UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarterly period ended June 30,
2008
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File Number: 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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(858) 552-2200
(Registrants telephone number, including
area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
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 whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer, and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
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Accelerated
filer
o
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Non-accelerated
filer
o
(Do not
check if a smaller reporting company)
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Smaller
reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
o
No
x
Indicate the number of shares outstanding of each of
the issuers classes of common stock, as of the latest practicable date.
Class
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Outstanding on July 25, 2008
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Common Stock, $.001 par value
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137,241,585
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AMYLIN PHARMACEUTICALS,
INC.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
AMYLIN PHARMACEUTICALS, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
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June 30,
2008
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December 31,
2007
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(unaudited)
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(Note 1)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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130,818
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$
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422,232
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Short-term investments
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760,046
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708,183
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Accounts receivable, net
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65,638
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73,579
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Inventories, net
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100,166
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100,214
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Other current assets
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33,480
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32,100
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Total current assets
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1,090,148
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1,336,308
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Property, plant and equipment, net
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548,290
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390,301
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Other long-term assets, net
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27,049
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28,082
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Debt issuance costs, net
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17,781
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19,520
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$
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1,683,268
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$
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1,774,211
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Liabilities and
Stockholders Equity
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Current liabilities:
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Accounts payable
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$
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41,202
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$
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37,530
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Accrued compensation
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48,369
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56,428
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Payable to collaborative partner
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61,429
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66,116
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Other current liabilities
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89,296
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122,924
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Current portion of deferred revenue
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4,286
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4,286
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Current portion of long-term note payable
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15,625
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Total current liabilities
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260,207
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287,284
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Other long-term obligations, net of current
portion
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32,270
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31,023
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Deferred revenue, net of current portion
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943
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3,086
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Long-term note payable, net of current portion
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109,375
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125,000
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Convertible senior notes
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775,000
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775,000
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Commitments and contingencies (Note 10)
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Stockholders equity:
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Common stock, $.001 par value, 450,000 shares
authorized, 137,221 and 135,044 issued and outstanding at June 30, 2008
and December 31, 2007, respectively
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137
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135
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Additional paid-in capital
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2,077,357
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1,987,453
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Accumulated deficit
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(1,567,933
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)
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(1,434,320
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)
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Accumulated other comprehensive loss
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(4,088
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)
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(450
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)
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Total stockholders equity
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505,473
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552,818
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$
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1,683,268
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$
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1,774,211
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See accompanying notes to
consolidated financial statements.
3
AMYLIN PHARMACEUTICALS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
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Three months ended
June 30,
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Six months ended
June 30,
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2008
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2007
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2008
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2007
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Revenues:
|
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Net product sales
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$
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200,335
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$
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167,337
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$
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379,056
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$
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329,340
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Revenues under collaborative agreements
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21,684
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29,616
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40,200
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39,591
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Total revenues
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222,019
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196,953
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419,256
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368,931
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Costs and expenses:
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Cost of goods sold
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24,682
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14,362
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46,706
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29,572
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Selling, general and administrative
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111,088
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93,121
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209,331
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180,908
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Research and development
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75,401
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71,691
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152,607
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131,255
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Collaborative profit sharing
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78,950
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70,355
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148,851
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137,302
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Total costs and expenses
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290,121
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249,529
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557,495
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479,037
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Operating loss
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(68,102
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)
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(52,576
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)
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(138,239
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)
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(110,106
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)
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Interest and other income
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6,974
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|
9,918
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|
18,004
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19,322
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|
Interest and other expense
|
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(3,688
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)
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(2,365
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)
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(13,378
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)
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(3,653
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)
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Net loss
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$
|
(64,816
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)
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$
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(45,023
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)
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$
|
(133,613
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)
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$
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(94,437
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)
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|
|
|
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Net loss per share, basic and diluted
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$
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(0.47
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)
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$
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(0.34
|
)
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$
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(0.98
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)
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$
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(0.72
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)
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|
|
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|
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|
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Shares used in computing net loss per share, basic
and diluted
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137,142
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131,774
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|
136,500
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131,416
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|
See accompanying notes to condensed consolidated financial statements.
4
AMYLIN PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Six months ended
June 30,
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2008
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|
2007
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Operating activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(133,613
|
)
|
$
|
(94,437
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)
|
Adjustments to reconcile net loss to net cash used
for operating activities:
|
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|
|
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Depreciation and amortization
|
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15,639
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|
9,042
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Stock-based compensation
|
|
29,002
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|
29,056
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|
Other non-cash expenses, net
|
|
2,124
|
|
899
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable, net
|
|
7,941
|
|
3,809
|
|
Inventories
|
|
48
|
|
(18,877
|
)
|
Other current assets
|
|
(2,557
|
)
|
(10,784
|
)
|
Accounts payable and accrued liabilities
|
|
1,902
|
|
21,664
|
|
Accrued compensation
|
|
13,220
|
|
(4,172
|
)
|
Payable to collaborative partner
|
|
(4,687
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)
|
5,893
|
|
Deferred revenue
|
|
(2,143
|
)
|
(2,143
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)
|
Other assets and liabilities, net
|
|
438
|
|
5,832
|
|
Net cash flows used for operating activities
|
|
(72,686
|
)
|
(54,218
|
)
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Purchases of short-term investments
|
|
(642,520
|
)
|
(291,494
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)
|
Sales and maturities of short-term investments
|
|
588,196
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|
231,016
|
|
Purchase of property, plant and equipment, net
|
|
(173,403
|
)
|
(141,979
|
)
|
Increase in other long-term assets
|
|
(510
|
)
|
(12,720
|
)
|
Net cash flows used for investing activities
|
|
(228,237
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)
|
(215,177
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)
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
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Issuance of common stock, net
|
|
9,509
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|
23,357
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|
Issuance of convertible senior notes, net
|
|
|
|
558,797
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|
Net cash flows provided by financing activities
|
|
9,509
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|
582,154
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(291,414
|
)
|
312,759
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
422,232
|
|
66,640
|
|
Cash and cash equivalents at end of period
|
|
$
|
130,818
|
|
$
|
379,399
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information:
|
|
|
|
|
|
Property, plant and equipment additions in other
current liabilities
|
|
$
|
13,702
|
|
$
|
2,759
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
Issuance of common stock for contingent share
settled obligation
|
|
$
|
30,000
|
|
$
|
|
|
Shares contributed as employer 401(k) match
|
|
$
|
4,284
|
|
$
|
5,819
|
|
Shares contributed to employee stock ownership
plan
|
|
$
|
16,996
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
AMYLIN PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
June 30, 2008
(unaudited)
1.
