UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For The
Fiscal Year Ended December 31, 2007
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from
to
.
Commission
File No. 0-19700
AMYLIN PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
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33-0266089
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(State or other
jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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9360
Towne Centre Drive
San Diego, California
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92121
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(Address of
principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(858) 552-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
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Name of
Exchange on Which Registered
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Common Stock, $.001 par value
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The NASDAQ Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
x
No
o
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
Yes
o
No
x
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) 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 definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer
x
Accelerated filer
o
Non-accelerated
filer
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Smaller reporting
company
o
(Do
not check if a smaller reporting company)
Indicate by check mark whether
the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes
o
No
x
The aggregate market value of
the common stock of the registrant as of June 30, 2007
held
by non-affiliates was
$2,212,973,204.
The number of shares
outstanding of the registrants common stock was 135,302,323 as of February 13,
2008.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants
Definitive Proxy Statement to be filed with the Securities and Exchange
Commission (the Commission) pursuant to Regulation 14A in connection with the
2008 Annual Meeting of Stockholders to be held on May 30, 2008 are
incorporated herein by reference into Part III of this Annual Report. Such
Definitive Proxy Statement will be filed with the Commission not later than 120
days after December 31, 2007.
You should read the following together with the more detailed
information regarding our company, our common stock and our financial
statements and notes to those statements appearing elsewhere in this document
or incorporated by reference. The Securities and Exchange Commission, or SEC,
allows us to incorporate by reference information that we file with the SEC,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this annual report on Form 10-K.
Except for the historical information contained herein, this annual report
on Form 10-K and the information incorporated by reference contains
forward-looking statements that involve risks and uncertainties. These
statements include projections about our accounting and finances, plans and
objectives for the future, future operating and economic performance and other
statements regarding future performance. These statements are not guarantees of
future performance or events. Our actual results may differ materially from
those discussed here. Factors that could cause or contribute to such
differences are described in Part I, Item 1A, entitled Risk Factors, as
well as those discussed in Part II, Item 7, entitled Managements
Discussion and Analysis of Financial Condition and Results of Operations, and
elsewhere throughout this annual report on Form 10-K and in any other
documents incorporated by reference into this annual report on Form 10-K.
We disclaim any obligation to update any forward-looking statement.
PART I
Item 1.
Business
We are
a biopharmaceutical company committed to improving the lives of people with
diabetes, obesity and other diseases through the discovery, development and
commercialization of innovative medicines.
We are marketing two first-in-class medicines to treat diabetes, BYETTA
®
(exenatide) injection and SYMLIN
®
(pramlintide acetate) injection.
Our near-term strategy is to drive BYETTA and SYMLIN sales growth while
investing in other development opportunities, such as a sustained-release
formulation of exenatide which we refer to as exenatide once weekly (formerly
referred to as exenatide LAR) and our obesity program, to drive mid-term and
long-term growth.
BYETTA
is the first and only approved medicine in a new class of compounds called
incretin mimetics.
It is approved as an adjunctive therapy
to improve glycemic control in patients with type 2 diabetes who have not
achieved adequate glycemic control using metformin, a sulfonylurea and/or a
thiazolidinediene (TZD), three common oral therapies for type 2 diabetes. Net product sales of BYETTA were $636.0
million in 2007, $430.2 million in 2006 and $75.2 million in 2005.
We
have an agreement with Eli Lilly and Company, or Lilly, for the global
development and commercialization of exenatide. This agreement includes BYETTA
and other formulations of exenatide such as exenatide once weekly. Under the terms of the agreement, operating
profits from products sold in the United States are shared equally between
Lilly and us, and Lilly will pay us royalties for product sales outside of the
United States. Lilly has primary
responsibility for developing and commercializing BYETTA outside of the United
States including any sustained-release formulations of exenatide such as
exenatide once weekly. In late 2006,
BYETTA was approved in the European Union, or EU, and, by the end of 2007, was
commercially launched in 23 countries worldwide.
SYMLIN
is the first and only approved medicine in a new class of compounds called
amylinomimetics. It is approved as an
adjunctive therapy to improve glycemic control in patients with either type 2
or type 1 diabetes who are treated with mealtime insulin but who have not
achieved adequate glycemic control. We
own 100% of the global rights to SYMLIN.
Net product sales of SYMLIN were $65.5 million in 2007, $43.8 million in
2006 and $11.5 million in 2005.
We
have a field force of approximately 600
people
dedicated to marketing BYETTA and SYMLIN in the United States. In addition, Lilly co-promotes BYETTA in the
United States. Our field force includes
our specialty and primary care sales forces, a managed care and government
affairs organization, a medical science organization and diabetes care
specialists.
In
addition to our marketed products, we have ongoing programs in pharmaceutical
discovery and development, including a late-stage program to develop exenatide
once weekly, to enable once weekly administration of exenatide for the
treatment of type 2 diabetes. We are
working with Lilly and Alkermes, Inc., or Alkermes, to develop exenatide
once weekly. In October 2007, we
announced positive results of a 30-week pivotal comparator study that showed a
statistically significant improvement in A1C, a standard measure of blood
glucose control, of approximately 1.9 percentage points from baseline for
exenatide once weekly patients, with three out of four patients achieving an
A1C of 7% or less. We plan to complete
our
2
manufacturing scale-up
activities in 2008 and to submit a new drug application, or NDA, to the U.S.
Food and Drug Administration, or FDA, no later than the end of the first half
of 2009, although we are aggressively pursuing strategies which may allow an
earlier submission. In 2008 we also plan
to initiate three studies to demonstrate the superiority of exenatide once
weekly over insulin and several oral medications used in the treatment of type
2 diabetes.
Our
long-term growth strategy includes our Integrated Neurohormonal Treatment of
Obesity, or INTO, strategy. In November 2007,
we announced that overweight or obese subjects in a 24-week proof-of-concept
study treated with a combination of pramlintide, an analog of human amylin and
the same active ingredient in SYMLIN, and metreleptin, an analog of human
leptin, lost an average of 25 pounds from baseline, resulting in reduced body
weight on average of 12.7%. In 2008 we
will focus on the development of a potential obesity medicine that is a
combination of pramlintide and metreleptin.
We
also have other early stage programs for diabetes, obesity and other therapeutic
areas. We maintain an active discovery
research program focused on novel peptide therapeutics and are actively seeking
to in-license additional drug candidates.
We have also entered into a number of strategic alliances and business
initiatives that support our expansion into new therapeutic areas.
On March 1,
2007 Ginger L. Graham stepped down as our chief executive officer and continues
to serve as a member of our board of directors.
Daniel M. Bradbury, our former president and chief operating officer,
became our president and chief executive officer effective March 1, 2007.
Our
principal executive offices are located at 9360 Towne Centre Drive, San Diego,
CA 92121, and our telephone number is (858) 552-2200. We were incorporated in Delaware in September 1987. We maintain a website at
www.amylin.com
. The reference to our worldwide web address
does not constitute incorporation by reference into this report of any of the
information contained on our website.
Our
periodic and current reports that we file with the SEC are available free of
charge on our website at
www.amylin.com
as soon as reasonably practicable after we have electronically filed them with,
or furnished them to, the SEC.
Diabetes
Diabetes is a major health problem both in the United
States and worldwide and is the fifth leading cause of death by disease in the
United States. Diabetes is a complex,
metabolic disorder of carbohydrate, fat and protein metabolism, primarily
resulting from the failure of pancreatic beta cells to produce sufficient
insulin to match the demands for insulin in the body. Insulin is a hormone that plays a central
role in helping the body process, convert and store energy from glucose. In those with diabetes, the relative shortage
of insulin impairs the ability of glucose to enter and fuel the bodys cells
and as a result, glucose builds up in the bloodstream causing hyperglycemia
(high blood sugar). Longstanding
elevation of blood glucose may result in damage to the kidney, retina and
nerves and may lead to kidney failure, permanent nerve damage, blindness and
amputation. High glucose also increases
the risk of cardiovascular disease. Conversely, too much insulin in the
bloodstream can cause hypoglycemia (low blood sugar). Individuals who manage their diabetes with
insulin or other oral antidiabetic medication are especially vulnerable to
swings of high to low blood sugar level and the risk of very low blood sugar
which, if left untreated, can be fatal.
It is estimated that nearly 200
million people worldwide have
diabetes. Of that population, it is
estimated that approximately 90-95% have type 2 diabetes, previously known as
adult-onset diabetes, and the remainder have type 1 diabetes, previously known
as juvenile-onset diabetes. In the
United States alone, in 2005 there were approximately 20.8 million people, or
7% of the population, with diabetes and there were approximately 20.6 million
over the age of 20, or 9.6% of all people in this age group, with
diabetes. However, in 2005 only 14.6
million people in the United States had been diagnosed with diabetes and
approximately 1.5 million new cases were diagnosed. From 1997 through 2004, new cases of
diagnosed diabetes among Americans aged 18-79 increased by 54%. In addition, there are currently approximately
54 million people in the United States with pre-diabetes, a condition that
raises the risk of developing type 2 diabetes, heart disease and stroke. People with pre-diabetes have
blood glucose levels higher than normal
but not high enough to establish a diagnosis of diabetes.
Long term control of blood glucose is known to limit
the risk of developing diabetes related retinal, renal and neurologic
complications. Glycated hemoglobin (A1C)
is the most widely used measure of long-term blood glucose control.
3
A1C
level is a recognized indicator of an individuals average blood glucose
concentrations over the preceding three- to four-month period. Lower A1C levels indicate better average
blood glucose control, with values in people without diabetes usually being
less than 6%. The American Diabetes
Association, or ADA, suggests that people with diabetes should aim for an A1C
value that is lower than 7%. It is
estimated that nearly half of Americans being treated for diabetes are failing
to achieve recommended blood glucose levels and, according to research studies
conducted in the United States and abroad, these patients would significantly
benefit from improved glycemic control. In general, for every one-point
reduction in A1C, the risk of developing microvascular diabetic complications
(eye, kidney and nerve disease) is reduced by up to 40%. Additionally,
aggressive use of insulin and some oral medications to reduce glucose levels
can be associated with an increased risk of hypoglycemia and weight gain. Consequently, there has long been a need to
develop new treatment strategies that safely improve glucose control, improve
the overall health profile of patients with diabetes and reduce the risk of
complications.
In people without diabetes, the beta cells of the
pancreas produce two hormones, insulin and amylin. Type 1 diabetes, which is most often
diagnosed in children and young adults, results in a deficiency of both hormones
due to a destruction of beta cells.
Replacement of beta cells through islet transplant therapy can, in some
cases, temporarily render patients insulin-independent; however, life-long
daily insulin therapy is usually required to sustain life for people with type
1 diabetes. The addition of SYMLIN
therapy to insulin treatment reduces the characteristic rise in blood sugars
after meals and further reduces A1C levels.
Type 2 diabetes results from the bodys inability to
produce sufficient insulin, or to properly use available insulin, or both.
Secretion of the hormone amylin is also impaired in people with type 2
diabetes. Historically, type 2 diabetes
occurs later in life. However, primarily
as a result of changes in diet and lifestyle, type 2 diabetes is now occurring
much earlier in life for many people.
Diet and exercise therapy, oral medications, BYETTA, insulin, and
insulin with SYMLIN are currently used to treat type 2 diabetes.
While insulin resistance the inability of the bodys
cells to properly respond to the insulin signal is felt to be a core defect
in those with type 2 diabetes, as the disease progresses a reduction in the
beta cells ability to make and release insulin plays a key role. Because of the progressive nature of the
disease (in great part the result of this decline in insulin release), no
single therapy has been shown to consistently control blood glucose over
time. A majority of individuals with
type 2 diabetes will eventually require additional medications, and even these
additional treatments can become less effective in regulating blood glucose
levels over time. Historically, insulin
therapy is then initiated; however, given the progressive nature of the decline
in the bodys production of insulin over time, insulin dosage and the number of
insulin injections needed to maintain glucose control is also increased. Even with additional insulin doses and
injections, many individuals are unable to control their blood glucose levels,
or do so at the expense of significant weight gain and an increased risk of low
blood glucose or hypoglycemia.
In 2005, we introduced two new treatment options for
the management of diabetes, BYETTA and SYMLIN.
BYETTA offers patients with inadequate glycemic control using oral
medications the opportunity to better control their blood glucose levels and
lose weight. SYMLIN offers patients with inadequate glycemic control using
mealtime insulin a treatment option that can both improve glucose control and
result in weight loss. These novel
first-in-class medicines provide new options in disease management and glucose
control to millions of people suffering with diabetes.
For people suffering from diabetes, poor control of
blood glucose levels has been shown to result in severe long-term
complications. For instance, the United
States Centers for Disease Control, or CDC, has stated that complications due
to diabetes include:
·
heart disease and stroke;
·
high blood pressure;
·
blindness due to retinopathy, a condition
manifested by damage to the retina;
·
nephropathy, or kidney disease;
·
neuropathy, a condition where there is damage
to the nervous system;
·
amputations due to peripheral vascular
disease; and
·
periodontal disease.
4
Obesity is common in patients with type 2 diabetes
and weight control is a major problem for many patients with both type 1 and
type 2 diabetes. Weight gain is
particularly common in those using insulin and certain oral medications as part
of their treatment regimen. In addition,
patients with diabetes frequently have wide fluctuations in blood sugar
following meals. These fluctuations in
blood sugar can significantly affect a patients quality of life. Blood glucose fluctuations, weight gain and
diabetes complications may each contribute to substantial disability, reduced
quality of life, reduced productivity in the workplace, increased pain and
suffering and premature death.
Marketed Products
BYETTA
®
(exenatide) injection
BYETTA
is the first and only approved medicine in a new class of compounds called
incretin mimetics. We began selling
BYETTA in the United States in June 2005 as an add-on therapy to improve
glycemic control in patients with type 2 diabetes who have not achieved
adequate gylcemic control and who are taking metformin and/or a sulfonylurea,
two common oral therapies for type 2 diabetes.
Lilly also co-promotes BYETTA in the United States. In December 2006, the FDA approved
BYETTA as an add-on therapy to improve glycemic control in people with type 2
diabetes who have not achieved adequate glycemic control by using a TZD. We estimate the number of people in the
United States currently using metformin, sulfonylurea and/or a TZD to be
approximately 8.2 million. Approximately
one half of all diabetes patients using oral medications are believed to have
an A1C higher than the ADAs recommendation of less than 7% and the vast
majority of these patients could be candidates for BYETTA.
BYETTA
provides self-regulating glucose control by augmenting the bodys natural
physiologic processes, allowing the body to respond to blood glucose changes as
they occur. BYETTA directly affects the
beta cells responses to elevated glucose by enhancing insulin secretion; this
effect dissipates as glucose levels approach the normal range. BYETTA also restores first-phase insulin
response, an effect which is evident following the initial dose. BYETTA is administered twice a day by using a
fixed dose injection, and requires no dose adjustments due to changes in meal
size or composition, exercise or other variables. No additional glucose monitoring is required
with BYETTA therapy.
The
most common adverse effect of BYETTA is mild to moderate nausea, which tends to
dissipate with time. Mild to moderate
hypoglycemia has also been observed, primarily when used in conjunction with a
sulfonylurea, agents that are known to cause hypoglycemia.
By the
end of 2007, our field force expanded to approximately 600 individuals and,
together with the Lilly field organization, our goal is to provide education, through
both one-on-one interactions and educational programs, to ensure that
physicians understand BYETTA, including its mechanisms of action, potential
benefits and important use considerations.
In 2007 we saw a shift in prescribers of BYETTA. Early adoption of BYETTA was primarily by
diabetes specialists, however in 2007 utilization in that segment declined and,
we believe, has stabilized. Importantly,
we believe BYETTA is increasingly being prescribed by primary care physicians,
a much larger prescribing segment that tends to adopt products later in the
product life cycle. Primary care
physicians write approximately 80% of diabetes prescriptions in the United
States. Beginning in 2007 and continuing
through 2008, we are refining our marketing efforts to remind primary care
physicians of BYETTAs unique benefits of glucose control with weight
loss. Additionally, as we begin 2008, we
have increased access to health care plan reimbursement for BYETTA to
approximately 85% coverage nationally on tier 2, which requires a relatively
low co-payment from patients who are covered under such plans.
We and
Lilly piloted a direct-to-customer advertising program in the fourth quarter of
2007. Although the program increased
patient awareness of BYETTA, we now believe our efforts are best focused on
supporting physicians and patients starting BYETTA therapy. In December 2007 we launched a patient
support initiative to facilitate the successful initiation of therapy by
primary care physicians. This effort
includes: increased patient educational
material for health care providers to distribute in their offices; a network of
approximately 450 diabetes educators to work with physicians and their patients
within their local communities; direct support to patients through the BYETTA
easy start line, which provides a toll-free number that allows patients to
contact trained medical professionals to better understand the benefits of
BYETTA therapy and to get assistance starting and using the BYETTA pen; a
pharmacy support component partnering with managed care plans designed
specifically to assist patient refills; and an enhanced BYETTA website. We believe this support will prove helpful to
patients who may be on their first injectable therapy and to primary care
providers who may be less accustomed to treating patients with an injectable
product earlier in the disease cycle and who have fewer resources in their
offices.
5
In February 2007,
we announced that the FDA approved more convenient patient storage instructions
for BYETTA. BYETTA pens can now be kept
at room temperatures (below 77 degrees Fahrenheit) after first use. Prior to first use, BYETTA pens should
continue to be refrigerated at temperatures between 36 and 46 degrees
Fahrenheit.
Lilly
has primary responsibility for developing and commercializing BYETTA outside
the United States, including any sustained-release formulations such as
exenatide once weekly. In late 2006, we
announced that the European Commission granted marketing authorization for
BYETTA for the treatment of type 2 diabetes.
Lilly commercially launched BYETTA in various EU member states and other
countries in 2007 and by the end of 2007, BYETTA was launched in 23 countries
worldwide.
BYETTA Development Activities
In June 2007, we
announced the results of a three-year, open-label study which showed treatment
with BYETTA was associated with sustained blood sugar control and progressive
weight loss in people not achieving adequate blood sugar control on oral
medications alone. Study participants
treated with BYETTA and oral medication(s) showed sustained reductions in
A1C of approximately 1% and reduced fasting blood glucose levels. After three years of BYETTA treatment, 46% of
study participants achieved an A1C of 7% or less and 30% of patients achieved
an A1C of 6.5% or less. Weight loss
observed in this study was progressive, with participants losing on average
approximately 11 pounds from baseline.
In addition, one in four patients lost an average of approximately 28
pounds. In this study, BYETTA treatment
was also assessed for improvements in pancreatic beta-cell function in a subset
of 92 participants. Homeostasis Model
Assessment, or HOMA-B, a measure of pancreatic beta-cell function, improved by
17 % from baseline over three years.
In June 2007, we
announced results from a 16-week open-label study comparing treatment with
BYETTA versus insulin glargine in people with type 2 diabetes who were also
taking oral medications. Study findings
showed comparable A1C reductions of approximately 1.4% in patients using BYETTA
or insulin glargine therapies, with weight loss and a lower incidence of
hypoglycemia associated with BYETTA therapy.
BYETTA treatment with metformin resulted in a statistically significant
lower risk of hypoglycemia than treatment with insulin glargine and
metformin. There were seven episodes of
severe hypoglycemia in three patients taking insulin glargine and no severe
episodes during treatment with BYETTA, reflecting a lower overall risk of
hypoglycemia. BYETTA treatment was also
associated with a 4.3 pound weight loss from baseline, compared with a 0.8
pound weight gain among individuals in the insulin glargine group.
In June 2007, we
also announced results from a study that showed treatment with BYETTA in
patients sustained improvements in A1C of approximately 0.8%, reduced fasting
glucose and progressive weight loss of approximately 11 pounds through three
and a half years of therapy. BYETTA
therapy was also associated with improvements in cardiovascular risk factors in
people with type 2 diabetes, including improved triglyceride levels and lower
systolic and diastolic blood pressure.
Results also showed an increase in HDL, or good, cholesterol levels
after three and a half years and a decrease in LDL, or bad, cholesterol
levels.
In April 2005,
concurrently with BYETTAs initial approval, the FDA issued an approvable
letter for BYETTA when used as a monotherapy (stand-alone therapy) for people
with type 2 diabetes. In December 2007,
we announced the results of a 24-week BYETTA monotherapy study in drug-naïve
patients. In this study participants
taking 5 micrograms, or mcg or 10 mcg of monotherapy BYETTA twice daily showed
reductions in A1C by 0.7% and 0.9%, respectively, from an average baseline A1C
ranging from 7.8% to 7.9%. In addition,
approximately 60% of study participants on either 5 mcg or 10 mcg of
monotherapy BYETTA at the conclusion of the study had an A1C of 7% or
less. Weight loss from baseline was significant
and similar to that observed in previous BYETTA studies. There was a low incidence of nausea reported
in both treatment arms of the study of approximately 3% and 13% in the 5 mcg
and 10 mcg arms, respectively. There
were no instances of severe hypoglycemia in this study. Overall hypoglycemia was similar to that seen
in studies where BYETTA was used in conjunction with metformin only. We currently plan to file a regulatory
submission to the FDA for BYETTA use as monotherapy in the first half of 2008.
SYMLIN
®
(pramlintide acetate)
injection
SYMLIN
is the first and only approved medicine in a new class of compounds called
amylinomimetics. We began selling SYMLIN
in the United States in April 2005 as adjunctive therapy to mealtime
insulin to treat diabetes. Other than
insulin and insulin analogues, SYMLIN is the first FDA-approved medication
addressing glucose control for patients with type 1 diabetes since the
discovery of insulin over 80 years ago.
SYMLIN is intended to improve blood glucose control in people treated
with insulin alone or, in the case of patients with type 2 diabetes, treated
with insulin with or without one or more oral medications.
6
SYMLIN
is indicated for use in adults with type 2 or type 1 diabetes to control blood
sugar. SYMLIN works with insulin to
smooth out the peaks in blood glucose levels to give patients more stable blood
glucose levels after meals and throughout the day. SYMLIN also lowers the A1C levels of most patients
beyond what insulin alone can achieve.
SYMLIN induces satiety, which leads to eating less and weight loss in
most patients. In addition, because
SYMLIN works with insulin to control blood sugar, patients often need less
insulin to achieve desired blood sugar levels after meals.
SYMLIN
is used with insulin and has been associated with an increased risk of
insulin-induced severe hypoglycemia. The
risk can be reduced by appropriate patient selection, careful patient
instruction and insulin dose adjustments.
Other adverse effects commonly observed are primarily gastrointestinal,
including nausea, which decrease over time in most patients.
Our
SYMLIN marketing is focused on a target physician population of approximately
21,000, with a goal of educating these physicians on SYMLIN, including its
mechanisms of action, potential benefits, use considerations, and appropriate
patient selection for initiating SYMLIN therapy. These physicians write
approximately 40% of all insulin prescriptions in the United States. In October 2007, we announced that the
FDA approved the SymlinPen 120 and the SymlinPen 60 pen-injector devices
for administering SYMLIN. The new
pre-filled pen-injector devices feature fixed dosing to improve mealtime
glucose control and are now available to patients. The devices can be stored at room temperature
not to exceed 86 degrees F (30 degrees C) after first use. We are now educating physicians about the
SYMLIN pen and believe the SYMLIN pen will not only enable patients to more
easily deliver proper dosing than using a vial and syringe but will also
improve the convenience of administering SYMLIN.
SYMLIN Development Activities
In
late 2006, we announced results from a 16-week study designed to evaluate the
efficacy and safety of adding SYMLIN at mealtime to an established regimen of
once-daily basal insulin. Patients
receiving SYMLIN on average had better overall A1C, reduced glucose
fluctuations, used less insulin and experienced weight loss, compared to those
using basal insulin without SYMLIN. In June 2007,
we announced that additional analysis of data from this study demonstrated that
weight loss also was associated with a significant reduction in C-reactive
protein levels, a marker for increased risk of cardiovascular disease. The overall results of this study formed the
basis of an NDA submitted by us in the fourth quarter of 2006 seeking approval
for the use of SYMLIN at mealtime in patients with type 2 diabetes treated with
once-daily basal insulin (without mealtime insulin). In October 2007, we announced that the
FDA issued a Not Approvable letter for SYMLIN use with basal insulin. We are continuing our discussions with the
FDA with respect to its response regarding the use of SYMLIN with basal insulin
alone.
During
2007, we continued an open-label observational study of SYMLIN. This study is
designed to evaluate SYMLIN use in the marketplace. Patients receive SYMLIN as part of their
routine diabetes management and are followed in this real-world setting for a
period of six months. In addition, in
2007 we completed a small pharmacokinetic study in pediatric patients (ages 12
to 16) with type 1 diabetes requested by the FDA that was designed to provide
insight into dosing in a pediatric population.
Research and
Development
Product Pipeline Programs
We
have late-stage development
programs
in the therapeutic areas of diabetes and obesity and multiple early-stage
programs in diabetes and obesity. Our
years of research in diabetes and deep understanding of peptide hormones
their physiology, functionality and impact on the disease are being leveraged
to develop potential treatments for obesity.
The metabolic components of these diseases are linked in numerous ways,
which are reflected in the impact each has on the other.
Diabetes
Exenatide Once Weekly
Exenatide
once weekly is our late stage development program in diabetes. Exenatide is the active ingredient in BYETTA
and is combined with proprietary technology developed by us and our partner,
Alkermes, to provide a sustained
7
release delivery of
exenatide. The combination of potency
and the glucose-dependent mechanism of action inherent in exenatide makes it
well suited to development of a once weekly formulation. We have an agreement with Alkermes to assist
us in the development, manufacture and commercialization of exenatide once
weekly and this program is included in our collaboration agreement with
Lilly. We are aggressively working with
Lilly and Alkermes to develop exenatide once weekly for the treatment of type 2
diabetes.
In October 2007,
we announced positive results of a 30-week pivotal comparator study comparing
treatment with exenatide once weekly to treatment with BYETTA. The study enrolled 295 patients not achieving
adequate glucose control with either diet and exercise or with use of oral
glucose-lowering agents. Exenatide once
weekly showed a statistically significant improvement in A1C of approximately
1.9% from baseline, compared to an improvement of approximately 1.5% for
BYETTA. Approximately three out of four
subjects treated with exenatide once weekly achieved an A1C of 7% or less.
After 30 weeks of
treatment, both exenatide once weekly and BYETTA treatment resulted in an
average weight loss of approximately eight pounds. Nearly 90% of subjects in both groups
completed the study. There was no major
or severe hypoglycemia regardless of background therapy. As expected, based on prior BYETTA studies,
minor hypoglycemia with exenatide once weekly use was limited to subjects using
background sulfonylurea therapy.
Exenatide once weekly was associated with approximately 30% less nausea
than twice-daily BYETTA. Approximately
one out of five subjects receiving exenatide once weekly reported
treatment-related nausea during the 30-week study. In both groups nausea was predominately mild
and transient.
We are
currently completing the building of a facility in West Chester, Ohio to
manufacture exenatide once weekly. We
expect to complete the commercial scale-up manufacturing process for exenatide
once weekly and the commissioning of the facility in the second half of
2008. We are also working aggressively
to provide sufficient data to the FDA to demonstrate comparability between
exenatide once weekly clinical trial material manufactured by our partner,
Alkermes, in its facility and exenatide once weekly produced in our West
Chester, Ohio facility. We currently
plan to submit an NDA to the FDA by not later than the end of the first half of
2009, although we are actively pursuing strategies which may allow an earlier
submission. To do that, we continue to
dialogue with the FDA and are taking multiple approaches to develop the
necessary data. As our conversation with
the FDA continues and we provide additional data on comparability, we will
finalize the timing of our NDA submission.
We are
in the process of initiating three additional superiority trials to support the
commercialization of exenatide once weekly.
The first of these trials is underway and is a blinded controlled trial
comparing exenatide once weekly versus a TZD and a DPP-4 inhibitor in patients
on metformin background therapy. We also
plan to undertake a superiority trial comparing exenatide once weekly with
insulin glargine in patients using oral medications. Results of these two studies are expected in
the first half of 2009. In the second
half of 2008, we intend to start a third superiority trial comparing exenatide
once weekly to either metformin, a TZD or a DPP-4 inhibitor as stand-alone
therapy. We believe that this clinical
program may provide powerful data that will demonstrate the value of this
potential medicine to physicians, payors and patients.
Nasal Exenatide
In June 2006,
we entered into an agreement with Nastech Pharmaceutical Company, or Nastech,
to develop a nasal spray formulation of exenatide. We and Nastech are jointly developing the
nasal spray formulation using Nastechs proprietary nasal delivery
technology. We have the responsibility
for the development program including clinical, non-clinical and regulatory
activities, while Nastech is focusing on drug delivery and chemistry, and
manufacturing and controls activities.
In 2007, we completed a Phase 1 clinical trial with nasal
exenatide. We are evaluating our future
options for this program.
Obesity
Obesity is a chronic
condition that affects millions of people and is linked to increased health
risk of several medical conditions including type 2 diabetes, high blood
pressure, heart disease, stroke, osteoarthritis, sleep disorders and several
types of cancers. Obesity is also
rapidly becoming a major health problem in all industrialized nations and many
developing countries. According to NAASO
(The Obesity Society), obesity is the second leading cause of preventable death
in the United States. It is estimated
that 64% of the adult population in the United States are overweight and nearly
60 million adult Americans are considered obese. It is also estimated that the total direct
and indirect costs attributed to overweight and obesity health issues exceed
$100 billion in the United States each year.
8
Genetic, metabolic,
psychological and environmental factors can all contribute to obesity. Obesity
is measured by Body Mass Index, or BMI, a mathematical formula using a persons
height and weight. BMI is calculated by dividing a persons weight in kilograms
by the persons height in meters squared. A person with a BMI between 25 and
29.9 is considered overweight. A person with a BMI of 30 or more is considered
obese, and a person with a BMI of 40 or more is considered severely obese.
Current treatments for obesity include diet, exercise, drug therapy and
surgery.
The National Heart, Lung and Blood Institute and the World
Health Organization have issued evidence-based guidelines for the
identification, evaluation and treatment of obesity. Non-pharmacological treatment modalities
(dietary modifications, behavioral interventions, and increased physical
activity) are considered the cornerstone of clinical obesity management. If lifestyle changes do not promote weight
loss after six months, pharmacotherapy is considered helpful for eligible
high-risk patients. Only two
pharmacological agents are currently approved for the long-term treatment of
obesity in the US. Bariatric surgery is
considered an option only for patients with severe obesity and serious
co-morbid conditions.
The National Institutes of Health, Surgeon General and FDA
recognize a large unmet medical need for safe and efficacious therapies to
prevent the debilitating metabolic diseases and mortality associated with
obesity.
Integrated Neurohormonal Therapy for Obesity (INTO)
In
2006, we announced a new obesity clinical program strategy to assess the safety
and efficacy of multiple neurohormones used in combination to treat
obesity. We refer to this strategy as
Integrated Neurohormonal Therapy for Obesity, or INTO. Integrated neurohormonal therapy is designed
to restore the bodys metabolism to a reduced obese or non-obese state by using
neurohormones that work together to address the physiologic imbalances that
cause complex chronic diseases such as obesity.
Our INTO strategy is based on combination therapies and as part of this
program we are studying combinations of peptide and protein hormones.
Three
molecular franchises are the primary focus of our INTO strategy: amylin and in particular pramlintide, its
synthetic version (a first generation amylinomimetic); leptin and in particular
metreleptin, its recombinant version, a protein hormone produced from the fat
cell that plays a fundamental role in metabolism via its communication to the
brain; and PYY 3-36 and in particular a more potent Y-family analog molecule,
that is secreted by the gut and provides a satiety signal in the post-meal
period. We are also studying a
second-generation amylinomimetic, which is a compound that has been optimized
in preclinical models to reduce body weight.
Pramlintide
Pramlintide
plays an important role in our current INTO strategy. Pramlintide has been studied extensively in people
with and without diabetes and is the active ingredient in SYMLIN. In February 2006, we reported results
from a 16-week Phase 2 dose-ranging study with pramlintide in obese
subjects. After completing 16 weeks of
treatment with pramlintide in addition to lifestyle intervention, subjects on
average experienced an 8.4 to 13.4 pound weight loss from baseline, compared to
a 6.2 pound weight loss with placebo plus lifestyle intervention.
Pramlintide
was well tolerated and showed progressive weight loss at doses up to 360
mcg. No new safety signals were observed
in this study, which included higher doses than those previously studied in
obese subjects. There was clear evidence
of a dose response for the twice-daily regimens. Consistent with previous observations, the
most common adverse effect was mild nausea.
Weight loss in subjects who did not experience nausea was similar to
that seen in the overall study population.
In October 2006, we reported results from a continuation of this
study that demonstrated that patients completing 52 weeks of pramlintide
therapy experienced a 7-8% mean body weight reduction, depending upon the dose
they received, compared to a 1% reduction in patients receiving placebo.
We
have conducted clinical studies using pramlintide in combination with leptin
and with PYY 3-36. The proof of concept
pramlintide and metreleptin study, which we discuss below, investigated the
synergy of pramlintide and metreleptin found in preclinical studies.
Leptin
Leptin
is the second compound we are studying in connection with our INTO
program. Leptin is a naturally occurring
protein hormone secreted by fat cells.
