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts and disclosure of assets and liabilities at the date of the consolidated financial statements and the reported amounts and disclosure of revenue and expenses during the reporting period. Significant estimates included in the
Companys financial statements include estimates associated with potential revenue adjustments, the allocation of proceeds from the recent convertible note issuance, research and development accruals, inventory, leased buildings under
construction and stock-based compensation expense. Actual results could differ from those estimates.
Reclassification
In the condensed consolidated statement of cash flows for the six months ended June 30, 2014, vendor advances have been aggregated with other current
assets. This reclassification was not material.
Restricted Cash
Restricted cash consists of cash balances held as collateral for outstanding letters of credit related to the lease of the Companys laboratory and office
facilities and other purposes. At June 30, 2014, the Companys restricted cash balance was $11.4 million, which includes $9.2 million established as security for a letter of credit related to a lease agreement entered into in January 2013,
and amended in September 2013, for lab and office space in a new facility under construction in Cambridge, Massachusetts.
Accounts Receivable
The Company extends credit to customers based on its evaluation of the customers financial condition. The Company records receivables for all billings
when amounts are due under standard terms. Accounts receivable are stated at amounts due net of applicable prompt pay discounts and other contractual adjustments as well as an allowance for doubtful accounts. The Company assesses the need for an
allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the customers ability to pay its obligation and the condition of the general economy and the industry as a
whole. The Company will write off accounts receivable when the Company determines that they are uncollectible.
5
Inventory
The Company outsources the manufacturing of Iclusig and uses contract manufacturers that produce the raw and intermediate materials used in the production of
Iclusig as well as the finished product. The Company currently has one supplier qualified for each step in the manufacturing process and is in the process of qualifying additional suppliers for certain steps of the production process of Iclusig.
Accordingly, the Company has concentration risk associated with its manufacturing process and relies on its currently approved contract manufacturers for supply of its product.
Inventory is composed of raw materials, intermediate materials which are classified as work-in-process, and finished goods which are goods that are available
for sale. The Company records inventory at the lower of cost or market. The Company determines the cost of its inventory on a specific identification basis. If the Company identifies excess, obsolete or unsalable items, it writes down its inventory
to its net realizable value in the period it is identified. These adjustments are recorded based upon various factors, including the level of product manufactured by the Company, the level of product in the distribution channel, current and
projected demand for the foreseeable future and the expected shelf-life of the inventory components. Inventory that is not expected to be used within one year is included in other assets, net, on the accompanying condensed consolidated balance
sheets.
Prior to receiving approval from the FDA on December 14, 2012 to sell Iclusig, the Company expensed all costs incurred related to the
manufacture of Iclusig as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory
approval of drug candidates.
Shipping and handling costs for product shipments are recorded as incurred in cost of product revenue along with costs
associated with manufacturing the product sold and any inventory reserves or write-downs.
Revenue Recognition
Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or
determinable and collection is reasonably assured. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer.
When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price of each deliverable and the appropriate revenue recognition principles are applied to each unit.
Product Revenue, Net
From the launch of Iclusig in
January 2013 until its temporary suspension in October 2013, the Company sold Iclusig in the United States to a limited number of specialty pharmacies, which dispensed the product directly to patients, and specialty distributors, which in turn sold
the product to hospital pharmacies and community practice pharmacies (collectively, healthcare providers) for the treatment of patients. Commencing with the re-launch of Iclusig in January 2014, the Company now sells Iclusig in the United States
through an exclusive relationship with Biologics, Inc. (Biologics), a specialty pharmacy. Biologics dispenses the product directly to patients. In Europe, the Company sells Iclusig to retail pharmacies and hospital pharmacies, which
dispense product directly to patients. Biologics and these retail pharmacies and hospital pharmacies are referred to as the Companys customers.
The
Company provides the right of return to Biologics in the United States for unopened product for a limited time before and after its expiration date. European customers are provided the right to return product only in limited circumstances, such as
instances of damaged product. Given the Companys limited sales history for Iclusig and the inherent uncertainties in estimating product returns, the
6
Company determined that the shipments of Iclusig to Biologics, thus far, do not meet the criteria for revenue recognition at the time of shipment. Accordingly, the Company recognizes revenue when
the product is sold through by Biologics, provided all other revenue recognition criteria are met. The Company invoices Biologics upon shipment of Iclusig and records accounts receivable, with a corresponding liability for deferred revenue equal to
the gross invoice price. The Company then recognizes revenue when Iclusig is sold through, which occurs when Biologics dispenses Iclusig directly to the patient. For European customers, who are provided with a limited right of return, the criteria
for revenue recognition is met at the time of shipment and revenue is recognized at that time, provided all other revenue recognition criteria are met.
In connection with the temporary suspension of marketing and commercial distribution of Iclusig in October 2013, the Company terminated its then existing
contracts with specialty pharmacies and specialty distributors in the United States. In addition, the Company accepted product returns for Iclusig in connection with the temporary suspension. These returns primarily related to Iclusig held by
specialty pharmacies and specialty distributors for which revenue had not yet been recognized.
The Company has written contracts or standard terms of
sale with each of its customers and delivery occurs when Iclusig is shipped to the customer in the United States and when the customer receives Iclusig in Europe. The Company evaluates the creditworthiness of its customers to determine whether
collection is reasonably assured. In order to conclude that the price is fixed or determinable, the Company must be able to (i) calculate its gross product revenues from the sales to its customers and (ii) reasonably estimate its net
product revenues. The Company calculates gross product revenues based on the wholesale acquisition cost that the Company charges its customers for Iclusig. The Company estimates its net product revenues by deducting from its gross product revenues
(i) trade allowances, such as invoice discounts for prompt payment and customer fees, (ii) estimated government rebates, chargebacks and discounts, such as Medicare and Medicaid reimbursements in the United States, and (iii) estimated
costs of incentives offered to certain indirect customers including patients. These deductions from gross revenue to determine net revenue are also referred to as gross to net deductions.