Summary
of Significant Accounting Policies
Basis of Presentation
The information contained herein has been prepared in
accordance with instructions for Form 10-Q and Article 10 of
Regulation S-X. The information as of June 30, 2008, and for the three
month and six month periods ended June 30, 2008 and 2007, are unaudited.
In the opinion of management, the information reflects all adjustments
necessary to make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a normal recurring
nature. Interim results are not necessarily indicative of results for a full
year. The balance sheet at December 31, 2007, has been derived from the
audited consolidated financial statements at that date but does not include all
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. For more complete financial
information, these financial statements should be read in conjunction with the
audited consolidated financial statements included in Amylin Pharmaceuticals, Inc.s
(referred to as the Company or Amylin) Annual Report on Form 10-K for the
year ended December 31, 2007.
Revenue Recognition
Net Product Sales
The Company sells BYETTA
®
(exenatide) injection
and SYMLIN
®
(pramlintide acetate) injection primarily to wholesale
distributors, who, in turn, sell to retail pharmacies 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 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
United States BYETTA and SYMLIN product sales. 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. Accordingly the Company
records 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. Amounts received for sharing 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.
Collaborative Profit-Sharing
Collaborative
profit-sharing represents Lillys 50% share of the gross margin for BYETTA
sales in the United States.
Accounts
Receivable
Trade accounts receivable
are recorded net of allowances for cash discounts for prompt payment, doubtful
accounts, product returns and chargebacks. 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 $0.3 million and $0.2 million at June 30, 2008 and December 31,
2007, respectively.
6
Research and Development
Expenses
Research and development costs are expensed
as incurred and include
salaries and bonuses, benefits, non-cash
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.
Per Share Data
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 3.2 million for both the three and six months ended June 30,
2008, and common stock equivalents of 8.1 million and 7.9 million from stock
options and warrants for the three and six months ended June 30, 2007,
respectively, are excluded from the calculation of diluted loss per share for
all periods presented because the effect is antidilutive. Common stock
equivalents from shares underlying our convertible senior notes of 15.2 million
for the three and six months ended June 30, 2008, and 8.1 million and 7.0
million for the three and six months ended June 30, 2007, respectively,
are also excluded from the calculation of diluted loss per share because the
effect is antidilutive. In future periods,
if the Company reports net income and the common share equivalents for our
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.
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)
revised Statement of Financial Accounting Standards (SFAS) No. 123 (SFAS
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 123R using the modified
prospective method. Under the modified prospective method, prior periods are
not revised for comparative purposes. The valuation provisions of SFAS 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 123,
Accounting
for Stock-Based Compensation.
Total estimated
stock-based compensation was as follows (in thousands, except per share data):
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Selling, general and administrative expenses
|
|
$
|
9,054
|
|
$
|
9,539
|
|
$
|
17,386
|
|
$
|
17,520
|
|
Research and development expenses
|
|
5,886
|
|
6,200
|
|
11,616
|
|
11,536
|
|
|
|
$
|
14,940
|
|
$
|
15,739
|
|
$
|
29,002
|
|
$
|
29,056
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense, per common
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
$
|
0.12
|
|
$
|
0.21
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.11
|
|
$
|
0.12
|
|
$
|
0.21
|
|
$
|
0.22
|
|
The Company recorded
$14.9 million and $15.7 million of total non-cash, stock-based compensation expense
during the three months ended June 30, 2008 and 2007, respectively, and
$29.0 million and $29.1 million of total non-cash, stock-based compensation
expense during the six months ended June 30, 2008 and 2007, respectively,
in all cases related to stock-based awards consisting of stock options and
employee stock purchase rights. At June 30,
2008, total unrecognized estimated compensation cost related to non-vested
stock-based awards granted prior to that date was $112.3 million, which is
expected to be recognized over a weighted-average period of 2.5 years. The Company issued 0.2 million and 0.4
million shares upon the exercise of stock options in the three and six months
ended June 30, 2008, respectively.
7
In
addition to the stock-based compensation discussed above, the Company also
recorded $5.3 million, of which $3.0 million is including in selling general
and administrative expenses, and $2.3 million is included in research and
development expenses, and $10.7 million, of which $5.8 million is included in
selling general and administrative expenses, and $4.9 million is included in
research and development expenses, of expense associated with its Employee
Stock Ownership Plan, or ESOP, during the three months and six months ended June 30,
2008, respectively. There was no expense
for the ESOP during the three and six months ended June 30, 2007 as the
ESOP was not adopted until December 2007.
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.
Recently Issued Accounting Pronouncements
In
May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 (FSP
No. APB 14-1),
Accounting for Convertible
Debt Instruments that may be Settled in Cash Upon Conversion (Including Partial
Cash Settlement).
FSP No. APB
14-1 establishes that the liability and equity components of convertible debt
instruments within the scope of FSP APB No. 14-1 shall be separately
accounted for in a manner that will reflect the entitys nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. The carrying amount of the liability
component of the convertible debt instrument will be determined by measuring
the fair value of a similar liability that does not have an associated equity
component. The carrying value of the
equity component will be determined by deducting the fair value of the
liability component from the initial proceeds ascribed to the convertible debt
instrument as a whole. Related
transaction costs shall be allocated to the liability and equity components in
proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively.
The excess of the principal amount of the liability component over its
carrying amount shall be amortized to interest cost using the interest
method. FSP No. APB 14-1 is
effective for the Company on January 1,
2009 and shall be applied retrospectively to all periods presented with the
cumulative effect of the change in accounting principle on periods prior to
those presented recognized as of the beginning of the first period
presented. Early adoption is not
permitted. The Company expects that the
adoption of FSP No. APB 14-1 will have a material impact on its
consolidated financial statements.
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, which will be recharacterized
as noncontrolling interests and classified as a component of equity. SFAS No. 141R and SFAS No. 160
are effective for the Company on January 1, 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 Company adopted EITF Issue No. 07-3
on January 1, 2008. The adoption of
EITF Issue No. 07-3 did not have a material impact 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. The Company adopted SFAS No. 159
on January 1, 2008. The adoption of
SFAS No. 159 did not have a material impact on the Companys consolidated
financial statements.
8
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
prioritizes the inputs used in measuring fair value into the following
hierarchy:
Level
1
|
|
Quoted
prices (unadjusted) in active markets for identical assets or liabilities;
|
|
|
|
Level
2
|
|
Inputs
other than quoted prices included within Level 1 that are either directly or
indirectly observable; and
|
|
|
|
Level
3
|
|
Unobservable
inputs in which little or no market activity exists, therefore requiring an
entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
|
The
Company adopted SFAS No. 157 on January 1, 2008. The adoption of SFAS No. 157 did
not have a material impact on the Companys consolidated financial statements.