It plays a key role in metabolism through multiple metabolic actions and
appears to act primarily at the level of the hypothalamus to regulate food
intake and energy expenditure. Leptins
roles in the
9
treatment of obesity and
lipodystrophy have been extensively studied, and the lead molecules have a
strong safety profile. Humans suffering from lipodystrophy, a disease
characterized by loss of body fat and consequent metabolic disorders (insulin
resistance, hyperglycemia, and dyslipidemia), are rendered incapable of
secreting sufficient amounts of leptin due to the loss of fat cell mass.
In
early 2006, we acquired the exclusive rights to the leptin molecular franchise
and program (including metreleptin, the recombinant synthetic form of human
leptin) from Amgen, Inc., or Amgen.
Under the terms of the license agreement, we made an up-front payment,
and in 2007 we made a milestone payment related to technology transfer and we
may make potential future payments related to development and regulatory
milestones and will pay royalties on any product sales. Our license includes exclusive rights to the
leptin intellectual property developed by Amgen as well as intellectual
property Amgen originally licensed from Rockefeller University.
PYY 3-36
PYY
3-36 is the third compound we are studying in connection with our INTO
program. We are developing more potent
and efficacious Y-family mimetics as drug candidates, but have been utilizing
the native form of PYY 3-36 for the investigation of potential treatments of
obesity. Independent researchers have reported
a reduction in food intake in humans using PYY 3-36. In November 2007, we announced data from
a 14-day safety and tolerability Phase 1 clinical trial showing that PYY 3-36
when used in combination with pramlintide was well-tolerated. We also announced that this combination was
well-tolerated with dose escalation. We
intend to focus our future development of the second generation Y-family
mimetic either alone or in combination with a second generation amylinomimetic.
Pramlintide-Metreleptin
Combination Product Candidate
In November 2007, we
announced results from a 24-week proof-of-concept study with pramlintide and
metreleptin combination treatment in overweight or obese subjects. At the end of the study, the combination
treatment reduced body weight on average 12.7 %, significantly more than
treatment with pramlintide alone (8.4%).
Subjects treated with pramlintide and metreleptin lost an average of 25
pounds from the beginning of the study compared with an average of 17 pounds
for subjects treated with pramlintide alone.
Subjects receiving pramlintide and metreleptin continued to lose weight
through the end of the study compared to those treated with pramlintide alone,
whose weight loss had stabilized towards the end of the study. At the beginning of the study, the average
weight of study participants was approximately 205 pounds.
Consistent with previous
clinical experience with pramlintide and metreleptin as single agents, the most
common side effects seen with combination treatment were injection site adverse
events and nausea, which were mostly mild to moderate and transient in
nature. As a result of this study we
intend to pursue a pramlintide-metreleptin combination product candidate. In 2008, we plan to continue developing a
delivery system that will provide both pramlintide and metreleptin in a single
injection. Further, we are initiating a
Phase 2B study to evaluate different dosing combinations of pramlintide and
metreleptin. We believe this six-month,
multi-arm study will enroll approximately 600 patients and will take
approximately one year to complete.
Second
Generation Amylinomimetic
In
2006, we submitted an IND application to the FDA for a second generation
amylinomimetic. The targeted product
profile for this second generation amylinomimetic includes once-weekly
delivery.
During
2007, we completed three Phase 1 studies of a second generation amylinomimetic
we are developing and which we believe may have some potential advantages over
pramlintide for weight loss as a single agent.
These advantages may include greater efficacy, greater potency and
improved pharmaceutical properties, such as having prolonged duration of action
and being more amenable to drug delivery.
These three studies included a single dose study, a twice-daily
multi-dose study and a once-daily multi-dose study. In November 2007, we announced data from
the twice-daily multi-dose study showing that at 3mcg/kg dosing, individuals
exhibited a 996 kilocalorie reduction in intake over a 24-hour period,
representing a 34% decrease in daily calories.
We plan to continue developing this molecule in 2008.
Research Activities
A key element of our strategy is to develop
first-in-class compounds for treating metabolic diseases. To achieve this goal, we are
exploring hormones with multiple
mechanisms of action that will potentially lead to products that have utility in
10
treatment of more than
one disease with the potential for many product forms.
To do so, we take an
integrated and biological, rather than a target-driven, approach to
research. Our research is centered on
peptide hormones that play an important metabolic role, and which we consider
more likely to have an acceptable safety profile because these hormones exist
naturally in the human body. Our
development path begins with identifying a particular peptide and then determining
if it is a circulating hormone, a substance that travels through the
bloodstream to affect bodily functions.
We then attempt to understand the hormones functionality and potential
impact on a disease. Rather than
starting with a known biology and targeting molecules to modify, enhance or
block it, our scientists are discovering the biology of previously unknown
peptides and uncovering utility that could potentially translate into a new
human therapy. The conventional
development process commonly used in the pharmaceutical industry emphasizes
utilizing isolated cells or molecular targets to advance drug discovery. Our approach to research calls for our
scientists to quickly move to
in vivo
testing using highly predictive animal models that allow us to design
subsequent information-rich clinical trials in humans.
Based on a premise that every peptide hormone has a
utility and a potential therapeutic benefit we have developed a proprietary
and continually growing peptide hormone library we call PHORMOL
Ô
. PHORMOL
Ô
encompasses an
extensive panel of potentially valuable biologics that have been taken from
nature, including human peptides not previously described. All of these have been synthesized to create
a rich source of compounds for ongoing research in their functionality, utility
and potential value in treating a range of human diseases.
We are
also developing capabilities in delivery system research and development,
focused on product presentations that enhance clinical outcomes and patient
convenience. Delivery systems are selected
on the basis of technical feasibility, regulatory acceptance and market
preference. They include injectable
sustained-release formulations such as salt complexes, lipids, biodegradable
polymer and gel systems, as well as non-injectable systems such as nasal
sprays, inhalation, oral and transdermal systems.
We are also using our
resources to optimize pharmaceutical properties of peptide drugs to develop new
peptide hormone analogs that may be more amenable to alternative forms of
delivery.
We
currently have approximately 700 full-time employees dedicated to our research
and development activities. We also have
more than 200 employees with Ph.D., Pharm.D. or M.D. degrees. Most of our physicians specialize in
diabetes. In the years ended December 31,
2007, 2006 and 2005, we incurred research and development expense of $276.6
million, $222.1 million and $132.1 million, respectively.
Strategic Relationships
In 2007, we established
strategic relationships with other companies and we continue to assess
additional opportunities for strategic relationships or in-licensing
opportunities. In January 2007, we
partnered with PsychoGenics, Inc., or PsychoGenics, to form Psylin
Neurosciences, Inc., or Psylin, a new company that will focus on the
discovery and development of peptide hormones for treatment of psychiatric
disorders. Under this joint venture,
Psylin will have access to molecules in our PHORMOL proprietary polypeptide
hormone library, and to PsychoGenics proprietary drug discovery
technologies. Psylin will have the right
to develop a number of drug candidates emerging from this collaboration. If Psylin decides to out-license these drug
candidates, we have preferential rights to acquire such licenses.
In April 2007, we
expanded our contract research arrangement with Kelaroo, Inc., or Kelaroo,
a developer of cheminformatics and bioinformatics applications and services for
drug discovery. In connection with the
expansion of our collaboration, we made a strategic investment in Kelaroo for
use in advancing the commercialization of Kelaroos SeqR technology which we
use for peptide hormone identification and optimization. This technology is a sequence-profiling
approach that combines machine learning methods and high-performance sequence
analysis tailored for genome-scale data mining and sequence optimization.
In May 2007, we
entered into a joint research collaboration agreement with BioSeek, Inc.,
or BioSeek, that will focus on the discovery and development of novel peptide
therapeutics for inflammatory conditions.
In connection with this collaboration, we made a strategic investment in
BioSeek. Under the collaboration,
BioSeek will apply its BioMap® human biology screening systems to evaluate the
potential of peptide hormones in PHORMOL to treat a range of inflammatory
conditions. In exchange for milestone
payments and royalties payable to us, BioSeek will have the right to select and
exclusively license two peptides resulting from the screening program as the
basis for proprietary optimization and development programs for therapeutic
indications outside of our core therapeutic focus.
In November 2007, we
entered into a joint research collaboration agreement with Xenome Ltd., or
Xenome. Our collaboration with Xenome
will focus on the discovery and development of novel peptide hormones for a
range of metabolic
11
and musculoskeletal diseases. In connection with this collaboration, we
made a strategic investment in Xenome.
Under the collaboration, we will apply our proprietary screening
technologies to evaluate the therapeutic potential of peptides from Xenomes
proprietary bioactive peptide library derived from natural sources. We will have the right to select and
exclusively license lead candidates resulting from the screening program in
metabolic and musculoskeletal disease for further development and
commercialization in exchange for milestone payments and royalties payable to
Xenome.
Sales,
Marketing and Distribution
We
have built a sales and marketing organization that focuses on healthcare
providers, managed healthcare organizations, wholesalers and pharmacies,
government purchasers and other third-party payors. We currently have a field force of
approximately 600 people dedicated to marketing BYETTA and SYMLIN in the United
States. Lilly also co-promotes BYETTA in
the United States. Our field force
includes a primary care sales force as well as a specialty sales force of 74
representatives who call on endocrinologists and other physicians who have
large diabetes care practices and other healthcare professionals who support
their practices. Our field organization
also includes a managed care and government affairs organization and a medical
science organization that support broad medical education programs for both
BYETTA and SYMLIN. Members of our sales and marketing team have
extensive industry experience from a wide range of large and small companies
and have substantial experience in the field of diabetes, as well as in
launching and marketing pharmaceutical products.
We
utilize common pharmaceutical company practices to market our products. We call on individual physicians and other
healthcare professionals and other organizations and individuals involved in
the prescribing, purchasing and/or distributing of human medicines. We also provide professional symposia through
our extensive medical education programs. Our medical education events are
conducted live, via satellite or telephone and through web-based, interactive
programs. We will continue to focus on
medical education efforts for both BYETTA and SYMLIN through thousands of
programs across the United States organized by our medical affairs and
professional education organizations. We
train physicians and other healthcare professionals as speakers, so that they
can in turn teach their peers about how best to incorporate BYETTA or SYMLIN
into their patients diabetes treatment regimens.
We
provide customer service and other related programs for our products, such as
disease and product-specific websites, insurance research services, a customer
service call center and order, delivery and fulfillment services. We have programs in the United States that
provide qualified uninsured and underinsured patients with our products at no
charge.
We
sell BYETTA and SYMLIN to wholesale distributors who in turn sell to retail
pharmacies and government entities.
Decisions made by these wholesalers and their customers regarding the
levels of inventory they hold, and thus the amount of BYETTA and SYMLIN they
purchase, may affect the level of our product sales in any particular period.
Manufacturing
We have selected manufacturers
that we believe comply with current Good Manufacturing Practices, or cGMP, and
other regulatory standards. We have
established a quality control and quality assurance program, including a set of
standard operating procedures, analytical methods and specifications, designed
to ensure that our products and product candidates are manufactured in
accordance with applicable regulations.
We require that our contract manufacturers adhere to cGMP, except for
products and product candidates for toxicology and animal studies, which we
require to be manufactured in accordance with current Good Laboratory
Practices, or cGLP.
Although
some materials for our drug products are currently available from a
single-source or a limited number of qualified sources, we attempt to acquire
an adequate inventory of such materials, establish alternative sources and/or
negotiate long-term supply arrangements.
We believe we do not have any significant issues obtaining suppliers;
however, we cannot be certain that we will continue to be able to obtain
long-term supplies of our manufacturing materials.
BYETTA Manufacturing
We obtain exenatide, the
active ingredient contained in BYETTA, from Bachem California, or Bachem, and
Mallinckrodt, Inc., or Mallinckrodt, pursuant to long-term agreements with
each company. We have long-term
agreements with Wockhardt UK (Holdings) Ltd., or Wockhardt, and Baxter
Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc.,
12
or Baxter, to supply us the dosage form of exenatide
in cartridges. We have a long-term
agreement with Lilly to supply pens for delivery of BYETTA in cartridges.
SYMLIN Manufacturing
We obtain pramlintide
acetate, the active ingredient contained in SYMLIN, from Bachem and Lonza Ltd.,
or Lonza, pursuant to long-term agreements with each company. We have a long-term contract with Baxter for
the dosage form of SYMLIN in vials. We
also have an agreement with Wockhardt for the dosage form of SYMLIN in
cartridges. We have a long-term
agreement with Ypsomed AG to supply pen components for the delivery of SYMLIN
in cartridges. We also have a long-term
agreement with Hollister-Stier Laboratories LLC for the assembly of the SYMLIN
pen components and cartridges.
Exenatide Once Weekly Manufacturing
Under the terms of our
development and license agreement with Alkermes, we are responsible for
manufacturing the once-weekly dosing formulation of exenatide once weekly for
commercial sale and will pay Alkermes milestone payments upon achievement of
development milestones and royalties on sales of exenatide once weekly. Alkermes has transferred to us its technology
for manufacturing exenatide once weekly and will supply us with the polymer
materials required for the commercial manufacture of exenatide once
weekly. We obtain bulk exenatide, the
active ingredient in exenatide once weekly, from Lonza and we obtain pre-filled
diluent syringes for exenatide once weekly from Vetter Pharma-Fertigung GMB &
Co. KG. pursuant to long-term agreements with both companies.
We are currently building a
facility in West Chester, Ohio to
manufacture exenatide once weekly. We are working with Alkermes
and Parsons Commercial Technology Group, Inc., or Parsons, a group with
significant experience in the design and construction of pharmaceutical
manufacturing facilities, to complete the design, construction and validation
of this facility. We expect to complete
the commercial-scale manufacturing process for exenatide once weekly and the
commissioning of the facility in the second half of 2008. We are also working aggressively to
provide sufficient data to the FDA to demonstrate comparability between
exenatide once weekly clinical trial material manufactured by our partner,
Alkermes, in its facility and exenatide once weekly produced in our West
Chester, Ohio facility.
Lilly Collaboration
We entered into a collaboration agreement with Lilly
in 2002 for the global development and commercialization of exenatide,
including both the twice-daily version, BYETTA, and sustained-release
formulations, such as exenatide once weekly.
Under the terms of the agreement, Lilly made initial payments to us, and
purchased approximately 1.6 million shares of our common stock. In addition, Lilly has made milestone
payments to us upon the achievement of development milestones for BYETTA and
exenatide once weekly and commercial milestones for BYETTA. In 2007 we received development milestones in
the amount of $30 million for exenatide once weekly and because the NDA filing
for exenatide once weekly did not occur by December 31, 2007, Lilly is
entitled to and has elected to receive $30 million in our common stock. In addition, Lilly is obligated to make
additional future commercial milestone payments to us of up to $80 million
contingent upon the commercial launch of exenatide, including BYETTA and
exenatide once weekly, in selected territories throughout the world. We share exenatide United States development
and commercialization costs with Lilly equally and we pay Lilly 50% of the
operating profits from the sale of products in the United States.
Our
collaboration agreement may be terminated by Lilly at any time on 60 days
notice.
Lilly will pay us tiered royalties based upon the
annual gross margin for all exenatide product sales, including any
sustained-release formulations, outside of the United States. Royalty payments for exenatide product sales
outside the United States will commence after a one-time cumulative gross
margin threshold has been met. Lilly is
responsible for 100% of the costs related to development of twice-daily BYETTA
for sale outside of the United States.
Development costs related to all other exenatide products for sale
outside of the United States will continue to be allocated 80% to Lilly and 20%
to us. Lilly is responsible for 100% of
the costs related to commercialization of all exenatide products for sale
outside the United States. We record all
United States BYETTA product revenues and Lilly will record all BYETTA product
revenues from outside the United States.
Under our co-promotion arrangement with Lilly, the
parties use approximately equal efforts to co-promote BYETTA within the United
States and have agreed to use approximately equal efforts to co-promote
sustained-release formulations of exenatide within the United States. Lilly is
responsible for commercialization efforts outside the United States.
In
late 2006, BYETTA was approved in the EU and, by the end of 2007, was
commercially launched in 23 countries worldwide.
13
Competition
The biotechnology and pharmaceutical industry is
highly competitive. There are many
pharmaceutical companies, biotechnology companies, public and private
universities and research organizations actively engaged in the research and
development of products that may be similar to the products in our
portfolio. A number of our largest
competitors, including AstraZeneca, Bristol-Myers Squibb Company,
GlaxoSmithKline, Lilly, Merck & Co., Novartis AG, Novo Nordisk,
Pfizer, Sanofi-Aventis and Takeda Pharmaceuticals, are pursuing the development
of or are marketing pharmaceuticals that target the same diseases that we are
targeting, and it is probable that the number of companies seeking to develop
products and therapies for the treatment of diabetes, obesity and other
metabolic disorders will increase. Many
of these and other existing or potential competitors have substantially greater
financial, technical and human resources than we do and may be better equipped
to develop, manufacture and market products.
These companies may develop and introduce products and processes
competitive with or superior to ours. In
addition, other technologies or products may be developed that have an entirely
different approach or means of accomplishing the intended purposes of our
products, which might render our technology and products noncompetitive or
obsolete. For example, all of our
current drug products are injectable, and may have to compete with therapies
that do not require injection. We cannot
be certain that we will be able to compete successfully.
SYMLIN is the only non-insulin-based drug product
approved for improving blood glucose control in people with type 1
diabetes. Further, insulin and oral
medications are often insufficient for many people with type 2 diabetes to
achieve satisfactory glucose and weight control. BYETTA or SYMLIN may be
complementary to, or competitive with, these other medications.
BYETTA and SYMLIN must compete with established
therapies for market share. In addition,
many companies are pursuing the development of novel pharmaceuticals that
target diabetes. These companies may
develop and introduce products competitive with or superior to BYETTA or
SYMLIN. Such competitive products and potential products include:
·
sulfonylureas;
·
metformin;
·
insulins
(injectable and inhaled versions);
·
thiazolidinediones
(TZDs);
·
glinides;
·
dipeptidyl
peptidase type IV (DPP-IV) inhibitors;
·
incretin/GLP-1 agonists;
·
CB-1 antagonists;
·
insulin sensitizers including
PPARs;
·
alpha-glucosidase
inhibitors; and
·
SGLT-2
inhibitors.
There is substantial
competition in the discovery and development of treatments for obesity, as well
as emerging prescription and over-the-counter treatments for this condition. Current treatments for obesity include
dietary therapy, physical activity, drug therapy and surgery. Hoffmann-LaRoche and Abbott Laboratories
already market oral medicines for the treatment of obesity. Glaxo Smith Kline now markets a former prescription
product (orlistat-Alli) for treatment of obesity. Sanofi-Aventis has a product candidate that
has received an approvable letter from the FDA and is approved in the EU, and a
number of other pharmaceutical companies are developing new potential therapeutics.
14
Patents,
Proprietary Rights, and Licenses
We believe that patents and other proprietary rights
are important to our business. Our
policy is to file patent applications to protect technology, inventions and
improvements that may be important to the development of our business. We also
rely upon trade secrets, know-how, continuing technological innovations and
licensing opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our
rights to proprietary information and technology. We review third-party patents and patent
applications, both to refine our own patent strategy and to identify useful
licensing opportunities.
We have a number of patents, patent applications and
rights to patents related to our compounds, products and technology, but we
cannot be certain that issued patents will be enforceable or provide adequate
protection or that pending patent applications will result in issued patents. We have also filed foreign counterparts to
many of these issued patents and applications.
We may obtain patents for our compounds many years
before we obtain marketing approval for them.
Because patents have a limited life, which may begin to run prior to the
commercial sale of the related product, the commercial value of the patent may
be limited. However, we may be able to
apply for patent term extensions to compensate in part for delays in obtaining
marketing approval. For example, in the
United States a patent term extension of 1,586 days has been granted for SYMLIN
and a patent term extension of 1,287 days has been granted for BYETTA. Similar patent term extensions may be
available for other products that we are developing, but we cannot be certain
we will obtain them.
Included within our exenatide patent portfolio are
issued patents for:
·
pharmaceutical compositions
containing exenatide;
·
modulating gastric emptying;
·
inhibiting glucagon
secretion;
·
stimulating insulin release;
and
·
reducing food intake.
These
patents expire between 2013 and 2020.
We do not have a
composition of matter patent for the exenatide molecule.
Included within our pramlintide patent portfolio are
issued patents for:
·
pramlintide and other amylin
agonist analogues invented by our researchers;
·
amylin agonist pharmaceutical
compositions, including compositions containing pramlintide; and
·
methods for treating diabetes
and related conditions using amylin agonists.
These patents expire between 2009 and 2018.
With respect to our drug candidates, we have patents
and patent applications pending, or have licensed patents and patent
applications, relevant to the development and commercialization of such drug
candidates.
Generally, our policy is to file foreign counterpart
applications in countries with significant pharmaceutical markets.
It is important that we do not infringe patents or
proprietary rights of others and that we do not violate the agreements that
grant proprietary rights to us. If we do
infringe patents or violate these agreements, we could be prevented from
developing or selling products or from using the processes covered by those
patents or agreements, or we could be required to obtain a license from the
third party allowing us to use their technology. We cannot be certain that, if required, we could
obtain a license to any third-party technology or that we could obtain one at a
reasonable cost. If we were not able
15
to
obtain a required license, we could be adversely affected. Because patent applications are confidential
for at least some period of time, there may be pending patent applications from
which patents will eventually issue and prevent us from developing or selling
certain products unless we can obtain a license to use the patented technology.
Patents relating to pharmaceutical, biopharmaceutical
and biotechnology products, compounds and processes such as those that cover
our existing products, compounds and processes and those that we will likely
file in the future do not always provide complete or adequate protection. Future litigation or proceedings initiated by
the United States Patent and Trademark Office regarding the enforcement or
validity of our existing patents or any future patents could invalidate our
patents or substantially reduce their protection. In addition, statutory or regulatory changes
may adversely affect our ability to obtain protection or enforce our
patents. Furthermore, our pending patent
applications and
patent applications filed by our collaborative partners may not result in the
issuance of any patents or may result in patents that do not provide adequate
protection. As a result, we may not be
able to prevent third parties from developing the same compounds and products
that we have developed or are developing.
In addition, we do not have patent protection or we may not be able to
enforce our patents in certain countries.
As a result, manufacturers may be able to sell generic versions of our
products in those countries.
We also rely on unpatented trade secrets and
improvements, unpatented internal know-how and technological innovation. We protect these rights mainly through
confidentiality agreements with our corporate partners, employees, consultants
and vendors. These agreements provide
that all confidential information developed or made known to an individual
during the course of their relationship with us will be kept confidential and
will not be used or disclosed to third parties except in specified
circumstances. In the case of employees,
the agreements provide that all inventions made by the individual while
employed by us will be our exclusive property.
We cannot be certain that these parties will comply with these
confidentiality agreements, that we have adequate remedies for any breach, or
that our trade secrets will not otherwise become known or be independently
discovered by our competitors. Under
some of our research and development agreements, inventions discovered in
certain cases become jointly owned by us and our corporate partner and in other
cases become the exclusive property of one of us. It can be difficult to determine who owns a
particular invention and disputes could arise regarding those inventions.
Government Regulation
Regulation by governmental authorities in the United
States and foreign countries is a significant factor in the development,
manufacture and marketing of pharmaceutical products. All of our potential products will require
regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are
subject to rigorous preclinical testing and clinical trials and other
pre-market approval requirements by the FDA and regulatory authorities in
foreign countries. Various federal,
state and foreign statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
products.
The activities required before a pharmaceutical agent
may be marketed in the United States begin with preclinical testing. Preclinical tests include laboratory
evaluation of product chemistry and animal studies to assess the potential
safety and activity of the product candidate and its formulations. The results of these studies must be
submitted to the FDA as part of an IND which must be reviewed by the FDA before
a proposed clinical trial can begin.
Typically, clinical trials involve a three-phase process. In Phase 1, clinical trials are conducted
with a small number of healthy volunteers to determine the early safety and
tolerability profile and the pattern of drug distribution and metabolism. In Phase 2, clinical trials are conducted
with groups of patients afflicted with a specified disease in order to
determine preliminary efficacy, dosing regimens and expanded evidence of safety. In Phase 3, large-scale, multi-center,
adequate and well-controlled comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for
the statistical proof of efficacy and safety required by the FDA and others. The results of the preclinical testing and
clinical trials for a pharmaceutical product are then submitted to the FDA in
the form of an NDA for approval to commence commercial sales. In responding to
an NDA, the FDA may grant marketing approval, request additional information, or
deny the application if it determines that the application does not satisfy its
regulatory approval criteria.
Once a drug is approved for marketing in
the US, the FDA requires ongoing safety monitoring to ascertain any
undiscovered issues related to real-world use of the drug. The expanded patient exposure once a drug is
introduced to the marketplace can reveal new risks (as well as new benefits)
that were not detectable during clinical testing.
Among the conditions for NDA approval is the
requirement that the prospective manufacturers quality control and
manufacturing procedures conform to cGMP.
In complying with cGMP, manufacturers must continue to expend time,
money and effort in the area of production, quality control, and quality
assurance to ensure full technical compliance.
Manufacturing facilities are subject to periodic inspections by the FDA
to ensure compliance.
16
We are also subject to various federal, state, and
local laws, regulations and recommendations relating to safe working
conditions; laboratory and manufacturing practices; the experimental use of
animals; and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with our research.
The activities required before a pharmaceutical agent
may be marketed in the EU are dictated by the International Conference on
Harmonization and are generally similar to those established in the United States. Approval of new drugs across the EU relies on
either the mutual recognition process or the centralized approval process of
the European Medicines Agency. Under the
centralized procedure, the marketing application is referred for review to two
review teams, each representing one of the member countries. Each reviewer then forwards an early
assessment to the Committee for Medicinal Products for Human Use, or CHMP, for
discussion and preparation of an initial consolidated assessment report,
including a list of questions requesting clarification as well as additional
information. This step initiates a
series of dialogues, meetings and other communications among the CHMP, the two
review teams and the applicant, leading in turn to clarification, education and
refinement of the original assessment reports.
Ultimately, a decision is reached to either grant marketing approval or
deny the application if it is determined that the application does not satisfy
the regulatory approval criteria. The
clinical testing, manufacture and sale of pharmaceutical products outside of
the United States and the EU are subject to regulatory approvals by other
jurisdictions which may be more or less rigorous than those required by the
United States or the EU.
Employees
As of December 31, 2007, we had approximately
1,900 full-time employees. A significant
number of our management and professional employees have had experience with
pharmaceutical, biotechnology or medical product companies. We believe that we have been highly
successful in attracting skilled and experienced personnel. None of our employees is covered by
collective bargaining agreements and we consider relations with our employees
to be good.
Directors and Executive Officers
The names of our directors and executive officers and
certain information about them as of February 15, 2008 are set forth
below:
Name
|
|
Age
|
|
Position
|
Daniel M. Bradbury (1)
|
|
46
|
|
President, Chief Executive
Officer and Director
|
Joseph C. Cook, Jr. (1)
|
|
66
|
|
Chairman of the Board
|
Adrian Adams (2)
|
|
57
|
|
Director
|
Steven R. Altman (2)
|
|
46
|
|
Director
|
Teresa Beck (3)
|
|
53
|
|
Director
|
Karin Eastham (2)(3)
|
|
58
|
|
Director
|
James R. Gavin III, M.D.,
Ph.D. (4)
|
|
62
|
|
Director
|
Ginger L. Graham (1)
|
|
52
|
|
Director
|
Howard E. Greene, Jr. (1)
|
|
65
|
|
Director
|
Jay S. Skyler, M.D., MACP(4)
|
|
61
|
|
Director
|
Joseph P. Sullivan
(1) (3)
|
|
65
|
|
Director
|
James N. Wilson (2) (4)
|
|
64
|
|
Director
|
Alain D. Baron, M.D.
|
|
54
|
|
Senior Vice President,
Research
|
Craig A. Eberhard
|
|
48
|
|
Vice President, Sales
|
Mark G. Foletta
|
|
47
|
|
Senior Vice President, Finance
and Chief Financial Officer
|
Mark J. Gergen
|
|
45
|
|
Senior Vice President,
Corporate Development
|
Orville G. Kolterman, M.D.
|
|
60
|
|
Senior Vice President,
Clinical and Regulatory Affairs
|
Marcea Bland Lloyd
|
|
59
|
|
Senior Vice President, Legal
and Corporate Affairs, and General Counsel
|
Roger Marchetti
|
|
49
|
|
Senior Vice President, Human
Resources and Information Management
|
Paul G. Marshall
|
|
48
|
|
Vice President, Operations
|
Lloyd A. Rowland
|
|
51
|
|
Vice President, Governance and
Compliance, and Corporate Secretary
|
Joe A. Young
|
|
39
|
|
Senior Vice President,
Marketing
|
(1) Member of the Finance Committee.
(2) Member of the Compensation and Human
Resources Committee.
(3)
Member of the
Audit Committee.
(4)
Member of the Corporate
Governance Committee.
17
Mr. Bradbury
has been our Chief Executive Officer
since March 2007, serving as President since June 2006 and as Chief
Operating Officer since June 2003. He has served as a director since June 2006. He previously served as Executive Vice
President from June 2000 until his promotion in June 2003. He joined Amylin in 1994 and has held
officer-level positions in Corporate Development and Marketing during that
time. Prior to joining Amylin, Mr. Bradbury
spent ten years at SmithKline Beecham Pharmaceuticals, where he held a number
of sales and marketing positions. He is
a member of the board of directors of Illumina, Inc. and Novacea, Inc. He also serves as a board member for PhRMA,
BIOCOM, the Keck Graduate Institutes Board of Trustees and the San Diego
Regional Economic Development Corporation.
Mr. Bradbury is a member of the Royal Pharmaceutical Society of
Great Britain and serves on the UCSD Rady School of Managements Advisory
Council. He received a Bachelor of
Pharmacy from Nottingham University and a Diploma in Management Studies from
Harrow and Ealing Colleges of Higher Education.
Mr. Cook
has been our Chairman of the Board since March 1998
and serves on our Finance Committee. He
served as Chief Executive Officer from March 1998 until September 2003. From 1994 to 1998, Mr. Cook served as a
member of our Board and a consultant to us.
Mr. Cook is a founder and serves as Chairman of the Board of
Microbia, Inc., a privately held biotechnology company. He also serves as a director of Corcept
Therapeutics Incorporated. Mr. Cook
is a founder of Mountain Group Capital, LLC, Clinical Products, LLC, and
Mountain Ventures, Inc. He serves
on the Board of Mercy Ministries, Inc. and is past Chair of the Advisory
Board of the College of Engineering, University of Tennessee. Mr. Cook retired as a Group Vice
President of Eli Lilly & Company in 1993 after more than 28 years of
service. Mr. Cook received a B.S. in Engineering from the University of
Tennessee.
Mr. Adams
has served as a director since October 2007
and serves on the Compensation and Human Resources Committee. Mr. Adams is President and Chief
Executive Officer of Sepracor, Inc., a position he has held since May 2007,
and serves as a member of Sepracors board of directors. Mr. Adams joined Sepracor in March 2007
as President and Chief Operating Officer.
Most recently, he was with Kos Pharmaceuticals, Inc., where he
served as President and Chief Operating Officer from April 2001, prior to
becoming President and Chief Executive Officer in January 2002. Mr. Adams served as President and Chief
Executive Officer of Novartis-UK from 1999 until his tenure began at Kos. For the previous seven years, he was with
SmithKline Beecham Pharmaceuticals, last serving as President and CEO of the
companys Canadian subsidiaries.
Previous assignments at SmithKline Beecham included Vice President and
Director of Worldwide Marketing in the U.S., and Director and Vice President of
Sales and Marketing in the United Kingdom.
Mr. Adams began his career at ICI Pharmaceuticals, where he rose
from research laboratory assistant to Director of Sales and Marketing. Mr. Adams serves as a board member of
PhRMA. He is a graduate of Manchester
University in the United Kingdom with a Bachelor of Science degree.
Mr. Altman
has served as a director since March 2006
and serves on the Compensation and Human Resources Committee. He currently serves as President of QUALCOMM
Incorporated. He joined QUALCOMM in 1989
as Corporate Counsel responsible for licensing and acquisitions and was
appointed Vice President and General Counsel in 1992. He became General Manager of QUALCOMM
Technology Licensing (QTL) at the formation of the group in 1995 and was named
Senior Vice President in 1996. In 1998, Mr. Altman
was named Executive Vice President of QTL and in 2002 he was named President, a
position he held until his appointment as President of QUALCOMM in 2005. Mr. Altman serves on the Board of
Trustees of The Salk Institute. He received
his law degree from the University of San Diego.
18
Ms. Beck
has served as a director since March 2007
and serves on the Audit Committee. From 1998 to 1999, Ms. Beck
served as President of American Stores Company, and previously served as its
Chief Financial Officer from 1993 to 1998. Prior to her appointment as
Chief Financial Officer, Ms. Beck served in various finance and accounting
related positions with American Stores from 1982 to 1993. Before joining
American Stores, Ms. Beck was the controller of Steiner Financial
Corporation and she served as an audit manager for Ernst & Whinney
(currently Ernst and Young LLP). Ms. Beck currently serves as a
director for Questar Corporation and Lexmark International, Inc. In addition, she serves as a member of the
Board of Trustees of Intermountain Healthcare, The Nature Conservancy and the
Nature Conservancy of Utah. She is also
Vice-Chairman of the University of Utah National Advisory Council. Ms. Beck
received a B.S. and an M.B.A. from the University of Utah.
Ms. Eastham
has served as a director since September 2005
and serves as the chair of the Audit Committee.
She has over 25 years experience in financial and operations management,
primarily in life sciences companies.