Trade Allowances:
The Company provides invoice discounts on Iclusig sales to certain of its customers for prompt payment and pays
fees for certain distribution services, such as fees for certain data that its customers provide to the Company. The Company deducts the full amount of these discounts and fees from its gross product revenues at the time such discounts and fees are
earned by such customers.
Rebates, Chargebacks and Discounts:
In the United States, the Company contracts with Medicare,
Medicaid and other government agencies (collectively, payers) to make Iclusig eligible for purchase by, or for partial or full reimbursement from, such payers. The Company estimates the rebates, chargebacks and discounts it will provide to payers
and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Companys estimates of rebates, chargebacks and discounts are based on (1) the contractual terms of agreements in place with
payers (2) the government
-mandated
discounts applicable to government funded programs, and (3) the estimated payer mix. Government rebates that are invoiced directly to the Company are recorded in
other accrued expenses on the condensed consolidated balance sheet. In Europe, the Company is subject to mandatory rebates and discounts in markets where government-sponsored healthcare systems are the primary payers for healthcare. These rebates
and discounts are recorded in other accrued expenses on the condensed consolidated balance sheet.
Other Incentives:
Other
incentives that the Company offers to indirect customers include co-pay assistance rebates provided by the Company to commercially insured patients who have coverage for Iclusig and who reside in states that permit co-pay assistance programs. The
Companys co-pay assistance program is intended to reduce each participating patients portion of the financial responsibility for Iclusigs purchase price to a specified dollar amount. In each period, the Company records the amount
of co-pay assistance provided to eligible patients based on the terms of the
7
program. Other incentives in the six-month period ended June 30, 2014 include product returns from customers related to the temporary suspension of marketing and distribution of Iclusig in
the United States.
The following table summarizes activity in each of the above product revenue allowances and reserve categories for the six-month
period ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Trade
Allowances
|
|
|
Rebates,
Chargebacks
and Discounts
|
|
|
Other
Incentives
|
|
|
Total
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
$
|
18
|
|
|
$
|
515
|
|
|
$
|
77
|
|
|
$
|
610
|
|
Provision
|
|
|
126
|
|
|
|
685
|
|
|
|
389
|
|
|
|
1,200
|
|
Payments or credits
|
|
|
(101
|
)
|
|
|
(539
|
)
|
|
|
(188
|
)
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2014
|
|
|
43
|
|
|
|
661
|
|
|
|
278
|
|
|
|
982
|
|
Provision
|
|
|
176
|
|
|
|
628
|
|
|
|
134
|
|
|
|
938
|
|
Payments or credits
|
|
|
(167
|
)
|
|
|
(476
|
)
|
|
|
(377
|
)
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014
|
|
$
|
52
|
|
|
$
|
813
|
|
|
$
|
35
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reserves above, included in the Companys condensed consolidated balance sheets are summarized as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Reductions of accounts receivable
|
|
$
|
|
|
|
$
|
64
|
|
Component of other accrued expenses
|
|
|
900
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
900
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
In 2012, prior to the Company obtaining marketing authorization for Iclusig in Europe, the French regulatory authority granted
an
Autorisation Temporaire dUtilisation
(ATU), or Temporary Authorization for Use, for Iclusig for the treatment of patients with CML and Ph+ ALL under a nominative program on a patient-by-patient basis. The Company began
shipping Iclusig under this program during the year ended December 31, 2012. This program concluded on September 30, 2013. Upon completion of the ATU program, the Company became eligible to ship Iclusig directly to customers in France as
of October 1, 2013. Shipments under these programs have not met the criteria for revenue recognition as the price for these shipments is not yet fixed or determinable. The aggregate gross selling price of the shipments under these programs
amounted to $16.8 million through June 30, 2014, including, $1.8 million for the period from January 1, 2014 to March 31, 2014, and $2.3 million for the period from April 1, 2014 to June 30, 2014, of which $15.2 million was
received as of June 30, 2014. The price of Iclusig in France will become fixed or determinable upon completion of pricing and reimbursement negotiations, which is expected in the first half of 2015. At that time, the Company will record
revenue related to cumulative shipments as of that date in France, net of any amounts that will be refunded to the health authority based on the results of the pricing and reimbursement negotiations.
Concentration of Credit Risk
Financial instruments which
potentially subject the Company to concentrations of credit risk consist of accounts receivable from customers and cash held at financial institutions. The Company believes that such customers and financial institutions are of high credit quality.
As of June 30, 2014, a portion of the Companys cash and cash equivalent accounts were concentrated at a single financial institution, which potentially exposes the Company to credit risks. The Company does not believe that there is
significant risk of non-performance by the financial institution and the Companys cash on deposit at this financial institution is fully liquid.
8
For the three-month and six-month periods ended June 30, 2014, Biologics accounted for 67 percent and 63
percent of net product revenue, respectively. As of June 30, 2014, Biologics accounted for 66 percent of accounts receivable. No other customer accounted for more than 10 percent of net product revenue or accounts receivable.
For the three-month period ended June 30, 2013, three individual customers accounted for 26 percent, 15 percent and 15 percent of net product revenue,
respectively. For the six-month period ended June 30, 2013, four individual customers accounted for 24 percent, 17 percent, 14 percent and 10 percent of net product revenue, respectively. As of June 30, 2013, five individual customers
accounted for 29 percent, 17 percent, 14 percent, 14 percent and 12 percent of accounts receivable, respectively. No other customer accounted for more than 10 percent of net product revenue or accounts receivable.
Geographic Information
For the three-month period ended
June 30, 2014, product revenue from customers outside the United States totaled 33%, with 22% of product revenue representing product revenue from customers in Germany. All other product, license and service revenues for the three-month and
six-month periods ended June 30, 2014 were generated within the United States. For the six-month period ended June 30, 2014, product revenue from customers outside the United States totaled 37%, with 26% of product revenue representing
product revenue from customers in Germany. All revenue for the three-month and six-month periods ended June 30, 2013 was generated within the United States.
Long lived assets outside the United States as of June 30, 2014 were $1.3 million and were not material as of December 31, 2013.