2. Short-term Investment
s
The
Companys short-term investments, consisting principally of debt securities,
are classified as available-for-sale and are stated at fair value based upon
observed market prices (Level 1 in the fair value hierarchy).
Unrealized holding gains or losses on these securities are included in other
comprehensive income. 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.
3.
Inventories
Inventories
are stated at the lower of cost (FIFO) or market and net of a valuation
allowance for potential excess and/or obsolete material of $8.4 million and
$5.3 million at June 30, 2008 and December 31, 2007, respectively.
Raw materials consists of bulk drug material for BYETTA and SYMLIN,
work-in-process consists of in-process BYETTA cartridges, in-process SYMLIN
cartridges and in-process Symlin vials, and finished goods consists of BYETTA
drug product in a disposable pen/cartridge delivery system, finished SYMLIN drug product in vials for
syringe administration, and finished SYMLIN drug product in a disposable
pen/cartridge delivery system.
Inventories
consist of the following (in thousands):
|
|
June 30,
2008
|
|
December 31,
2007
|
|
Raw materials
|
|
$
|
60,159
|
|
$
|
55,706
|
|
Work-in-process
|
|
26,709
|
|
24,463
|
|
Finished goods
|
|
13,298
|
|
20,045
|
|
|
|
$
|
100,166
|
|
$
|
100,214
|
|
4.
Debt Issuance Costs
Debt
issuance costs relate to the $200 million principal
amount of 2.5% convertible senior notes, due April 15, 2011, issued in April 2004,
referred to as the 2004 Notes, the $575 million principal amount of 3.0%
convertible senior notes, due June 15, 2014, issued in June 2007,
referred to as the 2007 Notes, and a $125 million term loan entered into in December 2007,
referred to as the Term Loan.
Amortization of debt issuance costs are recorded as interest expense in
the consolidated statement of operations on a straight-line basis, which
approximates the interest method over the contractual term of the related debt.
The Company incurred total debt issuance costs of $24.3 million in connection
with the 2004 Notes, the 2007 Notes and the Term Loan. Amortization expense of
$0.9 million and $0.4 million was recorded in each of the three months ended June 30,
2008 and 2007, respectively. Amortization expense of $1.9 and $0.6 million was
recorded in each of the six months ended June 30, 2008 and 2007,
respectively.
9
5.
Other Current Liabilities
Other
current liabilities consist of the following (in thousands):
|
|
June 30,
2008
|
|
December 31,
2007
|
|
Contingent share-settled obligation (1)
|
|
$
|
|
|
$
|
30,000
|
|
Accrued contract research and development expenses
|
|
11,956
|
|
20,107
|
|
Accrued rebate discounts
|
|
24,773
|
|
19,673
|
|
Accrued property, plant and equipment additions
|
|
13,702
|
|
15,559
|
|
Other accrued sales allowances
|
|
13,130
|
|
13,989
|
|
Other current liabilities
|
|
25,735
|
|
23,596
|
|
|
|
$
|
89,296
|
|
$
|
122,924
|
|
(1)
Represents a
liability for $30 million in convertible milestone payments received from Lilly
that converted into approximately 0.8 million shares of the Companys common
stock during the three months ended March 31, 2008.
6.
Comprehensive Loss
SFAS No. 130 (SFAS
130),
Reporting Comprehensive Income,
requires reporting and displaying comprehensive income (loss) and its
components, which, for the Company, includes net loss and unrealized gains and
losses on investments. In accordance with SFAS 130, the accumulated balance of
other comprehensive income (loss) is disclosed as a separate component of
stockholders equity. For the three and six months ended June 30, 2008 and
2007, the comprehensive loss consisted of (in thousands):
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net loss
|
|
$
|
(64,816
|
)
|
$
|
(45,023
|
)
|
$
|
(133,613
|
)
|
$
|
(94,437
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on investments
|
|
(493
|
)
|
390
|
|
(3,638
|
)
|
628
|
|
Comprehensive loss
|
|
$
|
(65,309
|
)
|
$
|
(44,633
|
)
|
$
|
(137,251
|
)
|
$
|
(93,809
|
)
|
7.
Convertible Senior Notes
In June 2007, the Company issued the 2007
Notes, which have an aggregate principal amount of $575 million, and are due June 15,
2014, in a private placement. 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 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 of 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.
10
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 2007 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 2007 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.
In April 2004, the Company issued the 2004 Notes,
which have an aggregate principal amount of $200 million, and are due April 15,
2011, in a private placement. The 2004 Notes are senior unsecured obligations
and rank equally with all other existing and future senior unsecured debt. 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 may not redeem the
2004 Notes prior to maturity.
Upon a change in control, the holders of the 2004
Notes may elect to require the Company to repurchase 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 closing prices of the
Companys common stock for the five-day trading period ending on the third day
before the purchase date.
The 2004 Notes have been registered under the
Securities Act of 1933, as amended, to permit registered resale of the 2004
Notes and of the common stock issuable upon conversion of the 2004 Notes.
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. The Company had an outstanding balance of
$125.0 million under the term loan and had issued $5.6 million and $5.2 million
of stand-by letters of credit under the revolving credit facility,
respectively, primarily in connection with office leases, at June 30, 2008
and December 31, 2007.
The Companys
domestic subsidiaries, Amylin Ohio LLC and Amylin Investments LLC, are
co-borrowers under the credit agreement. The loans under the revolving
credit facility are 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 principal 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. 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 rate, which was 2.78% and 4.85% at June 30, 2008 and December 31,
2007, respectively. 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, as defined in the agreement, 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%.
11
Maturities of long-term note
payable for years ending after June 30, 2008 are as follows (in
thousands):
2008
|
|
$
|
|
|
2009
|
|
31,250
|
|
2010
|
|
93,750
|
|
Thereafter
|
|
|
|
Total minimum long-term debt payments
|
|
$
|
125,000
|
|
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 March 21, 2008. 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, and
continuing in similar fashion throughout the maturity of the swap, which
maturity is coincident with the term loan maturity. The Company determined that the interest rate
swap agreement is defined as Level 2 in the fair value hierarchy. As of June 30,
2008, the fair value of the interest rate swap agreement was a liability of
$1.0 million and the recognized loss on the interest rate swap for the six
months ended June 30, 2008 was $0.7 million. The interest rate swap has resulted in a
fixed rate of 5.717% for net interest receipts and payments for the term loan
and interest rate swap transactions.
9. Stockholders Equity
In
March 2008, the Company contributed approximately 0.7 million newly issued
shares of its common stock, valued at $24.87 per share, to the Companys ESOP
for amounts earned by participants during the year ended December 31,
2007.
In
February 2008, the Company contributed approximately 0.1 million newly
issued shares of its common stock, at $37.00 per share, to the Companys 401(k) plan
for amounts earned by participants during the year ended December 31,
2007.