She currently serves as Executive Vice President and Chief Operating
Officer, and as a member of the Board of Trustees of the Burnham Institute for
Medical Research, a non-profit corporation engaged in basic biomedical
research. From April 1999 to May 2004,
Ms. Eastham served as Senior Vice President, Finance, Chief Financial
Officer, and Secretary of Diversa Corporation. She previously held similar
positions with CombiChem, Inc., a computational chemistry company, and
Cytel Corporation, a biopharmaceutical company.
Ms. Eastham also held several positions, including Vice President,
Finance, at Boehringer Mannheim Corporation, from 1976 to 1988. Ms. Eastham
also serves as a director for Tercica, Inc., Illumina, Inc., and SGX
Pharmaceuticals, Inc. Ms. Eastham
received a B.S. and an M.B.A. from Indiana University and is a Certified Public
Accountant and a Certified Director.
Dr. Gavin
has served as a director since December 2005 and serves as chair of the
Corporate Governance Committee. Dr. Gavin is CEO & Chief Medical
Officer, Healing Our Village, Inc.
He also serves as Clinical Professor of Medicine, Emory University
School of Medicine and Clinical Professor of Medicine at the Indiana University
School of Medicine. He was President of
the Morehouse School of Medicine from 2002 to 2004. Dr. Gavin is a member
of the board of directors of Baxter International Inc., Anastasia Marie
Laboratories, Inc., and Nuvelo, Inc.
Dr. Gavin was Chairman of the board of directors of Equidyne
Corporation from August 2001 to 2003.
He was also a member of the board of directors of Taste for Living, Inc.
from 1999 to 2002. From 1991 to 2002, Dr. Gavin
was a Senior Scientific Officer of the Howard Hughes Medical Institute. From 2002 until 2005, he served as National
Chairman of the National Diabetes Education Program. He completed his B.S. in Chemistry at
Livingstone College, a Ph.D. in Biochemistry at Emory University and his M.D.
at Duke University Medical School. Dr. Gavin
has received numerous civic and academic awards and honors.
Ms. Graham
has served as a director since November 1995 and
currently serves on the Finance Committee.
Ms. Graham served as President and Chief Executive Officer from September 2003
until June 2006, serving as Chief Executive Officer from June 2006
until March 2007. She previously
served on the Audit Committee and the Nominating and Governance Committee. From February 2000 until June 2003,
Ms. Graham held various positions with Guidant Corporation, notably as
Advisor to the President, Group Chairman; Office of the President; and
President of the Vascular Intervention Group and Vice President. Ms. Graham held various positions with
Eli Lilly and Company from 1979 to 1992 including sales, marketing and
strategic planning positions. She serves
on the board of directors of the American Diabetes Research Foundation Board,
Proteus Biomedical Pharmaceutical Systems Division, ICAT Managers, the Harvard
Business School Health Advisory Board, the Harvard Business School Deans Advisory
Board, the Advisory Board for the Kellogg Center for Executive Women, the
Advisory Board for the California Council on Science and Technology, and the
University of California, San Diego Health Sciences Advisory Board. Ms. Graham received an M.B.A. from
Harvard University.
19
Mr. Greene
is our co-founder and has served as a
director since our inception in 1987. He
serves on the Finance Committee. Mr. Greene
is an entrepreneur who has participated in the founding and/or management of
eleven medical technology companies over two decades, including three companies
for which he served as chief executive officer. From 1987 to 1996, Mr. Greene
served as our Chief Executive Officer.
From 1986 until 1993, Mr. Greene was a founding general partner of
Biovest Partners, a seed venture capital firm.
He was Chief Executive Officer of Hybritech from 1979 until its
acquisition by Eli Lilly and Company in 1986, and he was co-inventor of
Hybritechs patented monoclonal antibody assay technology. Prior to joining Hybritech, he was an
executive with the medical diagnostics division of Baxter Healthcare
Corporation from 1974 to 1979 and a consultant with McKinsey & Company
from 1967 to 1974. Mr. Greene
received an M.B.A. from Harvard University.
Dr. Skyler
has served as a director since August 1999 and
serves on the Corporate Governance Committee.
He is Professor of Medicine, Pediatrics and Psychology, in the Division
of Endocrinology Diabetes and Metabolism; and Associate Director for Academic
Programs at the Diabetes Research Institute; all at the University of Miami
Miller School of Medicine in Florida, where he has been employed since
1976. He is also Study Chairman for the National
Institute of Diabetes & Digestive & Kidney Diseases of the
Type 1 Diabetes TrialNet clinical trial network, and serves on the board of
directors of DexCom, Inc., and various private companies. Dr. Skyler has served as President of
the American Diabetes Association and as Vice President of the International
Diabetes Federation. Dr. Skyler
serves on the editorial board of several diabetes and general medicine journals
and the advisory panel of several pharmaceutical companies. He received his B.S. from The Pennsylvania
State University, his M.D. from Jefferson Medical College, and completed
postdoctoral studies at Duke University Medical Center.
Mr. Sullivan
has served as a director since September 2003
and serves on the Audit Committee and as chair of the Finance Committee. Mr. Sullivan is currently Chairman of
the Board of Advisors of RAND Health and Chairman of the Board of Advisors of
the UCLA Medical Center. From 2000 to
2003, Mr. Sullivan served as Chairman, Chief Executive Officer and a
director of Protocare, Inc. From
1993 until November 1999, he served as Chairman, Chief Executive Officer
and a director of American Health Properties, Inc. For the previous twenty years, Mr. Sullivan
was an investment banker with Goldman Sachs.
Mr. Sullivan also currently serves on the board of directors of
Cymetrix Corporation, HCP, Inc. (a real estate investment trust) and
AutoGenomics, Inc. Mr. Sullivan
received his M.B.A. from the Harvard Graduate School of Business Administration
and his J.D. from the University of Minnesota Law School.
Mr. Wilson
has served as a director since March 2002
and serves as the chair of the Compensation and Human Resources Committee and
on the Corporate Governance Committee.
He is a director and Chairman of the Board of both Corcept Therapeutics
Inc. and NuGEN, Inc. From 1996 to
2001, Mr. Wilson was Chairman of the Board of Amira Medical, Inc.
From 1990 to 1994, Mr. Wilson served as President and Chief Operating
Officer of Syntex Corporation. Prior to
1990, he served in various senior management positions, including Chief
Executive Officer for Neurex Corporation and LifeScan, Inc. Mr. Wilson serves on the board of
directors of the Palo Alto Medical Foundation, and A Stepping Stone Foundation
(pre-school education). Mr. Wilson
received his B.A. and M.B.A. from the University of Arizona.
Dr. Baron
has served as our Senior Vice President,
Research since September 2004, and previously served as Senior Vice
President, Clinical Research since June 2002. He previously served as Vice President,
Clinical Research since December 1999.
Dr. Baron has been clinical Professor of Medicine at the University
of California, San Diego, and Clinical VA Staff Physician at the VA Medical
Center, San Diego, since 2001. From 1989
to 2000, Dr. Baron worked for the Indiana University School of Medicine,
where he served as Professor of Medicine and Director, Division of
Endocrinology and Metabolism. Earlier, Dr. Baron held academic and
clinical positions in the Division of Endocrinology and Metabolism at the
University of California, San Diego, and the Veterans Administration Medical
Center in San Diego. He is the recipient
of several prestigious awards for his research in diabetes and vascular
disease, including the 1996 Outstanding Clinical Investigator Award from the
American Federation for Medical Research, several awards from the American
Diabetes Association, and is a current National Institutes of Health MERIT
award recipient. He received an M.D.
from the Medical College of Georgia, Augusta, and completed postdoctoral
studies at the University of California, San Diego.
Mr. Eberhard
has served as Vice President, Sales
since May 2003. Prior to joining
us, Mr. Eberhard was Regional Vice President, Sales, at Pharmacia
Corporation, for which he had worked for 21 years. During his career with Pharmacia Corporation
and its related pre-merger companies, he held positions in sales, sales
management, corporate training, sales operations, and managed care before
assuming the Vice President, Sales position.
Mr. Eberhard received a B.S. in Biology from California Lutheran
University.
20
Mr. Foletta
has served as Senior Vice President,
Finance and Chief Financial Officer since March 2006 and he previously
served as Vice President, Finance and Chief Financial Officer from March 2000
to March 2006. Mr. Foletta
previously served as a Principal of Triton Group Management, Inc. from
1997 to 2000. From 1986 to 1997, Mr. Foletta
held a number of management positions with Intermark, Inc. and Triton
Group Ltd., the most recent of which was Senior Vice President, Chief Financial
Officer and Corporate Secretary. From
1982 to 1986, Mr. Foletta was with Ernst & Young, most recently
serving as an Audit Manager. He is a
director of Anadys Pharmaceuticals, Inc. Mr. Foletta received a B.A.
in Business Economics from the University of California, Santa Barbara.
He is a Certified Public
Accountant and a member of the Financial Executives Institute.
Mr. Gergen
has served as Senior Vice President,
Corporate Development since August 2006 and previously served as Vice
President of Business Development from May 2005 to August 2006. Prior to joining us, Mr. Gergen was an
independent consultant to biotech and medical technology companies for
strategy, financing and corporate development.
From 2003 to 2005, Mr. Gergen was Executive Vice President at
CardioNet, Inc. He held various positions at Advanced Tissue Sciences, Inc.
from 2000 to 2003 most recently as Chief Restructuring Officer and Acting
CEO. He also served as Senior Vice
President, Chief Financial and Development Officer and Vice President,
Development, General Counsel and Secretary.
From 1999 to 2000, Mr. Gergen was employed at Premier, Inc.
and from 1994 to 1999 he held various positions with Medtronic, Inc. From 1990 to 1994 he held various corporate
development positions at Jostens, Inc. and from 1986 to 1990, he practiced
law at various law firms. Mr. Gergen
serves on the Board of Directors of a privately held company. Mr. Gergen received a B.A. in
Administration from Minot State University and a J.D. from the University of
Minnesota Law School.
Dr. Kolterman
has served as Senior Vice President,
Clinical and Regulatory Affairs since August 2005. He previously served as Senior Vice
President, Clinical Affairs from February 1997 to August 2005, Vice
President, Medical Affairs from 1993 to 1997, and Director, Medical Affairs
from 1992 to 1993. From 1983 to 1992, he
was Program Director of the General Clinical Research Center and Medical
Director of the Diabetes Center, at the University of California, San Diego
Medical Center. Since 1989, he has been
Adjunct Professor of Medicine at the University of California, San Diego. From
1978 to 1983, he was Assistant Professor of Medicine in the Endocrinology and
Metabolism Division at the University of Colorado School of Medicine,
Denver. He was a member of the Diabetes
Control and Complications Trial Study Group and presently serves as a member of
the Epidemiology of Diabetes Intervention and Complications Study. He is also a past-president of the California
Affiliate of the American Diabetes Association.
Dr. Kolterman received his M.D. from Stanford University School of
Medicine.
Ms. Lloyd
has served as our Senior Vice President,
Legal and Corporate Affairs, and General Counsel since February 2007. Prior to joining us, Ms. Lloyd served as
Group Senior Vice President, Chief Administrative Officer, General Counsel and
Secretary of VHA Inc. from November 2004 to February 2007. Previously, she served as VHAs General
Counsel and Secretary from May 1999 to November 2004. From 1993 to April 1999, Ms. Lloyd
was Vice President and Assistant General Counsel of Medtronic, Inc. and
served as Medtronics Assistant General Counsel from 1991 to 1993. From 1978 to 1991, Ms. Lloyd held
various legal positions with Medtronic.
Prior to joining Medtronic, Ms. Lloyd served as counsel to
Pillsbury Company and Montgomery Ward & Co. and she taught Business
Law at the University of Minnesota Business School. Ms. Lloyd is Chairperson of the
Executive Leadership Foundation and an associate of the Women Business Leaders
of the United States Health Care Industry Foundation. She received a B.S./B.A. from Knox College
and a J.D. from Northwestern University.
Mr. Marchetti
has served as
our Senior Vice President, Human Resources and Information Management since July
2007 and previously served as Senior Vice President, Human Resources and
Corporate Services from November 2005 to July 2007. Prior to joining us, he
served as Vice President, Human Resources for Guidant Corporation from July 2002
to October 2005. Prior to this
role, he served as Vice President, Finance and Information Systems, Guidant
Europe, Middle East, Africa, and Canada, since the beginning of 2001. From 1999 through 2000, he served as Vice
President, Human Resources for Guidants Vascular Intervention group, and
served as Guidants Corporate Controller and Chief Accounting Officer from 1994
to 1999. He joined Eli Lilly and Companys
Medical Devices and Diagnostics division in 1988. In 1992, he became Financial Manager of Lillys
pharmaceutical manufacturing operations in Indianapolis. From 1980 to 1986, he was with the audit
staff of Touche Ross & Co. (currently Deloitte). He is a director of Emphasys Medical, a
privately-held medical device company.
He received a B.A. from LaSalle University in Philadelphia and an MBA
from the Ross School of Business at the University of Michigan. He is a Certified Public Accountant.
21
Mr. Marshall
has served as Vice President, Operations
since December 2006. Prior to
joining us, he was Vice President of Corporate Manufacturing at Amgen, Inc. From 2002 to 2005, Mr. Marshall served
as President of Manufacturing at Recombinant Proteins at the Bioscience
Division of Baxter International. From
1999 to 2002, he was Site Head of the Baxter International Thousand Oaks
facility. He joined Creative
BioMolecules in 1992, first as Head of Process Development and Clinical
Manufacturing and then as Head of Operations.
From 1988 to 1992, Mr. Marshall held various management positions
with Welgen Manufacturing Partnership (now Amgen, Rhode Island), Repligen
Corporation and Damon Biotech. He serves
on the board of directors of Medicago, Inc. and is a member of ISPE and
ASCB. Mr. Marshall received a B.S.
and an M.S. in Biology from the University of Massachusetts at Dartmouth and
completed three years of post-graduate work concentrating in hematology and
coagulation research at Brown University.
Mr. Rowland
has served as our Vice President,
Governance and Compliance, Secretary, and Chief Compliance Officer since
February 2007. He previously served as our Vice President, Legal, Secretary and
General Counsel from September 2001 to February 2007. Prior to joining us, Mr. Rowland served
in various positions at Alliance Pharmaceutical Corp., including as Vice
President, General Counsel and Secretary, beginning in 1993. Earlier, Mr. Rowland served as Vice
President and Senior Counsel, Finance and Securities, at Imperial Savings
Association for four years. For the
previous eight years, he was engaged in the private practice of corporate law
with the San Diego, California law firm of Gray, Cary, Ames & Fry, and
the Houston, Texas law firm of Bracewell & Patterson. He received a J.D. from Emory University.
Mr. Young
has served as Senior Vice President,
Marketing since October 2006. Prior
to joining us, Mr. Young served as Vice President, Diabetes Brand
Marketing at Novo Nordisk where he managed the marketing activities of Novo
Nordisks injectable insulin business.
From 2000 to 2004, Mr. Young held global and U.S. commercial
leadership roles at Aventis for a variety of metabolic/diabetes compounds. Prior to working at Aventis, Mr. Young
held product and sales management positions at Parke-Davis. Mr. Young received a B.S. from Texas
A&M University with a concentration in pre-medicine and business.
Item 1A.
Risk Factors
CAUTIONARY FACTORS THAT MAY AFFECT
FUTURE RESULTS
Except for
the historical information contained herein or incorporated by reference, this
annual report on Form 10-K and the information incorporated by reference
contains forward-looking statements that involve risks and uncertainties. These
statements include projections about our accounting and finances, plans and
objectives for the future, future operating and economic performance and other
statements regarding future performance. These statements are not guarantees of
future performance or events. Our actual results may differ materially from
those discussed here. Factors that could cause or contribute to differences in
our actual results include those discussed in the following section, as well as
those discussed in Part II, Item 7 entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere
throughout this annual report on Form 10-K and in any other documents
incorporated by reference into this report. You should consider carefully the
following risk factors, together with all of the other information included or
incorporated in this annual report on Form 10-K. Each of these risk
factors, either alone or taken together, could adversely affect our business,
operating results and financial condition, as well as adversely affect the
value of an investment in our common stock. There may be additional risks that
we do not presently know of or that we currently believe are immaterial which
could also impair our business and financial position.
We have a history of operating losses, anticipate future
losses and may never become profitable.
We have experienced
significant operating losses since our inception in 1987, including losses of
$211.1 million in 2007, $218.9 million in 2006 and $206.8 million in 2005. As of December 31, 2007, we had an
accumulated deficit of approximately $1.4 billion. The extent of our future losses and the
timing of potential profitability are uncertain, and we may never achieve
profitable operations. We have been
engaged in discovering and developing drugs since inception, which has
required, and will continue to require, significant research and development
expenditures. We derived substantially
all of our revenues prior to 2005 from development funding, fees and milestone
payments under collaborative agreements and from interest income. BYETTA and SYMLIN may not be as commercially
successful as we expect and we may not succeed in commercializing any of our
other drug candidates. We may incur
substantial operating losses for at least the next few years as we continue to
expand our commercial function for BYETTA and SYMLIN and our research and
development activities for the other drug candidates in our development
pipeline. These losses, among other
things, have had and will have an adverse effect on our stockholders equity
and working capital. Even if we become
profitable, we may not remain profitable.
22
We began selling, marketing and distributing our first
products, BYETTA and SYMLIN, in 2005 and we will depend heavily on the success
of those products in the marketplace.
Prior to the launch of
BYETTA and SYMLIN in 2005, we had never sold or marketed our own products. Our ability to generate product revenue for
the next few years will depend solely on the success of these products. The ability of BYETTA and SYMLIN to generate
revenue at the levels we expect will depend on many factors, including the
following:
·
acceptance of these first-in-class
medicines by the medical community, patients receiving therapy and third party
payors;
·
a
satisfactory efficacy and safety profile as demonstrated in a broad patient
population;
·
successfully
expanding and sustaining manufacturing capacity to meet demand;
·
safety
concerns in the marketplace for diabetes therapies;
·
the
competitive landscape for approved and developing therapies that will compete
with the products; and
·
our
ability to expand the indications for which we can market the products.
If we encounter safety issues with BYETTA or SYMLIN or any
other drugs we market or fail to comply with extensive continuing regulations
enforced by domestic and foreign regulatory authorities, it could cause us to
discontinue marketing those drugs, reduce our revenues and harm our ability to
generate future revenues, which would negatively impact our financial position.
BYETTA and SYMLIN, in
addition to any other of our drug candidates that may be approved by the FDA,
will be subject to continual review by the FDA, and we cannot assure you that
newly discovered or developed safety issues will not arise. With the use of any of our marketed drugs by
a wide patient population, serious adverse events may occur from time to time
that initially do not appear to relate to the drug itself, and only if the
specific event occurs with some regularity over a period of time does the drug
become suspect as having a causal relationship to the adverse event. Any safety issues could cause us to suspend
or cease marketing of our approved products, subject us to substantial
liabilities, and adversely affect our revenues and financial condition.
Moreover, the marketing
of our approved products will be subject to extensive regulatory requirements
administered by the FDA and other regulatory bodies, including adverse event
reporting requirements and the FDAs general prohibition against promoting
products for unapproved uses. The
manufacturing facilities for our approved products are also subject to
continual review and periodic inspection and approval of manufacturing
modifications. Manufacturing facilities
that manufacture drug products for the United States market, whether they are
located inside or outside the United States, are subject to biennial
inspections by the FDA and must comply with the FDAs current good
manufacturing practice, or cGMP, regulations.
The FDA stringently applies regulatory standards for manufacturing. Failure to comply with any of these
post-approval requirements can, among other things, result in warning letters,
product seizures, recalls, fines, injunctions, suspensions or revocations of
marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions, any
unanticipated changes in existing regulatory requirements or the adoption of
new requirements, or any safety issues that arise with any approved products,
could adversely affect our ability to market products and generate revenues and
thus adversely affect our ability to continue our business.
The manufacturers of our
products and drug candidates also are subject to numerous federal, state, local
and foreign laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
hazardous substance disposal. In the
future, our manufacturers may incur significant costs to comply with those laws
and regulations, which could increase our manufacturing costs and reduce our
ability to operate profitably.
We currently do not manufacture our own drug products or
drug candidates and may not be able to obtain adequate supplies, which could
cause delays, subject us to product shortages, or reduce product sales.
The manufacturing of
sufficient quantities of newly-approved drug products and drug candidates is a
time-consuming and complex process. We
currently have no manufacturing capabilities.
In order to successfully commercialize our products, including BYETTA
and SYMLIN, and continue to develop our drug candidates, including exenatide
once weekly, we rely on various third parties to provide the necessary
manufacturing.
23
There are a limited
number of manufacturers that operate under the FDAs cGMP regulations capable
of manufacturing for us. In addition,
there are a limited number of bulk drug substance suppliers, cartridge
manufacturers and disposable pen manufacturers.
If we are not able to arrange for and maintain third-party manufacturing
on commercially reasonable terms, or we lose one of our sole source suppliers
used for our existing products or for some components of our manufacturing
processes for our products or drug candidates, we may not be able to market our
products or complete development of our drug candidates on a timely basis, if
at all.
Reliance on third-party
suppliers limits our ability to control certain aspects of the manufacturing
process and therefore exposes us to a variety of significant risks, including,
but not limited to, risks to our ability to commercialize our products or
conduct clinical trials, risks of reliance on the third-party for regulatory
compliance and quality assurance, third-party refusal to supply on a long-term
basis, or at all, the possibility of breach of the manufacturing agreement by
the third-party and the possibility of termination or non-renewal of the
agreement by the third-party, based on its business priorities, at a time that
is costly or inconvenient for us. If any
of these risks occur, our product supply will be interrupted resulting in lost
or delayed revenues and delayed clinical trials. Our reliance on third-party manufacturers for
the production of our two commercial products is described in more detail
below.
We rely on Bachem
California, or Bachem, and Mallinckrodt, Inc., or Mallinckrodt, to
manufacture our long-term commercial supply of bulk exenatide, the active
ingredient in BYETTA. In addition, we
rely on single-source manufacturers for some of our raw materials used by
Bachem and Mallinckrodt to produce bulk exenatide. We also rely on Wockhardt UK (Holdings) Ltd.,
or Wockhardt, and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc.,
or Baxter, to manufacture the dosage form of BYETTA in cartridges. We are further dependent upon Lilly to supply
pens for delivery of BYETTA in cartridges.
We rely on Bachem and
Lonza Ltd. to manufacture our commercial supply of bulk pramlintide acetate,
the active ingredient contained in SYMLIN.
In addition, we rely on Baxter to manufacture the dosage form of SYMLIN
in vials. We recently received FDA
approval of a disposable pen for the delivery of SYMLIN in cartridges. We rely on Wockhardt for the dosage form of
SYMLIN in cartridges and Ypsomed AG to manufacture the components for the
SYMLIN disposable pen. We also rely on Hollister-Stier Laboratories LLC for the
assembly of the SYMLIN pen.
If any of our existing or
future manufacturers cease to manufacture or are otherwise unable to timely
deliver sufficient quantities of BYETTA or SYMLIN, in either bulk or dosage
form, or other product components, including pens for the delivery of these
products, it could disrupt our ability to market our products, subject us to
product shortages, reduce product sales and/or reduce our profit margins. Any delay or disruption in the manufacturing
of bulk product, the dosage form of our products or other product components,
including pens for delivery of our products, could also harm our reputation in
the medical and patient communities. In
addition, we may need to engage additional manufacturers so that we will be
able to continue our commercialization and development efforts for these
products or drug candidates. The cost
and time to establish these new manufacturing facilities would be substantial.
Our manufacturers have
not produced BYETTA or SYMLIN for commercial use for a sustained period of
time. As such, additional unforeseeable
risks may be encountered as we, together with our manufacturers, continue to
develop familiarity and experience with regard to manufacturing our
products. Furthermore, we and the other
manufacturers used for our drug candidates may not be able to produce supplies
in commercial quantities if our drug candidates are approved. While we believe that business relations
between us and our manufacturers are generally good, we cannot predict whether
any of the manufacturers that we may use will meet our requirements for
quality, quantity or timeliness for the manufacture of bulk exenatide or
pramlintide acetate, dosage form of BYETTA or SYMLIN, or pens. Therefore, we may not be able to obtain
necessary supplies of products with acceptable quality, on acceptable terms or
in sufficient quantities, if at all. Our
dependence on third parties for the manufacture of products may also reduce our
gross profit margins and our ability to develop and deliver products in a
timely manner.
In order to manufacture
exenatide once weekly on a commercial scale, if it is approved by the FDA, we
must design, construct, and commission a new facility and validate the
manufacturing process. We are dependent
on Alkermes and Parsons to assist us in the design, construction and
commissioning of the manufacturing facility.
We have never established, validated, and operated a manufacturing
facility and cannot assure you that we will be able to successfully establish
or
24
operate such a facility in a timely or economical manner, or at
all. In addition, we are dependent on
Alkermes to successfully develop and transfer to us its technology for
manufacturing exenatide once weekly and to supply us with commercial quantities
of the polymer required to manufacture exenatide once weekly. We also will need to obtain sufficient
supplies of diluents, solvents, devices, packaging and other components
necessary for commercial manufacture of exenatide once weekly. Although we are working diligently to
finalize the commercial-scale manufacturing process at this facility, we cannot
be assured that we will be able to demonstrate comparability of product
manufactured at development scale and product manufactured at commercial
scale. If we are unable to demonstrate
comparability of product, we may not be able to commercially launch exenatide
once weekly in a timely manner or at all.
Our ability to generate revenues will be diminished if we
fail to obtain acceptable prices or an adequate level of reimbursement for our
products from third-party payors.
The continuing efforts of
government, private health insurers and other third-party payors to contain or
reduce the costs of health care through various means, including efforts to
increase the amount of patient co-pay obligations, may limit our commercial
opportunity. In the United States, we
expect that there will continue to be a number of federal and state proposals
to implement government control over the pricing of prescription
pharmaceuticals. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on
the rate of adoption and pricing of pharmaceutical products.
Significant uncertainty
exists as to the reimbursement status of health care products. Third-party payors, including Medicare, are
challenging the prices charged for medical products and services. Government and other third-party payors
increasingly are attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new drugs and by refusing to
provide coverage for uses of approved products for disease indications for
which the FDA has not granted labeling approval. Third-party insurance coverage may not be
available to patients for BYETTA and/or SYMLIN or any other products we
discover and develop. If government and
other third-party payors do not provide adequate coverage and reimbursement levels
for our products, the market acceptance of these products may be reduced.
Competition in the biotechnology and pharmaceutical
industries may result in competing products, superior marketing of other
products and lower revenues or profits for us.
There are many companies
that are seeking to develop products and therapies for the treatment of
diabetes and other metabolic disorders.
Our competitors include multinational pharmaceutical and chemical
companies, specialized biotechnology firms and universities and other research
institutions. A number of our largest
competitors, including AstraZeneca, Bristol-Myers Squibb, GlaxoSmithKline,
Lilly, Merck & Co., Novartis, Novo Nordisk, Pfizer, Sanofi-Aventis and
Takeda Pharmaceuticals, are pursuing the development or marketing of
pharmaceuticals that target the same diseases that we are targeting, and it is
possible that the number of companies seeking to develop products and therapies
for the treatment of diabetes, obesity and other metabolic disorders will increase. Many of our competitors have substantially
greater financial, technical, human and other resources than we do and may be
better equipped to develop, manufacture and market technologically superior
products. In addition, many of these
competitors have significantly greater experience than we do in undertaking
preclinical testing and human clinical studies of new pharmaceutical products
and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in
obtaining FDA approval for superior products.
Furthermore, now that we have received FDA approval for BYETTA and
SYMLIN, we may also be competing against other companies with respect to our
manufacturing and product distribution efficiency and sales and marketing
capabilities, areas in which we have limited or no experience as an
organization.
Our target patient
population for BYETTA includes people with diabetes who have not achieved
adequate glycemic control using metformin, sulfonylurea and/or a TZD, the three
most common oral therapies for type 2 diabetes.
Our target population for SYMLIN is people with either type 2 or type 1
diabetes whose therapy includes multiple mealtime insulin injections daily. Other products are currently in development
or exist in the market that may compete directly with the products that we are
developing or marketing. Various other
products are available or in development to treat type 2 diabetes, including:
·
sulfonylureas;
·
metformin;
·
insulins,
including injectable and inhaled versions;
25
·
TZDs;
·
glinides;
·
DPP-IV
inhibitors;
·
incretin/GLP-1
agonists;
·
CB-1
antagonists;
·
PPARs;
and
·
alpha-glucosidase
inhibitors.
In addition, several
companies are developing various approaches to improve treatments for type 1
and type 2 diabetes. We cannot predict whether our products will have
sufficient advantages to cause health care professionals to adopt them over
other products or that our products will offer an economically feasible
alternative to other products. Our
products could become obsolete before we recover expenses incurred in
developing these products.
Delays in the conduct or completion of our clinical trials,
the analysis of the data from our clinical trials or our manufacturing scale-up
activities may result in delays in our planned filings for regulatory
approvals, and may adversely affect our ability to enter into new collaborative
arrangements.
We cannot predict whether
we will encounter problems with any of our completed, ongoing or planned
clinical studies that will cause us to delay or suspend our ongoing and planned
clinical studies, delay the analysis of data from our completed or ongoing
clinical studies or perform additional clinical studies prior to receiving
necessary regulatory approvals. We also
cannot predict whether we will encounter delays or an inability to create
manufacturing processes for drug candidates that allow us to produce drug product
in sufficient quantities to be economical, otherwise known as manufacturing
scale-up.
If the results of our
ongoing or planned clinical studies for our drug candidates are not available
when we expect or if we encounter any delay in the analysis of data from our
clinical studies or if we encounter delays in our ability to scale-up our
manufacturing processes:
·
we may be unable to complete our
development programs for exenatide once weekly or our obesity clinical trials;
·
we
may have to delay or terminate our planned filings for regulatory approval;
·
we may not have the financial resources
to continue research and development of any of our drug candidates; and
·
we
may not be able to enter into, if we chose to do so, any additional
collaborative arrangements.
In addition, Lilly can
terminate our collaboration for the development and commercialization of BYETTA
and sustained-release formulations of exenatide at any time on 60 days notice.
Any of the following
could delay the completion of our ongoing and planned clinical studies:
·
ongoing discussions with the FDA or
comparable foreign authorities regarding the scope or design of our clinical
trials;
·
delays
in enrolling volunteers;
·
lower
than anticipated retention rate of volunteers in a clinical trial;
26
·
negative
results of clinical studies;
·
insufficient supply or deficient quality
of drug candidate materials or other materials necessary for the performance of
clinical trials;
·
our inability to reach agreement with
Lilly regarding the scope, design, conduct or costs of clinical trials with
respect to BYETTA, exenatide once weekly or nasal exenatide; or
·
serious
side effects experienced by study participants relating to a drug candidate.
We are substantially dependent on our collaboration with
Lilly for the development and commercialization of BYETTA and dependent on
Lilly and Alkermes for the development of exenatide once weekly.
We have entered into a
collaborative arrangement with Lilly, who currently markets diabetes therapies
and is developing additional diabetes drug candidates, to commercialize BYETTA
and further develop sustained-release formulations of BYETTA, including
exenatide once weekly. We entered into
this collaboration in order to:
·
fund
some of our research and development activities;
·
assist
us in seeking and obtaining regulatory approvals; and
·
assist
us in the successful commercialization of BYETTA and exenatide once weekly.
In general, we cannot
control the amount and timing of resources that Lilly may devote to our
collaboration. If Lilly fails to assist
in the further development of exenatide once weekly or the commercialization of
BYETTA, or if Lillys efforts are not effective, our business may be negatively
affected. We are relying on Lilly to
obtain regulatory approvals for and successfully commercialize BYETTA and
exenatide once weekly outside the United States. Our collaboration with Lilly may not continue
or result in additional successfully commercialized drugs. Lilly can terminate our collaboration at any
time upon 60 days notice. If Lilly
ceased funding and/or developing and commercializing BYETTA or exenatide once
weekly, we would have to seek additional sources for funding and may have to
delay, reduce or eliminate one or more of our commercialization and development
programs for these compounds. We are
also dependent on Alkermes for the development of exenatide once weekly. If Alkermes technology is not successfully
developed to effectively deliver exenatide in a sustained release formulation,
or Alkermes does not devote sufficient resources to the collaboration, our
efforts to develop sustained release formulations of exenatide could be delayed
or curtailed.
If our patents are determined to be
unenforceable or if we are unable to obtain new patents based on current patent
applications or for future inventions, we may not be able to prevent others
from using our intellectual property. If
we are unable to obtain licenses to third party patent rights for required
technologies, we could be adversely affected.
We own
or hold exclusive rights to many issued United States patents and pending
United States patent applications related to the development and
commercialization of exenatide, including BYETTA and exenatide once weekly,
SYMLIN and our other drug candidates.
These patents and applications cover composition-of-matter, medical
indications, methods of use, formulations and other inventive results. We have issued and pending applications for
formulations of BYETTA and exenatide once weekly, but we do not have a
composition-of-matter patent covering exenatide. We also own or hold exclusive rights to
various foreign patent applications that correspond to issued United States
patents or pending United States patent applications.
Our
success will depend in part on our ability to obtain patent protection for our
products and drug candidates and technologies both in the United States and
other countries. We cannot guarantee
that any patents will issue from any pending or future patent applications
owned by or licensed to us.