License and Service Revenue
The Company generates
revenue from license agreements with third parties related to use of the Companys technology and/or development and commercialization of product candidates. Such agreements may provide for payment to the Company of up-front payments, periodic
license payments, milestone payments and royalties. The Company also generates service revenue from license agreements with third parties related to internal services provided under such agreements. Service revenue is recognized as the services are
delivered.
In January 2005, the Company entered into a non-exclusive license agreement with Medinol Ltd. (Medinol), a leading innovator in
stent technology, pursuant to which Medinol agreed to develop and commercialize stents and other medical devices to deliver ridaforolimus to prevent restenosis, or reblockage, of injured vessels following interventions in which stents are used in
conjunction with balloon angioplasty. During the three-month period ended March 31, 2014, the commencement of patient enrollment in Medinols clinical trials, along with the submission of an investigational device exemption, or IDE, to the
FDA, triggered milestone payments to the Company of $3.8 million. These milestones were recorded as license revenue upon achievement.
On
February 20, 2014, the Company received notice from Merck & Co., Inc. (Merck) that it is terminating the license agreement between the two parties to develop, manufacture and commercialize ridaforolimus for oncology
indications. Per the terms of the license agreement, this termination will become effective nine months from the date of the notice (November 20, 2014), at which time all rights to ridaforolimus in oncology licensed to Merck will be returned to the
Company.
9
All of the Companys inventories relate to the manufacturing of Iclusig. The following
table sets forth the Companys inventories as of June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Raw materials
|
|
$
|
|
|
|
$
|
|
|
Work in process
|
|
|
1,177
|
|
|
|
3,170
|
|
Finished goods
|
|
|
925
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,102
|
|
|
|
3,404
|
|
Less current portion
|
|
|
(925
|
)
|
|
|
(419
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion included in other assets, net
|
|
$
|
1,177
|
|
|
$
|
2,985
|
|
|
|
|
|
|
|
|
|
|
Upon approval of Iclusig by the FDA on December 14, 2012, the Company began capitalizing inventory costs for Iclusig
manufactured in preparation for the product launch in the United States. In periods prior to December 14, 2012, the Company expensed costs associated with Iclusig, including raw materials, work in process and finished goods, as development
expenses. The Company has not capitalized inventory costs related to its other drug development programs. Non-current inventory consists primarily of raw materials and work-in-process which were purchased or manufactured in order to provide adequate
supply of Iclusig in the United States and Europe and to support continued clinical development.
4.
|
Property and Equipment, Net
|
Property and equipment, net, was comprised of the following at
June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Leasehold improvements
|
|
$
|
26,343
|
|
|
$
|
25,714
|
|
Equipment and furniture
|
|
|
24,727
|
|
|
|
23,466
|
|
Construction in progress
|
|
|
144,329
|
|
|
|
99,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,399
|
|
|
|
149,088
|
|
Less accumulated depreciation and amortization
|
|
|
(42,900
|
)
|
|
|
(40,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
152,499
|
|
|
$
|
108,777
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014, the Company has recorded construction in progress and a facility lease obligation of $144.3 million
related to a lease for a new facility under construction in Cambridge, Massachusetts. See Note 9 for further information.
Depreciation and amortization
expense for the three-month periods ended June 30, 2014 and 2013 was $1.2 million and $939,000, respectively, and $2.5 million and $1.7 million for the six-month periods ended June 30, 2014 and 2013, respectively.
10
5.
|
Intangible and Other Assets, Net
|
Intangible and other assets, net, were comprised of the following at
June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Capitalized patent and license costs
|
|
$
|
5,975
|
|
|
$
|
5,975
|
|
Less accumulated amortization
|
|
|
(5,021
|
)
|
|
|
(5,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
954
|
|
|
|
968
|
|
Inventory, non-current
|
|
|
1,177
|
|
|
|
2,985
|
|
Other assets
|
|
|
2,612
|
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,743
|
|
|
$
|
5,814
|
|
|
|
|
|
|
|
|
|
|
6.
|
Other Current Liabilities
|
Other current liabilities were comprised of the following at June 30,
2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Amounts received in advance of revenue recognition
|
|
$
|
15,242
|
|
|
$
|
10,434
|
|
Amounts due to former customers
|
|
|
65
|
|
|
|
4,172
|
|
Other
|
|
|
546
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,853
|
|
|
$
|
15,136
|
|
|
|
|
|
|
|
|
|
|
Amounts received in advance of revenue recognition consists of payments received from customers in France. Amounts due to
former customers consists of amounts due for product returns.
3.625% Convertible Notes due 2019
On June 17, 2014, the Company issued $200.0 million aggregate principal amount of 3.625% convertible senior notes due 2019 (the convertible
notes). The Company received net proceeds of $192.9 million from the sale of the convertible notes, after deducting fees of $6.0 million and expenses of $1.1 million. The Company used $43.2 million of the net proceeds from the sale of the
convertible notes to pay the cost of the convertible bond hedges, as described below, after such cost was partially offset by $27.6 million in proceeds to the Company from the sale of warrants in the warrant transactions also described below.
The convertible notes are governed by the terms of an indenture between the Company, as issuer, and Wells Fargo Bank, National Association, as the trustee.
The convertible notes are senior unsecured obligations and bear interest at a rate of 3.625% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2014. The convertible
notes will mature on June 15, 2019, unless earlier repurchased or converted. The convertible notes will be convertible into cash, shares of the Companys common stock, or a combination thereof, at the Companys election, at an initial
conversion rate of approximately 107.5095 shares of common stock per $1,000 principal amount of the convertible notes, which corresponds to an initial conversion price of approximately $9.30 per share of the Companys common stock and
represents a conversion premium of approximately 32.5% based on the last reported sale price of the Companys common stock of $7.02 on June 11, 2014, the date the notes offering was priced. The principal amount of the notes exceeded the
if-converted value as of June 30, 2014.