In
February 2008, the Company issued approximately 0.8 million shares of its
common stock to Lilly, upon Lillys election to convert $30 million of
development milestone payments related to exenatide once weekly, received in
2007 at a
conversion price of $37.95, which represents the immediately
preceding twenty day average closing market price of the Companys common stock
on December 31, 2007 in accordance with the Companys exenatide
collaboration agreement with Lilly.
10.
Commitments and Contingencies
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 June 30,
2008, if all such milestones are successfully achieved, the potential future
milestone and other contingency payments due under certain contractual
agreements are approximately $312.4 million in aggregate, of which $1.8 million
are expected to be paid over the next twelve months.
We
have committed to make future minimum payments to third parties for certain
inventories in the normal course of business. The minimum purchase commitments
total approximately $44.0 million as of June 30, 2008.
ITEM 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
Except
for the historical information herein, the discussion in this quarterly report
on Form 10-Q contains forward-looking statements that involve risks and
uncertainties. These statements include projections about our accounting and
12
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 under the caption Cautionary
Factors That May Affect Future Results, as well as those discussed
elsewhere in this quarterly report on Form 10-Q or in our other public
disclosures. You should consider carefully those cautionary factors, together
with all of the other information included in this quarterly report on Form 10-Q.
Each of the cautionary 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 are not presently aware of or that we currently
believe are immaterial which could also impair our business and financial
position. We disclaim any obligation to update these forward-looking
statements.
Overview
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
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,
has commercially launched BYETTA in more than 30 countries as of June 30,
2008. We expect Lilly to continue to
launch BYETTA in additional EU member states and other countries during 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, sulfonylurea and/or a
thiazolidinedone, or TZD, three common oral therapies for type 2 diabetes. Net product sales of BYETTA were $177.5
million and $152.1 million for the three months ended June 30, 2008 and
2007, respectively, and $336.0 million and $298.6 million for the six months
ended June 30, 2008 and 2007, 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, 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 commercialization and all 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. SYMLIN is approved in the United States 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. In January 2008, we commercially
launched the SymlinPen
TM
120 and SymlinPen
TM
60 pen
injector devices in the United States.
These new pre-filled pen-injector devices feature simple, fixed dosing
to improve mealtime glucose control.
Net product sales of SYMLIN were $22.8
million and $15.2 million for the three months ended June 30, 2008 and
2007, respectively, and $43.1 million and $30.7 million for the six months
ended June 30, 2008 and 2007, respectively.
We
have a field force of approximately 650 people, after our recent expansion
discussed below, 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.
In May 2008,
we amended our United States co-promotion agreement with Lilly, resulting in a
40% increase in the total number of sales representatives promoting BYETTA
beginning July 1, 2008. To achieve
this increase, Lillys existing third party sales force for Cialis® (tidalafil)
will co-promote BYETTA in the United States and Amylin increased the number of
sales representatives in its existing primary care sales force by approximately
15%. In exchange for Lilly sharing in
50% of the costs related to the additional Amylin sales representatives and
paying 100% of the costs of the third party sales force discussed above, our
primary care sales force will co-promote Cialis in the United States.
13
In addition to our marketed products, we are working
with Lilly and Alkermes, Inc., or Alkermes, to develop exenatide once
weekly. We are also working with
Alkermes and Parsons, Inc., or Parsons, on the construction of a
manufacturing facility for exenatide once weekly in Ohio. We are now manufacturing exenatide once
weekly at commercial scale in our facility in Ohio and we plan to begin
supplying ongoing and planned clinical trials with this material in the third
quarter of 2008. During the second
quarter of 2008, we held our pre-NDA meeting with the United States Food and
Drug Administration, or FDA, to discuss open items for our exenatide once
weekly regulatory submission. We remain
on track to submit our NDA for exenatide once weekly to the FDA by the end of
the first half of 2009 and we are 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 Ohio facility that could allow for an
acceleration of the NDA submission.
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. In March 2008, we licensed rights to
sustained release technology from Pacira Pharmaceuticals, Inc. for the
potential development of sustained release formulations of our early stage
obesity and other potential product candidates.
We also maintain an active discovery research
program focused on novel peptide therapeutics.
We are actively seeking to in-license additional drug candidates and we
have made a number of strategic investments and collaborations for the
potential development of additional drug candidates.
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. All of
our revenues prior to May 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.
At June 30, 2008, our accumulated deficit
was approximately $1.6 billion.
At June 30,
2008, we had approximately $890.9 million 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 II, Item 1A for further
discussion regarding our anticipated future capital requirements.
Application
of Critical Accounting Policies
Our
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make significant estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures. On an on-going basis, our actual results may
differ significantly from our estimates.
There
were no significant changes in critical accounting policies from those at December 31,
2007. The financial information as of June 30,
2008, should be read in conjunction with the financial statements for the year
ended December 31, 2007, contained in our annual report on Form 10-K
filed on February 27, 2008.
For a
discussion of the Companys critical accounting policies, see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations in our annual report on Form 10-K filed on February 27,
2008.
Results
of Operations
Comparison
of Three Months Ended June 30, 2008 to Three Months Ended June 30,
2007
Net Product Sales
Net
product sales for the three months ended June 30, 2008 and 2007 were
$200.3 million and $167.3 million, respectively,
and consisted of shipments
of BYETTA and SYMLIN, less allowances for product returns, rebates and
wholesaler chargebacks, wholesaler discounts and prescription vouchers
.
14
The
following table provides information regarding net product sales (in millions):
|
|
Three months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
BYETTA
|
|
$
|
177.5
|
|
$
|
152.1
|
|
SYMLIN
|
|
22.8
|
|
15.2
|
|
|
|
$
|
200.3
|
|
$
|
167.3
|
|
The
increases in net product sales for BYETTA and SYMLIN in the current period
reflect continued growth in patient demand.
Revenues Under Collaborative Agreements
Revenues under collaborative agreements for the three
months ended June 30, 2008, were $21.7
million
compared to $29.6 million for the same period in 2007. Substantially all of the
revenue recorded in these periods consists of amounts earned pursuant to our
BYETTA collaboration agreement with Lilly. The $7.9 million decrease in revenues
under collaborative agreements in the current quarter compared to the same
period in 2007 reflects a reduction in milestone revenues partially offset by
higher cost-sharing payments from Lilly due primarily to increased development
expenses for exenatide once weekly and a higher proportion of total shared
development expenses incurred by us.
Milestone revenues for the three months ended June 30, 2007
consisted of $15.0
million in milestones associated primarily with Lillys launch of BYETTA in the
EU. There were no milestones earned in
the three months ended June 30, 2008.