Alternatively, a third party may successfully challenge or circumvent
our patents. Our rights under any issued
patents may not provide us with sufficient protection against competitive products
or otherwise cover commercially valuable products or processes. In addition, because patent applications in
the United States are maintained, in general, in secrecy for eighteen months
after the filing of the applications, and publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, we cannot
be sure that the inventors of subject matter covered by our patents and patent
applications were the first to invent or the first to file patent applications
for these inventions. Third parties have
filed, and in the future are likely to file, patent applications on
27
inventions similar to ours. From
time-to-time we have participated in, and in the future are likely to
participate in, interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
a loss of our patent position. We have
also participated in, and in the future are likely to participate in,
opposition proceedings against our patents in other jurisdictions, such as
Europe and Australia. Furthermore, we
may not have identified all United States and foreign patents that pose a risk
of infringement.
We
also rely upon licensing opportunities for some of our technologies. We cannot be certain that we will not lose
our rights to certain patented technologies under existing licenses or that we
will be able to obtain a license to any required third-party technology. If we lose our licensed technology rights or
if we are not able to obtain a required license, we could be adversely
affected.
We may be unable to obtain regulatory
clearance to market our drug candidates in the United States or foreign
countries on a timely basis, or at all.
Our
drug candidates are subject to extensive government regulations related to
development, clinical trials, manufacturing and commercialization. The process of obtaining FDA and other
regulatory approvals is costly, time-consuming, uncertain and subject to
unanticipated delays. Regulatory
authorities may refuse to approve an application for approval of a drug
candidate if they believe that applicable regulatory criteria are not
satisfied. Regulatory authorities may
also require additional testing for safety and efficacy. Moreover, if the FDA grants regulatory
approval of a product, the approval may be limited to specific indications or
limited with respect to its distribution, and expanded or additional indications
for approved drugs may not be approved, which could limit our revenues. Foreign regulatory authorities may apply
similar limitations or may refuse to grant any approval. Unexpected changes to the FDA or foreign
regulatory approval process could also delay or prevent the approval of our
drug candidates.
The data collected from
our clinical trials may not be sufficient to support approval of our drug
candidates or additional or expanded indications by the FDA or any foreign
regulatory authorities. Biotechnology
stock prices have declined significantly in certain instances where companies
have failed to meet expectations with respect to FDA approval or the timing for
FDA approval. If the FDAs or any
foreign regulatory authoritys response is delayed or not favorable for any of
our drug candidates, our stock price could decline significantly.
Moreover, manufacturing
facilities operated by the third-party manufacturers with whom we may contract
to manufacture our unapproved drug candidates may not pass an FDA or other
regulatory authority preapproval inspection.
Any failure or delay in obtaining these approvals could prohibit or
delay us or any of our business partners from marketing these drug candidates.
Consequently, even if we
believe that preclinical and clinical data are sufficient to support regulatory
approval for our drug candidates, the FDA and foreign regulatory authorities
may not ultimately approve our drug candidates for commercial sale in any
jurisdiction. If our drug candidates are
not approved, our ability to generate revenues may be limited and our business
will be adversely affected.
Litigation regarding patents and other proprietary rights
may be expensive, cause delays in bringing products to market and harm our
ability to operate.
Our success will depend in part on our ability to
operate without infringing the proprietary rights of third parties and
preventing others from infringing our patents.
Challenges by pharmaceutical companies against the patents of
competitors are common. Legal standards
relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under these patents
are still developing. As a result, our
ability to obtain and enforce patents is uncertain and involves complex legal
and factual questions. Third parties may
challenge, in courts or through patent office proceedings, or infringe upon,
existing or future patents. In the event
that a third party challenges a patent, a court or patent office may invalidate
the patent or determine that the patent is not enforceable. Proceedings involving our patents or patent
applications or those of others could result in adverse decisions about:
·
|
|
the
patentability of our inventions, products and drug candidates; and/or
|
|
|
|
·
|
|
the
enforceability, validity or scope of protection offered by our patents.
|
The manufacture, use or sale of any of our products
or drug candidates may infringe on the patent rights of others. If we are unable to avoid infringement of the
patent rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in court. Patent
litigation is costly and time consuming.
We may not have sufficient resources to bring these actions to a
successful conclusion. In addition, if
we do not obtain a license, develop or obtain non-infringing technology, fail
to successfully defend an infringement action or have infringing patents
declared invalid, we may:
28
·
|
|
incur
substantial monetary damages;
|
|
|
|
·
|
|
encounter
significant delays in bringing our drug candidates to market; and/or
|
|
|
|
·
|
|
be precluded
from participating in the manufacture, use or sale of our products or drug
candidates or methods of treatment requiring licenses.
|
We are subject to fraud and abuse and
similar laws and regulations, and a failure to comply with such regulations or
prevail in any litigation related to noncompliance could harm our business.
Upon approval of BYETTA
and SYMLIN by the FDA, we became subject to various health care fraud and
abuse laws, such as the Federal False Claims Act, the federal anti-kickback
statute and other state and federal laws and regulations. Pharmaceutical companies have faced lawsuits
and investigations pertaining to violations of these laws and regulations. We cannot guarantee that measures that we
have taken to prevent such violations, including our corporate compliance
program, will protect us from future violations, lawsuits or
investigations. If any such actions are
instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our
business, including the imposition of significant fines or other sanctions.
Our financial results will fluctuate, and these fluctuations
may cause our stock price to fall.
Forecasting future
revenues is difficult, especially since we launched our first products in 2005
and when the level of market acceptance of these products may change
rapidly. In addition, our customer base
is highly concentrated with four customers accounting for most of our net
product sales. Fluctuations in the
buying patterns of these customers, which may result from seasonality,
wholesaler buying decisions or other factors outside of our control, could
significantly affect the level of our net sales on a period to period
basis. As a result, it is reasonably
likely that our financial results will fluctuate to an extent, that may not
meet with market expectations and that also may adversely affect our stock
price. There are a number of other
factors that could cause our financial results to fluctuate unexpectedly,
including:
·
|
|
product sales;
|
|
|
|
·
|
|
cost of product sales;
|
|
|
|
·
|
|
achievement and timing of research and development
milestones;
|
|
|
|
·
|
|
collaboration revenues;
|
|
|
|
·
|
|
cost and timing of clinical trials, regulatory
approvals and product launches;
|
|
|
|
·
|
|
marketing and other expenses;
|
|
|
|
·
|
|
manufacturing or supply issues; and
|
|
|
|
·
|
|
potential acquisitions of businesses and
technologies and our ability to successfully integrate any such acquisitions
into our existing business.
|
We may require additional financing in the future, which may
not be available to us on favorable terms, or at all.
We intend to use our
available cash for:
·
|
|
Commercialization of BYETTA and SYMLIN;
|
|
|
|
·
|
|
Establishment of additional manufacturing sources,
including our Ohio manufacturing facility;
|
|
|
|
·
|
|
Development of exenatide once weekly and other
pipeline candidates;
|
|
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|
·
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Executing our INTO strategy;
|
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·
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Our other research and development activities;
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29
·
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|
Other operating expenses;
|
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·
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Potential acquisitions or investments in
complementary technologies or businesses; and
|
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|
·
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|
Other general corporate purposes.
|
We may also be required
to use our cash to pay principal and interest on outstanding debt, including a
$125 million term loan due in 2010 and $775 million in outstanding principal
amount of convertible senior notes, of which $200 million is due in 2011,
referred to as the 2004 Notes, and $575 million is due in 2014, referred to as
the 2007 Notes.
Our business has a substantial risk of product liability
claims, and insurance may not be adequate to cover these claims.
Our business exposes us
to potential product liability risks that are inherent in the testing,
manufacturing and marketing of human therapeutic products. Product liability claims could result in the
imposition of substantial liability on us, a recall of products, or a change in
the indications for which they may be used.
We currently have limited product liability insurance coverage. We cannot assure you that our insurance will
provide adequate coverage against potential liabilities.
Our ability to enter into and maintain third-party
relationships is important to our successful development and commercialization
of BYETTA, SYMLIN and our other drug candidates and to our potential
profitability.
With respect to sales,
marketing and distribution outside the United States, we will be substantially
dependent on Lilly for activities relating to BYETTA and sustained-release
formulations of BYETTA, including exenatide once weekly. We believe that we will likely need to enter
into marketing and distribution arrangements with third parties for, or find a
corporate partner who can provide support for, the development and
commercialization of SYMLIN or our other drug candidates outside the United
States. We may also enter into
arrangements with third parties for the commercialization of SYMLIN or any of
our other drug candidates within the United States.
With respect to BYETTA
and, if approved, exenatide once weekly, Lilly is co-promoting within the
United States. If Lilly ceased
commercializing BYETTA or, if approved, exenatide once weekly, for any reason,
we would likely need to either enter into a marketing and distribution
arrangement with a third party for those products or significantly increase our
internal sales and commercialization infrastructure.
We may not be able to
enter into marketing and distribution arrangements or find a corporate partner
for SYMLIN or our other drug candidates as we deem necessary. If we are not able to enter into a marketing
or distribution arrangement or find a corporate partner who can provide support
for commercialization of our drug candidates as we deem necessary, we may not
be able to successfully perform these marketing or distribution
activities. Moreover, any new marketer
or distributor or corporate partner for our drug candidates, including Lilly,
with whom we choose to contract may not establish adequate sales and
distribution capabilities or gain market acceptance for our products, if any.
We have a significant amount of indebtedness. We may not be able to make payments on our
indebtedness, and we may incur additional indebtedness in the future, which
could adversely affect our operations.
In April 2004, we issued
$200 million of the 2004 Notes and in June 2007, we issued $575 million of
the 2007 Notes. In December 2007,
we entered into a $125 million term loan due in December 2010, or the Term
Loan. Our ability to make payments on
our debt, including the 2004 and 2007 Notes and the Term Loan, will depend on
our future operating performance and ability to generate cash and may also
depend on our ability to obtain additional debt or equity financing. During
each of the last five years, our operating cash flows were negative and
insufficient to cover our fixed charges.
We may need to use our cash to pay principal and interest on our debt,
thereby reducing the funds available to fund our research and development
programs, strategic initiatives and working capital requirements. Our ability to generate sufficient operating
cash flow to service our indebtedness, including the 2004 and 2007 Notes and
the Term Loan, and fund our operating requirements will depend on our ability,
alone or with others, to successfully develop, manufacture, obtain required
regulatory approvals for and market our drug candidates, as well as other
factors, including general economic, financial, competitive, legislative and
regulatory conditions, some of which are beyond our control. Our debt service obligations increase our
vulnerabilities to competitive pressures, because many of our competitors are
less leveraged than we are. If we are
unable to generate sufficient operating cash flow to service our indebtedness
and fund our operating requirements, we
30
may be forced to
reduce or defer our development programs, sell assets or seek additional debt
or equity financing, which may not be available to us on satisfactory terms or
at all. Our level of indebtedness may
make us more vulnerable to economic or industry downturns. If we incur new indebtedness, the risks
relating to our business and our ability to service our indebtedness will
intensify.
We may be required to redeem our convertible senior notes
upon a designated event or repay the Term Loan upon an event of default.
Holders of the 2004 and
2007 Notes may require us to redeem all or any portion of their notes upon the
occurrence of certain designated events which generally involve a change in
control of our company. The lenders
under the Term Loan may require us to repay outstanding principal and accrued
interest due under the Term Loan upon the occurrence of an event of default,
which could include, among other things, nonpayment of principle and interest,
violation of covenants and a change in control.
We may not have sufficient cash funds to redeem the notes upon a
designated event or repay the Term Loan upon an event of default. We may elect, subject to certain conditions,
to pay the redemption price for the 2004 Notes in our common stock or a
combination of cash and our common stock.
We may be unable to satisfy the requisite conditions to enable us to pay
some or all of the redemption price for the 2004 Notes in our common stock. In addition, although there are currently no
restrictions on our ability to pay the redemption price under our existing debt
agreements, future debt agreements may prohibit us from repaying the redemption
price of either of the notes in either cash or common stock. If we are prohibited from redeeming the 2004
Notes or 2007 Notes, we could seek consent from our lenders to redeem the
notes. If we are unable to obtain their
consent, we could attempt to refinance the notes. If we were unable to obtain a consent or
refinance, we would be prohibited from redeeming the notes. If we were unable to redeem the notes upon a
designated event, it would result in an event of default under the indentures
governing the notes. An event of default
under the indentures could result in a further event of default under our other
then-existing debt including the Term Loan.
In addition, the occurrence of a designated event may be an event of
default under our other debt. Further,
an event of default under the Term Loan could result in an event of default
under the indentures governing the notes.
If our research and development programs fail to result in
additional drug candidates, the growth of our business could be impaired.
Certain of our research
and development programs for drug candidates are at an early stage and will
require significant research, development, preclinical and clinical testing,
manufacturing scale-up activities, regulatory approval and/or commitments of
resources before commercialization. We
cannot predict whether our research will lead to the discovery of any
additional drug candidates that could generate additional revenues for us.
Our future success depends on our chief executive officer,
and other key executives and our ability to attract, retain and motivate
qualified personnel.
We are highly dependent
on our chief executive officer, and the other principal members of our
executive and scientific teams. The
unexpected loss of the services of any of these persons might impede the
achievement of our research, development and commercialization objectives. Recruiting and retaining qualified sales,
marketing, regulatory, scientific and other personnel and consultants will also
be critical to our success. We may not
be able to attract and retain these personnel and consultants on acceptable
terms given the competition between numerous pharmaceutical and biotechnology
companies. We do not maintain key
person insurance on any of our employees.
We may be unable to adequately prevent disclosure of trade
secrets and other proprietary information.
In order to protect our
proprietary technology and processes, we rely in part on confidentiality
agreements with our corporate partners, employees, consultants, manufacturers,
outside scientific collaborators and sponsored researchers and other
advisors. These agreements may not
effectively prevent disclosure of confidential information and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential
information. In addition, others may
independently discover our trade secrets and proprietary information.
Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our
proprietary rights, and failure to obtain or maintain trade secret protection
could adversely affect our competitive business position.
31
Our research and development activities and planned
manufacturing activities involve the use of hazardous materials, which subject
us to regulation, related costs and delays and potential liabilities.
Our research and
development and our planned manufacturing activities involve the controlled use
of hazardous materials, chemicals and various radioactive compounds. Although we believe that our research and
development safety procedures for handling and disposing of these materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be
eliminated. In addition, as part of the
development of our planned manufacturing activities, we will need to develop
additional safety procedures for the handling and disposing of hazardous
materials. If an accident occurs, we
could be held liable for resulting damages, which could be substantial. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including
those governing laboratory procedures, exposure to blood-borne pathogens and
the handling of biohazardous materials.
Additional federal, state and local laws and regulations affecting our
operations may be adopted in the future.
We may incur substantial costs to comply with, and substantial fines or
penalties if we violate, any of these laws or regulations.
We are exposed to potential risks from recent legislation
requiring companies to evaluate internal control over financial reporting.
The Sarbanes-Oxley Act
requires that we report annually on the effectiveness of our internal control
over financial reporting. Among other
things, we must perform systems and processes evaluation and testing. We must also conduct an assessment of our
internal control to allow management to report on, and our independent
registered public accounting firm to attest to, our internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley
Act. In connection with our Section 404
compliance efforts, we have incurred or expended, and expect to continue to
incur or expend, substantial accounting and other expenses and significant
management time and resources. We have
implemented certain remediation activities resulting from our ongoing
assessment of internal control over financial reporting. Our future assessment, or the future
assessments by our independent registered public accounting firm, may reveal
material weaknesses in our internal control.
If material weaknesses are identified in the future we would be required
to conclude that our internal control over financial reporting are ineffective
and we could be subject to sanctions or investigations by the SEC, the NASDAQ
Stock Market or other regulatory authorities, which would require additional
financial and management resources and could adversely affect the market price
of our common stock.
We have implemented anti-takeover provisions that could
discourage or prevent an acquisition of our company, even if the acquisition would
be beneficial to our stockholders, and as a result our management may become
entrenched and hard to replace.
Provisions in our
certificate of incorporation and bylaws could make it more difficult for a
third party to acquire us, even if doing so would benefit our
stockholders. These provisions include:
·
allowing our board of directors to elect
a director to fill a vacancy created by the expansion of the board of
directors;
·
allowing our board of directors to issue,
without stockholder approval, up to 5.5 million shares of preferred stock with
terms set by the board of directors;
·
limiting the ability of holders of our
outstanding common stock to call a special meeting of our stockholders; and
·
preventing stockholders from taking
actions by written consent and requiring all stockholder actions to be taken at
a meeting of our stockholders.
Each of these provisions,
as well as selected provisions of Delaware law, could discourage potential
takeover attempts, could adversely affect the trading price of our securities
and could cause our management to become entrenched and hard to replace. In addition to provisions in our charter
documents and under Delaware law, an acquisition of our company could be made
more difficult by our employee benefits plans and our employee change in
control plan, under which, in connection with a change in control, stock
options held by our employees may become vested and our officers may receive
severance benefits. We also have
implemented a stockholder rights plan, also called a poison pill, which could
make it uneconomical for a third party to acquire us on a hostile basis.
32
Our executive
officers, directors and major stockholders control approximately 55% of our
common stock.
As of December 31, 2007, executive officers,
directors and holders of 5% or more of our outstanding common stock, in the
aggregate, owned or controlled approximately 55% of our outstanding common
stock. As a result, these stockholders
are able to influence all matters requiring approval by our stockholders,
including the election of directors and the approval of corporate
transactions. This concentration of
ownership may also delay, deter or prevent a change in control of our company
and may make some transactions more difficult or impossible to complete without
the support of these stockholders.
Substantial future
sales of our common stock by us or our existing stockholders or the conversion
of our convertible senior notes to common stock could cause the trading price
of our common stock to fall.
Sales by existing stockholders of a large number of
shares of our common stock in the public market or the perception that
additional sales could occur could cause the trading price of our common stock
to drop. Likewise, the issuance of
shares of common stock upon conversion of our convertible notes or redemption
of our convertible notes upon a designated event, or upon additional
convertible debt or equity financings or other share issuances by us, including
shares issued in connection with potential future strategic alliances and the
uncertain number of additional shares that we may be required to issue under
our agreements with Lilly, could adversely affect the trading price of our
common stock. Our convertible notes are
currently convertible into a total of up to 15.2 million shares. In addition,
the existence of these notes may encourage short selling of our common stock by
market participants.
Significant
volatility in the market price for our common stock could expose us to
litigation risk.
The market prices for securities of biopharmaceutical
and biotechnology companies, including our common stock, have historically been
highly volatile, and the market from time to time has experienced significant
price and volume fluctuations that are unrelated to the quarterly operating
performance of these biopharmaceutical and biotechnology companies. Since January 1, 2006, the high and low
sales price of our common stock varied significantly, as shown in the following
table:
|
|
High
|
|
Low
|
|
Year
ending December 31, 2008
|
|
|
|
|
|
First Quarter
(through February 13, 2008)
|
|
$
|
37.38
|
|
$
|
28.41
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
51.10
|
|
$
|
35.83
|
|
Third Quarter
|
|
$
|
53.25
|
|
$
|
40.86
|
|
Second Quarter
|
|
$
|
46.93
|
|
$
|
36.91
|
|
First Quarter
|
|
$
|
42.45
|
|
$
|
35.55
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
48.48
|
|
$
|
35.74
|
|
Third Quarter
|
|
$
|
51.54
|
|
$
|
40.76
|
|
Second Quarter
|
|
$
|
49.37
|
|
$
|
38.16
|
|
First Quarter
|
|
$
|
49.08
|
|
$
|
35.58
|
|
Given the uncertainty of our future funding, whether
BYETTA and SYMLIN will meet our expectations, and the regulatory approval of
our other drug candidates, we may continue to experience volatility in our
stock price for the foreseeable future.
In addition, the following factors may significantly affect the market
price of our common stock:
·
|
|
our financial results and/or fluctuations in our
financial results;
|
|
|
|
·
|
|
safety issues with BYETTA, SYMLIN or our product
candidates;
|
|
|
|
·
|
|
clinical study results;
|
|
|
|
·
|
|
determinations by regulatory authorities with
respect to our drug candidates;
|
|
|
|
·
|
|
our ability to complete our Ohio manufacturing
facility and the commercial manufacturing process for exenatide once weekly;
|
|
|
|
·
|
|
developments in our relationships with current or
future collaborative partners;
|
|
|
|
·
|
|
our ability to successfully execute our
commercialization strategies;
|
|
|
|
·
|
|
developments in our relationships with third-party
manufacturers of our products and other parties who provide services to us;
|
|
|
|
·
|
|
technological innovations or new commercial
therapeutic products by us or our competitors;
|
33
·
|
|
developments in patent or other proprietary rights;
and
|
|
|
|
·
|
|
governmental policy or regulation, including with
respect to pricing and reimbursement.
|
Broad market and industry factors also may materially
adversely affect the market price of our common stock, regardless of our actual
operating performance. Periods of
volatility in the market price of our common stock expose us to securities
class-action litigation, and we may be the target of such litigation as a
result of market price volatility in the future.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our
primary administrative offices and research laboratories are located in San
Diego, California. As of December 31,
2007, we occupied approximately 508,000 square feet of office and laboratory
space. Our leases on a majority of these
properties expire between 2015 and 2019.
We have also entered into short-term leases and other agreements for
small offices in Brentwood, Tennessee, Beachwood, Ohio, Washington, D.C. and
Germany.
Our
wholly-owned subsidiary, Amylin Ohio LLC, owns two buildings and 44.4 acres of
land in West Chester, Ohio. The
buildings, once built out for the manufacture of exenatide once weekly will
have approximately 420,000 square feet of manufacturing and office space.
Item 3.
Legal Proceedings
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock is traded on
The NASDAQ Global Market under the symbol AMLN. The following table sets forth, for the
periods indicated, the reported high and low sales price per share of our
common stock on The NASDAQ
Global
Market:
|
|
High
|
|
Low
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
51.10
|
|
$
|
35.83
|
|
Third Quarter
|
|
$
|
53.25
|
|
$
|
40.86
|
|
Second Quarter
|
|
$
|
46.93
|
|
$
|
36.91
|
|
First Quarter
|
|
$
|
42.45
|
|
$
|
35.55
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
48.48
|
|
$
|
35.74
|
|
Third Quarter
|
|
$
|
51.54
|
|
$
|
40.76
|
|
Second Quarter
|
|
$
|
49.37
|
|
$
|
38.16
|
|
First Quarter
|
|
$
|
49.08
|
|
$
|
35.58
|
|
The last reported sale price of
our common stock on The NASDAQ Global Market on February 13, 2008 was
$29.25. As of February 13, 2008,
there were approximately 630 shareholders of record of our common stock.
We have never declared or paid any cash dividends on
our capital stock. We currently intend
to retain any future earnings for funding growth and, therefore, do not
anticipate paying any cash dividends in the foreseeable future.
For information concerning prior
stockholder approval of and other matters relating to our equity incentive
plans, see Equity Compensation Plan Information under Item 12 in this annual
report on Form 10-K.
34
Item 6.
Selected Financial Data
Please read the following
selected financial data in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and related notes included elsewhere in this annual report
on Form 10-K.
|
|
Years Ended December 31
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(in thousands, except for per share amounts)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales
|
|
$
|
701,450
|
|
$
|
474,038
|
|
$
|
86,713
|
|
$
|
|
|
$
|
|
|
Revenues under collaborative agreements
|
|
79,547
|
|
36,837
|
|
53,761
|
|
34,268
|
|
85,652
|
|
Total revenues
|
|
780,997
|
|
510,875
|
|
140,474
|
|
34,268
|
|
85,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
65,457
|
|
50,073
|
|
14,784
|
|
|
|
|
|
Selling, general and administrative
|
|
390,982
|
(1)
|
281,950
|
(1)
|
171,520
|
|
66,958
|
|
56,761
|
|
Research and development
|
|
276,600
|
(2)
|
222,053
|
(2)
|
132,128
|
|
119,558
|
|
149,431
|
|
Collaborative profit-sharing
|
|
290,934
|
|
194,191
|
|
31,359
|
|
|
|
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
3,300
|
|
Total costs and expenses
|
|
1,023,973
|
|
748,267
|
|
349,791
|
|
186,516
|
|
209,492
|
|
Make-whole payment on debt redemption
|
|
|
|
(7,875
|
)
|
|
|
|
|
|
|
Net interest and other income (expense)
|
|
31,840
|
|
26,411
|
|
2,485
|
|
(4,909
|
)
|
1,032
|
|
Net loss
|
|
(211,136
|
)
|
(218,856
|
)
|
(206,832
|
)
|
(157,157
|
)
|
(122,808
|
)
|
Net loss per share basic and diluted
|
|
$
|
(1.59
|
)
|
$
|
(1.78
|
)
|
$
|
(1.96
|
)
|
$
|
(1.67
|
)
|
$
|
(1.33
|
)
|
Shares used in calculating net loss per share basic and diluted
|
|
132,621
|
|
122,647
|
|
105,532
|
|
94,054
|
|
92,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
1,130,415
|
|
$
|
767,331
|
|
$
|
443,423
|
|
$
|
293,756
|
|
$
|
269,776
|
|
Working capital
|
|
$
|
1,049,024
|
|
$
|
702,930
|
|
$
|
415,134
|
|
$
|
282,421
|
|
$
|
243,144
|
|
Total assets
|
|
$
|
1,774,211
|
|
$
|
1,060,386
|
|
$
|
566,962
|
|
$
|
357,800
|
|
$
|
311,045
|
|
Long-term obligations, excluding current portion
|
|
$
|
934,109
|
|
$
|
221,208
|
|
$
|
399,112
|
|
$
|
403,233
|
|
$
|
202,425
|
|
Accumulated deficit
|
|
$
|
(1,434,320
|
)
|
$
|
(1,223,184
|
)
|
$
|
(1,004,328
|
)
|
$
|
(797,496
|
)
|
$
|
(640,339
|
)
|
Total stockholders equity (deficit)
|
|
$
|
552,818
|
|
$
|
635,291
|
|
$
|
69,264
|
|
$
|
(87,370
|
)
|
$
|
63,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Selling, general
and administrative expenses for the years ended December 31, 2007 and 2006
include approximately $35.4 million and $29.0 million, respectively, of
employee stock-based compensation expense pursuant to the provisions of
Statement of Financial Accounting Standards No. 123R
Share-Based
Payment
which the Company adopted on January 1, 2006.
(2)
Research and
development expenses for the year ended December 31, 2007 and 2006 include
approximately $23.6 million and $22.9 million, respectively, of employee
stock-based compensation expense pursuant to the provisions of Statement of
Financial Accounting Standards No. 123R
Share-Based
Payment
which the Company adopted on January 1, 2006.
Item 7.
Managements Discussion and Analysis of Financial Condition and Results
of Operations
Executive Summary
Amylin Pharmaceuticals, Inc.
is a biopharmaceutical company committed to improving the lives of people with
diabetes, obesity and other diseases through the discovery, development and
commercialization of innovative medicines.
We
35
have developed and gained approval for two first-in-class medicines to
treat diabetes, BYETTA
®
(exenatide) injection and SYMLIN
®
(pramlintide acetate) injection, both of which were commercially launched in
the United States during the second quarter of 2005. BYETTA has also been approved in the European
Union, or EU, and our collaboration partner, Eli Lilly and Company, or Lilly
launched BYETTA in 22 countries outside of the United States during 2007. We expect Lilly to continue to launch BYETTA
in additional EU member states and other countries in 2008.
BYETTA is the first and
only approved medicine in a new class of compounds called incretin
mimetics. We began selling BYETTA in the
United States in June 2005. BYETTA
is approved in the United States for the treatment of patients with type 2
diabetes who have not achieved adequate glycemic control and are using
metformin, a sulfonylurea and/or a thiazolidinedone, or TZD, three common oral
therapies for type 2 diabetes. Net
product sales of BYETTA were $636.0 million, $430.2 million and $75.2 million
for the years ended December 31, 2007, 2006 and 2005, respectively.
We have an
agreement with Lilly for the global development and commercialization of
exenatide. This agreement includes
BYETTA and any sustained-release formulations of exenatide such as exenatide
once weekly (formerly referred to as exenatide LAR), our once weekly
formulation of exenatide for the treatment of type 2 diabetes. Under the terms of the agreement, operating
profits from products sold in the United States are shared equally between
Lilly and us. The agreement provides for
tiered royalties payable to us by Lilly based upon the annual gross margin for
all exenatide product sales, including any long-acting release formulations,
outside of the United States. Royalty
payments for exenatide product sales outside of the United States will commence
after a one-time cumulative gross margin threshold amount has been met. We expect royalty payments to commence in
2009. Lilly is responsible for 100% of
the costs related to development of twice-daily BYETTA for sale outside of the
United States. Development costs related
to all other exenatide products for sale outside of the United States will
continue to be allocated 80% to Lilly and 20% to us. Lilly will continue to be responsible for
100% of the costs related to commercialization of all exenatide products for
sale outside of the United States.
SYMLIN is the
first and only approved medicine in a new class of compounds called
amylinomimetics. We began selling SYMLIN
in the United States in April 2005 for the treatment of patients with
either type 1 or type 2 diabetes who are treated with mealtime insulin but who
have not achieved adequate glycemic control.
Net product sales of SYMLIN were $65.5 million, $43.8 million and $11.5
million for the years ended December 31, 2007, 2006 and 2005 respectively.
We have a field force of
approximately 600 people dedicated to marketing BYETTA and SYMLIN in the United
States. Our field force includes our
specialty and primary care sales forces, a managed care and government affairs
organization, a medical science organization and diabetes care
specialists. In addition, Lilly
co-promotes BYETTA in the United States and has primary responsibility for
developing and commercializing BYETTA outside of the United States, and any
sustained-release formulations of exenatide such as exenatide once weekly.
In addition to our
marketed products, we are working with Lilly and Alkermes, Inc. to develop
exenatide once weekly. We are also
working with Alkermes and Parsons, Inc. on the construction of a
manufacturing facility for exenatide once weekly in Ohio. We expect to complete the commercial scale
manufacturing process in this facility in the second half of 2008 and we are
also working aggressively to provide sufficient data to the United States Food
and Drug Administration, or FDA, to demonstrate comparability between exenatide
once weekly clinical trial material manufactured by our partner, Alkermes, in
its facility and exenatide once weekly produced in our West Chester, Ohio
facility.
We also have other early stage programs for diabetes, obesity, and other therapeutic areas. We have a number of compounds in development for the potential treatment of obesity which are part of a broader clinical strategy which we refer to as INTO: Integrated Neurohormonal Therapies for Obesity. We also maintain an active discovery research program focused on novel peptide therapeutics. We are actively seeking to in-license additional drug candidates.
We have partnered with PyschoGenics, Inc.,
to form Psylin Neurosciences, Inc., a company that will focus on the discovery and development of peptide hormones for treatment of psychiatric indications. During the second quarter of 2007, we made a strategic equity investment in BioSeek, Inc., or BioSeek, a company that specializes in predictive human cell-based disease models, and contracted with BioSeek to assess the potential utility of Amylins peptide hormones in immune/inflammatory disorders. During the fourth quarter of 2007, we made a strategic equity investment in Xenome Ltd., or Xenome, a company with largely venom-based peptide libraries, and contracted with Xenome to discover and develop novel peptide therapeutics for a range of metabolic and musculoskeletal diseases.
36
Recent Developments
Diabetes
·
Announced positive results from a 30-week comparator
study of exenatide once-weekly injection and BYETTA taken twice daily in
patients with type 2 diabetes. We
anticipate a regulatory submission to the FDA by the end of the first half of
2009.
·
Announced positive results from a 24-week study of
monotherapy, or stand alone, BYETTA in drug naïve patients with Type 2
diabetes. We plan for a regulatory
submission for a monotherapy indication to the FDA in the first half of 2008.
·
Received FDA approval of the SymlinPen(TM) 120 and the
SymlinPen(TM) 60 pen-injector devices for administering SYMLIN. These new pre-filled pen-injector devices
feature simple, fixed dosing to improve mealtime glucose control. This new
product presentation was commercially launched in the United States in January 2008.
·
Announced plans for
a clinical program for exenatide once weekly consisting of three trials
designed to show superiority of exenatide once weekly for the treatment of type
2 diabetes over common medications used in the treatment of type 2 diabetes,
including TZDs, DPP-IV inhibitors and insulin glargine. The first of these trials is underway. Results from the first two studies are
expected during the first half of 2009 and results from the third study are
expected by early 2010.
·
Made continued progress and expanded the scope of the
construction of our manufacturing facility for exenatide once weekly in
Ohio. We remain on schedule to complete
the commercial-scale manufacturing process at this facility in the second half
of 2008.
Obesity
·
Positive results from a 24-week
proof-of-concept study with pramlintide, an analog of human amylin, and
recombinant human leptin (metreleptin) combination treatment in overweight or
obese subjects, validating our novel INTO strategy. We plan for additional development in 2008,
including the initiation of a Phase 2B study and development work on a
formulation that will provide both pramlintide and metreleptin in a single
injection.
Financial
and Operational
·
In June 2007, we issued $575.0
million in aggregate principal amount of 3.0% convertible senior notes due in
2014, referred to as the 2007 Notes, generating net proceeds of approximately
$558.7 million.
·
In December 2007,
we
entered into a $140.0 million credit agreement.
The credit agreement provides for a $125.0 million term loan, which generated
net proceeds of approximately $123.5 million, and a $15.0 million revolving
credit facility.