11
The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, but will
not be adjusted for any accrued and unpaid interest. At any time prior to the close of business on the business day immediately preceding December 15, 2018, holders may convert their convertible notes at their option only under the following
circumstances:
|
|
|
during any calendar quarter commencing after the calendar quarter ending on December 31, 2014 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading
days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price, or approximately $12.00 per
share, on each applicable trading day;
|
|
|
|
during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of the convertible notes for each trading day of the
measurement period was less than 98% of the product of the last reported sale price of the Companys common stock and the conversion rate on each such trading day; or
|
|
|
|
upon the occurrence of specified corporate events.
|
On or after December 15, 2018 until the close of
business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their convertible notes, in multiples of $1,000 principal amount, at their option regardless of the foregoing
circumstances. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of common stock, or a combination thereof, at its election.
If a make-whole fundamental change, as described in the indenture, occurs and a holder elects to convert its convertible notes in connection with such
make-whole fundamental change, such holder may be entitled to an increase in the conversion rate as described in the indenture.
The Company may not
redeem the convertible notes prior to the maturity date and no sinking fund is provided for the convertible notes, which means that the Company is not required to periodically redeem or retire the convertible notes. Upon the occurrence
of certain fundamental changes involving the Company, holders of the convertible notes may require us to repurchase for cash all or part of their convertible notes at a repurchase price equal to 100% of the principal amount of the convertible
notes to be repurchased, plus accrued and unpaid interest.
The indenture does not contain any financial or maintenance covenants or restrictions on the
payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The indenture contains customary terms and covenants and events of default. If an event of default (other
than certain events of bankruptcy, insolvency or reorganization involving the Company or any of its significant subsidiaries) occurs and is continuing, the trustee by notice to us, or the holders of at least 25% in principal amount of the
outstanding convertible notes by written notice to the Company and the trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all of the convertible notes to be due and payable. Upon such a declaration of
acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company or any of its significant
subsidiaries, 100% of the principal of and accrued and unpaid interest, if any, on all of the convertible notes will become due and payable automatically. Notwithstanding the foregoing, the indenture provides that, to the extent the Company elects
and for up to 180 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the indenture consists exclusively of the right to receive additional interest on the
convertible notes.
In accordance with accounting guidance for debt with conversion and other options, the Company separately accounts for the liability
and equity components of the convertible notes by allocating the
12
proceeds between the liability component and the embedded conversion option, or equity component, due to the Companys ability to settle the convertible notes in cash, common stock or a
combination of cash and common stock, at the Companys option. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation
was performed in a manner that reflected the Companys non-convertible debt borrowing rate for similar debt. The equity component of the convertible notes was recognized as a debt discount and represents the difference between the proceeds from
the issuance of the convertible notes and the fair value of the liability of the convertible notes on their date of issuance. The excess of the principal amount of the liability component over its carrying amount, or debt discount, is amortized to
interest expense using the effective interest method over the five year life of the convertible notes, which was the approximate remaining discount amortization period as of June 30, 2014. The equity component is not remeasured for changes in fair
value as long as it continues to meet the conditions for equity classification.
The outstanding convertible note balances as of June 30, 2014
consisted of the following:
|
|
|
|
|
In thousands
|
|
June 30, 2014
|
|
Liability component:
|
|
|
|
|
Principal
|
|
$
|
200,000
|
|
Less: debt discount, net
|
|
|
46,881
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
153,119
|
|
|
|
|
|
|
Equity component
|
|
$
|
40,896
|
|
|
|
|
|
|
In connection with the issuance of the convertible notes, the Company incurred approximately $1.1 million of debt issuance
costs, which primarily consisted of legal, accounting and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $1.1 million of debt issuance costs, $254,000
were allocated to the equity component and recorded as a reduction to additional paid-in capital and $825,000 were allocated to the liability component and recorded in other assets on the balance sheet. The portion allocated to the liability
component is amortized to interest expense over the expected life of the convertible notes using the effective interest method.
The Company determined
the expected life of the debt was equal to the five-year term on the convertible notes. As of June 30, 2014, the carrying value of the convertible notes was $153.1 million and approximated their fair value due to the recent issuance of such
convertible notes. The effective interest rate on the liability component was 9.6% for the period from the date of issuance through June 30, 2014. The following table sets forth total interest expense recognized related to the convertible notes
during the three months ended June 30, 2014:
|
|
|
|
|
In thousands
|
|
June 30, 2014
|
|
Contractual interest expense
|
|
$
|
262
|
|
Amortization of debt discount
|
|
|
269
|
|
Amortization of debt issuance costs
|
|
|
5
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
536
|
|
|
|
|
|
|
Convertible Bond Hedge and Warrant Transactions
In connection with the pricing of the convertible notes and in order to reduce the potential dilution to the Companys common stock and/or offset any cash
payments in excess of the principal amount due upon
13
conversion of the convertible notes, on June 12, 2014, the Company entered into convertible note hedge transactions covering approximately 21.5 million shares of the Companys
common stock underlying the $200.0 million aggregate principal amount of the convertible notes with JPMorgan Chase Bank, National Association, an affiliate of JPMorgan Securities LLC (the Counter Party). The convertible bond hedges have
an exercise price of approximately $9.30 per share, subject to adjustment upon certain events, and are exercisable when and if the convertible notes are converted. Upon conversion of the convertible notes, if the price of the Companys common
stock is above the exercise price of the convertible bond hedges, the Counter Party will deliver shares of the Companys common stock and/or cash with an aggregate value approximately equal to the difference between the price of the
Companys common stock at the conversion date and the exercise price, multiplied by the number of shares of the Companys common stock related to the convertible bond hedges being exercised. The convertible bond hedges are separate
transactions entered into by the Company and are not part of the terms of the convertible notes or the warrants, discussed below. Holders of the convertible notes will not have any rights with respect to the convertible bond hedges. The Company paid
$43.2 million for these convertible bond hedges and recorded this amount as a reduction to additional paid-in capital.