The following
table summarizes the components of revenues under collaborative agreements for
the three months ended June 30, 2008 and 2007 (in millions):
|
|
Three months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Amortization of up-front payments
|
|
$
|
1.1
|
|
$
|
1.1
|
|
Milestones
|
|
|
|
15.0
|
|
Cost-sharing and co-promotion payments
|
|
20.6
|
|
13.5
|
|
|
|
$
|
21.7
|
|
$
|
29.6
|
|
In future periods, revenues
under collaborative agreements will consist of ongoing cost-sharing payments
from Lilly for sharing of development costs, possible future milestone payments
and the continued amortization of the $30 million portion of the up-front
payment received from Lilly upon signing of our collaboration agreement in
2002. The amount of cost-sharing revenue recorded will be dependent on the
timing, extent and relative proportion of total development costs for the
exenatide once weekly and BYETTA development programs incurred by us and by
Lilly. The receipt and recognition as revenue of future milestone payments is
subject to the achievement of performance requirements underlying such
milestone payments.
Cost of Goods Sold
Cost
of goods sold for the three months ended June 30, 2008 and 2007 was $24.7
million, representing a gross margin of 88%, and $14.4 million, representing a
gross margin of 91%, respectively, and is comprised primarily of manufacturing
costs associated with BYETTA and SYMLIN sales during the period.
The decrease in gross margin
for the three months ended June 30, 2008, compared to the same period in
2007, primarily reflects increased product costs for BYETTA due to lower
production volumes, and product mix, including the introduction of the Symlin
Pen, partially offset by higher net sales prices per unit for BYETTA and
SYMLIN.
Quarterly
fluctuations in gross margins may be influenced by product mix, pricing and the
level of sales allowances.
Selling, General and Administrative Expenses
Selling,
general and administrative expenses increased to $111.1 million for the three
months ended June 30, 2008, from $93.1 million for the same period in
2007. The increase primarily reflects expenses associated with the recent
expansion of our sales force, increased promotional expenses for BYETTA and
SYMLIN, expenses associated with pre-launch education activities for exenatide
once weekly and increases in business infrastructure to support our growth.
15
Research and Development Expenses
Our
research and development costs are comprised of
salaries and bonuses,
benefits, non-cash 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.
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 pharmaceutical development capabilities. These consist
primarily of facilities costs and other internal shared resources related to
the development and maintenance of systems and processes applicable to all of
our programs.
Our
research and development efforts are focused on diabetes, obesity, and other
diseases. We also maintain an active
discovery research program. In diabetes,
we have two approved products, BYETTA and SYMLIN, and we are developing
exenatide once weekly, a long-acting release formulation of exenatide, the
active pharmaceutical ingredient in BYETTA.
In obesity, we have a number of compounds in development for the
potential treatment of obesity which are part of a broader program, which we
refer to as INTO: Integrated Neurohormonal Therapies for Obesity. As part of this program, we are currently
conducting several clinical trials of our drug candidates, or combinations of
our drug candidates.
The
following table provides information regarding our research and development
expenses for our major projects (in millions):
|
|
Three months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Increase/(Decrease)
|
|
Diabetes (1)
|
|
$
|
41.2
|
|
$
|
35.5
|
|
$
|
5.7
|
|
Obesity
|
|
12.3
|
|
19.7
|
|
(7.4
|
)
|
Research and early-stage
programs
|
|
9.1
|
|
7.1
|
|
2.0
|
|
Indirect costs
|
|
12.8
|
|
9.4
|
|
3.4
|
|
|
|
$
|
75.4
|
|
$
|
71.7
|
|
$
|
3.7
|
|
(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 $20.6 million and $13.5 million for the three months ended June 30,
2008 and 2007, respectively.
The $3.7 million increase in research and development
expenses for the three months ended June 30, 2008 as compared to the same
period in 2007 primarily reflects increased expenses of $5.7 million for our
diabetes programs, increased expenses of $3.4 million for indirect costs and
increased expenses of $2.0 million for our research and early-stage programs,
partially offset by a $7.4 million reduction in our obesity programs. The
increase in expenses for our diabetes programs primarily reflects increased
expenses for exenatide once weekly associated with manufacturing scale-up and
on-going clinical trials. The increase
in indirect costs primarily reflects increased facilities costs, a portion of
which are allocated to research and development expenses. The increase in expenses for our research and
early-stage programs primarily reflects investments in drug delivery
platforms. The decrease in expenses for
our obesity programs primarily reflects the fact that expenses for our obesity
programs for the three months ended June 30, 2007 included a development
milestone for Leptin. There was no comparable expense in the three months ended
June 30, 2008.
Collaborative Profit Sharing
Collaborative
profit sharing was $79.0 million and $70.4 million for the three months ended June 30,
2008 and 2007, respectively, and consists of Lillys 50% share of the gross
margin for BYETTA in the United States.
Interest
and Other Income and Expense
Interest
and other income consist primarily of interest income from investment of cash
and other investments. Interest and other income decreased to $7.0 million for
the three months ended June 30, 2008, from $9.9 million for the same
period in 2007. The decrease primarily
reflects lower interest rates earned on our short-term investments partially
offset by higher average short-term investment balances during the three months
ended June 30, 2008 as compared to the same period in 2007.
16
Interest and other expense
consist primarily of interest expense resulting from our long-term debt
obligations. Interest expense in the three months ended June 30, 2008
consists of interest on our $775 million of outstanding convertible senior
notes and our $125 million of outstanding long-term note payable, the
amortization of associated debt issuance costs and recognized gains and losses
associated with recording economic hedge transactions at fair value.
Interest
and other expense was $3.7 million and $2.4 million for the three months ended June 30,
2008 and 2007, respectively. The
increase in interest and other expense for the three months ended June 30,
2008 reflects additional interest expense for our convertible senior notes
issued in June 2007 and long-term note payable entered into in December 2007,
partially offset by a recognized gain of approximately $3 million associated
with the interest rate swap related to the term loan. There was no comparable gain in the three
months ended June 30, 2007.
Net Loss
Our
net loss for the three months ended June 30, 2008 was $64.8 million
compared to a net loss of $45.0 million for the same period in 2007. The
increase in net loss primarily reflects the increased selling, general and
administrative expenses, increased collaborative profit-sharing, the decreased
revenues under collaborative arrangements and the increased research and
development expenses discussed above, partially offset by increased net product
sales 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 amount of
product sales that we achieve for BYETTA and SYMLIN. In addition, ongoing and
potential increased expenses associated with the continued commercialization of
BYETTA and SYMLIN, costs associated with the development and commercialization
of exenatide once weekly, if approved, and expenses associated with potential
expansion of our research and development programs, including our obesity and
our early-stage 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.