Since our inception in September 1987,
we have devoted substantially all of our resources to our research and
development programs and, more recently, to the commercialization of our
products and the ongoing construction of
our manufacturing facility for exenatide once weekly. All of our revenues prior to the second
quarter of 2005 were derived from fees and expense reimbursements under
our BYETTA collaboration agreement with Lilly, previous SYMLIN collaborative
agreements, and previous co-promotion agreements. During the second quarter of 2005, we began
to derive revenues from product sales of BYETTA and SYMLIN. We
have been unprofitable since inception and may incur additional operating
losses for at least the next few years.
At December 31, 2007, our accumulated deficit was approximately
$1.4 billion.
At December 31,
2007, we had $1.1 billion in cash, cash equivalents and short-term
investments. We may not generate
positive operating cash flows for at least the next few years and accordingly, we may need to raise
additional funds from outside sources. Refer
to the discussions under the headings
Liquidity and Capital
Resources
below and
Cautionary Factors That May Affect
Future Results
in Part I, Item 1A for further discussion
regarding our anticipated future capital requirements.
Critical Accounting Policies
and Estimates
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of
these financial statements requires us to make estimates and judgments that
affect the reported
37
amounts of assets,
liabilities, revenues, expenses and related disclosures of contingent assets
and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to revenue recognition,
stock-based compensation, inventory costs, research and development expenses
and income taxes. We base our estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect the
significant judgments and estimates used in the preparation of our consolidated
financial statements (see Note 1 to our consolidated financial statements on page F-7).
Revenue Recognition
We recognize
revenue from the sale of our products, license fees and milestones earned and
for reimbursement of development costs based on contractual arrangements.
Net
Product Sales
We sell our
products primarily to wholesale distributors, who in turn, sell to retail
pharmacies, pharmacy benefit managers and government entities. Decisions made by these wholesalers and their
customers regarding the level of inventories they hold, and thus the amount of
product they purchase, can materially affect the level of our product sales in
any particular period.
We recognize
revenue from the sale of our products when delivery has occurred and title has
transferred to our wholesale customers, net of allowances for product returns,
rebates and wholesaler chargebacks, wholesaler discounts and prescription
vouchers. We are required to make
significant judgments and estimates in determining some of these
allowances. If actual results differ
from our estimates, we will be required to make adjustments to these allowances
in the future.
Product
Returns
We do not offer our
wholesale customers a general right of return.
However, we will accept returns of products that are damaged or
defective when received by the wholesale customer or for any unopened product
during the period beginning six months prior to and up to 12 months subsequent
to its expiration date. We estimate
product returns based on our historical returns experience, and industry trends
for other products with similar characteristics. Additionally, we consider several other
factors in our estimation process including our internal sales forecasts, the
expiration dates of product shipped and third party data to assist us in
monitoring estimated channel inventory levels and prescription trends. Actual returns could exceed our historical
experience and our estimates of expected future returns due to factors such as
wholesaler and retailer stocking patterns and inventory levels and/or
competitive changes. To date actual
returns have not differed materially from our estimates.
Rebates
and Wholesaler Chargebacks
Allowances for
rebates include mandated discounts under the Medicaid Drug Rebate Program and
contracted discounts with commercial payors.
Rebates are amounts owed after the final dispensing of the product by a
pharmacy to a benefit plan participant and are based upon contractual
agreements or legal requirements with private sector and public sector (e.g.
Medicaid) benefit providers. The
allowance for rebates is based on contractual discount rates, expected
utilization under each contract and our estimate of the amount of inventory in
the distribution channel that will become subject to such rebates. Our estimates for expected utilization for
rebates are based on historical rebate claims and to a lesser extent third
party market research data. Rebates are
generally invoiced and paid quarterly in arrears so that our accrual consists
of an estimate of the amount expected to be incurred for the current quarters
activity, plus an accrual for prior quarters unpaid rebates and an accrual for
inventory in the distribution channel.
Wholesaler
chargebacks are discounts that occur when contracted customers purchase
directly from an intermediary wholesale purchaser. Contracted customers, which
currently consist primarily of Federal government entities purchasing off the
Federal Supply Schedule, generally purchase the product at its contracted
price, plus a mark-up from the wholesaler.
The wholesaler, in-turn, charges back to the Company the difference
between the price initially paid by the wholesaler and the contracted price
paid to the wholesaler by the customer.
The allowance for wholesaler chargebacks is based on expected
38
utilization of these programs and reported wholesaler
inventory levels. Actual rebates and
wholesaler chargebacks could exceed historical experience and our estimates of
future participation in these programs.
To date, actual rebate claims and wholesaler chargebacks have not
differed materially from our estimates.
Wholesaler
Discounts
Wholesaler
discounts consist of prompt payment discounts and distribution service
fees. We offer all of our wholesale
customers a 2% prompt-pay discount within the first 30 days after the date of
the invoice. Distribution service fees
arise from contractual agreements with certain of our wholesale customers for
distribution services they provide to us and are generally a fixed percentage
of their purchases of our products in a given period. Prompt payment discounts and distribution
service fees are recorded as a reduction to gross sales in the period the sales
occur. The allowance for wholesaler
discounts is based upon actual data of product sales to wholesale customers and
not on estimates.
Prescription
Vouchers
Prescription
vouchers result in amounts owed to pharmacies that have redeemed vouchers for a
free prescription. We provide
prescription vouchers to physicians, who in turn distribute them to
patients. Patients may redeem a voucher
at a pharmacy for a free prescription.
We reimburse the pharmacy for the price it paid the wholesaler for the
medicine and record this reimbursement as a reduction to gross sales. The allowance for prescription vouchers is
based on the number of unredeemed vouchers in circulation, and the estimated
utilization rate. The estimated utilization
rate is based on our historical utilization rates experience with prescription
vouchers. The allowance for prescription
vouchers could exceed historical experience and our estimates of future
utilization rates. To date, actual
prescription voucher utilization has not differed materially from our
estimates.
Revenues
under collaborative agreements
Amounts received
for upfront product and technology license fees under multiple-element
arrangements are deferred and recognized over the period of such services or
performance if such arrangements require on-going services or performance. Non-refundable amounts received for substantive
milestones are recognized upon achievement of the milestone and the expiration
of stock conversion rights, if any, associated with such payments. Amounts received for equalization of
development expenses are recognized in the period in which the related expenses
are incurred. Any amounts received prior
to satisfying our revenue recognition criteria are recorded as deferred revenue
in the accompanying consolidated balance sheets.
Valuation of Stock-Based Compensation
We account for
stock-based compensation to employees in accordance with Financial Accounting
Standards Board, or FASB, Statement of Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payment.
SFAS No. 123R requires us to
expense the estimated fair value of non-cash, stock-based payments to
employees.
We estimate the
fair value of stock-based payments to employees using the Black-Scholes
model. This estimate is affected by our
stock price as well as assumptions regarding a number of inputs that require us
to make significant estimates and judgments.
These inputs include the expected volatility of our stock price, the
expected term of employee stock options, the risk-free interest rate and
expected dividends.
We estimate volatility
based upon the historical volatility of our common stock for a period
corresponding to the expected term of our employee stock options and the
implied volatility of market-traded options on our common stock with various
maturities between six months and two years, consistent with the guidance in
SFAS No. 123R and the Security and Exchange Commissions, or SECs, Staff
Accounting Bulletin, or SAB, No. 107.
Prior to the adoption of SFAS No. 123R, we estimated volatility
based on the historical volatility of our common stock for a period
corresponding to the expected term of our employee stock options. The determination to use implied volatility
in addition to historical volatility was based upon the availability of data
related to actively traded options on our common stock and our assessment that
the addition of implied volatility is more representative of future stock price
trends than historical volatility alone.
The expected life of our
employee stock options represents the weighted-average period of time that
options granted are expected to be outstanding in consideration of historical
exercise patterns and the assumption that all outstanding options will be
exercised at the mid-point of the then current date and their maximum
contractual term.
39
The risk-free interest
rates are based on the yield curve of
United States Treasury strip securities in effect at the time of grant
for periods corresponding with the expected life of our employee stock options. We have never paid dividends and do not
anticipate doing so for the foreseeable future.
Accordingly, we have assumed no dividend yield for purposes of
estimating the fair value of our stock-based payments to employees.
If factors
underlying the above assumptions change in future periods, the associated
estimated non-cash, stock-based compensation expense that we record may differ
significantly from what we have recorded in the current period.
Inventories and Related Reserves
Inventories consist of raw materials, work-in-process and finished goods
for SYMLIN and BYETTA.
We maintain inventory reserves primarily
for production failures and potential product expiration. The manufacturing processes for our products
are complex. Deviations in the manufacturing
process may result in production failures and additional inventory
reserves. Obsolete inventory due to
expiration may also result in additional inventory reserves. In estimating inventory obsolescence
reserves, we analyze the shelf life, expiration dates and internal sales
forecasts, each on a product-by-product basis.
Research
and Development Expenses
Research and development costs are expensed as incurred
and include: salaries, benefits, bonus, stock-based compensation, license fees,
milestones under license agreements, costs paid to third-party contractors to
perform research, conduct clinical trials, and develop drug materials and
delivery devices; and associated overhead expenses and facilities costs. Clinical trial costs are a significant
component of research and development expenses and include costs associated
with third-party contractors. Invoicing
from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in
connection with third-party contractor activities based on our estimate of
management fees, site management and monitoring costs and data management
costs. Differences between actual
clinical trial costs from estimated clinical trial costs have historically not
been material and are adjusted for in the period in which they become known.
Income Taxes
We
have net deferred tax assets relating primarily to net operating loss carry
forwards and research and development tax credits. Subject to certain limitations, these deferred
tax assets may be used to offset taxable income in future periods. Since we have been unprofitable since
inception and the likelihood of future profitability is not assured, we have
reserved for most of these deferred tax assets in our consolidated balance
sheets at December 31, 2007 and 2006, respectively. If we
determine that we are able to realize a portion or all
of these deferred tax assets in the future, we will record an adjustment to
increase their recorded value and a corresponding adjustment to increase income
in that same period.
We adopted the provisions
of FIN 48 and FSP FIN 48-1 effective January 1, 2007. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements
in accordance with SFAS No. 109, Accounting for Income Taxes, and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. We had no cumulative effect adjustment
related to the adoption due to a full valuation allowance against deferred tax
assets. We provide estimates for
unrecognized tax benefits. These
unrecognized tax benefits relate primarily to issues common among corporations
in our industry. We apply a variety of
methodologies in making these estimates which include advice from industry and
subject experts, evaluation of public actions taken by the Internal Revenue
Service and other taxing authorities, as well as our own industry
experience. If our estimates are not
representative of actual outcomes, our results could be materially impacted.
Recently Issued Accounting Pronouncements
In December 2007,
the FASB issued SFAS No. 141 (revised 2007),
Business
Combinations
and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No. 51.
SFAS No. 141R will change how
business acquisitions are accounted for and will impact financial statements
both on the acquisition date and in subsequent periods. SFAS No. 160 will change the
accounting and reporting for minority interests,
40
which will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS No. 141R and SFAS No. 160
are effective for us beginning in the first quarter of fiscal 2009. Early adoption is not permitted. We are currently evaluating the impact that
SFAS No. 141R and SFAS No. 160 will have on our
consolidated financial statements.
In June 2007, the
FASB ratified the Emerging Issues Task Force, or EITF consensus on EITF Issue
No. 07-3,
Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities
. EITF
Issue No. 07-3 requires 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. Entities should continue to evaluate whether
they expect the goods to be delivered or services to be rendered. If an entity does not expect the goods to be
delivered or services to be rendered, the capitalized advance payment should be
charged to expense.
The adoption of EITF Issue No. 07-3
is not expected to have a material effect on our consolidated financial
statements.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities.
SFAS No. 159 gives us the irrevocable
option to carry many financial assets and liabilities at fair values, with
changes in fair value recognized in earnings. SFAS No. 159 is effective
for us beginning January 1, 2008.
We are currently evaluating the impact, if any, that adoption of SFAS No. 159
will have on our consolidated financial statements.
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
,
which defines fair value, establishes guidelines for measuring fair value and
expands disclosures regarding fair value measurements. SFAS No. 157 does not require any
new fair value measurements but rather eliminates inconsistencies in guidance
found in various prior accounting pronouncements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not
expected to have a material effect on our consolidated financial statements.
Results
of Operations
Net Product Sales
Net product sales for the
years ended December 31, 2007, 2006 and 2005 were $701.5 million, $474.0
million and $86.7 million, respectively, and consisted of sales of BYETTA and
SYMLIN, less allowances for product returns, rebates and wholesaler
chargebacks, wholesaler discounts, and prescription vouchers. The following table provides information
regarding net product sales (in millions):
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
BYETTA
|
|
$
|
636.0
|
|
$
|
430.2
|
|
$
|
75.2
|
|
SYMLIN
|
|
65.5
|
|
43.8
|
|
11.5
|
|
|
|
$
|
701.5
|
|
$
|
474.0
|
|
$
|
86.7
|
|
The increases in net
product sales for BYETTA and SYMLIN for the year ended December 31, 2007
as compared to the same period in 2006 and for the year ended December 31,
2006 as compared to the same period in 2005, primarily reflects continued
growth in patient use.
Revenues under
Collaborative Agreements
The following table summarizes the components of
revenues under collaborative agreements for the years ended December 31,
2007, 2006 and 2005 (in millions):
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Amortization of
up-front payments
|
|
$
|
4.3
|
|
$
|
4.3
|
|
$
|
4.3
|
|
Recognition of
milestone payments
|
|
15.0
|
|
|
|
35.0
|
|
Cost-sharing
payments
|
|
60.2
|
|
32.5
|
|
14.5
|
|
|
|
$
|
79.5
|
|
$
|
36.8
|
|
$
|
53.8
|
|
Substantially all of the revenue recorded in these
periods consists of amounts earned pursuant to our BYETTA collaboration
agreement with Lilly and
consists primarily of the continued amortization of up-front payments,
milestone payments and cost-sharing payments to equalize development expenses
for BYETTA and exenatide once weekly.
41
The $42.7 million increase
in revenues under collaborative agreements in 2007, as compared to 2006,
primarily reflects increases in milestone and cost-sharing payments related to
our collaboration agreement with Lilly.
Milestone payments in 2007 consisted of the recognition of milestones
earned primarily associated with Lillys launch of BYETTA in the EU. The increase in cost-sharing payments in
2007, as compared to 2006 primarily reflects Lillys reimbursement to us of
increased development expenses incurred by us for exenatide once weekly.
The $17.0 million
decrease in revenues under collaborative agreements in 2006, as compared to
2005, primarily reflects a reduction in milestone payments, partially offset by
an increase in cost-sharing payments.
Milestone payments in 2005 consisted of the recognition of $35 million
of milestones earned in connection with the regulatory approval and commercial
launch of BYETTA in the United States.
The increase in cost-sharing payments in 2006, as compared to 2005
primarily reflects increased development expenses for exenatide once weekly.
In
future periods, revenues under collaborative agreements will consist of ongoing
cost-sharing payments from Lilly to equalize development costs, possible future
milestone payments and the continued amortization of the up-front payment.
Cost of Goods Sold
Cost of goods sold was
$65.5 million, representing a gross margin of 91%, $50.1 million, representing
a gross margin of 89%, and $14.8 million, representing a gross margin of 83%,
for the years ended December 31, 2007, 2006 and 2005, respectively. Costs of goods sold is comprised primarily
of manufacturing costs associated with BYETTA and SYMLIN sales during the
period. The improvement in gross margin
in 2007 as compared to 2006 and in 2006 as compared to 2005 primarily reflects
a higher average net sales price per unit for BYETTA and lower unit costs for
BYETTA resulting from higher production volumes. Quarterly fluctuations in gross margins may
be influenced by product mix and the level of sales allowances.
Selling, General
and Administrative Expenses
Selling, general
and administrative expenses were $391.0 million, $282.0 million and $171.5
million in the years ended December 31, 2007, 2006 and 2005, respectively.
The $109.0 million
increase in 2007 as compared to 2006 reflects the full annual effect of the
expansion of our sales force during the fourth quarter of 2006, increased
promotional expenses for BYETTA and SYMLIN, increased business infrastructure
to support our growth and an increase in stock-based compensation including
costs associated with the adoption of our employee stock ownership plan, or
ESOP, and increased expense from stock options due to growth in our number of
employees.
The $110.5 million
increase in 2006 as compared to 2005 primarily reflects the full annual effect
of the 2005 expansion of our commercial capabilities to support the launches of
BYETTA and SYMLIN, the continued expansion in 2006 of these capabilities,
including the addition of approximately 150 individuals to our field force,
increased marketing activities, including medical education, market research
and product sampling for BYETTA, growth in our business infrastructure and
$29.0 million of stock-based compensation.
We, along with
Lilly, are jointly responsible for the co-promotion of BYETTA within the United
States, and share equally in sales force costs and external marketing
expenses. Accordingly, our selling,
general and administrative expenses include our 50% share of these costs in the
United States.
Selling general and
administrative expenses are expected to continue to increase in 2008 due to
continued investment in promotional activities for BYETTA and SYMLIN,
investment in prelaunch education activities for exenatide once-weekly, and
increases in business infrastructure to support our growth.
Research and Development Expenses
Currently, our
research and development efforts are focused on programs for the treatment of
diabetes and obesity in various stages of development. From inception through 1998, we devoted
substantially all of our research and development efforts to SYMLIN. Beginning in 1999, our research and
development costs started to include costs for our other drug
42
candidates,
primarily BYETTA and exenatide once weekly.
In 2004 we initiated our program for the treatment of obesity with
pramlintide and in 2006 we commenced our INTO clinical research program for
obesity.
The drug
development process in the United States includes a series of steps defined by
the FDA. The process begins with
discovery and preclinical evaluation leading up to the submission of an IND to
the FDA, which allows for the initiation of the clinical evaluation of a
potential drug candidate in humans.
Clinical evaluation is typically comprised of three phases of study:
Phase 1, Phase 2 and Phase 3. Generally, the majority of a drug candidates
total development costs are incurred during Phase 3, which consists of trials
that are typically both the longest and largest conducted during the drug
development process. Successful
completion of Phase 3 clinical testing is followed by the submission of an NDA
to the FDA for marketing approval. It is
not uncommon for the FDA to request additional data following its review of an
NDA, which can significantly increase the drug development timeline and
expenses. Following initial regulatory
approval for a drug candidate, companies generally initiate additional clinical
trials aimed at expanding product labeling and market potential.
The timing and costs to
complete the successful development of any of our drug candidates are highly
uncertain, and therefore difficult to estimate.
Our research and
development expenses are comprised of
salaries, benefits, bonus, stock-based
compensation; license fees, and milestones under license agreements; costs paid
to third-party contractors to perform research, conduct clinical trials, and
develop drug materials and delivery devices; and associated overhead expenses and
facilities costs. We charge
direct internal and external program costs to the respective development
programs. We also incur indirect costs
that are not allocated to specific programs because such costs benefit multiple
development programs and allow us to increase our overall pharmaceutical
development capabilities. These consist
primarily of facilities costs and other internally-shared resources related to
the development and maintenance of systems and processes applicable to all of
our programs.
The following
table sets forth information regarding our research and development expenses
for our major projects for the years ended December 31, 2007, 2006 and
2005 (in millions):
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Diabetes (1)
|
|
$
|
151.8
|
|
$
|
104.5
|
|
$
|
62.5
|
|
Obesity
|
|
44.8
|
|
43.9
|
|
17.7
|
|
Research and
early-stage programs
|
|
41.9
|
|
40.8
|
|
27.6
|
|
Indirect costs
|
|
38.1
|
|
32.9
|
|
24.3
|
|
|
|
$
|
276.6
|
|
$
|
222.1
|
|
$
|
132.1
|
|
(1) Research and development expenses consist
primarily of costs associated with Byetta and
exenatide once weekly which are shared by Lilly pursuant to our
collaboration agreement. Cost-sharing
payments received by Lilly are included in revenues under collaborative
agreements. Increased expenditures for
our diabetes development programs are generally partially offset by an increase
in cost-sharing payments from Lilly.
Cost-sharing payments were $60.2 million, $32.5 million and $14.5
million for the years ended December 31, 2007, 2006 and 2005, respectively
Research and
development expenses increased to $276.6 million for the year ended December 31,
2007 from $222.1 million for the year ended December 31, 2006. The $54.5 million increase in 2007 as
compared to 2006 primarily reflects increased expenses associated with our
diabetes programs. The increase in
expenses for our diabetes programs primarily reflects increased expenses for
exenatide once weekly associated with manufacturing scale-up at third-party
manufacturers and our manufacturing facility in Ohio and expenses associated
with the recently completed comparator study discussed above.
Research and
development expenses increased to $222.1 million for the year ended December 31,
2006 from $132.1 million for the year ended December 31, 2005. The $90.0 million increase in 2006 as
compared to 2005 primarily reflects increased expenses associated with our
diabetes, obesity, research and early-stage programs, and indirect costs. The increase in expenses for our diabetes
programs primarily reflects costs associated with the development of exenatide
once weekly, including the recently completed comparator study discussed above
and manufacturing scale-up for exenatide once weekly; and label expansion
activities for BYETTA, including costs associated with the recently completed monotherapy
study discussed above. The increase in
expenses for our obesity programs primarily reflects costs associated with our
acquisition of the rights to leptin from Amgen in early 2006. The increase in research and early-stage
programs primarily reflects costs associated with an increase in discovery
research activities. The increase in
indirect costs primarily reflects increased facilities costs to support growth
in our research and development activities.
43
Research and development
expenses are expected to continue to increase in 2008 due to increases in the
level of our spending on our exenatide franchise, including exenatide once
weekly, and investment in our obesity programs.
Collaborative Profit-Sharing
Collaborative
profit-sharing was $290.9 million, $194.2 million and $31.4 million for the
years ended December 31, 2007, 2006 and 2005, respectively, and consists
of Lillys 50% share of the gross margin for BYETTA sales in the United States.
Make-whole Payment on Debt Redemption
In July 2006, we
called for the redemption on August 24, 2006 of all our outstanding
convertible senior notes due June 2008, or the 2003 Notes, under a
provisional redemption based upon the market price of our common stock
exceeding certain thresholds. All
holders elected to convert their 2003 Notes into shares of our common
stock. In connection with the
conversion, we issued approximately 5.6 million shares, including 180,005
shares as a make-whole payment, representing $112.94 per $1,000 principal
amount of the 2003 Notes converted less interest actually paid. In connection with this make-whole payment,
we recorded a non-cash, non-operating charge of $7.9 million during the third
quarter of 2006.
Interest and Other Income and Expense
Interest and other
income consists primarily of interest income from investment of cash and
investments. Interest and other income
was $47.0 million in 2007, $34.9 million in 2006 and $13.2 million in 2005. The increase in 2007 compared to 2006
primarily reflects higher average investment balances due to net proceeds of
$558.7 million from our 2007 Notes issued in June 2007. The increase in 2006 primarily reflects
higher average cash balances available for investment and higher interest rates
in 2006 as compared to 2005.
Interest
and other expense consists primarily of interest expense resulting from
long-term debt obligations and includes interest payments and the amortization
of debt issuance costs. Interest and
other expense was $15.1 million in 2007, $8.5 million in 2006 and $10.7 million
in 2005.
The increase in 2007
compared to 2006 primarily reflects an increase in additional interest expense
for our 2007 Notes issued in June 2007.
The decrease in 2006 compared to
2005 reflects lower interest expense following the August 2006 redemption
of our 2003 Notes.
Net Loss
Our
net loss for the year ended December 31, 2007 was $211.1 million compared
to $218.9 million in 2006 and $206.8
million in 2005. The decrease in
our net loss in 2007 compared to 2006 primarily reflects increased net product
sales and revenues under collaborative agreements, partially offset by
increased selling, general, and administrative expenses, increased research and
development expenses and increased collaborative profit-sharing discussed
above. The increase in our net loss in
2006, compared to 2005 primarily reflects the increased costs and expenses and
decreased revenues under collaborative agreements, partially offset by the
increases in net product sales and interest and other income discussed above.
We may incur operating
losses for the next few years. Our
ability to reach profitability in the future will be heavily dependent upon the
product sales that we achieve for BYETTA and SYMLIN. In addition, ongoing and potential increased
expenses associated with the commercialization of BYETTA and SYMLIN, and
expenses associated with the continuation and potential expansion of our
research and development programs, and related support infrastructure may
impact our ability to reach profitability in the future. Our operating results may fluctuate from
quarter to quarter as a result of differences in the timing of expenses
incurred and revenues recognized.
Liquidity and Capital Resources
Since our inception, we
have financed our operations primarily through public sales and private
placements of our common and preferred stock, debt financings, payments
received pursuant to our BYETTA collaboration with Lilly, reimbursement of
SYMLIN development expenses through earlier collaboration agreements, and since
the second quarter of 2005, through product sales of BYETTA and SYMLIN.
44
At December 31, 2007, we had $1,130.4 million in cash, cash
equivalents and short-term investments, compared to $767.3 million at December 31,
2006.
We
used cash of $125.2 million, $126.0 million and $182.0 million for our
operating activities in the years ended December 31, 2007, 2006 and 2005,
respectively. Our cash used for operating
activities in 2007 included uses of cash due to increases in accounts
receivable and inventories of $15.5 million and $40.9 million,
respectively. The increase in accounts
receivable reflects growth in our net product sales and the increase in inventories
reflects increased inventory purchases to support this growth. Our cash used for operating activities in
2007 included sources of cash for increases in our current liabilities,
including an increase of $28.1 million in accounts payable and accrued
liabilities, an increase of $17.2 million in accrued compensation, and an
increase of $13.8 million in payable to collaborative partner. The increase in accounts payable and accrued
liabilities primarily reflects growth in our expenses generally, and accounts
payable timing differences. The increase
in accrued compensation primarily reflects an accrual of $17.2 million for the
2007 contribution to the ESOP. The
increase in payable to collaborative partner, which represents Lillys 50%
share of BYETTA gross margins in the United States, reflects increased net
product sales for BYETTA and an improvement in gross margins.
Our
investing activities used cash of $296.1 million, $425.9 million and $169.0
million in the years ended December 31, 2007, 2006 and 2005,
respectively. Investing activities in
all three years consisted primarily of purchases and sales of short-term
investments and purchases of property, plant and equipment. Purchases of property, plant and equipment
increased to $268.7 million in 2007, from $97.9 million in 2006 and $29.6
million in 2005. The increase in 2007
primarily reflects costs associated with our manufacturing facility for
exenatide once weekly and, to a lesser extent, purchases of tenant
improvements, computer software, office equipment and scientific equipment to
support our growth.
We expect that our capital expenditures will
continue to increase in 2008 due primarily to costs associated with ongoing
construction of our manufacturing facility for exenatide once weekly. We expect to complete the
commercial-scale manufacturing process in the second half of 2008, at a total
cost of approximately $500 million, including costs associated with the
construction of the facility, purchase and installation of equipment and
capitalized labor and materials required to validate the facility. Through December 31, 2007, we had
expended approximately $262 million associated with the construction of this
facility. The full expansion of this
project is dependent upon on the continued progress of exenatide once weekly
through the development process. In addition, we anticipate continued investments
in tenant improvements, office equipment and scientific equipment. The $18.3 million increase in other
long-term assets primarily reflects our investments in Psylin, BioSeek and
Xenome.
Financing
activities provided cash of $776.9 million, $546.5 million and $362.5 million
in the years ended December 31, 2007, 2006 and 2005, respectively.
Financing activities in 2007 included
$558.7 million in net proceeds from our issuance of $575 million in aggregate
principal amount of our 2007 Notes, the exercise of stock options and proceeds
from our employee stock purchase plan and proceeds of $30.0 million for a contingent share-settled obligation to Lilly. The contingent share-settled obligation to
Lilly relates to the $30.0 million of
milestones received by us in December 2007 for which Lilly is entitled to
and elected to convert into shares of our common stock in February 2008. Financing activities also included $123.5
million of net proceeds related to a term loan provided by the credit agreement
entered into in December 2007.
At December 31,
2007, we had $200 million in aggregate principal amount of our 2.5% convertible
senior notes due in 2011, or the 2004 Notes, and $575 million of the 2007 Notes
outstanding. The 2004 Notes are
currently convertible into a total of up to 5.8 million shares of our common
stock at approximately $34.35 per share and are not redeemable at our
option. The 2007 Notes are currently
convertible into a total of up to 9.4 million shares of our common stock at
approximately $61.07 per share and are not redeemable at our option.
In December 2007, we
entered into a $140 million credit agreement. The credit agreement provides for a $125
million term loan and a $15 million revolving credit facility. The
revolving credit facility also provides for the issuance of letters of credit
and foreign exchange hedging up to the $15 million borrowing limit. The term loan is repayable on a quarterly
basis, with no payments due quarters one through four, 6.25% of the outstanding
principal due quarters five through eleven, and 56.25% of the outstanding
principal due in quarter twelve. At December 31,
2007 we had an outstanding balance of $125 million under the term loan and had
issued $5.2 million of letters of credit under the revolving credit
facility. Both loans have a final
maturity date of December 21, 2010.
Interest on the term loan is payable quarterly in arrears at a rate
equal to 1.75% above the London Interbank Offered Rate, or LIBOR, of either
one, two, three, or six months LIBOR term at our election. We have entered into an interest rate swap
agreement which resulted in a fixed interest rate of 5.717% under the term
loan. The interest rate on the credit
facility is either LIBOR plus 1.0% or the Bank of America prime rate, at our
election.
45
The
following table summarizes our contractual obligations and maturity dates as of
December 31, 2007 (in thousands).
|
|
Payments Due by Period
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
than 1
|
|
|
|
4-5
|
|
After 5
|
|
Obligations
|
|
Total
|
|
year
|
|
2-3 years
|
|
years
|
|
years
|
|
Long-term convertible debt
|
|
$
|
775,000
|
|
$
|
|
|
$
|
|
|
$
|
200,000
|
|
$
|
575,000
|
|
Interest on long-term convertible debt
|
|
129,625
|
|
22,250
|
|
44,500
|
|
37,000
|
|
25,875
|
|
Long-term note payable
|
|
125,000
|
|
|
|
125,000
|
|
|
|
|
|
Interest on long-term note payable, net of swap transactions (1)
|
|
18,312
|
|
7,146
|
|
11,166
|
|
|
|
|
|
Inventory purchase
obligations
(2)
|
|
156,647
|
|
94,294
|
|
58,723
|
|
3,630
|
|
|
|
Operating leases
|
|
125,804
|
|
17,625
|
|
29,124
|
|
28,728
|
|
50,327
|
|
Total (3)
|
|
$
|
1,330,388
|
|
$
|
141,315
|
|
$
|
268,513
|
|
$
|
269,358
|
|
$
|
651,202
|
|
(1) The interest payments shown were calculated
using a rate of 5.717%, the net rate from the term loan and interest rate swap,
on the outstanding principal balance of the term loan.
(2) Includes $100.5 million of outstanding
purchase orders, cancelable by us upon 30 days written notice, subject to
reimbursement of costs incurred through the date of cancellation.
(3)
Excludes long-term
obligation of $8.6 million related to deferred compensation, the payment of
which is subject to elections made by participants that are subject to change.
In addition, under certain
license and collaboration agreements we are required to pay royalties and/or
milestone payments upon the successful development and commercialization of
related products. We expect to make
development milestone payments up to $9 million associated with licensing
agreements in the next 12 months.
Additional milestones of up to approximately $280 million could be paid
over the next ten to fifteen years if development and commercialization of all
our early stage programs continue and are successful. The significant majority of these milestones
relate to potential future regulatory approvals and subsequent sales
thresholds. Given the inherent risk in
pharmaceutical development, it is highly unlikely that we will ultimately make
all of these milestone payments; however, we would consider these payments as
positive because they would signify that the related products are moving
successfully through development and commercialization.
Our
future capital requirements will depend on many factors, including: the amount
of product sales we achieve for BYETTA and SYMLIN; costs associated with the
commercialization of BYETTA and SYMLIN;
costs associated with the construction of our
exenatide once weekly manufacturing facility; costs of potential licenses or
acquisitions; the potential need to repay existing indebtedness; costs associated with an increase in our
infrastructure; our ability to receive or need to make milestone payments; our
ability, and the extent to which we establish collaborative arrangements for
SYMLIN or any of our product candidates; progress in our research and
development programs and the magnitude of these programs; costs involved in preparing,
filing, prosecuting, maintaining, enforcing or defending our patents; competing
technological and market developments; and costs of manufacturing, including
costs associated with establishing our own manufacturing capabilities or
obtaining and validating additional manufacturers of our products; and scale-up
costs for our drug candidates.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We
invest our excess cash primarily in United States Government securities,
securities of agencies sponsored by the United States Government, asset-backed
securities, mortgage-backed securities and debt instruments of financial
institutions and corporations with strong credit ratings. These instruments have various short-term
maturities, and therefore the risk of loss due to interest rate risk is
considered to be low. We do not invest
in auction rate securities. We mitigate
certain financial exposures, including currency risk and interest rate risk,
through a controlled program of risk management that includes the use of
derivative financial instruments, however we do not utilize such instruments in
any material fashion. Accordingly, we
believe that, while the instruments held are subject to changes in the
financial standing of the issuer of such securities, we are not subject to any
material risks arising from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices or other market changes that
affect market risk sensitive investments.
Our debt is not subject to significant swings in valuation as interest
rates on a majority of our debt are fixed.
The fair value of our 2004 Notes and 2007 Notes at December 31,
2007 was approximately $250 million and $549 million, respectively. A
hypothetical 1% adverse move in interest rates along the entire interest rate
yield curve would not materially affect the fair value of our financial
instruments that are exposed to changes in interest rates.