At the same time, the Company also
entered into separate warrant transactions with the Counter Party relating to, in the aggregate, approximately 21.5 million shares of the Companys common stock underlying the $200.0 million aggregate principal amount of the convertible
notes. The initial exercise price of the warrants is $12.00 per share, subject to adjustment upon certain events, which is approximately 70% above the last reported sale price of the Companys common stock of $7.02 on June 11, 2014. Upon
exercise, the Company will deliver shares of the Companys common stock and /or cash with an aggregate value equal to the excess of the price of the Companys common stock on the exercise date and the exercise price, multiplied by the
number of shares, of the Companys common stock underlying the exercise. The warrants will be exercisable and will expire in equal installments for a period of 100 trading days beginning on September 15, 2019. The warrants were issued to
the Counter Party pursuant to the exemption from registration set forth in Section 4(a)(2) of the Securities Act. The Company received $27.6 million for these warrants and recorded this amount as an increase to additional paid-in capital.
Aside from the initial payment of a $43.2 million premium to the Counter Party under the convertible bond hedges, which cost is partially offset by the
receipt of a $27.6 million premium under the warrants, the Company is not required to make any cash payments to the Counter Party under the convertible bond hedges and will not receive any proceeds if the warrants are exercised.
Other Long Term Debt
Other long-term debt consisted of
the following at June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Bank term loan
|
|
$
|
|
|
|
$
|
9,100
|
|
Less current portion
|
|
|
|
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
4,900
|
|
|
|
|
|
|
|
|
|
|
The bank term loan provided for quarterly payments of principal and interest with final scheduled maturity on
December 31, 2015. The loan bore interest at LIBOR plus 1.25 to 2.25 percent, depending on the percentage of the Companys liquid assets on deposit with or invested through the bank, or at the prime rate. The loan was secured by a lien on
all assets of the Company excluding intellectual property, which the Company agreed not to pledge to any other party. The loan required the Company to maintain a minimum of $15.0 million in unrestricted cash, cash equivalents and investments. The
loan also contained certain covenants that restricted additional indebtedness, additional liens and sales of assets, and dividends, distributions or repurchases of common stock. The term loan was paid in full on June 17, 2014.
14
8.
|
Executive Compensation Plan
|
Under the Companys deferred executive compensation plan, the Company
accrues a liability for the value of the awards made under the plan ratably over the vesting period. There were no awards made under the plan in 2013 or 2014. The net expense for this plan was $2,000 and $351,000 for the three-month periods ended
June 30, 2014 and 2013, respectively, and $119,000 and $683,000 for the six-month periods ended June 30, 2014 and 2013, respectively. As of June 30, 2014, all amounts previously deferred under this plan have been paid out.
9.
|
Leases and Facility Lease Obligation
|
Facility Leases
The Company conducts the majority of its operations in a 100,000 square foot office and laboratory facility under a non-cancelable operating lease that extends
to July 2019 with two consecutive five-year renewal options. The Company maintains an outstanding letter of credit of $1.4 million in accordance with the terms of the amended lease. In May 2012, the Company entered into a three-year operating lease
agreement for an additional 26,000 square feet of office space. Future non-cancelable minimum annual rental payments through July 2019 under these leases are approximately $3.6 million in 2014, $6.7 million in 2015, $5.9 million in 2016, $6.0
million in 2017, $6.1 million in 2018, and $3.6 million in total thereafter.
Binney Street, Cambridge, Massachusetts
In January 2013, the Company entered into a lease agreement for approximately 244,000 square feet of laboratory and office space in two adjacent, connected
buildings which are under construction in Cambridge, Massachusetts. Construction is expected to be completed in early 2015. Under the terms of the original lease, the Company leased all of the rentable space in one of the two buildings and a portion
of the available space in the second building. In September 2013, the Company entered into a lease amendment to lease all of the remaining space, approximately 142,000 square feet, in the second building, for an aggregate of 386,000 square feet in
both buildings. The terms of the lease amendment were consistent with the terms of the original lease.
In connection with this lease, the landlord is
providing a tenant improvement allowance for the costs associated with the design, engineering, and construction of tenant improvements for the leased facility. The tenant improvements will be in accordance with the Companys plans and include
fit-out of the buildings to construct appropriate laboratory and office space, subject to approval by the landlord. To the extent the stipulated tenant allowance provided by the landlord is exceeded, the Company is obligated to fund all costs
incurred in excess of the tenant allowance. The scope of the planned tenant improvements do not qualify as normal tenant improvements under the lease accounting guidance. Accordingly, for accounting purposes, the Company is the deemed
owner of the buildings during the construction period.
As construction progresses, the Company records the project construction costs incurred as an
asset, along with a corresponding facility lease obligation, on the consolidated balance sheet for the total amount of project costs incurred whether funded by the Company or the landlord. Upon completion of the buildings, the Company will determine
if the asset and corresponding financing obligation should continue to be carried on its consolidated balance sheet under the appropriate accounting guidance. Based on the current terms of the lease, the Company expects to continue to be the deemed
owner of the buildings upon completion of the construction period. As of June 30, 2014, the Company has recorded construction in progress and a facility lease obligation of $144.3 million.
15
The initial term of the lease is for 15 years from substantial completion of the buildings with options to renew
for three terms of five years each at market-based rates. The base rent is subject to increases over the term of the lease. Based on the original and amended leased space, the non-cancelable minimum annual lease payments for the annual periods
beginning upon commencement of the lease are $5.3 million, $8.4 million, $26.6 million, $30.4 million and $30.9 million in the first five years of the lease and $347.1 million in total thereafter, plus the Companys share of the facility
operating expenses and other costs that are reimbursable to the landlord under the lease. The Company has the right to sublease portions of the space and is currently planning to sublease portions of the space that it will not initially require for
its operations.
The Company maintains a letter of credit as security for the lease of $9.2 million, which is supported by restricted cash.
Lausanne, Switzerland
In January 2013, the Company
entered into a lease agreement for approximately 22,000 square feet of office space in a building which the Company occupied in 2014. The term of the lease is for ten years, with options for extension of the term and an early termination at the
Companys option after five years. Future non-cancelable minimum annual lease payments under this lease are expected to be approximately $576,000 in 2014, $1.1 million in 2015, $1.2 million in 2016, 2017 and 2018 and $6.0 million in total
thereafter.