Comparison
of Six Months Ended June 30, 2008 to Six Months Ended June 30, 2007
Net Product Sales
Net
product sales for the six months ended June 30, 2008 and 2007 were $379.1
million and $329.3 million, respectively,
and consisted of shipments
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):
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
BYETTA
|
|
$
|
336.0
|
|
$
|
298.6
|
|
SYMLIN
|
|
43.1
|
|
30.7
|
|
|
|
$
|
379.1
|
|
$
|
329.3
|
|
The increases in net product sales for BYETTA and
SYMLIN in the current period reflect continued growth in patient demand.
Revenues Under Collaborative Agreements
Revenues
under collaborative agreements for the six months ended June 30, 2008 were
$40.2 million compared to $39.6 million for the same period in 2007. Substantially
all of the revenue recorded in these periods consists of amounts earned
pursuant to our BYETTA collaboration agreement with Lilly. The $0.6 million
increase in revenues under collaborative agreements in the six months ended June 30,
2008 compared to the same period in 2007 reflects
higher cost-sharing
payments from Lilly due primarily to increased development expenses for
exenatide once weekly and a higher proportion of total shared development
expenses incurred by us, partially off-set by a reduction in milestone revenues. Milestone revenues for the six months
ended June 30, 2007 consisted of $15.0 million in milestones associated primarily
with Lillys launch of BYETTA in the EU.
There were no milestones earned in the six months ended June 30,
2008.
17
The
following table summarizes the components of revenues under collaborative
agreements for the six months ended June 30, 2008 and 2007 (in millions):
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Amortization of up-front payments
|
|
$
|
2.1
|
|
$
|
2.1
|
|
Milestones
|
|
|
|
15.0
|
|
Cost-sharing and co-promotion payments
|
|
38.1
|
|
22.5
|
|
|
|
$
|
40.2
|
|
$
|
39.6
|
|
Cost of Goods Sold
Cost
of goods sold for the six months ended June 30, 2008 and 2007 was $46.7
million, representing a gross margin of 88%, and $29.6 million, representing a
gross margin of 91%, respectively, and is comprised primarily of manufacturing
costs associated with BYETTA and SYMLIN sales during the period. The decrease in gross margin for the six
months ended June 30, 2008 compared to the same period in 2007 reflects the same factors
that influenced similar fluctuations in the three months ended June 30,
2008 discussed above.
Selling, General and Administrative Expenses
Selling,
general and administrative expenses increased to $209.3 million for the six
months ended June 30, 2008, from $180.9 million for the same period in
2007. The increase primarily reflects the same factors that influenced similar
fluctuations in the three months ended June 30, 2008 discussed above.
Research and Development Expenses
The
following table provides information regarding our research and development
expenses for our major projects (in millions):
|
|
Six months ended June 31,
|
|
|
|
2008
|
|
2007
|
|
Increase/(Decrease)
|
|
Diabetes (1)
|
|
$
|
81.7
|
|
$
|
63.8
|
|
$
|
17.9
|
|
Obesity
|
|
29.3
|
|
34.9
|
|
(5.6
|
)
|
Research and early-stage
programs
|
|
16.5
|
|
13.8
|
|
2.7
|
|
Indirect costs
|
|
25.1
|
|
18.8
|
|
6.3
|
|
|
|
$
|
152.6
|
|
$
|
131.3
|
|
$
|
21.3
|
|
(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 $38.1 million and $22.5 million for the six
months ended June 30, 2008 and 2007, respectively.
The $21.3 million increase in research and development
expenses for the six months ended June 30, 2008 as compared to the same
period in 2007 primarily reflects increases of $17.9 million for our diabetes
programs, $6.3 million for indirect costs, and $2.7 million for our research
and early-stage programs, partially offset by a reduction of $5.6 million for
our obesity programs. The increase in expenses for our diabetes programs
primarily reflects increased expenses for exenatide once weekly associated with
manufacturing scale-up and on-going clinical trials. The increase in indirect
costs primarily reflects increased facilities costs, a portion of which are
allocated to research and development expenses.
The increase in expenses for our research and early stage programs
primarily reflects investments in drug delivery platforms. The increase in indirect costs primarily
reflects increased facilities costs to support our growth, a portion of which
is allocated to research and development expenses. The reduction in expenses for our obesity
programs primarily reflects reduced clinical trial costs following the
completion of several clinical trials in 2007 conducted as part of our INTO
strategy.
18
Collaborative
Profit Sharing
Collaborative profit sharing was $148.9 million and
$137.3 million for the six months ended June 30, 2008 and 2007,
respectively, and consists of Lillys 50% share of the gross margin for BYETTA
in the United States.
Interest and Other Income and
Expense
Interest and other income consist primarily of
interest income from investment of cash and other investments. Interest and
other income decreased to $18.0 million for the six months ended June 30,
2008, from $19.3 million for the same period in 2007. The decrease of $1.3 million primarily
reflects lower interest rates, partially offset by higher average investment
balances during the six months ended June 30, 2008 as compared to the same
period in 2007.
Interest and other expense
consist primarily of interest expense resulting from our long-term debt
obligations. Interest expense in the six months ended June 30, 2008
consists of interest on our $775 million of outstanding convertible senior
notes and our $125 million of outstanding long-term note payable, or our term
loan, and the amortization of associated debt issuance costs.
Interest
and other expense was $13.4 million and $3.7 million for the six months ended June 30,
2008 and 2007, respectively. The
increase reflects additional interest expense for our convertible senior notes
issued in June 2007 and long-term note payable entered into in December 2007.
Net Loss
Our net loss for the six months ended June 30,
2008 was $133.6 million compared to a net loss of $94.4 million for the same
period in 2007. The increase in net loss primarily reflects the increased
selling, general and administrative expenses, increased research and
development expenses, increased collaborative profit-sharing and increased
interest and other expense, partially offset by the increased net product sales
and revenues under collaborative agreements discussed above.
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.
At June 30, 2008, we had $890.9 million in
cash, cash equivalents and short-term investments, compared to $1.1 billion at December 31,
2007. We used cash of $72.7 million and
$54.2 million for our operating activities in the six months ended June 30,
2008 and 2007, respectively. Our cash
used for operating activities in the six months ended June 30, 2008
included a net source of cash of $14.2 million from changes in working capital,
due primarily to sources of cash from a decrease in accounts receivable and an
increase in accrued compensation of $7.9 million and $13.2 million,
respectively, offset by uses of cash from a decrease in payable to
collaborative partner and an increase in other current assets of $4.7 million
and $2.6 million, respectively.