46
Item 8.
Financial Statements and Supplementary Data
The
financial statements and supplemental data required by this item are set forth
at the pages indicated in Part IV, Item 15(a)(1) of this annual
report.
Item 9.
Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A.
Controls and Procedures
Conclusion Regarding the Effectiveness of 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, or 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 December 31,
2007.
Our management does not
expect that our disclosure controls and procedures or our internal controls
over financial reporting will prevent all potential error and fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, or misstatements due to
error, if any, within the Company have been detected. While we believe that our disclosure controls
and procedures and internal control over financial reporting are and have been effective,
we intend to continue to examine and refine our disclosure controls and
procedures and internal control over financial reporting and to monitor ongoing
developments in these areas.
Managements Report on Internal Control Over Financial
Reporting
Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our
evaluation under the framework in
Internal
Control Integrated Framework
, our management concluded that our
internal control over financial reporting was effective as of December 31,
2007. The effectiveness of our internal
control over financial reporting as of December 31, 2007 has been audited
by Ernst & Young LLP, an independent registered public accounting
firm, as stated in their report which is included herein.
Changes in Internal Control Over
Financial Reporting
There has been no change
in our internal control over financial reporting in our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
47
Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting
The
Board of Directors and Stockholders of
Amylin Pharmaceuticals, Inc.
We have audited Amylin Pharmaceuticals, Inc.s
internal control over financial reporting as of December 31, 2007, based
on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Amylin
Pharmaceuticals, Inc.s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Managements Report on Internal Control Over Financial Reporting.
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, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Amylin
Pharmaceuticals, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based
on
the COSO criteria
.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the accompanying consolidated balance sheets of Amylin
Pharmaceuticals, Inc. as of December 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders equity (deficit),
and cash flows for each of the three years in the period ended December 31,
2007 of Amylin Pharmaceuticals, Inc. and our report dated February 22,
2008 expressed an unqualified opinion
thereon.
|
/s/
Ernst & Young LLP
|
|
|
San Diego, California
|
|
February 22, 2008
|
|
|
|
48
Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The
information required by this item with respect to executive officers and
directors is incorporated by reference from the information under the captions Election
of Directors, Section 16(a) Beneficial Ownership Reporting
Compliance, and Code of Business Conduct and Ethics contained in the proxy
statement to be filed with the SEC pursuant to Regulation 14A in connection
with our 2008 annual meeting of stockholders.
Item 11.
Executive Compensation
The
information required by this item is incorporated by reference to the
information under the captions Compensation of Directors, Executive
Compensation, Report of the Compensation Committee of the Board of Directors
on Executive Compensation, and Compensation Committee Interlocks and Insider
Participation contained in the proxy statement to be filed with the SEC
pursuant to Regulation 14A in connection with our 2008 annual meeting of
stockholders.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
The information required
by this item is incorporated by reference to the information under the captions
Security Ownership of Certain Beneficial Owners and Management and Equity
Compensation Plan Information contained in the proxy statement to be filed
with the SEC pursuant to Regulation 14A in connection with our 2008 annual
meeting of stockholders.
Item 13.
Certain Relationships and Related Transactions, and Director
Independence
The
information required by this item is incorporated by reference to the
information under the captions Election of Directors and Certain
Transactions contained in the proxy statement to be filed with the SEC
pursuant to Regulation 14A in connection with our 2008 annual meeting of
stockholders.
Item 14.
Principal Accountant Fees and Services
The
information required by this item is incorporated by reference to the
information under the caption contained in
Ratification of Selection of Independent
Auditors contained in the proxy
statement to be filed with the SEC pursuant to Regulation 14A in connection
with our 2008 annual meeting of stockholders.
49
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a)(1)
Index to Consolidated Financial Statements
The
financial statements required by this item are submitted in a separate
section beginning on page F-1
of this annual
report.
(a)(2)
Financial Statement Schedules:
The following Schedule is
filed as part of this annual report on Form 10-K:
|
|
Page Number
|
|
II.
Valuation Accounts
|
F-28
|
All
other schedules have been omitted because they are not applicable or required,
or the information required to be set forth therein is included in the
Consolidated Financial Statements or notes thereto.
(a)(3)
Index to Exhibits
See Item 15(b) below.
(b)
Exhibits
Exhibit
Footnote
|
|
Exhibit
Number
|
|
|
(1)
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of
the Registrant.
|
(5)
|
|
|
3.2
|
|
Third Amended and Restated Bylaws of the Registrant.
|
(11)
|
|
|
3.3
|
|
Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Registrant.
|
(31)
|
|
|
3.4
|
|
Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Registrant.
|
|
|
|
4.1
|
|
Reference is made to Exhibits 3.1 - 3.4.
|
(15)(2)
|
|
|
4.2
|
|
Registration Rights Agreement dated
September 19, 2002, between the Registrant and Eli Lilly and Company.
|
(14)
|
|
|
4.3
|
|
Rights Agreement dated June 17, 2002, between
the Registrant and American Stock Transfer & Trust Company.
|
(14)
|
|
|
4.4
|
|
Certificate of Designation of Series A Junior
Participating Preferred Stock.
|
(20)
|
|
|
4.5
|
|
First Amendment to Rights Agreement dated
December 13, 2002, between the Registrant and American Stock
Transfer & Trust Company.
|
(8)
|
|
|
4.6
|
|
Indenture, dated as of April 6, 2004, between
Registrant and J.P. Morgan Trust Company, National Association (as Trustee).
|
(8)
|
|
|
4.7
|
|
Form of 2.50% Convertible Senior Note due 2011.
|
(30)
|
|
|
4.8
|
|
Indenture, dated as of June 8, 2007, between
Registrant and The Bank of New York Trust Company, N.A. (as Trustee).
|
(30)
|
|
|
4.9
|
|
Registration Rights Agreement, dated as of
June 8, 2007, among Registrant, Goldman Sachs & Co. and Morgan
Stanley & Co. Incorporated.
|
(1)
|
|
|
10.1
|
|
Form of Indemnity Agreement entered into
between the Registrant and its directors and officers.
|
(12)
|
|
|
10.2
|
|
Registrants 1991 Stock Option Plan, as amended.
|
(4)
|
|
|
10.3
|
|
Form of Incentive Stock Option Agreement under
the 1991 Stock Option Plan.
|
(1)
|
|
|
10.4
|
|
Form of Supplemental Stock Option Agreement under
the 1991 Stock Option Plan.
|
(1)
|
|
|
10.5
|
|
Form of Supplemental Stock Option Agreement not
granted under the 1991 Stock Option Plan with related schedule.
|
(29)
|
|
|
10.6
|
|
Registrants Amended and Restated 2001Employee Stock
Purchase Plan.
|
(16)
|
|
|
10.7
|
|
Registrants Non-Employee Directors Stock Option
Plan (the Directors Plan).
|
(3)
|
|
|
10.8
|
|
Phantom Stock Unit Agreement, dated January 4,
1995, between the Registrant and Farview Management Co., L.P.
|
(6)(2)
|
|
|
10.9
|
|
Patent and Technology License Agreement, Consulting
Agreement and Nonstatutory Stock Option Agreement dated October 1, 1996,
between the Registrant and Dr. John Eng.
|
(7)
|
|
|
10.10
|
|
Registrants Directors Deferred Compensation Plan.
|
(17)
|
|
|
10.11
|
|
Registrants Directors Plan Stock Option Agreement,
as amended.
|
(9)
|
|
|
10.12
|
|
Special Form of Incentive Stock Option
Agreement the 1991 Stock Option Plan of the Registrant.
|
(10)
|
|
|
10.13
|
|
Stock Option Agreement dated March 25, 1998,
between the Registrant and Joseph C. Cook, Jr.
|
(13)(2)
|
|
|
10.14
|
|
Development and License Agreement dated May 15,
2000, between the Registrant and Alkermes Controlled Therapeutics
II, Inc.
|
(31)
|
|
|
10.15
|
|
Registrants Amended and Restated Officer Change in
Control Severance Benefit Plan.
|
(26)
|
|
|
10.16
|
|
Registrants Amended and Restated 2001 Equity
Incentive Plan.
|
(15)(2)
|
|
|
10.17
|
|
Collaboration Agreement dated September 19,
2002, between the Registrant and Eli Lilly and Company.
|
(15)(2)
|
|
|
10.18
|
|
U.S. Co-Promotion Agreement dated September 19,
2002, between the Registrant and Eli Lilly and Company.
|
50
(15)
|
|
|
10.19
|
|
Milestone Conversion Agreement dated
September 19, 2002, between the Registrant and Eli Lilly and Company.
|
(18)(2)
|
|
|
10.20
|
|
Device Development and Manufacturing Agreement dated
July 1, 2003, between Registrant and Eli Lilly and Company.
|
(17)
|
|
|
10.21
|
|
Form of Registrants 2001 Equity Incentive Plan
Officer Stock Option Agreement, as amended.
|
(17)
|
|
|
10.22
|
|
Form of Registrants 2001 Equity Incentive Plan
Stock Option Agreement, as amended.
|
(19)(2)
|
|
|
10.23
|
|
Manufacturing Agreement dated May 12, 2003,
between Registrant and UCB S.A.
|
(21)(2)
|
|
|
10.24
|
|
Exenatide Manufacturing Agreement dated
October 21, 2003, between Registrant and Mallinckrodt Inc.
|
(21)(2)
|
|
|
10.25
|
|
Commercial Supply Agreement for Exenatide dated
December 23, 2003, between Registrant and Bachem, Inc.
|
(22)(2)
|
|
|
10.26
|
|
Commercial Supply Agreement dated February 14,
2005 between Registrant and Baxter Pharmaceutical Solutions LLC.
|
(22)(2)
|
|
|
10.27
|
|
Commercial Supply Agreement dated October 7,
2004 between Registrant and CP Pharmaceuticals Ltd.
|
(22)(2)
|
|
|
10.28
|
|
Commercial Supply Agreement dated March 2, 2005
between Registrant and Baxter Pharmaceutical Solutions LLC.
|
|
|
|
10.29
|
|
Summary Description of Registrants Named Executive
Officer Oral At-Will Employment Agreements.
|
(23)
|
|
|
10.30
|
|
Description of Registrants Executive Cash Bonus
Plan.
|
(25)(2)
|
|
|
10.31
|
|
Amendment to Development and License Agreement dated
October 24, 2005, between Registrant and Alkermes Controlled
Therapeutics II.
|
(24)(2)
|
|
|
10.32
|
|
Commercial Supply Agreement dated June 28,
2005, between Registrant and Bachem, Inc.
|
(27)(2)
|
|
|
10.33
|
|
Commercial Supply Agreement dated October 12,
2006 between Registrant and Wockhardt UK (Holdings) Ltd.
|
(27)(2)
|
|
|
10.34
|
|
Amendment to Collaboration Agreement dated
October 31, 2006 between Registrant and Eli Lilly and Company.
|
(28)
|
|
|
10.35
|
|
Employment Agreement, dated March 7, 2007, by
and between Registrant and Daniel M. Bradbury.
|
|
|
|
10.36
|
|
Registrants 2001 Non-Qualified Deferred
Compensation Plan.
|
|
|
|
10.37
|
|
Credit Agreement, dated as of December 21,
2007, among Registrant, The Bank of America, N.A. (as Administrative Agent)
and the other lenders set forth therein.
|
|
|
|
21.1
|
|
Subsidiaries of Registrant.
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting
Firm.
|
|
|
|
24.1
|
|
Power of Attorney. Reference is made to page 55.
|
|
|
|
31.1
|
|
Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.
|
|
|
|
31.2
|
|
Certification of Principal Executive Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
|
|
|
|
32.1
|
|
Certifications Pursuant to U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Public Company Accounting
Reform and Investor Protection Act of 2002.
|
|
Indicates management or
compensatory plan or arrangement required to be identified pursuant to Item
15(c).
|
*
|
Confidential treatment has
been requested with respect to certain portions of this exhibit. Omitted
portions have been filed separately with the Securities and Exchange
Commission.
|
(1)
|
Filed
as an exhibit to the Registrants Registration Statement on Form S-1
(No. 33-44195) or amendments thereto and incorporated herein by
reference.
|
|
|
|
|
(2)
|
Confidential
Treatment has been
granted by the
Securities and Exchange Commission with respect to portions of this
agreement.
|
|
|
|
|
(3)
|
Filed
as an exhibit to the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
|
|
|
|
|
(4)
|
Filed
as an exhibit to the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
|
|
51
(5)
|
|
Filed
as an exhibit on Form 8-K dated October 31, 2007, and incorporated
herein by reference.
|
|
|
|
(6)
|
|
Filed as an exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
|
|
|
|
(7)
|
|
Filed as an exhibit to
the Registrants Registration Statement on Form S-8 (No. 333-61660)
or amendments thereto and incorporated herein by reference.
|
|
|
|
(8)
|
|
Filed as an exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004.
|
|
|
|
(9)
|
|
Filed as an exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 1, 1998, and incorporated herein by reference.
|
|
|
|
(10)
|
|
Filed as an exhibit to
the Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
|
|
|
|
(11)
|
|
Filed as an exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.
|
|
|
|
(12)
|
|
Filed as an exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
|
|
|
|
(13)
|
|
Filed as an exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000.
|
|
|
|
(14)
|
|
Filed as an exhibit on
Form 8-K dated June 17, 2002, and incorporated herein by reference.
|
|
|
|
(15)
|
|
Filed as an exhibit on
Form 8-K dated October 3, 2002, and incorporated herein by
reference.
|
|
|
|
(16)
|
|
Filed as an exhibit to
Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.
|
|
|
|
(17)
|
|
Filed as an exhibit to
Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003, and incorporated herein by reference .
|
|
|
|
(18)
|
|
Filed as an exhibit to
Amendment 1 to Registrants Quarterly Report on Form 10-Q/A for the
quarter ended June 30, 2003, and incorporated herein by reference .
|
|
|
|
(19)
|
|
Filed as an exhibit to
Amendment 1 to Registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003, and incorporated herein by reference.
|
|
|
|
(20)
|
|
Filed as an exhibit to
Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, and incorporated herein by reference.
|
|
|
|
(21)
|
|
Filed as an exhibit to
Amendment 1 to Registrants Annual Report on Form 10-K/A for the fiscal
year ended December 31, 2003, and incorporated herein by reference.
|
|
|
|
(22)
|
|
Filed as an exhibit to Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
2004, and incorporated herein by reference.
|
|
|
|
(23)
|
|
Filed on Form 8-K
dated December 7, 2007, and incorporated herein by reference.
|
|
|
|
(24)
|
|
Filed as an exhibit to
Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005, and incorporated herein by reference.
|
|
|
|
(25)
|
|
Filed as an exhibit to
Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 2005, and incorporated herein by reference.
|
|
|
|
(26)
|
|
Filed as an exhibit on
Form 8-K dated May 22, 2006 and incorporated herein by reference.
|
|
|
|
(27)
|
|
Filed as an exhibit to
Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 2006, and incorporated herein by reference.
|
52
(28)
|
|
Filed as an exhibit to
Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007, and incorporated herein by reference.
|
|
|
|
(29)
|
|
Filed as an exhibit on
Form 8-K dated May 29, 2007, and incorporated herein by reference.
|
|
|
|
(30)
|
|
Filed as an exhibit on
Form 8-K dated June 8, 2007, and incorporated herein by reference.
|
|
|
|
(31)
|
|
Filed as an exhibit on
Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007, and incorporated herein by reference.
|
53
SIGNATURES
Pursuant
to the requirements of Section 13 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.
|
|
|
AMYLIN PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
Date:
|
February 27, 2008
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
DANIEL
M. BRADBURY
|
|
|
|
Daniel M.
Bradbury,
|
|
|
|
President
and Chief Executive Officer
|
54
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE
PRESENTS, that each person whose signature appears below constitutes and
appoints Daniel M. Bradbury and Mark G. Foletta, and each of them, as his or
her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place,
and stead, in any and all capacities, to sign any and all amendments to this
Report, and any other documents in connection therewith, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them or their or his
substitute or substituted, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements
of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ DANIEL M. BRADBURY
|
|
President and Chief Executive
Officer
|
|
February 27, 2008
|
Daniel M. Bradbury
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
MARK G. FOLETTA
|
|
Senior Vice President, Finance and
Chief Financial Officer
|
|
February 27, 2008
|
Mark G. Foletta
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/ JOSEPH C. COOK, JR.
|
|
Chairman of the Board
|
|
February 27, 2008
|
Joseph C. Cook, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ ADRIAN ADAMS
|
|
Director
|
|
February 27, 2008
|
Adrian Adams
|
|
|
|
|
|
|
|
|
|
/s/ STEVEN R. ALTMAN
|
|
Director
|
|
February 27, 2008
|
Steven R. Altman
|
|
|
|
|
|
|
|
|
|
/s/ TERESA BECK
|
|
Director
|
|
February 27, 2008
|
Teresa Beck
|
|
|
|
|
|
|
|
|
|
/s/ KARIN EASTHAM
|
|
Director
|
|
February 27, 2008
|
Karin Eastham
|
|
|
|
|
|
|
|
|
|
/s/ JAMES R. GAVIN III, M.D.,
PHD.
|
|
Director
|
|
February 27, 2008
|
James R. Gavin III, M.D., Ph.D.
|
|
|
|
|
|
|
|
|
|
/s/ GINGER L. GRAHAM
|
|
Director
|
|
February 27, 2008
|
Ginger L. Graham
|
|
|
|
|
|
|
|
|
|
/s/ HOWARD E. GREENE, JR.
|
|
Director
|
|
February 27, 2008
|
Howard E. Greene, Jr.
|
|
|
|
|
55
/s/ JAY S. SKYLER, M.D.
|
|
Director
|
|
February 27, 2008
|
Jay S. Skyler, M.D., MACP
|
|
|
|
|
|
|
|
|
|
/s/ JOSEPH P. SULLIVAN
|
|
Director
|
|
February 27, 2008
|
Joseph P. Sullivan
|
|
|
|
|
|
|
|
|
|
/s/ JAMES N. WILSON
|
|
Director
|
|
February 27, 2008
|
James N. Wilson
|
|
|
|
|
56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders of Amylin Pharmaceuticals, Inc.
We have
audited the accompanying consolidated balance sheets of Amylin Pharmaceuticals, Inc.
as of December 31, 2007 and 2006, and the related consolidated statements
of operations, stockholders equity (deficit), and cash flows for each of the
three years in the period ended December 31, 2007. Our audits also
included the financial statement schedule listed in the Index at Item 15(a)(2).
These financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial position of Amylin
Pharmaceuticals, Inc., at December 31, 2007 and 2006, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2007, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, effective January 1,
2006, Amylin Pharmaceuticals, Inc., changed its method of accounting for
share-based payments in accordance with Statement of Financial Accounting
Standards No. 123R,
Share-Based Payment
.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Amylin Pharmaceuticals, Incs 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 and our report dated February 22,
2008 expressed an unqualified opinion thereon.
|
/S/
ERNST & YOUNG LLP
|
|
|
San
Diego, California
|
|
February 22, 2008
|
|
F-2
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
422,232
|
|
$
|
66,640
|
|
Short-term investments
|
|
708,183
|
|
700,691
|
|
Accounts receivable, net
|
|
73,579
|
|
58,089
|
|
Inventories, net
|
|
100,214
|
|
59,299
|
|
Other current assets
|
|
32,100
|
|
22,098
|
|
Total current assets
|
|
1,336,308
|
|
906,817
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
390,301
|
|
146,779
|
|
Other long-term assets, net
|
|
28,082
|
|
2,870
|
|
Debt issuance costs, net
|
|
19,520
|
|
3,920
|
|
|
|
$
|
1,774,211
|
|
$
|
1,060,386
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
37,530
|
|
$
|
36,834
|
|
Accrued compensation
|
|
56,428
|
|
39,251
|
|
Payable to collaborative partner
|
|
66,116
|
|
52,338
|
|
Other current liabilities
|
|
122,924
|
|
71,178
|
|
Current portion of deferred revenue
|
|
4,286
|
|
4,286
|
|
Total current liabilities
|
|
287,284
|
|
203,887
|
|
|
|
|
|
|
|
Deferred revenue, net of current portion
|
|
3,086
|
|
7,372
|
|
|
|
|
|
|
|
Other long-term obligations, net of current portion
|
|
31,023
|
|
13,836
|
|
|
|
|
|
|
|
Long-term note payable
|
|
125,000
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
775,000
|
|
200,000
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Preferred stock, $.001 par value, 7,500 shares authorized, none issued
and
outstanding at December 31, 2007 and 2006
|
|
|
|
|
|
Common stock, $.001 par value, 200,000 shares authorized, 135,044 and
130,458
issued and outstanding at December 31, 2007 and 2006
|
|
135
|
|
130
|
|
Additional paid-in capital
|
|
1,987,453
|
|
1,857,194
|
|
Accumulated deficit
|
|
(1,434,320
|
)
|
(1,223,184
|
)
|
Accumulated other comprehensive (loss) income
|
|
(450
|
)
|
1,151
|
|
Total stockholders equity
|
|
552,818
|
|
635,291
|
|
|
|
$
|
1,774,211
|
|
$
|
1,060,386
|
|
See accompanying notes to consolidated financial statements.
F-3
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share data)
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Net product sales
|
|
$
|
701,450
|
|
$
|
474,038
|
|
$
|
86,713
|
|
Revenues under collaborative agreements
|
|
79,547
|
|
36,837
|
|
53,761
|
|
Total revenues
|
|
780,997
|
|
510,875
|
|
140,474
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
65,457
|
|
50,073
|
|
14,784
|
|
Selling, general and administrative
|
|
390,982
|
|
281,950
|
|
171,520
|
|
Research and development
|
|
276,600
|
|
222,053
|
|
132,128
|
|
Collaborative profit-sharing
|
|
290,934
|
|
194,191
|
|
31,359
|
|
Total costs and expenses
|
|
1,023,973
|
|
748,267
|
|
349,791
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(242,976
|
)
|
(237,392
|
)
|
(209,317
|
)
|
|
|
|
|
|
|
|
|
Make-whole payment on debt redemption
|
|
|
|
(7,875
|
)
|
|
|
Interest and other income
|
|
46,969
|
|
34,903
|
|
13,214
|
|
Interest and other expense
|
|
(15,129
|
)
|
(8,492
|
)
|
(10,729
|
)
|
Net loss
|
|
$
|
(211,136
|
)
|
$
|
(218,856
|
)
|
$
|
(206,832
|
)
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(1.59
|
)
|
$
|
(1.78
|
)
|
$
|
(1.96
|
)
|
|
|
|
|
|
|
|
|
Shares used in
computing net loss per share, basic and diluted
|
|
132,621
|
|
122,647
|
|
105,532
|
|
See accompanying notes to consolidated financial statements.
F-4
AMYLIN
PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY (DEFICIT)
For the years ended December 31, 2007, 2006 and 2005
(in thousands)
|
|
Common stock
|
|
Additional
|
|
Accumulated
|
|
Deferred
|
|
Accumulated
other
comprehensive
|
|
Total
stockholders
equity
|
|
|
|
Shares
|
|
Amount
|
|
paid-in capital
|
|
deficit
|
|
compensation
|
|
(loss) income
|
|
(deficit)
|
|
Balance at December 31, 2004
|
|
94,489
|
|
$
|
94
|
|
$
|
710,457
|
|
$
|
(797,496
|
)
|
$
|
(162
|
)
|
$
|
(263
|
)
|
$
|
(87,370
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(206,832
|
)
|
|
|
|
|
(206,832
|
)
|
Unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
(204
|
)
|
(204
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207,036
|
)
|
Issuance of common stock upon exercise of options, net
|
|
1,548
|
|
2
|
|
15,977
|
|
|
|
|
|
|
|
15,979
|
|
Issuance of common stock for other employee benefit plans
|
|
226
|
|
|
|
4,135
|
|
|
|
|
|
|
|
4,135
|
|
Stock-based compensation
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
433
|
|
Issuance of common stock in public offering, net
|
|
14,268
|
|
15
|
|
342,357
|
|
|
|
|
|
|
|
342,372
|
|
Deferred compensation related to stock options
|
|
|
|
|
|
589
|
|
|
|
162
|
|
|
|
751
|
|
Balance at December 31, 2005
|
|
110,531
|
|
111
|
|
1,073,948
|
|
(1,004,328
|
)
|
|
|
(467
|
)
|
69,264
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(218,856
|
)
|
|
|
|
|
(218,856
|
)
|
Unrealized gain on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
1,618
|
|
1,618
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(217,238
|
)
|
Issuance of common stock upon exercise of options, net
|
|
2,405
|
|
2
|
|
31,635
|
|
|
|
|
|
|
|
31,637
|
|
Issuance of common stock for other employee benefit plans
|
|
457
|
|
|
|
10,296
|
|
|
|
|
|
|
|
10,296
|
|
Employee stock-based compensation
|
|
|
|
|
|
51,485
|
|
|
|
|
|
|
|
51,485
|
|
Issuance of common stock for restricted stock awards
|
|
8
|
|
|
|
353
|
|
|
|
|
|
|
|
353
|
|
Conversion of convertible senior notes, net of debt issuance costs
|
|
5,377
|
|
5
|
|
172,972
|
|
|
|
|
|
|
|
172,977
|
|
Issuance of common stock for make-whole payment
|
|
180
|
|
|
|
7,875
|
|
|
|
|
|
|
|
7,875
|
|
Issuance of common stock in public offering, net
|
|
11,500
|
|
12
|
|
507,518
|
|
|
|
|
|
|
|
507,530
|
|
Non-employee stock-based compensation
|
|
|
|
|
|
1,112
|
|
|
|
|
|
|
|
1,112
|
|
Balance at December 31, 2006
|
|
130,458
|
|
130
|
|
1,857,194
|
|
(1,223,184
|
)
|
|
|
1,151
|
|
635,291
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(211,136
|
)
|
|
|
|
|
(211,136
|
)
|
Unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
(1,601
|
)
|
(1,601
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,737
|
)
|
Issuance of common stock upon exercise of options, net
|
|
2,547
|
|
3
|
|
37,396
|
|
|
|
|
|
|
|
37,399
|
|
Issuance of common stock upon exercise of warrants
|
|
1,604
|
|
2
|
|
18,370
|
|
|
|
|
|
|
|
18,372
|
|
Issuance of common stock for other employee benefit plans
|
|
435
|
|
|
|
14,735
|
|
|
|
|
|
|
|
14,735
|
|
Employee stock-based compensation
|
|
|
|
|
|
59,064
|
|
|
|
|
|
|
|
59,064
|
|
Non-employee stock-based compensation
|
|
|
|
|
|
694
|
|
|
|
|
|
|
|
694
|
|
Balance at December 31, 2007
|
|
135,044
|
|
$
|
135
|
|
$
|
1,987,453
|
|
$
|
(1,434,320
|
)
|
$
|
|
|
$
|
(450
|
)
|
$
|
552,818
|
|
See accompanying notes to consolidated financial statements.
F-5
AMYLIN
PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in thousands)
|
|
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(211,136
|
)
|
$
|
(218,856
|
)
|
$
|
(206,832
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
21,563
|
|
16,228
|
|
10,487
|
|
Employee stock-based compensation
|
|
59,064
|
|
51,838
|
|
|
|
Make-whole payment on debt redemption
|
|
|
|
7,875
|
|
|
|
Other non-cash expenses
|
|
8,847
|
|
4,058
|
|
1,535
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
(15,490
|
)
|
(32,389
|
)
|
(25,700
|
)
|
Inventories, net
|
|
(40,915
|
)
|
(32,549
|
)
|
(11,074
|
)
|
Other current assets
|
|
(10,016
|
)
|
(3,995
|
)
|
(2,837
|
)
|
Accounts payable and accrued liabilities
|
|
28,101
|
|
38,293
|
|
27,146
|
|
Accrued compensation
|
|
17,177
|
|
10,129
|
|
15,616
|
|
Payable to collaborative partner
|
|
13,778
|
|
35,660
|
|
13,887
|
|
Deferred revenue
|
|
(4,286
|
)
|
(4,286
|
)
|
(9,285
|
)
|
Other assets and liabilities, net
|
|
8,153
|
|
1,987
|
|
5,075
|
|
Net cash used in operating activities
|
|
(125,160
|
)
|
(126,007
|
)
|
(181,982
|
)
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
(392,155
|
)
|
(714,772
|
)
|
(491,927
|
)
|
Sales and maturities of short-term investments
|
|
383,076
|
|
386,840
|
|
353,415
|
|
Purchases of property, plant and equipment, net
|
|
(268,674
|
)
|
(97,925
|
)
|
(29,639
|
)
|
Increase in other long-term assets
|
|
(18,348
|
)
|
(33
|
)
|
(897
|
)
|
Net cash used in investing activities
|
|
(296,101
|
)
|
(425,890
|
)
|
(169,048
|
)
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
64,687
|
|
546,511
|
|
362,486
|
|
Proceeds from issuance of convertible debt, net
|
|
558,670
|
|
|
|
|
|
Proceeds from
long-term note payable
|
|
123,496
|
|
|
|
|
|
Proceeds from contingent share settled obligation (Note 4)
|
|
30,000
|
|
|
|
|
|
Principal
payments on capital leases
|
|
|
|
|
|
(13
|
)
|
Net cash provided by financing activities
|
|
776,853
|
|
546,511
|
|
362,473
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
355,592
|
|
(5,386
|
)
|
11,443
|
|
Cash and cash equivalents at beginning of year
|
|
66,640
|
|
72,026
|
|
60,583
|
|
Cash and cash equivalents at end of year
|
|
$
|
422,232
|
|
$
|
66,640
|
|
$
|
72,026
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
Interest paid, net of interest capitalized
|
|
$
|
9,477
|
|
$
|
6,409
|
|
$
|
8,398
|
|
Interest capitalized
|
|
$
|
4,483
|
|
$
|
560
|
|
$
|
|
|
Property, plant and equipment additions in other current liabilities at
year end
|
|
$
|
15,559
|
|
$
|
21,219
|
|
$
|
|
|
Common stock issued upon conversion of senior convertible notes
|
|
$
|
|
|
$
|
175,000
|
|
$
|
|
|
Reclassification of debt issuance costs to additional paid-in capital
upon conversion of convertible senior notes
|
|
$
|
|
|
$
|
1,980
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
F-6
AMYLIN
PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1.
Summary of
Significant Accounting Policies
Organization
Amylin
Pharmaceuticals, Inc., referred to as the Company or Amylin, was
incorporated in Delaware on September 29, 1987. Amylin is a biopharmaceutical company engaged
in the discovery, development and commercialization of drug candidates for the
treatment of diabetes, obesity and other diseases.
Principles of Consolidation
The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries, Amylin Europe Limited, Amylin Puerto Rico, LLC, Amylin Ohio, LLC,
and Amylin Investments, LLC. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. generally
accepted accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Net Product Sales
The
Company sells BYETTA
®
(exenatide) injection and SYMLIN
®
(pramlintide acetate) injection primarily to wholesale distributors in the
United States, who, in turn, sell primarily to retail pharmacies, pharmacy
benefit managers, and government entities.
Product sales are recognized when
delivery of the products has occurred, title has
passed to the customer, the selling price is fixed or determinable,
collectability is reasonably assured and the Company has no further
obligations. The Company records
allowances for product returns, rebates and wholesaler chargebacks, wholesaler
discounts, and prescription vouchers at the time of sale and reports product
sales net of such allowances. The
Company must make significant judgments in determining some of these
allowances. If actual results differ
from the Companys estimates, the Company will be required to make adjustments
to these allowances in the future.
The Company reports all BYETTA and SYMLIN product
sales made in the United States. With
respect to BYETTA, the Company has determined that it is qualified as a
principal under the criteria set forth in Emerging Issues Task Force (EITF)
Issue 99-19,
Reporting Gross Revenue as a
Principal vs. Net as an Agent,
based on the Companys
responsibilities under its contracts with Eli Lilly and Company, or Lilly,
which include manufacture of product for sale in the United States,
responsibility for establishing pricing in the United States, distribution,
ownership of product inventory and credit risk from customers, and accordingly,
the Company reports all United States products sales of BYETTA.
Revenues Under Collaborative Agreements
Amounts received for
upfront product and technology license fees under multiple-element arrangements
are deferred and recognized over the period of such services or performance if
such arrangements require on-going services or performance. Non-refundable amounts received for
substantive milestones are recognized upon achievement of the milestone, and
the expiration of stock conversion rights, if any, associated with such
payments. Amounts received for
equalization of development expenses are recognized in the period in which the
related expenses are incurred. Any
amounts received prior to satisfying these revenue recognition criteria will be
recorded as deferred revenue.
F-7
Collaborative Profit-Sharing
Collaborative
profit-sharing represents Lillys 50% share of the gross margin for Byetta
sales in the United States.
Shipping
and Handling Costs
Shipping and handling costs incurred for product
shipments are included in cost of goods sold in the accompanying consolidated
statements of operations.
Research and Development Expenses
Research and development costs are expensed as
incurred and include
salaries, benefits, bonus,
stock-based compensation, license fees, milestones under license agreements,
costs paid to third-party contractors to perform research, conduct clinical
trials, and develop drug materials and delivery devices; and associated
overhead expenses and facilities costs.
Clinical trial costs, including costs associated with third-party
contractors, are a significant component of research and development expenses.