Total rent expense for the leases described above as well as other Company leases for three-month and six-month periods ended June 30,
2014 and 2013 was $1.9 million and $1.5 million, respectively, and $3.8 million and $2.9 million, respectively. Contingent rent expense for the three-month and six-month periods ended June 30, 2014 and 2013 was $158,000 and $170,000, respectively,
and $338,000 and $341,000, respectively. Total future non-cancelable minimum annual rental payments for the leases described above as well as other Company leases, for the next five years and thereafter is $4.2 million, $13.1 million, $15.5 million,
$33.8 million, $37.7 million and $387.6 million, respectively, not including any offset from potential sublease payments.
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which
the temporary differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized.
The Companys tax provision reflects that the Company has an international corporate structure and certain subsidiaries are profitable on a stand-alone
basis. Accordingly, a tax provision is reflected for the taxes incurred in such jurisdictions. In addition, the Company has recognized a prepaid tax related to the tax consequences arising from intercompany transactions and is amortizing such
prepaid tax over the period that the assets transferred are being amortized. The total provision for income taxes for the three-month and six-month periods ended June 30, 2014 and 2013 was $106,000 and $86,000, respectively and $225,000 and
$145,000, respectively.
The Company does not recognize a tax benefit for uncertain tax positions unless it is more likely than not that the position will
be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest
amount of cumulative benefit that has greater than a 50 percent likelihood of being realized upon ultimate settlement. Deferred tax assets that do not meet these recognition criteria are not recorded and the Company recognizes a liability for
uncertain tax positions that may result in tax payments. If such unrecognized tax benefits were realized and not subject to valuation allowances, the entire amount would impact the tax provision. No uncertain tax positions are expected to be
resolved within the next twelve months.
16
Common Stock
On January 29, 2013, the Company sold 16,489,893 shares of its common stock in an underwritten public offering at a purchase price of $19.60 per share.
Net proceeds of this offering, after underwriting discounts and commissions and expenses, were approximately $310.0 million.
On December 14, 2011,
the Company filed a shelf registration statement with the Securities and Exchange Commission (SEC), for the issuance of an unspecified amount of common stock, preferred stock, various series of debt securities and/or warrants to purchase
any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering. This registration statement was effective upon filing and will remain in effect for up to three
years from filing.
Changes in Stockholders Equity
The changes in stockholders equity for the six-month period ended June 30, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
|
185,896,080
|
|
|
$
|
186
|
|
|
$
|
1,238,859
|
|
|
$
|
(1,535
|
)
|
|
$
|
(1,051,993
|
)
|
|
$
|
185,517
|
|
Issuance of common stock pursuant to ARIAD stock plans
|
|
|
966,397
|
|
|
|
1
|
|
|
|
2,262
|
|
|
|
|
|
|
|
|
|
|
|
2,263
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
16,945
|
|
|
|
|
|
|
|
|
|
|
|
16,945
|
|
Payment of tax withholding obligations related to stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(558
|
)
|
|
|
|
|
|
|
|
|
|
|
(558
|
)
|
Equity component of convertible debt
|
|
|
|
|
|
|
|
|
|
|
40,896
|
|
|
|
|
|
|
|
|
|
|
|
40,896
|
|
Purchase of convertible bond hedge
|
|
|
|
|
|
|
|
|
|
|
(43,220
|
)
|
|
|
|
|
|
|
|
|
|
|
(43,220
|
)
|
Sale of warrants
|
|
|
|
|
|
|
|
|
|
|
27,580
|
|
|
|
|
|
|
|
|
|
|
|
27,580
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
(106,743
|
)
|
|
|
(106,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014
|
|
|
186,862,477
|
|
|
$
|
187
|
|
|
$
|
1,282,764
|
|
|
$
|
(1,451
|
)
|
|
$
|
(1,158,736
|
)
|
|
$
|
122,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Fair Value of Financial Instruments
|
The Company provides disclosure of financial assets and financial
liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be
classified based on the amount of subjectivity associated with the inputs to the fair valuation of these assets and liabilities using the following three levels:
Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to
access at the measurement date.
Level 2 Inputs include quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, inputs other than
17
quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by
correlation or other means (market corroborated inputs).
Level 3 Unobservable inputs that reflect the Companys estimates of
the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.
As of June 30, 2014 and December 31, 2013, the Company did not hold any assets recorded at fair value.
At June 30, 2014 and December 31, 2013 the carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate fair value
because of their short-term nature. The carrying amount of the Companys bank term loan at December 31, 2013 approximated fair value due to its variable interest rate and other terms. All such measurements are Level 2 measurements in the
fair value hierarchy. The carrying amount of the Companys leased buildings under construction in Cambridge, Massachusetts and the related long-term facility lease obligation reflect replacement cost, which approximates fair value. This
measurement is a Level 3 fair value measurement. The carrying value of the convertible notes approximated fair value at June 30, 2014 due to their recent issuance.
13.
|
Stock-Based Compensation
|
The Company awards stock options and other equity-based instruments to its
employees, directors and consultants and provides employees the right to purchase common stock (collectively share-based payments), pursuant to stockholder approved plans. The Companys statements of operations included total
compensation cost from share-based payments for the three-month and six-month periods ended June 30, 2014 and 2013, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Compensation cost from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
4,164
|
|
|
$
|
4,751
|
|
|
$
|
8,844
|
|
|
$
|
8,112
|
|
Stock and stock units
|
|
|
4,178
|
|
|
|
9,445
|
|
|
|
7,826
|
|
|
|
11,592
|
|
Purchases of common stock at a discount
|
|
|
107
|
|
|
|
121
|
|
|
|
275
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,449
|
|
|
$
|
14,317
|
|
|
$
|
16,945
|
|
|
$
|
19,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
3,633
|
|
|
$
|
5,762
|
|
|
$
|
7,341
|
|
|
$
|
8,416
|
|
Selling, general and administrative expenses
|
|
|
4,816
|
|
|
|
8,555
|
|
|
|
9,604
|
|
|
|
11,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,449
|
|
|
$
|
14,317
|
|
|
$
|
16,945
|
|
|
$
|
19,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
Stock
options are granted with an exercise price equal to the closing market price of the Companys common stock on the date of grant. Stock options generally vest ratably over three or four years and have contractual terms of ten years. Stock
options are valued using the Black-Scholes option valuation model and compensation cost is recognized based on such fair value over the period of vesting on a straight-line basis.