Our investing activities used cash of $228.2 million
and $215.2 million for the six months ended June 30, 2008 and 2007,
respectively. Investing activities in both quarters consisted primarily of
purchases and sales of short-term investments and purchases of property, plant
and equipment and increases in other long-term assets. Purchases of property, plant and equipment
increased to $173.4 million for the six months ended June 30, 2008 from
$142.0 million for the six months ended June 30, 2007. The increase during the six months ended June 30,
2008 primarily reflects costs associated with our manufacturing facility for
exenatide once weekly and, to a lesser extent, purchases of tenant
improvements, office equipment and scientific equipment to support our growth.
We
are now manufacturing exenatide once weekly at commercial scale in our facility
in Ohio and we plan to begin supplying ongoing and planned clinical trials with
this material during the third quarter of 2008. Through June 30, 2008, we had expended in excess of $400
million associated with the construction of this facility and we expect the
total investment to be in excess of $500 million by the end of 2008, which
includes costs associated with the construction of the facility, purchase and
installation of equipment and capitalized labor and materials required to
validate the facility. We will continue
to evaluate potential additional investments in Ohio during the product lifecycle
for exenatide once weekly.
Financing activities provided cash of $9.5 million
and $582.2 million for the six months ended June 30, 2008 and 2007,
respectively.
Financing
activities in six months ended June 30, 2008 include proceeds from the
exercise of stock options and proceeds from our employee stock purchase plan.
19
At March 31, 2008, 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 in aggregate principal amount of our 3.0%
convertible senior notes due in 2014, or 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 principal 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 June 30, 2008 we had an
outstanding balance of $125.0 million under the term loan and had issued $5.6
million of stand-by 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 net 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.
The
following table summarizes our contractual obligations and maturity dates as of
June 30, 2008 (in thousands):
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
Less than 1
year
|
|
1-3 years
|
|
4-5 years
|
|
After 5 years
|
|
Long-term convertible debt
|
|
$
|
775,000
|
|
$
|
|
|
$
|
200,000
|
|
$
|
|
|
$
|
575,000
|
|
Interest payments on long-term
convertible debt
|
|
118,500
|
|
22,250
|
|
44,500
|
|
34,500
|
|
17,250
|
|
Long-term note payable
|
|
125,000
|
|
15,625
|
|
109,375
|
|
|
|
|
|
Interest on long-term note
payable, net of swap transactions (1)
|
|
14,740
|
|
7,035
|
|
7,705
|
|
|
|
|
|
Inventory purchase
obligations(2)
|
|
130,417
|
|
86,879
|
|
39,908
|
|
3,630
|
|
|
|
Operating lease obligations
|
|
166,301
|
|
18,571
|
|
36,184
|
|
38,408
|
|
73,138
|
|
Total(3)
|
|
$
|
1,329,958
|
|
$
|
150,360
|
|
$
|
437,672
|
|
$
|
76,538
|
|
$
|
665,388
|
|
(1)
The interest payments
shown were calculated using a rate of 5.717%, the combined net rate of the term
loan and interest rate swap, on the outstanding principal balance of the term
loan
(2)
Includes $86.5 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 $8.4 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 $1.8 million associated with licensing agreements in
the next 12 months. Additional
milestones of up to approximately $310.7 million could be paid over the next 10
to 15 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
continued commercialization of BYETTA and SYMLIN; costs associated with the
establishment 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;
20
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 3.
Quantitative and Qualitative
Disclosures about Market Risk
We invest our excess cash
primarily in United States Government securities, asset-backed securities and
debt instruments of financial institutions and corporations with strong credit
ratings. These instruments have various short-term maturities. We do not
utilize derivative financial instruments, derivative commodity instruments or
other market risk sensitive instruments, positions or transactions 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 our debt
are fixed. The fair value of our 2004 Notes and 2007 Notes at June 30,
2008 was approximately $206 million and $470 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.
ITEM 4.
Controls and Procedures
As of June 30, 2008, an evaluation was
performed under the supervision and with the participation of our management,
including our President and Chief Executive Officer (referred to as our CEO)
and our Senior Vice President, Finance and Chief Financial Officer (referred to
as our CFO), of the effectiveness of the design and operation of our disclosure
controls and procedures. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on that evaluation, our management,
including our CEO and CFO, concluded that our disclosure controls and
procedures were effective at a reasonable level of assurance as of June 30,
2008.
Our management does not expect that our disclosure
control and procedures or our internal control over financial reporting will
prevent all error and all 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, in light of the foregoing we intend to
continue to examine and refine our disclosure controls and procedures and
internal control over financial reporting.
An evaluation was also performed under the supervision and with the
participation of our management, including our CEO and CFO, of any change in our
internal control over financial reporting that occurred during our last fiscal
quarter and that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. That evaluation did not
identify any change in our internal control over financial reporting that
occurred during our latest fiscal quarter and that has materially affected, or
is reasonably likely to affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A.
Risk Factors
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
The following sets forth cautionary factors that may affect our future
results, including clarifications to the cautionary factors included in our
Annual Report on Form 10-K for the fiscal year ended December 31,
2007.
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 $133.6 million for the six months ended June 30,
2008, $211.1 million in 2007, $218.9 million in 2006 and $206.8 million in
2005. As of June 30, 2008, we had
an accumulated deficit of approximately $1.6 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
21
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.
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
and ongoing satisfaction with these first-in-class medicines in the United
States and foreign markets 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.
22
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.
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.
23
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 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 qualify
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, three 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;
24
·
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,
including alternative delivery methods, 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;
·
negative
results of clinical studies;
·
insufficient
supply or deficient quality of drug candidate materials or other materials
necessary for the performance of clinical trials;
25
·
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. If Lilly does not
successfully commercialize BYETTA outside the United States we may receive
limited or no revenues from them. In
addition, we are dependent on Alkermes to successfully develop and transfer to
us its technology for manufacturing 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. For example, our SYMLIN
AND BYETTA products are subject to the provisions of the Drug Price Competition
and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act,
which provides data exclusivity for a certain period of time. Once this exclusivity period expires, the
Hatch-Waxman Act allows generic manufacturers to file Abbreviated New Drug
Applications, or ANDAs, with the FDA requesting approval of generic versions of
previously-approved products. For
example, a generic pharmaceutical manufacturer could file an ANDA for SYMLIN as
early as March 2009 and for BYETTA as early as April 2009. If an ANDA is filed for one of our approved
products prior to expiration of the patents covering those products, it could
result in our initiating patent infringement litigation to enforce our
rights. We can provide no assurances
that we would prevail in such an action or in any challenge related to our
patent rights.
26
In addition, because patent applications in
the United States are maintained, in general, in secrecy for 18 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 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 us or 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.
27
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:
·
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 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.
28
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;
·
Executing our
INTO strategy;
·
Our other
research and development activities;
·
Other
operating expenses;
·
Potential
acquisitions or investments in complementary technologies or businesses; and
·
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
29
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 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.