Invoicing from third-party contractors for services performed can lag several
months. The Company accrues the costs of
services rendered in connection with such activities based on its estimate of
management fees, site management and monitoring costs, and data management
costs. Actual clinical trial costs may
differ from estimates and are adjusted in the period in which they become
known. Payments made under certain
license and collaboration agreements for milestones achieved are recorded as a
liability when the obligation is incurred.
Concentrations of Risk
The Company relies on
third-party manufacturers for the production of its products and drug
candidates. If the Companys third-party
manufacturers are unable to continue manufacturing its products and/or drug
candidates, or if the Company loses one of its sole source suppliers used in
its manufacturing processes, the Company may not be able to meet market demand
for its products and could be materially and adversely affected.
Lilly provides funding
for 50% of the development and commercialization expenses for BYETTA and
exenatide once weekly in the United States pursuant to a global development and
commercialization agreement between the parties. Lilly co-promotes the product with the
Company in the United States and manufactures pen devices for the
administration of BYETTA. If Lilly is
unable to perform these activities the Company may be unable to meet market
demand for its products and could be materially and adversely affected.
The Company is
also subject to credit risk from its accounts receivable related to product
sales. The Company sells its products in
the United States primarily to wholesale distributors. The top four of the Companys customers
represented approximately 94% of net product sales in 2007 and 94% of the
accounts receivable balance at December 31, 2007. The Company evaluates the credit worthiness
of its customers and generally does not require collateral. The Company has not experienced any material
losses on uncollectible accounts receivable to date.
Net product sales for the
years ended December 31, 2007, 2006 and 2005 were $701.5 million, $474.0
million and $86.7 million, respectively, and consisted of sales of BYETTA and
SYMLIN, less allowances for product returns, rebates and wholesaler
chargebacks, wholesaler discounts, and prescription vouchers.
The following table provides
information regarding net product sales by product (in millions):
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
BYETTA
|
|
$
|
636.0
|
|
$
|
430.2
|
|
$
|
75.2
|
|
SYMLIN
|
|
65.5
|
|
43.8
|
|
11.5
|
|
|
|
$
|
701.5
|
|
$
|
474.0
|
|
$
|
86.7
|
|
Two of the Companys
wholesaler customers each accounted for more than 10% of total revenues for the
year ended December 31, 2007, two of the Companys wholesaler customers
each accounted for more than 10% of total revenues for the year ended December 31,
2006 and three of the Companys wholesaler customers each accounted for more
than 10% of total revenues for the year ended December 31, 2005. The following table summarizes the percent of
the Companys total
F-8
revenues that were attributed to each of these three wholesaler
customers (as a % of total revenues):
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
AmerisourceBergen Corporation
|
|
*
|
|
*
|
|
11
|
%
|
McKesson
Corporation
|
|
37
|
%
|
36
|
%
|
23
|
%
|
Cardinal
Health, Inc.
|
|
32
|
%
|
34
|
%
|
23
|
%
|
* Less than 10%
The
Company invests its excess cash in U.S. Government securities, securities of
agencies sponsored by the U.S. Government, asset-backed securities,
mortgage-backed securities, and debt instruments of financial institutions and
corporations with strong credit ratings.
The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity.
The primary goal of these guidelines is to safeguard principal and they
are periodically reviewed. These
guidelines prohibit investments in auction rate securities. Financial instruments that potentially
subject the Company to significant credit risk consist principally of cash
equivalents and short-term investments
.
Cash and Cash Equivalents
The
Company considers instruments with a maturity date of less than 90 days from
the date of purchase to be cash equivalents.
Cash and cash equivalents include certificates of deposits underlying
letters of credit and cash collateral for derivative financial instruments of
$3.5 million and $3.3 million at December 31, 2007 and 2006, respectively.
Short-Term Investments
Short-term investments
consist principally of U.S. Government securities, securities of agencies
sponsored by the U.S. Government, asset-backed securities, mortgage-backed
securities and debt instruments of financial institutions and corporations with
strong credit ratings. The Companys investments in mortgage-backed
securities consist primarily of securities insured or guaranteed by agencies
sponsored by the U.S. government. The Company has classified its debt
securities as available-for-sale and they are stated at fair value based upon
the most recently traded price of each security at the balance sheet date, and
unrealized holding gains or losses on these securities are carried as a
separate component of stockholders equity (deficit). The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts to
maturity. For investments in mortgage-backed securities, amortization of
premiums and accretion of discounts are recognized in interest income using the
interest method, adjusted for anticipated prepayments as applicable.
Estimates of expected cash flows are updated periodically and changes are
recognized in the calculated effective yield prospectively as
appropriate. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be
other-than-temporary (of which there have been none to date) on
available-for-sale securities are included in interest income. In
assessing potential impairment of its short-term investments, the Company
evaluates the impact of interest rates, potential prepayments on
mortgage-backed securities, changes in credit quality, the length of time and
extent to which the market value has been less than cost, and the Companys
intent and ability to retain the security in order to allow for an anticipated
recovery in fair value. The cost of
securities sold is based on the specific-identification method.
Accounts
Receivable
Trade accounts receivable
are recorded net of allowances for cash discounts for prompt payment, doubtful
accounts, product returns and chargebacks of $12.8 million and $6.6 million at December 31,
2007 and 2006, respectively. Allowances
for rebate discounts and distribution fees are included in other current
liabilities in the accompanying consolidated balance sheets. Estimates for allowances for doubtful
accounts are determined based on existing contractual obligations, historical
payment patterns and individual customer circumstances. The allowance for doubtful accounts was $0.2
million at both December 31, 2007 and 2006.
Inventories, net
Inventories
are stated at the lower of cost (FIFO) or market, net of valuation allowances
for potential excess and/or obsolete material of $5.3 million and $0.4 million
at December 31, 2007 and 2006, respectively.
Raw materials consists of
F-9
bulk drug material, work-in-process primarily consists
of in-process SymlinPen(TM) pen injector devices, in-process SYMLIN vials,
in-process BYETTA cartridges, and finished goods consists of finished
SymlinPen(TM) pen injector devices, finished SYMLIN drug product in vials and
BYETTA drug product in a disposable pen/cartridge delivery system.
Property, plant and Equipment
Property, plant and equipment, consisting primarily of
construction in process, leasehold improvements, computer software, office
equipment and furniture, laboratory equipment, production equipment, land, and
building and are recorded at cost.
Depreciation of equipment and software is computed using the
straight-line method, over three to fifteen years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful
lives of the assets or the remaining term of the lease. Depreciation of buildings is computed using
the straight-line method, over fifteen or thirty years. Construction in progress includes costs
associated with the Companys manufacturing facility for exenatide once
weekly. The Company recorded
depreciation expense of $19.0 million, $14.3 million, and $8.3 million in the
years ended December 31, 2007, 2006 and 2005, respectively.
The Company
records impairment losses on property, plant and equipment used in operations
when events and circumstances indicate that assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. The
Company also records the assets to be disposed of at the lower of their
carrying amount or fair value less cost to sell. While the Companys current and historical
operating and cash flow losses are indicators of impairment, the Company
believes the future cash flows to be received support the carrying value of its
long-lived assets and accordingly, the Company has not recognized any
impairment losses as of December 31, 2007.
FDA
validation costs, which to date relate to the Companys manufacturing facility
for exenatide once weekly, are capitalized as part of the effort required to
acquire and construct long-lived assets, including readying them for their
initial intended use, and are amortized over the estimated useful life of the
asset.
Computer Software Costs for Internal Use
The
Company records the costs of computer software for internal use in accordance
with AICPA Statement of Position (SOP) 98-1,
Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use.
SOP 98-1 requires that certain internal-use
computer software costs be capitalized.
Capitalized costs are amortized on a straight-line basis over the
estimated useful life of software, generally three years and included in
depreciation expense.
Investments in Unconsolidated Entities
The Company uses the equity method of accounting for
investments in other companies that are not controlled by the Company and in
which the Companys interest is generally between 20% and 50% of the voting
shares or the Company has significant influence over the entity, or both. The Companys share of the income or losses
of these entities are included in interest and other expense or interest and
other income, and the investments which have a net book value of $15.7 million
at December 31, 2007 are included in other long-term assets. The Company recorded $1.8 million for its
share of equity method investee losses during the year ended December 31,
2007. The Company did not have any
equity method investments at December 31, 2006.
Patents
The
Company has filed a number of patent applications with the United States Patent
and Trademark Office and in foreign countries.
Certain legal and related costs incurred in connection with pending
patent applications have been capitalized.
Costs related to successful patent applications are amortized over the
lesser of the remaining useful life of the related technology or the remaining
patent life, commencing on the date the patent is issued. Gross capitalized patent costs were
approximately $4.9 million and $4.1 million at December 31, 2007 and 2006,
respectively. Accumulated amortization
was approximately $2.2 million and $1.9 million at December 31, 2007 and
2006, respectively. Patents are
classified as other long-term assets in the accompanying consolidated balance
sheets. The Company recorded patent
amortization expense of $0.3 million in each of the years ended December 31,
2007, 2006 and 2005. Capitalized costs
related to patent applications are expensed as a selling general and
administrative expense in the period during which a determination not to pursue
such applications is made. Such expenses
were not material in the years ended December 31, 2007, 2006 and 2005,
respectively.
F-10
Net Loss Per Share
Basic and diluted net loss applicable to common stock
per share is computed using the weighted average number of common shares
outstanding during the period. Common
stock equivalents from stock options and warrants of approximately 6.8
million, 8.0 million and 4.3 million were excluded from the
calculation of net loss per share for the years ended December 31, 2007,
2006 and 2005, respectively, because the effect would be antidilutive. In addition, c
ommon stock equivalents from shares underlying the
Companys convertible senior notes of
11.1 million, 5.8 million, and 11.2 million were excluded from the net
loss per share for the years ended December 31,
2007, 2006 and 2005, respectively, because the effect would be
antidilutive. In future periods, if the
Company reports net income and the common share equivalents for the Companys
convertible senior notes are dilutive, the common stock equivalents will be
included in the weighted average shares computation and interest expense
related to the notes will be added back to net income to calculate diluted
earnings per share.
Foreign Currency Translation
Assets and liabilities of foreign operations where the
functional currency is other than the U.S. dollar are translated at fiscal
year-end rates of exchange, and the related revenue and expense amounts are
translated at the average rates of exchange during the fiscal year. Gains and losses resulting from translating
foreign currency financial statements resulted in an immaterial impact to the
Companys financial statements for the years ended December 31, 2007, 2006
and 2005, respectively.
Derivative Financial Instruments
The Company mitigates certain financial exposures,
including currency risk and interest rate risk, through a controlled program of
risk management that includes the use of derivative financial instruments. Derivatives are recorded on the balance sheet
at fair value, with changes in value being recorded in interest and other
income and interest and other expense.
The Company recognized unrealized losses on derivative financial
instruments of $0.1 million for the year ended December 31, 2007. The Company did not have any derivative
financial instruments for the years ended December 31, 2006 or 2005.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income
requires
that all components of comprehensive income (loss) be reported in the financial
statements in the period in which they are recognized. Comprehensive income is defined as the change
in equity during a period from transactions and other events and circumstances
from non-owner sources. Net income (loss)
and other comprehensive income (loss), including unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income (loss).
Accounting for Stock-Based Compensation
Effective January 1,
2006, the Company adopted the fair value method of accounting for stock-based
compensation arrangements in accordance with Financial Accounting Standards
Board (FASB) SFAS No. 123R,
Share-Based
Payment,
which establishes accounting for non-cash, stock-based
awards exchanged for employee services and requires companies to expense the estimated
fair value of these awards over the requisite employee service period, which
for the Company is generally the vesting period. The Company adopted SFAS No. 123R using
the modified prospective method. Under the modified prospective method, prior
periods are not revised for comparative purposes. The valuation provisions of SFAS No. 123R
apply to new awards and to awards that are outstanding on the effective date
and subsequently modified or cancelled.
Estimated non-cash, compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period using the
compensation cost calculated for pro-forma disclosure purposes under SFAS No. 123,
Accounting for Stock-Based Compensation.
Stock-Based Compensation Information under SFAS No. 123R
Consistent with the
valuation method used for the disclosure-only provisions of SFAS No. 123,
the Company uses the Black-Scholes model to estimate the value of non-cash,
stock-based payments granted to employees under SFAS No. 123R.
F-11
The weighted-average
estimated fair value of employee stock options and employee stock purchase
rights granted during the year ended December 31, 2007 was $18.09
and
$
10.01
per
share, respectively, and the weighted-average estimated fair value of employee
stock options and employee stock purchase rights granted during the year ended December 31,
2006 was $22.07
and
$
12.83
per share, respectively using the
following weighted-average assumptions:
|
|
Years ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
Stock
option plans
|
|
|
|
|
|
Volatility
|
|
44.2
|
%
|
52.4
|
%
|
Expected life in
years
|
|
5.4
|
|
5.4
|
|
Risk-free
interest rate
|
|
4.7
|
%
|
4.8
|
%
|
Dividend yield
|
|
|
%
|
|
%
|
|
|
|
|
|
|
Employee
stock purchase plan
|
|
|
|
|
|
Volatility
|
|
27.9
|
%
|
43.2
|
%
|
Expected life in
years
|
|
0.5
|
|
0.5
|
|
Risk-free
interest rate
|
|
4.9
|
%
|
4.9
|
%
|
Dividend yield
|
|
|
%
|
|
%
|
The Company estimates
volatility based upon the historical volatility of its common stock for a
period corresponding to the expected term of its employee stock options and the
implied volatility of market-traded options on its common stock with various
maturities between six months and two years, consistent with the guidance in
SFAS No. 123R and the Securities and Exchange Commissions Staff
Accounting Bulletin (SAB) No. 107.
Prior to January 1, 2006, the Company estimated expected volatility
based upon the historical volatility of its common stock for a period
corresponding to the expected term of its employee stock options. The determination to use implied volatility
in addition to historical volatility was based upon the availability of
actively traded options on the Companys common stock and the Companys
assessment that the addition of implied volatility is more representative of future
stock price trends than historical volatility alone.
The expected life of the
Companys employee stock options represents the weighted-average period of time
that options granted are expected to be outstanding in consideration of
historical exercise patterns and the assumption that all outstanding options
will be exercised at the mid-point of the then current date and their maximum
contractual term.
The risk-free interest
rates are based on the yield curve of U.S. Treasury strip securities in effect at
the time of grant for periods corresponding with the expected life of the
Companys employee stock options. The
Company has never paid dividends and does not anticipate doing so for the
foreseeable future. Accordingly, the
Company has assumed no dividend yield for purposes of estimating the fair value
of its stock-based payments to employees.
Stock-based compensation
expense recognized in accordance with SFAS No. 123R is based on awards
ultimately expected to vest, and therefore is reduced by expected
forfeitures. The Company estimates
forfeitures based upon historical forfeiture rates, and will adjust its
estimate of forfeitures if actual forfeitures differ, or are expected to
differ, from such estimates. Changes in
estimated forfeitures will be recognized through a cumulative adjustment in the
period of the change and will also impact the amount of stock-based
compensation expense in future periods.
In the Companys pro-forma disclosures required under SFAS No. 123
for the periods prior to January 1, 2006, the Company accounted for
forfeitures as they occurred.
The Company recorded
$59.1 million, or $0.45 per share, and $51.8
million, or $0.42 per share, of total employee non-cash, stock-based
compensation expense for the years ended December 31, 2007 and 2006,
respectively, as required by the provisions of SFAS No. 123R. Stock-based compensation expense capitalized
as part of inventory and fixed assets was negligible and there was no impact on
the Companys reported cash flows for the years ended December 31, 2007
and 2006. The breakdown of total
employee non-cash, stock-based compensation expense by operating statement
classification is presented below (in thousands):
F-12
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Selling, general
and administrative expenses
|
|
$
|
35,420
|
|
$
|
28,966
|
|
$
|
198
|
|
Research and
development expenses
|
|
$
|
23,644
|
|
22,872
|
|
235
|
|
|
|
$
|
59,064
|
|
$
|
51,838
|
|
$
|
433
|
|
Pro-Forma Information under SFAS No. 123
for Periods Prior to January 1, 2006
Prior to January 1,
2006, the Company accounted for stock-based compensation plans using the
intrinsic value method of accounting in accordance with Accounting Principles
Board Opinion No. 25 (APB 25),
Accounting
for Stock Issued to Employees,
and provided the pro-forma
disclosures required by SFAS No. 123.
Under APB 25, stock-based compensation expense was generally not
recorded because the exercise price of stock options granted was equal to the
market value of the Companys common stock on the date of grant, and thus the
stock options had no intrinsic value on the date of grant. Under APB 25, the Company recorded $0.4
million of non-cash, stock-based compensation expense during the year ended December 31,
2005 as a result of modifications to the terms of certain outstanding options.
The weighted-average
estimated grant date fair value of employee stock options granted during the
year ended December 31, 2005 was $11.51 and the weighted-average estimated
grant date fair value of stock purchase rights during the year ended December 31,
2005 was $6.12 using the Black-Scholes model and the following weighted average
assumptions:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
Stock
option plans
|
|
|
|
Volatility
factor
|
|
64
|
%
|
Weighted-average
expected life
|
|
5.1
|
|
Risk-free
interest rate
|
|
3.9
|
%
|
Dividend yield
|
|
|
%
|
|
|
|
|
Employee
stock purchase plan
|
|
|
|
Volatility
factor
|
|
40
|
%
|
Weighted-average
expected life
|
|
0.8
|
|
Risk-free
interest rate
|
|
3.7
|
%
|
Dividend yield
|
|
|
%
|
SFAS No. 123R
requires the presentation of pro-forma information for periods prior to the
adoption of SFAS No. 123R as if the Company had accounted for all
stock-based compensation under the fair value method of SFAS No. 123. The following table illustrates the effect on
net loss and earnings per share as if the Company had applied the fair value
recognition provisions of SFAS No. 123 for the periods presented below (in
thousands except per share data):
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
Net loss, as
reported
|
|
$
|
(206,832
|
)
|
Add: Stock-based
employee compensation expense included in reported net loss
|
|
433
|
|
Deduct:
Stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects
|
|
(40,342
|
)
|
Pro forma net
loss
|
|
$
|
(246,741
|
)
|
|
|
|
|
Net loss per
share:
|
|
|
|
Basic and
diluted as reported
|
|
$
|
(1.96
|
)
|
Basic and
diluted pro forma
|
|
$
|
(2.34
|
)
|
F-13
Recently Issued Accounting Standards
In December 2007,
FASB issued SFAS No. 141 (revised 2007),
Business
Combinations
and SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51.
SFAS No. 141R will change how business acquisitions are
accounted for and will impact financial statements both on the acquisition date
and in subsequent periods. SFAS No. 160
will change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity. SFAS No. 141R and
SFAS No. 160 are effective for us beginning in the first quarter of
fiscal 2009. Early adoption is not
permitted. The Company is currently
evaluating the impact that adoption of SFAS No. 141R and SFAS No. 160
will have on its consolidated financial statements.
In June 2007, the
FASB ratified the EITF consensus on EITF Issue No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities.
EITF Issue No. 07-3 requires 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. Entities should
continue to evaluate whether they expect the goods to be delivered or services
to be rendered. If an entity does not
expect the goods to be delivered or services to be rendered, the capitalized
advance payment should be charged to expense.
The adoption of EITF Issue No. 07-3 is not expected to have a
material effect on the Companys consolidated financial statements.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities.
SFAS No. 159 gives
the Company the irrevocable option to carry many financial assets and
liabilities at fair values, with changes in fair value recognized in
earnings. SFAS No. 159 is effective
for the Company beginning January 1, 2008, although early adoption is
permitted. The Company is currently
evaluating the impact, if any, that adoption of SFAS No. 159 will have on
its consolidated financial statements.
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
,
which defines fair value, establishes guidelines for measuring fair value and
expands disclosures regarding fair value measurements. SFAS No. 157 does not require any
new fair value measurements but rather eliminates inconsistencies in guidance
found in various prior accounting pronouncements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not
expected to have a material effect on the Companys consolidated financial
statements.
2. Investments
The following is a summary of short-term
investments as of December 31, 2007 and 2006 (in thousands):
|
|
Available-for-Sale Securities
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies
|
|
$
|
96,246
|
|
$
|
385
|
|
$
|
(36
|
)
|
$
|
96,595
|
|
Corporate debt securities
|
|
408,020
|
|
101
|
|
(1,576
|
)
|
406,545
|
|
Asset backed securities
|
|
138,447
|
|
258
|
|
(655
|
)
|
138,050
|
|
Mortgage-backed securities
|
|
66,676
|
|
441
|
|
(124
|
)
|
66,993
|
|
Total
|
|
$
|
709,389
|
|
$
|
1,185
|
|
$
|
(2,391
|
)
|
$
|
708,183
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies
|
|
$
|
67,658
|
|
$
|
|
|
$
|
(47
|
)
|
$
|
67,611
|
|
Corporate debt securities
|
|
331,881
|
|
66
|
|
(38
|
)
|
331,909
|
|
Asset backed securities
|
|
115,596
|
|
238
|
|
(33
|
)
|
115,801
|
|
Mortgage-backed securities
|
|
182,084
|
|
407
|
|
(211
|
)
|
182,280
|
|
Debt securities issued by states of the United States and political
subdivisions of the states
|
|
3,090
|
|
|
|
|
|
3,090
|
|
Total
|
|
$
|
700,309
|
|
$
|
711
|
|
$
|
(329
|
)
|
$
|
700,691
|
|
The
gross realized gains on sales of available-for-sale securities totaled
approximately $1.1 million, $0.6 million and $0.1 million and the gross
realized losses totaled $0.8 million, $0.8 million and $0.3 million for the
years ended December 31, 2007, 2006 and 2005, respectively.
F-14
Contractual maturities of
short-term investments at December 31, 2007 were as follows (in
thousands):
|
|
Fair Value
|
|
Due within 1
year
|
|
$
|
325,590
|
|
After 1 but
within 5 years
|
|
304,205
|
|
After 5 but
within 10 years
|
|
11,939
|
|
After 10 years
|
|
66,449
|
|
Total
|
|
$
|
708,183
|
|
For
purposes of these maturity classifications, the final maturity date is used for
securities not due at a single maturity date, which, for the Company includes
asset-backed and mortgage-backed securities.
The
following table shows the gross unrealized losses and fair value of the Companys
investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss
position, at December 31, 2007 (in thousands):
|
|
Less then 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
$
|
162,826
|
|
$
|
(36
|
)
|
$
|
|
|
$
|
|
|
$
|
162,826
|
|
$
|
(36
|
)
|
Corporate debt securities
|
|
171,471
|
|
(614
|
)
|
77,627
|
|
(962
|
)
|
249,098
|
|
(1,576
|
)
|
Asset backed securities
|
|
53,161
|
|
(611
|
)
|
13,275
|
|
(44
|
)
|
66,436
|
|
(655
|
)
|
Mortgage-backed securities
|
|
8,801
|
|
(76
|
)
|
11,412
|
|
(48
|
)
|
20,213
|
|
(124
|
)
|
|
|
$
|
396,259
|
|
$
|
(1,337
|
)
|
$
|
102,314
|
|
$
|
(1,054
|
)
|
$
|
498,573
|
|
$
|
(2,391
|
)
|
The
unrealized losses on the Companys investments is due to the increased
volatility in the markets impacting the classes of securities the Company
invests in and not a deterioration in credit ratings. The Companys investments have a short
effective duration, and since the Company has the ability and intent to hold
these investments until a recovery of fair value, which may be maturity, the
Company does not consider these investments to be other-than-temporarily
impaired at December 31, 2007.
3.
Other
Financial Information
Inventories
consist of the following (in
thousands):
|
|
At December 31,
|
|
|
|
2007
|
|
2006
|
|
Raw materials
|
|
$
|
55,706
|
|
$
|
37,564
|
|
Work-in process
|
|
24,463
|
|
12,589
|
|
Finished goods
|
|
20,045
|
|
9,146
|
|
|
|
$
|
100,214
|
|
$
|
59,299
|
|
Other current assets consists of the following (in
thousands):
|
|
At December 31,
|
|
|
|
2007
|
|
2006
|
|
Prepaid expenses
|
|
$
|
15,787
|
|
$
|
10,463
|
|
Interest and other receivables
|
|
5,831
|
|
4,889
|
|
Other current assets
|
|
10,482
|
|
6,746
|
|
|
|
$
|
32,100
|
|
$
|
22,098
|
|
F-15
Property,
plant and equipment consists of the following (in thousands):
|
|
At December 31,
|
|
|
|
2007
|
|
2006
|
|
Land
|
|
$
|
7,768
|
|
$
|
1,946
|
|
Office equipment and furniture
|
|
30,680
|
|
20,053
|
|
Computer software
|
|
37,988
|
|
17,054
|
|
Laboratory equipment
|
|
29,985
|
|
20,822
|
|
Production equipment
|
|
11,528
|
|
6,940
|
|
Leasehold improvements
|
|
58,977
|
|
23,692
|
|
Building
|
|
1,150
|
|
|
|
Construction in progress
|
|
260,746
|
|
86,730
|
|
|
|
438,822
|
|
177,237
|
|
Less accumulated depreciation and amortization
|
|
(48,521
|
)
|
(30,458
|
)
|
|
|
$
|
390,301
|
|
$
|
146,779
|
|
Other
current liabilities consist of the following (in thousands):
|
|
At December 31,
|
|
|
|
2007
|
|
2006
|
|
Contingent share-settled obligation (1)
|
|
$
|
30,000
|
|
$
|
|
|
Accrued research and development contract services
|
|
20,107
|
|
11,635
|
|
Accrued rebate discounts
|
|
19,673
|
|
9,835
|
|
Accrued property, plant and equipment additions
|
|
15,559
|
|
21,219
|
|
Other accrued sales allowances
|
|
13,989
|
|
10,818
|
|
Other current liabilities
|
|
23,596
|
|
17,671
|
|
|
|
$
|
122,924
|
|
$
|
71,178
|
|
(1) Represents a liability for $30 million in
milestone payments received from Lilly that are convertible into the Companys
common stock (refer to footnote 4).
4.
Collaborative
Agreements
Collaboration with Eli Lilly and Company
In September 2002, the
Company and Lilly entered into a collaboration agreement for the global
development and commercialization of exenatide. The agreement was amended in 2006.
This
agreement includes BYETTA and any sustained release formulations of exenatide
such as once weekly exenatide, the Companys once-weekly formulation of
exenatide for the treatment of type 2 diabetes. Under the terms of the agreement,
operating profits from products sold in the United States are shared equally
between Lilly and us. In 2005, the Company
received United States Food and Drug Administration (FDA) approval for the
twice-daily formulation of exenatide, which is marketed in the United States
under the trade name BYETTA. The
agreement provides for tiered royalties payable to us by Lilly based upon the
annual gross margin for all exenatide product sales, including any long-acting
release formulations, outside of the United States. Royalty payments for exenatide product sales
outside of the United States will commence after a one-time cumulative gross
margin threshold amount has been met. Lilly
is responsible for 100% of the costs related to development of twice-daily
BYETTA for sale outside of the United States.
Development costs related to all other exenatide products for sale
outside of the United States are allocated 80% to Lilly and 20% to us. Lilly is responsible for 100% of the costs
related to commercialization of all exenatide products for sale outside of the
United States.
At
signing, Lilly made initial non-refundable payments to the Company totaling $80
million, of which $50 million was amortized to revenues under collaborative
agreements prior to 2004.
The remaining $30
million is being amortized to
F-16
revenues ratably over a seven-year period, which
represents the Companys estimate of the period of its performance of
significant development activities under the agreement.
In addition to these up-front
payments, Lilly agreed to make future milestone payments of up to $85 million
upon the achievement of
certain
development milestones, including milestones relating to both twice daily and
sustained release formulations of exenatide such as exenatide once weekly, of
which $75 million have been paid through December 31, 2007. No additional development milestones may be
earned under the collaboration agreement.
In December 2007, the Company received milestone payments of $30
million associated with the results of a thirty week comparator study of
exenatide once weekly and BYETTA in patients with type 2 diabetes. Since the New Drug Application filing for
exenatide once weekly did not occur by December 31, 2007,
Lilly is
entitled to and in February 2008 elected to convert the milestones into
shares of the Companys common stock.
The milestones will be converted into 0.8 million shares of the Companys
common stock at a conversion price equal to $37.9535, the immediately preceding
twenty day average closing market price of the Companys common stock on December 31,
2007.
Due to
Lillys right to convert these milestones, they were deferred and are included in other current
liabilities at December 31, 2007.
Lilly also agreed to make
additional future milestone payments of up to $130 million contingent upon the
commercial launch of exenatide in selected territories throughout the world,
including both twice-daily and sustained release formulations, of which $40
million have been paid and recorded as revenue through December 31, 2007.
The following table summarizes
the milestones received to date and the manner of recognition in the
accompanying consolidated financial statements:
Amount
|
|
Year
Received
|
|
Milestone event
|
|
Manner of recognition
|
|
Type
|
$
|
30
million
|
|
2003
|
|
Completion of
Phase 3 clinical trials for BYETTA.
|
|
Recognized as
revenue under collaborative agreements upon receipt.
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
$
|
5 million
|
|
2003
|
|
Completion of
Phase 3 clinical trials for BYETTA.
|
|
Deferred upon
receipt and recognized as revenue under collaborative agreements in 2005
following contents of approved label for BYETTA.
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
$
|
5 million
|
|
2004
|
|
Results of
clinical study comparing BYETTA to insulin-glargine.
|
|
Recognized as
revenue under collaborative agreements upon filing of BYETTA New Drug
Application in 2004.
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
$
|
30 million
|
|
2005
|
|
Regulatory
approval and commercial launch of BYETTA.
|
|
Recognized as
revenue under collaborative agreements upon commercial launch of BYETTA in
2005.
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
$
|
5 million
|
|
2007
|
|
Results of
clinical study comparing BYETTA to insulin-glargine.
|
|
Recognized as
revenue under collaborative agreements upon receipt.
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
$
|
10 million
|
|
2007
|
|
Commercial
launch of BYETTA in the EU.
|
|
Recognized as
revenue under collaborative agreements upon commercial launch of BYETTA in
2007.
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
$
|
30 million
|
|
2007
|
|
Completion of
Phase 3 trial for once weekly exenatide.
|
|
Deferred upon
receipt until stock conversion rights contingency finalized. (1)
|
|
Development
|
(1) In February 2008, Lilly elected to
convert these milestones into shares of the Companys common stock.
The Company recorded revenue
under this collaborative agreement of $78.8 million, $36.8 million and $53.8
million in the years ended December 31, 2007, 2006 and 2005, respectively,
and incurred reimbursable development expenses of $100.5 million, $74.7 million
and $37.4 million in the years ended December 31, 2007, 2006 and 2005,
respectively.
F-17
Reimbursable development expenses consist of direct
internal and external expenses for exenatide, including both BYETTA and
sustained release formulations.
Collaboration with Alkermes, Inc.
In May 2000,
the Company signed an agreement with Alkermes, Inc., a company
specializing in the development of products based on proprietary drug delivery
technologies, for the development, manufacture and commercialization of an injectable
long-acting formulation of exenatide, or exenatide once weekly.
Under
the terms of the agreement, Alkermes has granted the Company an exclusive,
worldwide license to its Medisorb
®
technology for the development and commercialization of injectable sustained
release formulations of exendins, such as exenatide, and other related
compounds that Amylin may develop. In
exchange, Alkermes receives funding for research and development and may earn
future milestone payments upon achieving specified development and commercialization goals. Alkermes will also receive royalties on any
future product sales.
In October 2005, the
Company and Alkermes Controlled Therapeutics II, a wholly owned subsidiary of
Alkermes, Inc., entered into an Amendment to Development and License
Agreement (the Amendment), which amends the Development and License Agreement
between the parties dated May 15, 2000.
Under the terms of the Amendment, the Company will be responsible for
manufacturing for commercial sale the once weekly dosing formulation of
exenatide once weekly, if approved. The
royalty to be paid from the Company to Alkermes for commercial sales of
exenatide once weekly was adjusted to reflect the new manufacturing
arrangement.
In December 2005,
the Companys wholly-owned subsidiary, Amylin Ohio LLC, purchased an existing
building and land to house the facility and the Company is responsible for all
costs and expenses associated with the design, construction, validation and
utilization of the facility. The Company
expects to complete the commercial-scale manufacturing process in the second
half of 2008 at a total cost of up to approximately $500 million. At December 31, 2007 the Company had
capitalized $275.1 million associated with the construction of this facility.
Other Collaborations
In connection with its
strategic equity investments, the Company has entered into collaborative
agreements with certain of its equity method investees. Collaborative revenues associated with these
agreements were $0.7 million for the year ended December 31, 2007.
5.
Commitments and Contingencies
Lease Commitments
The
Company leases its facilities under operating leases, with various terms, the
majority of which expire between 2015 and 2019.
The minimum annual rent on the Companys facilities is subject to
increases based on stated rental adjustment terms of certain leases, taxes,
insurance and operating costs. For
financial reporting purposes, rent expense is recognized on a straight-line basis
over the term of the leases. Accordingly,
rent expense recognized in excess of rent paid is reflected as deferred
rent. Deferred rent totaled $9.8 million
and $6.4 million at December 31, 2007 and 2006, respectively, of which
$8.7 million and $5.5 million is included in other long-term obligations, net
of current portion in the accompanying consolidated balance sheets at December 31,
2007 and 2006, respectively. Certain of
the Companys facility leases contain incentives in the form of reimbursement
from the landlord for a portion of the costs of leasehold improvements incurred
by the Company. These incentives are
recognized as a reduction of rental expense on a straight-line basis over the
term of the respective leases.