18
Stock option activity under the Companys stock plans for the six-month period ended June 30, 2014 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Options outstanding, January 1, 2014
|
|
|
10,379,668
|
|
|
$
|
10.83
|
|
Granted
|
|
|
1,493,560
|
|
|
$
|
7.35
|
|
Forfeited
|
|
|
(1,036,902
|
)
|
|
$
|
14.25
|
|
Exercised
|
|
|
(368,446
|
)
|
|
$
|
4.20
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, June 30, 2014
|
|
|
10,467,880
|
|
|
$
|
10.23
|
|
|
|
|
|
|
|
|
|
|
Stock and Stock Unit Grants
Stock and stock unit grants carry restrictions as to resale for periods of time or vesting provisions over time or based on the achievement of performance
measures specified in the grant. Stock and stock unit grants are valued at the closing market price of the Companys common stock on the date of grant and compensation expense is recognized over the requisite service period, vesting period or
period during which restrictions remain on the common stock or stock units granted.
Stock and stock unit activity under the Companys stock plans
for the six-month period ended June, 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding, January 1, 2014
|
|
|
2,047,600
|
|
|
$
|
14.18
|
|
Granted
|
|
|
2,479,500
|
|
|
$
|
7.35
|
|
Forfeited
|
|
|
(220,512
|
)
|
|
$
|
9.64
|
|
Vested or restrictions lapsed
|
|
|
(546,988
|
)
|
|
$
|
12.97
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2014
|
|
|
3,759,600
|
|
|
$
|
10.11
|
|
|
|
|
|
|
|
|
|
|
Included in stock and stock units outstanding in the above table as of June 30, 2014 are 258,400 performance share
units that will vest annually, in equal increments, over the next two years on the anniversary date of the achievement of the performance condition, which was the marketing authorization of Iclusig by the European Commission that occurred in July
2013.
Stock and stock units outstanding in the above table as of June 30, 2014 also include 333,000 performance share units awarded in 2013. The
number of shares that may vest, if any, related to the 2013 performance share unit awards is dependent on the achievement, and timing of the achievement, of the performance criteria defined for the award. The compensation cost for such
performance-based stock awards will be based on the awards that ultimately vest and the grant date fair value of those awards. The Company begins to recognize compensation expense related to performance share units when achievement of the
performance condition is probable. The Company has concluded that it is probable that the performance condition related to the 2013 performance share unit awards will be met. The performance condition is based upon continued success in specific
research and development initiatives. The total compensation expense for these performance share units may be up to 60% higher if the performance condition for this award is met prior to December 31, 2014.
Stock and stock units outstanding in the above table as of June 30, 2014 also include 1,066,000 performance share units awarded on January 31, 2014.
The vesting of fifty percent of the award is
19
dependent upon the achievement of specific commercial objectives by the end of 2015 and the vesting of the remainder is dependent upon the achievement, and timing of the achievement, of specific
research and development objectives. The Company has concluded that it is probable that these performance conditions will be met. The total compensation expense for the portion related to the research and development objectives may be up to 60%
higher depending on the timing of the achievement of the specific performance objectives.
14.
|
Accumulated Other Comprehensive Income (Loss)
|
The changes in accumulated other comprehensive income
(loss) for the three-month and six-month periods ended June 30, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Cumulative
Translation
Adjustment
|
|
|
Defined
Benefit
Pension
Obligation
|
|
|
Total
|
|
Balance, April 1, 2014
|
|
$
|
(41
|
)
|
|
$
|
(1,454
|
)
|
|
$
|
(1,495
|
)
|
Other comprehensive losses
|
|
|
3
|
|
|
|
41
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014
|
|
$
|
(38
|
)
|
|
$
|
(1,413
|
)
|
|
$
|
(1,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Cumulative
Translation
Adjustment
|
|
|
Defined
Benefit
Pension
Obligation
|
|
|
Total
|
|
Balance, January 1, 2014
|
|
$
|
(40
|
)
|
|
$
|
(1,495
|
)
|
|
$
|
(1,535
|
)
|
Other comprehensive losses
|
|
|
2
|
|
|
|
82
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014
|
|
$
|
(38
|
)
|
|
$
|
(1,413
|
)
|
|
$
|
(1,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share amounts have been computed based on the weighted-average
number of common shares outstanding. Diluted net loss per share amounts have been computed based on the weighted-average number of common shares outstanding plus the dilutive effect of potential common shares. The computation of potential common
shares has been performed using the treasury stock method. Because of the net loss reported in each period, diluted and basic net loss per share amounts are the same.
The calculation of net loss and the number of shares used to compute basic and diluted earnings per share for the three-month and six-month periods ended
June 30, 2014 and 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
In thousands, except per share data
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net loss
|
|
$
|
(56,921
|
)
|
|
$
|
(68,985
|
)
|
|
|
(106,743
|
)
|
|
$
|
(133,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.30
|
)
|
|
$
|
(0.37
|
)
|
|
|
(0.57
|
)
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic and diluted
|
|
|
186,815
|
|
|
|
184,726
|
|
|
|
186,535
|
|
|
|
181,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For purposes of calculating net loss per share, we evaluate the impact of the convertible notes on an if-convertible method.
Because the impact of the convertible notes on an if-convertible basis for the
20
three-month and six-month periods ended June 30, 2014 was anti-dilutive, such impact has not been included in the determination of net loss per share. The warrant transaction related
to the convertible notes provides for the purchase of shares of the Companys common stock at an exercise price of $12.00 per share. These warrants will not be considered in calculating the total dilutive weighted average shares outstanding
unless and until the price of the Companys common stock exceeds the $12.00 exercise price.