30
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.
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 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 severance plan, under which, in connection with
a change in control and termination of employment, 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.
31
Our executive
officers, directors and major stockholders control approximately 78% of our
common stock.
As of June 30, 2008, executive officers, directors and holders of
5% or more of our outstanding common stock, in the aggregate, owned or
controlled approximately 78% 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, 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
|
|
|
|
|
|
Third Quarter (through July 25, 2008)
|
|
$
|
29.57
|
|
$
|
24.13
|
|
Second Quarter
|
|
$
|
33.22
|
|
$
|
25.30
|
|
First Quarter
|
|
$
|
37.38
|
|
$
|
23.75
|
|
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;
32
·
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;
·
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 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Stockholders was held on May 30,
2008. At the Annual Meeting, the
stockholders of the Company (i) elected each of the persons listed below
to serve as a director of Amylin until the next annual meeting or until his/her
successor is elected, (ii) approved an increase of 3.5 million shares in
the aggregate number of shares of our common stock authorized for issuance
under our 2001 Equity Incentive Plan, and (iii) ratified the selection of
Ernst & Young LLP as our independent registered public accounting firm
for the fiscal year ending December 31, 2008.
We had 137,058,518 shares of common stock
outstanding and entitled to vote as of April 4, 2008, the record date for
the Annual Meeting. At the Annual
Meeting, 124,341,882 shares of common stock were present in person or
represented by proxy for the four proposals indicated above. The following sets forth detailed information
regarding the results of the voting at the Annual Meeting:
Proposal 1:
Election of Directors.
Director
|
|
Votes in Favor
|
|
Votes Withheld
|
|
Adrian Adams
|
|
116,444,063
|
|
7,897,818
|
|
Steven R. Altman
|
|
116,507,996
|
|
7,833,885
|
|
Teresa Beck
|
|
116,530,336
|
|
7,811,545
|
|
Daniel M. Bradbury
|
|
116,162,509
|
|
8,179,372
|
|
Joseph C. Cook, Jr.
|
|
116,263,036
|
|
8,078,845
|
|
Karin Eastham
|
|
116,403,046
|
|
7,938,835
|
|
James R. Gavin III, M.D., PhD.
|
|
115,234,157
|
|
9,107,724
|
|
Ginger L. Graham
|
|
116,331,797
|
|
8,010,084
|
|
Howard E. Greene, Jr.
|
|
116,447,174
|
|
7,894,707
|
|
Jay S. Skyler,
M.D., MACP
|
|
114,779,160
|
|
9,562,721
|
|
Joseph P. Sullivan
|
|
116,528,886
|
|
7,812,995
|
|
James N. Wilson
|
|
115,174,305
|
|
9,167,576
|
|
Proposal 2:
Approve an increase of 3.5 million shares in the aggregate number of
shares of our common stock authorized for issuance under our 2001 Equity
Incentive Plan.
Votes in Favor:
|
|
74,761,567
|
|
Votes Against:
|
|
26,716,459
|
|
Abstentions:
|
|
138,064
|
|
Broker Non Vote:
|
|
22,725,792
|
|
Proposal 3:
Ratification of selection of Ernst & Young LLP as our independent
registered public accounting firm.
Votes in Favor:
|
|
116,869,889
|
|
Votes Against:
|
|
862,013
|
|
Abstentions:
|
|
6,609,980
|
|
33
ITEM 6. Exhibits
The following exhibits are
included as part of this report:
Exhibit
Number
|
|
Description
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation (filed as an
exhibit to Registrants registration statement on Form S-1 (File
No. 333-44195) or amendments thereto and incorporated herein by
reference)
|
|
|
|
3.2
|
|
Third Amended and Restated Bylaws (filed as an exhibit to
Registrants Current Report on Form 8-K filed on October 31, 2007
and incorporated herein by reference)
|
|
|
|
3.3
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation (filed as an exhibit to Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001 and incorporated
herein by reference)
|
|
|
|
3.4
|
|
Certificate of Amended and Restated Certificate of Incorporation
(filed as an exhibit to Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007 and incorporated herein by reference)
|
|
|
|
4.1
|
|
Specimen Common Stock Certificate (filed as an exhibit to
Registrants registration statement on Form S-1 (File
No. 333-44195) or amendments thereto and incorporated herein by
reference)
|
|
|
|
4.2
|
|
Rights Agreement, dated as of June 17, 2002, between the Registrant
and American Stock Transfer & Trust Company (filed as an exhibit to
Registrants Current Report on Form 8-K filed on June 18, 2002 and
incorporated herein by reference)
|
|
|
|
4.3
|
|
First Amendment to Rights Agreement dated December 13, 2002,
between the Registrant and American Stock Transfer & Trust Company
(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)
|
|
|
|
4.4
|
|
Second Amendment to Rights Agreement, dated March 31, 2008,
between the Registrant and American Stock Transfer and Trust Company (filed
as an exhibit to Registrants Current Report on Form 8-K filed on
March 13, 2008 and incorporated herein by reference)
|
|
|
|
4.5
|
|
Form of Rights Certificate (filed as an exhibit to Registrants
Current Report on Form 8-K filed on June 18, 2002 and incorporated
herein by reference)
|
|
|
|
4.6
|
|
Certificate of Designation of Series A Junior Participating
Preferred Stock (filed as an exhibit to Registrants Current Report on
Form 8-K filed on June 18, 2002 and incorporated herein by
reference)
|
|
|
|
10.1
|
|
First Amendment to Exenatide Manufacturing Agreement, dated January
6, 2006, between the Registrant and Mallinckrodt Inc.
|
|
|
|
10.2
|
|
Amended and Restated Commercial Supply Agreement, dated April 1,
2008, between the Registrant and Wockhardt UK (Holdings) Ltd.*
|
|
|
|
10.3
|
|
Addendum to U.S. Co-Promotion Agreement, dated May 8, 2008,
between the Registrant and Eli Lilly and Company*
|
|
|
|
10.4
|
|
Consulting Agreement, dated June 1, 2008, between the Registrant
and Alain D. Baron+
|
|
|
|
10.5
|
|
Third Amendment to Exenatide Manufacturing Agreement, dated
June 16, 2008, between the Registrant and Mallinckrodt Inc.*
|
|
|
|
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
|
34
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 Sarbanes-Oxley Act of 2002
|
* 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.
+ Indicates a management contract or
compensatory plan.
35
SIGNATURE
Pursuant to the requirements 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: July 31, 2008
|
By:
|
/S/ MARK G. FOLETTA
|
|
Mark G. Foletta,
Senior Vice President, Finance and
Chief Financial Officer
(on behalf of the registrant and as the
registrants principal financial and accounting
officer)
|
36
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