Unamortized leasehold improvement incentives totaled $14.0 million and
$2.6 million at December 31, 2007 and 2006, respectively, of which $12.5
million and $2.3 million is included in other long-term obligations, net of
current portion in the accompanying consolidated balance sheets at December 31,
2007 and 2006, respectively.
The Company leases vehicles for its field force under
operating leases, with lease terms up to four years, of which the first year is
non-cancellable. Minimum future payments
for the non-cancellable term of these leases are $0.9 million at December 31,
2007.
F-18
Minimum future annual obligations for facility and
vehicle operating leases for years ending after December 31, 2007 are as
follows (in thousands):
2008
|
|
$
|
17,625
|
|
2009
|
|
15,341
|
|
2010
|
|
13,783
|
|
2011
|
|
14,186
|
|
2012
|
|
14,542
|
|
Thereafter
|
|
50,327
|
|
Total minimum lease payments
|
|
$
|
125,804
|
|
Rent
expense for the years ended December 31, 2007, 2006 and 2005, was $16.2
million, $9.8 million and $10.1 million, respectively.
Other
Commitments
The
Company has committed to make potential future milestone payments to third
parties as part of in-licensing and development programs primarily related to
research and development agreements.
Potential future payments generally become due and payable only upon the
achievement of certain developmental, regulatory and/or commercial milestones,
such as achievement of regulatory approval, successful development and
commercialization of products, and subsequent product sales. Because the achievement of these milestones
is neither probable nor reasonably estimable, the Company has not recorded a
liability on the balance sheet for any such contingencies.
As of December 31,
2007, if all such milestones are successfully achieved, the potential future
milestone and other contingency payments due under certain contractual
agreements are approximately $288 million in aggregate, of which $9 million are
expected to be paid over the next twelve months.
The
Company has committed to make future minimum payments to third parties for
certain inventories in the normal course of business. The minimum contractual purchase commitments
total $56.1 million as of December 31, 2007, the majority of which relate
to BYETTA.
6.
Convertible Senior Notes
In April 2004,
the Company issued $200 million aggregate principal amount of 2.5% convertible
senior notes due April 15, 2011 in a private placement, referred to as the
2004 Notes. The 2004 Notes have been
registered under the Securities Act of 1933, as amended, or the Securities Act,
to permit registered resale of the 2004 Notes and of the common stock issuable
upon conversion of the 2004 Notes. The
2004 Notes bear interest at 2.5% per year, payable in cash semi-annually and
are convertible into a total of up to 5.8 million shares of common stock at a
conversion price of $34.35 per share, subject to customary adjustments for
stock dividends and other dilutive transactions. The Company incurred debt issuance costs of
$6.4 million in connection with the issuance of the 2004 Notes, which are being
amortized to interest expense on a straight-line basis over the term of the
2004 Notes and had a net book value of $3.0 million and $3.9
million at December 31, 2007 and 2006,
respectively. Amortization expense
associated with these debt issuance costs were approximately $0.9 million for
each of the years ended December 31, 2007, 2006 and 2005. The fair value of the 2004 Notes, determined
by observed market prices, was $249.9
million and
$252.0 million at December 31, 2007 and 2006, respectively.
Upon a change in control,
the holders of the 2004 Notes may elect to require the Company to re-purchase
the 2004 Notes. The Company may elect to
pay the purchase price in common stock instead of cash, or a combination
thereof. If paid with common stock the number of shares of common stock a
holder will receive will be valued at 95% of the average closing prices of the
Companys common stock for the five-day trading period ending on the third
trading day before the purchase date.
In June 2007, the
Company issued the 2007 Notes in a private placement, which have an aggregate
principal amount of $575 million, and are due June 15, 2014. The 2007 Notes are senior unsecured
obligations and rank equally with all other existing and future senior unsecured
debt. The 2007 Notes bear interest at
3.0% per year, payable in cash semi-annually, and are initially convertible
into a total of up to 9.4 million shares of common stock at a conversion price
of $61.07 per share, subject to the customary adjustment for stock dividends
and other dilutive transactions. In
addition, if a fundamental change (as defined in the associated indenture
agreement) occurs prior to the maturity date, the Company will in some cases
F-19
increase the conversion
rate for a holder of notes that elects to convert its notes in connection with
such fundamental change. The maximum
conversion rate is 22.9252, which would result in a maximum issuance 13.2 million
shares of common stock if all holders converted at the maximum conversion rate.
The 2007 Notes will be
convertible into shares of the Companys common stock unless the Company elects
net-share settlement. If net-share
settlement is elected by the Company, the Company will satisfy the accreted
value of the obligation in cash and will satisfy the excess of conversion value
over the accreted value in shares of the Companys common stock based on a
daily conversion value, determined in accordance with the associated indenture
agreement, calculated on a proportionate basis for each day of the relevant
20-day observation period. Holders may
convert the 2007 Notes only in the following circumstances and to the following
extent: (1) during the five business-day period after any five consecutive
trading period (the measurement period) in which the trading price per note for
each day of such measurement period was less than 97% of the product of the
last reported sale price of the Companys common stock and the conversion rate
on each such day; (2) during any calendar quarter after the calendar
quarter ending March 31, 2007, if the last reported sale price of the
Companys common stock for 20 or more trading days in a period of 30
consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter exceeds 130% of the applicable conversion price in
effect on the last trading day of the immediately preceding calendar quarter; (3) upon
the occurrence of specified events; and (4) the 2007 Notes will be
convertible at any time on or after April 15, 2014 through the scheduled
trading day immediately preceding the maturity date.
Subject to certain
exceptions, if the Company undergoes a designated event (as defined in the
associated indenture agreement) including a fundamental change, holders of
the 2007 Notes will, for the duration of the notes, have the option to require
the Company to repurchase all or any portion of their 2007 Notes. The
designated event repurchase price will be 100% of the principal amount of the
2007 Notes to be purchased plus any accrued interest up to but excluding the
relevant repurchase date. The Company
will pay cash for all notes so repurchased.
The Company may not redeem the Notes prior to maturity.
The 2007 Notes have been
registered under the Securities Act of 1933, as amended, to permit registered
resale of the 2007 Notes and of the common stock issuable upon conversion of
the 2007 Notes. Subject to certain
limitations, the Company will be required to pay the holders of the 2007 Notes
special interest on the 2007 Notes if the Company fails to keep such
registration statement effective during specified time periods. The 2007 Notes pay interest in cash,
semi-annually in arrears on June 15 and December 15 of each year,
which began on December 15, 2007.
The Company incurred debt issuance costs of $16.3 million in connection
with the issuance of the 2007 Notes, which are being amortized to interest
expense on a straight-line basis over the term of the 2007 Notes and had a net
book value of $15.0 million at December 31, 2007. Amortization expense associated with these
debt issuance costs was $1.3 million in the year ended December 31,
2007. The fair value of the 2007 Notes,
determined by observed market prices, was $549.3
million
at December 31, 2007.
The Company capitalized
$4.5 million and $0.6 million of interest expense for the years ended December 31,
2007 and 2006, respectively, associated with construction in progress.
7.
Redemption
of Convertible Senior Notes
In June and July 2003,
the Company issued $175 million of 2.25% convertible senior notes due June 30,
2008 in a private placement referred to as the 2003 Notes. The 2003 Notes were convertible into a total
of up to 5.4 million shares of common stock at a conversion price of approximately
$32.55 per share. The 2003 notes were
provisionally redeemable in whole or in part, at the Companys option at any
time on or after June 30, 2006, upon the satisfaction of certain
conditions, at specified redemption prices plus accrued interest. The Company called the notes for redemption
in July 2006 and issued approximately 5.4 million shares of its common
stock to note holders upon the conversion of all of the outstanding 2003 Notes
in August 2006. In connection with
the conversion, the Company also issued 180,005 shares as a make-whole payment,
representing $112.94 per $1,000 principal value of the converted 2003 Notes
less interest actually paid. The Company
recorded as a one-time, non-cash, non-operating charge of $7.9 million for the
make-whole payment in the quarter ended September 30, 2006. Debt issuance costs of $5.3 million were
incurred in connection with the issuance of the 2003 Notes and were being
amortized to interest expense on a straight-line basis over the contractual
term of the 2003 Notes. Amortization
expense associated with these debt issuance costs were $0.7 million and $1.0
million in the years ended December 31, 2006 and 2005, respectively. Upon conversion, the $2.0 million unamortized
balance of these related debt issuance costs were reclassified to additional
paid-in capital.
F-20
8.
Long-Term
Note Payable
In December 2007, the
Company
entered into a $140 million
credit agreement with Bank of America, N.A., as administrative agent,
collateral agent and letter of credit issuer, Silicon Valley Bank and RBS Asset
Finance, Inc., as syndication agents, and Comerica Bank and BMO Capital
Markets Financing, Inc., as documentation agents. The credit
agreement provides for a $125 million term loan and a $15 million revolving
credit facility. The proceeds of both loans will be used for general
corporate purposes. The revolving credit
facility also provides for the issuance of letters of credit and foreign
exchange hedging up to the $15 million borrowing limit. At December 31, 2007 the Company had an
outstanding balance of $125.0 million under the term loan and had issued $5.2
million of letters of credit under the revolving credit facility, primarily in
connection with office leases.
The Companys domestic
subsidiaries, Amylin Ohio LLC and Amylin Investments LLC, will be co-borrowers
under the credit agreement. The loans under the revolving credit facility
will be secured by substantially all of the Companys and the two domestic
subsidiaries assets (other than intellectual property and certain other
excluded collateral). The term loan is repayable on a quarterly
basis, with no payments due quarters one through four, 6.25% of the outstanding
principal due quarters five through eleven, and 56.25% of the outstanding
principal due in quarter 12. Interest on
the term loan will be paid quarterly on the unpaid principal balance at 1.75%
above the London Interbank Offered Rate, or LIBOR, based on the Companys
election of either one, two, three, or six months LIBOR term, and payable at
the end of the selected interest period but no less frequently than quarterly
as of the first business day of the quarter prior to the period in which the
quarterly installment is due. The Company
has elected to use the three month LIBOR, which was 4.85% at December 31,
2007. Interest periods on the revolving
credit facility may be either one, two, three, or six months, and payable at
the end of the selected interest period but no less frequently than quarterly,
and the interest rate will be either LIBOR plus 1.0% or the Bank of America
prime rate, as selected by the Company.
Both loans have a final maturity date of December 21, 2010.
The credit agreement
contains certain covenants, including a requirement to maintain minimum
unrestricted cash and cash equivalents in excess of $400 million, and events of
default that permit the administrative agent to accelerate the Companys
outstanding obligations if not cured within applicable grace periods, including
nonpayment of principal, interest, fees or other amounts, violation of
covenants, inaccuracy of representations and warranties, and default under
other indebtedness. In addition, the credit agreement provides for
automatic acceleration upon the occurrence of bankruptcy and other insolvency
events. There is an annual commitment
fee associated with the revolving credit facility of 0.25%.
Maturities of long-term debt for years ending after December 31,
2007 are as follows (in thousands):
2008
|
|
$
|
|
|
2009
|
|
31,250
|
|
2010
|
|
93,750
|
|
Thereafter
|
|
|
|
Total minimum long-term debt payments
|
|
$
|
125,000
|
|
The Company incurred debt
issuance costs of $1.5 million in connection with the credit agreement, which
are being amortized to interest expense on a straight-line basis over the term
of the credit agreement and had a net book value of $1.5 million at December 31,
2007. Amortization expense associated
with these debt issuance costs was $15.3 thousand in the year ended December 31,
2007.
In connection with the
execution of the term loan, the Company entered into an interest rate swap with
an initial notional amount of $125 million on December 21, 2007. The Company will make payments to a
counter-party at 3.967% and receive payments at LIBOR which is reset every
three months, the first reset date being December 21, 2007. Payments will be made on the 21
st
of each March, June, September, and December, commencing on March 21, 2008
for the period December 21, 2007 through March 21, 2008. The recognized loss on the interest rate swap
for the year ending December 31, 2007 was $0.4 million. The interest rate swap has resulted in an
all-in fixed rate of 5.717% for net interest receipts and payments for the term
loan and interest rate swap transactions.
F-21
9.
Stockholders Equity (Deficit)
Stock-based
Compensation Plans
Stock Option Plans
The Company has two stock
option plans under which it currently grants stock options: the 2001 Equity
Incentive Plan, or the 2001 Plan, which replaced the 1991 Stock Option Plan, or
the 1991 Plan, upon the 1991 Plans expiration in October 2001, and the
2003 Non-Employee Directors Stock Option Plan, or the 2003 Directors
Plan. Under the 2003 Directors Plan,
non qualified stock options and restricted stock may be granted to non-employee
directors of the Company. The 2003
Directors Plan provides for automatic stock option grants to non-employee
directors upon their initial appointment or election to the Companys Board of
Directors and are issued from shares authorized under the 2001 Plan. Options granted under the 1991 Plan remain
outstanding until exercised or cancelled.
To date, stock-based
compensation awards under the 1991 Plan, the 2001 Plan and the 2003 Directors
Plan consist primarily of incentive and non-qualified stock options. Stock options granted under the 2001 Plan and
the 2003 Directors Plan must have an exercise price equal to at least 100% of
the fair market value of the Companys common stock on the date of grant, have
a maximum contractual term of 10 years and generally vest over four years. At December 31, 2007, an aggregate of
21.2 million shares were reserved for future issuance under the Companys stock
option plans, of which 4.0 million shares were available for future
grants. A summary of stock option
transactions for all stock option plans is presented below:
|
|
Shares
(thousands)
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual
Term (years)
|
|
Aggregate Intrinsic
Value (thousands)
|
|
Options
outstanding at December 31, 2006
|
|
16,213
|
|
$
|
23.10
|
|
|
|
|
|
Granted
|
|
4,092
|
|
$
|
38.60
|
|
|
|
|
|
Exercised
|
|
(2,585
|
)
|
$
|
15.16
|
|
|
|
|
|
Cancelled/Forfeited
|
|
(553
|
)
|
$
|
33.00
|
|
|
|
|
|
Options
outstanding at December 31, 2007
|
|
17,167
|
|
$
|
27.67
|
|
7.05
|
|
$
|
182,916
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2007
|
|
9,569
|
|
$
|
21.64
|
|
5.94
|
|
$
|
153,915
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest
|
|
16,376
|
|
$
|
27.25
|
|
6.97
|
|
$
|
180,740
|
|
The total intrinsic value
of stock options exercised was $72.9 million, $74.8 million and $28.6 million
during the years ended December 31, 2007, 2006 and 2005,
respectively. The Company received cash
from the exercise of stock options of $37.4 million, $31.6
million,
and $16.0
million during the years ended December 31,
2007, 2006 and 2005, respectively. The
Company did not record any tax benefits related to the exercise of employee
stock options due to its net loss position.
Upon option exercise, the Company issues new shares of its common stock.
At December 31,
2007, total unrecognized estimated non-cash, stock-based compensation expense
related to nonvested stock options granted prior to that date was $113.1
million, with a weighted-average amortization period of 2.5 years. The Company records non-cash, stock-based
compensation expense for options with pro-rata vesting on a straight-line basis
over the awards vesting period.
Employee
Stock Purchase Plan
The Companys 2001
Employee Stock Purchase Plan, or the 2001 Purchase Plan, enables participants
to contribute up to 15% of their eligible compensation for the purchase of the
Companys common stock at the lower of 85% of the fair market value of the
Companys common stock (i) on the employees enrollment date or (ii) the
purchase date. The terms of any
offerings under the 2001 Purchase Plan are established by the Compensation and
Human Resources Committee of the Board of Directors. In May 2006, the Compensation and Human
Resources Committee approved a series of four consecutive six-month offerings
commencing on September 1, 2006. At
December 31, 2007, 1.4
million
shares were reserved for future issuance under the 2001 Purchase Plan.
F-22
The total intrinsic value
of purchase rights exercised was $1.5 million, $10.4 million and $0.6
million
during the
years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007, total unrecognized
non-cash, compensation expense for nonvested purchase rights granted prior to
that date was $0.5 million, with a weighted-average amortization period of 0.2
years.
Shares Reserved for Future Issuance
The
following shares of common stock are reserved for future issuance at December 31,
2007 (in thousands):
Stock Option Plans
|
|
21,216
|
|
Employee Stock Purchase Plan
|
|
1,412
|
|
Directors Deferred Compensation Plan
|
|
12
|
|
401(k) Plan
|
|
220
|
|
Convertible Senior Notes
|
|
15,238
|
|
|
|
38,098
|
|
Issuance of Common Stock
In April 2006, the
Company completed a public offering of 11.5 million shares of its common stock
at a price of $46.50 per share. This
transaction generated net proceeds of approximately $508 million for the
Company and was completed pursuant to a shelf registration statement filed with
Securities and Exchange Commission in March 2006.
In February 2005,
the Company completed a public offering of 9.2 million shares of its common
stock at a price of $22.00 per share.
This transaction generated net proceeds of approximately $190 million
for the Company and was completed pursuant to a $300 million universal shelf
registration statement initially filed with Securities and Exchange Commission
in December 2003.
In September 2005,
the Company completed a public offering of 5.1 million shares of its common
stock at a price of $31.00 per share. This
transaction generated net proceeds of approximately $152 million for the
Company and was completed pursuant to shelf registration statements previously
filed with Securities and Exchange Commission in 2001 and 2003.
Shareholder Rights Plan
In June 2002, the Company adopted a Preferred Share
Purchase Rights Plan (the Rights Plan).
The Rights Plan provides for a dividend distribution of one preferred
stock purchase right (a Right) for each outstanding share of the Companys
common stock, par value $0.001 per share, held of record at the close of
business on June 28, 2002. The
Rights are not currently exercisable.
Under certain conditions involving an acquisition or proposed
acquisition by any person or group of 15% or more of the Companys common
stock, the Rights permit the holders (other than the 15% holder) to purchase
one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $0.001 per share (the Preferred Shares) at a price of $100
per one one-hundredth of a Preferred Share, subject to adjustment. Each one one-hundredth of a share of
Preferred Shares has designations and powers, preferences and rights and the
qualifications, limitations and restrictions which make its value approximately
equal to the value of one share of the Companys common stock. Under certain conditions, the Rights are
redeemable by the Companys Board of Directors in whole, but not in part, at a
price of $0.001 per Right.
10. Benefit Plans
Defined Contribution 401(k) Plan
The
Company has a defined contribution 401(k) plan for the benefit of all
eligible employees. Discretionary matching contributions are based on a
percentage of employee contributions and are funded by newly issued shares of
the Companys common stock. The fair
market value of matching contributions made by the Company for the benefit of
its employees in 2007, 2006 and 2005 were $4.4 million, $6.0 million and $2.7
million, respectively.
F-23
Deferred Compensation Plans
In August 1997,
the Company adopted a Non-Employee Directors Deferred Compensation Plan (the Directors
Deferral Plan) that permits participating non-employee directors to elect, on
an annual basis, to defer all or a portion of their cash compensation in a
deferred stock account, pursuant to which the deferred fees are credited in the
form of phantom shares of the Companys common stock, based on the market price
of the stock at the time the fees are earned.
Deferred amounts are valued at the fair market value of the Companys
common stock at each reporting date and are included in accrued compensation in
the accompanying consolidated balance sheets.
Upon termination of service the directors account is settled in either
cash or stock, at the Companys discretion.
The Company recorded expense associated with this plan of $0.8 million,
$0.1 million and $1.3 million for the years ended December 31, 2007, 2006
and 2005, respectively.
The Company adopted a
Deferred Compensation Plan in April 2001, which allows officers and
directors to defer up to 100% of their annual compensation. The trust assets, consisting of primarily
cash, mutual funds and equity securities are recorded at current market prices. The company-owned assets are placed in a rabbi
trust and are included in other current assets in the accompanying
consolidated balance sheets. The trust
assets had a fair value of $9.3 million and $6.1 million at December 31,
2007 and 2006, respectively, including unrealized gains of approximately
$0.8 million at both December 31, 2007 and 2006. Unrealized gains on the trust assets are
included in accumulated other comprehensive income (loss) in the accompanying
consolidated balance sheets. The corresponding
liability was $9.3 million and $6.1 million at December 31, 2007 and 2006,
respectively, of which $8.6 million and $6.1 million are included in other
long-term liabilities, net of current portion in the accompanying consolidated
balance sheets at December 31, 2007 and 2006, respectively. The current portion of the corresponding
liability is included in accrued compensation in the accompanying consolidated
balance sheets at December 31, 2007 and 2006. Total contributions to this plan, consisting
solely of compensation deferred by participants, were $3.0 million, $1.0
million and $1.2 million for the years ended December 31, 2007, 2006 and
2005, respectively.
Employee Stock Ownership Plan
In December 2007,
the Company adopted an Employee Stock Ownership Plan, or ESOP. Active employees who are at least 18 years
old and have met minimum service requirements are eligible to participate. Each participant has an account with the
ESOP, in which mandatory contributions of 10% of a participants eligible
compensation are made by the Company.
The Company may make discretionary contributions for any plan year, and
contributions are limited to the lesser of 100% of a participants plan year
compensation and limitations established by the Internal Revenue Service Code
(IRS Code). A participants compensation primarily includes wages and bonus.
Any
cash dividends paid with respect to shares of the Companys stock allocated to
a participants account may be used to purchase new shares of the Companys
stock, paid by the Company directly in cash to participants on a
non-discriminatory basis. Any stock
dividends paid with respect to shares of the Companys stock allocated to a
participants account will be held and distributed in the same manner as the
shares of the Companys stock to which such stock dividend applies.
Participants
vest in their accounts over four years of service, at 25% for more than one
year of service but less than two years, at 50% for more than two years of
service but less than three years, at 75% for more than three years of service
but less than four years, and 100% for more than four years of service. Any forfeitures of non-vested amounts shall
be used to restore any rehired employees who previously forfeited their
nonvested balance under certain circumstances, or shall be used to reduce future
employer contributions and shall be allocated to the participant accounts. Distributions are made upon termination of
employment, when a participant is age 55 and has at least ten years of
participation in the ESOP, when the participant is seventy and one-half and is
not a five percent owner or the year after a participant is seventy and
one-half and is a five percent owner, upon termination of the ESOP, and as
necessary by regulatory requirements.
Shares committed
to be released or that have been allocated to participant accounts are treated
as outstanding shares for calculating earnings per share. At December 31, 2007 the ESOP held no
shares. The Company accrued
approximately $17.2 million at December 31, 2007 of expense for the ESOP
for the Companys 2007 contribution, which is included in other current
liabilities in the accompanying consolidated balance sheets, and will be funded
by contribution of newly issued shares in 2008.
F-24
11. Income Taxes
The provision (benefit) for income taxes includes the
following (in thousands):
|
|
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Current provision:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State
|
|
38
|
|
|
|
|
|
Foreign
|
|
30
|
|
17
|
|
|
|
Total current provision
|
|
68
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (benefit) provision:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
State
|
|
(1,117
|
)
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
Total deferred (benefit) provision
|
|
(1,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision
|
|
$
|
(1,049
|
)
|
$
|
17
|
|
$
|
|
|
These amounts are included in Interest and other
expense in the consolidated statements of operations.
The deferred state income tax benefit reflects the Texas
margin tax (TMT) credit available to offset future margin taxes over the next
19 years.
The Company estimates
that its future TMT liability will be based on its gross revenues in Texas,
rather than its apportioned taxable income. Therefore, it is more likely than
not that the Companys TMT credit will be recovered and, accordingly, the Company
has not established a valuation allowance against this asset.
Deferred income taxes reflect the temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes and the net tax effects
of net operating loss and credit carryforwards.
Significant components of the Companys deferred tax assets as of December 31,
2007 and 2006 are shown below (in thousands).
A valuation allowance of approximately $585 million has been recognized
at December 31, 2007 to offset the deferred tax assets, as realization of
such assets has not met the more likely than not threshold under SFAS No. 109,
Accounting for Income Taxes.
|
|
2007
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
412,349
|
|
$
|
347,257
|
|
Research tax credits
|
|
58,845
|
|
67,667
|
|
Capitalized research and development expenses
|
|
54,253
|
|
73,824
|
|
Stock compensation expense
|
|
18,011
|
|
9,509
|
|
Other, net
|
|
42,805
|
|
36,726
|
|
Total deferred tax assets
|
|
586,263
|
|
534,983
|
|
Valuation allowance for deferred tax assets
|
|
(585,146
|
)
|
(534,983
|
)
|
Net deferred tax assets
|
|
$
|
1,117
|
|
$
|
|
|
The
net deferred tax assets are included in Other long-term assets in the
accompanying consolidated balance sheets.
F-25
Following
is a summary of the Companys Federal net operating loss carryforwards, Federal
research tax credit carryforwards and California net operating loss
carryforwards at December 31, 2007 (in thousands):
|
|
Federal net operating
loss carryforwards
|
|
California net
operating loss
carryforwards
|
|
Federal research and
development tax credit
carryforwards
|
|
Expiring within
one year
|
|
$
|
18,837
|
|
$
|
|
|
$
|
1,066
|
|
After 1 but
within 5 years
|
|
148,830
|
|
20,961
|
|
5,048
|
|
After 5 but
within 10 years
|
|
|
|
498,875
|
|
|
|
After 10 years
|
|
998,713
|
|
|
|
59,942
|
|
|
|
$
|
1,166,380
|
|
$
|
519,836
|
|
$
|
66,056
|
|
Changes
in control have occurred that triggered the limitations of Section 382 of
the Internal Revenue Code on the Companys net operating loss
carryforwards. The Section 382
limitations were immaterial to the Companys total net operating losses and are
reflected in the net operating loss of $1.2 billion presented above.
At December 31,
2007, the Company had Federal net operating loss carryforwards of approximately
$1.2 billion, which begin to expire in 2008.
The Company also has California net operating loss carryforwards of
approximately $520 million, which begin to expire in 2011, and other state net
operating loss carryforwards of approximately $231 million, which begin to
expire in 2010. The difference between
the Federal and California tax loss carryforwards is attributable to the
capitalization of research and development expenses for California tax
purposes, the prior years limitation on California loss carryforwards and
apportionment of losses to other states.
The Company has Federal research tax credit carryforwards of $66
million, which begin to expire in 2008, and California research tax credit
carryforwards of $28 million, which carry forward indefinitely.
The
reconciliation between the Companys effective tax rate and the federal
statutory rate is as follows:
|
|
Tax rate for the years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Federal statutory rate applied to net loss before income tax (benefit)
provision
|
|
(35.0
|
)%
|
(35.0
|
)%
|
(35.0
|
)%
|
State taxes
|
|
|
|
(4.0
|
)%
|
(6.6
|
)%
|
Research and
development tax credits
|
|
(3.0
|
)%
|
(3.2
|
)%
|
(2.2
|
)%
|
Stock-based
compensation
|
|
4.2
|
%
|
4.6
|
%
|
|
|
Increase in
valuation allowance
|
|
30.9
|
%
|
35.1
|
%
|
43.4
|
%
|
Other
|
|
2.4
|
%
|
2.5
|
%
|
0.4
|
%
|
Effective tax
rate
|
|
(0.5
|
)%
|
|
%
|
|
%
|
The
state tax effects during 2007 and 2006 include the expiration of state net
operating loss carryforwards.
As a
result of the adoption of SFAS No. 123R, the Company recognizes windfall
tax benefits associated with the exercise of stock options directly to
stockholders equity only when realized. Accordingly, deferred tax assets are
not recognized for net operating loss carryforwards resulting from windfall tax
benefits occurring from January 1, 2006 onward. A windfall tax benefit occurs when the actual
tax benefit realized upon an employees disposition of a share-based award
exceeds the deferred tax asset, if any, associated with the award. At December 31, 2007, deferred tax
assets do not include $44 million of excess tax benefits from stock-based
compensation.
Income
taxes paid during the years ended December 31, 2007 and 2006 totaled $30
thousand and $17 thousand, respectively.
No income taxes were paid during 2005.
In July 2006,
the FASB issued Interpretation No. 48 (FIN 48)
Accounting
for Uncertainty in Income Taxes
-
An
Interpretation of FASB Statement No. 109.
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an entitys financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes,
and
prescribes a recognition threshold and measurement attributes for financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. Under FIN 48, the impact of an
uncertain income tax position on the income tax return must be recognized at
the largest amount that is more-likely-than-not to be sustained upon audit by
the relevant taxing authority. An
uncertain income tax position will not be recognized if it has less than a 50%
likelihood of being sustained. Additionally, FIN 48 provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
F-26
The
Company adopted the provisions of FIN 48 on January 1, 2007. No unrecognized tax benefits were recorded as
of the date of adoption. As a result of
the implementation of FIN 48, the Company recognized a $23.6 million increase
in unrecognized tax benefits which was accounted for as a reduction to deferred
tax assets (primarily related to reductions in tax credits) and a corresponding
reduction to the valuation allowance, resulting in no net effect on accumulated
deficit.
The
reconciliation of the total amounts of unrecognized tax benefits at the
beginning and end of the year ended December 31, 2007 is as follows (in
thousands):
|
|
2007
|
|
Reconciliation of unrecognized tax benefits:
|
|
|
|
Unrecognized tax benefits related to reductions in tax credits as of
January 1, 2007
|
|
$
|
23,645
|
|
Increase in unrecognized tax benefits related to reductions in tax
credits as a result of tax positions taken during a prior period
|
|
339
|
|
Increase in unrecognized tax benefits related to reductions in tax credits
as a result of tax positions taken during the current period
|
|
5,929
|
|
Unrecognized tax benefits related to reductions in tax credits as of
December 31, 2007
|
|
$
|
29,913
|
|
The
balance of unrecognized tax benefits at December 31, 2007 of $29.9 million
are tax benefits that, if recognized, would not affect the Companys effective
tax rate since they are subject to a full valuation allowance. The net effect on the deferred tax assets and
corresponding decrease in the valuation allowance at December 31, 2007
resulting from unrecognized tax benefits is $19.4 million. The Company has not recognized any accrued
interest and penalties related to unrecognized tax benefits during the years
ended December 31, 2007, 2006 and 2005.
The Company is subject to taxation in the United States and various
states and foreign jurisdictions.
Effectively, all of the Companys historical tax years are subject to
examination by the Internal Revenue Service and various state and foreign
jurisdictions due to the generation of net operating loss and credit
carryforwards. The Company does not
foresee any material changes to unrecognized tax benefits within the next
twelve months. The Company will elect a
treatment for interest and penalties when they occur.
12. Quarterly
Financial Data (Unaudited)
The
following financial information reflects all normal recurring adjustments,
which are, in the opinion of management, necessary for a fair statement of the
results of the interim periods.
Summarized quarterly data for fiscal 2007 and 2006 are as follows (in
thousands, except per share data):
|
|
For the quarters ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2007:
|
|
|
|
|
|
|
|
|
|
Net product
sales
|
|
$
|
162,003
|
|
$
|
167,337
|
|
$
|
177,391
|
|
$
|
194,719
|
|
Revenues under
collaborative agreements
|
|
9,975
|
|
29,616
|
|
12,637
|
|
27,319
|
|
Gross profit from product sales
|
|
146,793
|
|
152,975
|
|
163,641
|
|
172,584
|
|
Net loss
|
|
(49,414
|
)
|
(45,023
|
)
|
(39,758
|
)
|
(76,941
|
)
|
Basic and diluted net loss per share (1)
|
|
$
|
(0.38
|
)
|
$
|
(0.34
|
)
|
$
|
(0.30
|
)
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
Net product
sales
|
|
$
|
75,872
|
|
$
|
108,787
|
|
$
|
138,798
|
|
$
|
150,581
|
|
Revenues under
collaborative agreements
|
|
6,474
|
|
9,362
|
|
8,219
|
|
12,782
|
|
Gross profit from product sales
|
|
66,128
|
|
94,102
|
|
124,290
|
|
139,445
|
|
Net loss
|
|
(67,901
|
)
|
(46,394
|
)
|
(46,140
|
)
|
(58,421
|
)
|
Basic and diluted net loss per share (1)
|
|
$
|
(0.61
|
)
|
$
|
(0.38
|
)
|
$
|
(0.36
|
)
|
$
|
(0.45
|
)
|
(1) Net
loss per share is computed independently for each of the quarters
presented. Therefore, the sum of the
quarterly per-share calculations will not necessarily equal the annual per
share calculation.
F-27
Schedule
II
AMYLIN PHARMACEUTICALS, INC
Schedule II: Valuation Accounts
(in thousands)
|
|
Balance at
beginning of
period
|
|
Additions
|
|
Deductions
|
|
Balance at end of
period
|
|
Year ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Inventory
reserve
|
|
$
|
385
|
|
7,637
|
|
2,695
|
|
$
|
5,327
|
|
Accounts receivable allowances (1)
|
|
$
|
6,558
|
|
27,787
|
|
21,576
|
|
$
|
12,769
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
Inventory
reserve
|
|
$
|
1,618
|
|
3,481
|
|
4,714
|
|
$
|
385
|
|
Accounts
receivable allowances (1)
|
|
$
|
1,628
|
|
17,203
|
|
12,273
|
|
$
|
6,558
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Inventory
reserve
|
|
$
|
3,100
|
|
1,697
|
|
3,179
|
|
$
|
1,618
|
|
Accounts
receivable allowances (1)
|
|
$
|
|
|
3,293
|
|
1,665
|
|
$
|
1,628
|
|
(1) Allowances
for prompt payment, product returns, doubtful accounts and wholesaler
chargebacks.
F-28
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