16.
|
Restructuring Actions
|
In the fourth quarter of fiscal 2013, the Company incurred expenses of $4.8
million associated with an employee workforce reduction of approximately 155 positions that was designed to reduce the Companys operating expenses and extend its cash runway. The Company recorded $2.2 million of the employee separation costs
in research and development expense and $2.6 million in selling, general and administrative expense in the three-month period end December 31, 2013.
A rollforward of the restructuring liability for the six-month period ended June 30, 2014 is as follows:
|
|
|
|
|
In thousands
|
|
|
|
Balance, January 1, 2014
|
|
$
|
2,220
|
|
Charges
|
|
|
|
|
Amounts paid
|
|
|
(2,220
|
)
|
|
|
|
|
|
Balance, June 30, 2014
|
|
$
|
|
|
|
|
|
|
|
The restructuring charges were paid by end of June 30, 2014. On the accompanying condensed consolidated balance sheets,
the restructuring liability balance was classified as a component of accrued compensation and benefits.
17.
|
Defined Benefit Pension Obligation
|
On March 1, 2013, the Company established a defined benefit
pension plan for employees in its Switzerland subsidiary. The plan provides benefits to employees upon retirement, death or disability.
The net
periodic benefit cost for the defined benefit pension plan for the three-month and six-month periods ended June 30, 2014 was as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
|
Three Months Ended
June 30,2014
|
|
|
Six Months Ended
June 30, 2014
|
|
Service cost
|
|
$
|
303
|
|
|
$
|
591
|
|
Interest cost
|
|
|
46
|
|
|
|
89
|
|
Expected return on plan assets
|
|
|
(38
|
)
|
|
|
(75
|
)
|
Amortization of prior service cost
|
|
|
41
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
352
|
|
|
$
|
687
|
|
|
|
|
|
|
|
|
|
|
The net periodic benefit costs and contributions to the plan for the six-month period ended June 30, 2014 were not
material. The Company expects to contribute $942,000 in total to the plan in 2014.
On October 10, 2013, October 17, 2013, December 3, 2013 and
December 6, 2013, purported shareholder class actions, styled
Jimmy Wang v. ARIAD Pharmaceuticals, Inc., et al.
,
James L. Burch v. ARIAD Pharmaceuticals, Inc., et al.
,
Greater Pennsylvania Carpenters
Pension Fund v. ARIAD Pharmaceuticals, Inc., et al
, and
Nabil Elmachtoub v. ARIAD Pharmaceuticals, Inc., et al
, respectively, were filed in the United States District Court for the District of Massachusetts (the District
Court), naming the Company and certain of
21
its officers as defendants. The lawsuits allege that the defendants made material misrepresentations and/or omissions of material fact regarding clinical and safety data for Iclusig in its public
disclosures during the period from December 12, 2011 through October 8, 2013 or October 17, 2013, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. On
January 9, 2014, the District Court consolidated the actions and appointed lead plaintiffs. On February 18, 2014, the lead plaintiffs filed an amended complaint as contemplated by the order of the District Court. The amended complaint
extends the class period for the Securities Exchange Act claims through October 30, 2013. In addition, plaintiffs allege that certain of the Companys officers, directors and certain underwriters made material misrepresentations and/or
omissions of material fact regarding clinical and safety data for Iclusig in connection with the Companys January 24, 2013 follow-on public offering of common stock in violation of Sections 11 and 15 of the Securities Act of 1933, as
amended. The plaintiffs seek unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorneys fees. On April 14, 2014, the defendants and the underwriters filed separate motions to
dismiss the amended complaint. On June 10, 2014, the District Court heard oral argument but has not yet ruled on the defendants motions to dismiss the amended complaint.
On November 6, 2013, a purported derivative lawsuit, styled
Yu Liang v. ARIAD Pharmaceuticals, Inc., et al.,
was filed in the United
States District Court for the District of Massachusetts (the District Court), on behalf of the Company naming its directors and certain of its officers as defendants. On December 6, 2013, an additional purported derivative lawsuit,
styled
Arkady Livitz v. Harvey J. Berger, et al
, was filed in the District Court. The lawsuits allege that the Companys directors and certain of its officers breached their fiduciary duties related to the clinical development and
commercialization of Iclusig and by making misrepresentations regarding the safety and commercial marketability of Iclusig. The lawsuits also assert claims for unjust enrichment and corporate waste, and for misappropriation of information and
insider trading by the officers named as defendants. On January 23, 2014, the District Court consolidated the actions. On February 3, 2014, the plaintiffs designated the
Yu Liang
complaint as the operative complaint as
contemplated by the order of the District Court. The plaintiffs seek unspecified monetary damages, changes in the Companys corporate governance policies and internal procedures, restitution and disgorgement from the individually named
defendants, and an award of costs and expenses, including attorney fees. On March 5, 2014, the defendants filed a motion to dismiss the complaint. In response, on March 26, 2014, the plaintiffs filed an amended complaint. On April 23,
2014, the defendants filed a motion to dismiss the amended complaint. On July 23, 2014, the District Court heard oral argument on the motion to dismiss but has not ruled on it.
The Company believes that these actions are without merit. At this time, no assessment can be made as to the likely outcome of these lawsuits or whether the
outcome will be material to the Company.
From time to time, the Company may be subject to various claims and legal proceedings. If the potential loss
from any claim, asserted or unasserted, or legal proceedings is considered probable and the amount is reasonably estimated, the Company will accrue a liability for the estimated loss.
19.
|
Recent Accounting Pronouncements
|
In July 2013, the FASB issued ASU 2013-11,
Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
. ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit or a portion of an unrecognized tax
benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar to a tax loss or a tax credit carryforward. The Company has adopted the provisions of this standard beginning
January 1, 2014. The adoption of the standard did not have a material impact on the Companys consolidated financial statements.
22