UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2008
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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For the transition period from
to
Commission File No. 0-50772
INHIBITEX, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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74-2708737
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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9005 Westside Parkway
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Alpharetta, Georgia
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30009
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(Address of principal executive
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(Zip Code)
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offices)
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(678) 746-1100
(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
þ
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):
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
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No
þ
As of August 10, 2008, 43,333,505 shares of the Registrants Common Stock were outstanding.
PART I
FINANCIAL INFORMATION
INHIBITEX, INC.
CONSOLIDATED BALANCE SHEETS
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June 30,
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December 31,
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2008
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2007
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(unaudited)
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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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13,532,642
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$
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14,178,143
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Short-term investments
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27,965,920
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36,088,309
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Prepaid expenses and other current assets
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840,071
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1,058,426
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Accounts receivable
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187,332
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44,988
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Total current assets
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42,525,965
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51,369,866
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Property and equipment, net
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2,523,618
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2,564,345
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Long-term investments
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400,480
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Total assets
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$
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45,450,063
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$
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53,934,211
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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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1,005,956
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$
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1,160,351
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Accrued expenses
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3,405,457
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6,605,253
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Current portion of notes payable
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312,500
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312,500
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Current portion of capital lease obligations
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388,112
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698,151
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Current portion of deferred revenue
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941,667
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441,667
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Other current liabilities
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154,824
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154,824
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Total current liabilities
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6,208,516
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9,372,746
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Long-term liabilities:
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Notes payable, net of current portion
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546,875
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703,125
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Capital lease obligations, net of current portion
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68,710
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Deferred revenue, net of current portion
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312,500
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387,500
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Other liabilities, net of current portion
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1,149,944
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1,202,328
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Total long-term liabilities
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2,009,319
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2,361,663
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Total liabilities
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8,217,835
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11,734,409
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Stockholders equity:
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Preferred stock, $.001 par value; 5,000,000
shares authorized at June 30, 2008 and
December 31, 2007; none issued and outstanding
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Common stock, $.001 par value; 75,000,000 shares
authorized at June 30, 2008 and December 31,
2007; 43,048,212 and 42,785,318 shares issued
and outstanding at June 30, 2008 and
December 31, 2007, respectively
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43,048
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42,785
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Warrants
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15,551,492
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15,551,492
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Accumulated other comprehensive income
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6,352
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106,480
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Additional paid-in capital
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241,422,983
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240,634,018
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Accumulated deficit
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(219,791,647
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)
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(214,134,973
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)
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Total stockholders equity
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37,232,228
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42,199,802
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Total liabilities and stockholders equity
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$
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45,450,063
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$
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53,934,211
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The accompanying notes are an integral part of these financial statements.
3
INHIBITEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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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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Revenue:
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License fees and milestones
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$
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412,500
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$
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412,500
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$
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825,000
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$
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825,000
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Collaborative research and
development
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375,000
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250,000
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750,000
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500,000
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Grants and other revenue
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22,500
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28,500
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Total revenue
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787,500
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685,000
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1,575,000
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1,353,500
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Operating expense:
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Research and development
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2,108,102
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1,678,463
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5,514,149
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3,245,037
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General and administrative
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1,222,339
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1,961,906
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2,563,907
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3,268,064
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Total operating expense
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3,330,441
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3,640,369
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8,078,056
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6,513,101
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Loss from operations
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(2,542,941
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(2,955,369
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(6,503,056
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(5,159,601
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Other (loss) income, net
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3,054
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(1,013
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14,480
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1,944,579
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Interest income, net
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331,012
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632,066
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831,902
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1,352,905
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Net loss
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$
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(2,208,875
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$
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(2,324,316
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(5,656,674
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(1,862,117
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Basic and diluted net loss per share
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$
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(0.05
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$
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(0.08
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$
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(0.13
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$
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(0.06
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Weighted average shares used to
compute basic and diluted net loss
per share
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42,909,471
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30,812,510
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42,850,270
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30,659,861
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The accompanying notes are an integral part of these financial statements.
4
INHIBITEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Six Months Ended
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June 30,
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2008
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2007
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Cash flows from operating activities:
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Net loss
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$
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(5,656,674
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$
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(1,862,117
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Depreciation and amortization
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480,486
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532,041
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Share-based compensation
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855,653
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887,110
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(Gain) loss on sale of equipment
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(17,689
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)
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1,538
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Amortization of investment premium or discount
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(445,121
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)
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(735,542
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Changes in operating assets and liabilities:
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Prepaid expenses and other assets
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218,355
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346,613
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Accounts receivable
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(142,344
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)
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(1,753,803
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)
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Accounts payable and other liabilities
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(135,309
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)
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(191,211
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Accrued expenses
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(3,176,505
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)
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(1,502,818
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Deferred revenue
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425,000
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1,175,001
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Net cash used in operating activities
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(7,594,148
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(3,103,188
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Cash flows from investing activities
:
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Purchases of property and equipment
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(445,550
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)
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Proceeds from sale of property and equipment
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23,480
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Purchases of investments
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(25,033,175
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)
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(40,258,149
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)
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Proceeds from maturities and sales of investments
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33,100,077
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40,200,000
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Cash paid in connection with previous acquisition
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(94,761
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)
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(1,547,522
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)
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Net cash provided by (used in) investing activities
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7,550,071
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(1,605,671
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)
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Cash flows from financing activities
:
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Payments on promissory notes and capital leases
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(534,999
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)
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(846,922
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)
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Proceeds from the issuance of common stock
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11,452
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16,852
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Repurchase of common stock
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(77,877
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)
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Net cash used in financing activities
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(601,424
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)
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(830,070
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)
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Decrease in cash and cash equivalents
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(645,501
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)
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(5,538,929
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Cash and cash equivalents at beginning of period
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14,178,143
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19,681,861
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Cash and cash equivalents at end of period
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$
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13,532,642
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$
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14,142,932
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Supplemental cash flow information:
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Interest paid
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$
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30,715
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$
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83,520
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The accompanying notes are an integral part of these financial statements.
5
INHIBITEX, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
Inhibitex, Inc. (Inhibitex or the Company) was incorporated in the state of Delaware in May
1994. Inhibitex is a biopharmaceutical company focused on the development of products to prevent
and treat serious infectious diseases. The Company is currently concentrating its efforts on the
development of antiviral small molecule compounds for the treatment of shingles, chronic hepatitis
C, or HCV, and human immunodeficiency virus, or HIV.
The Companys lead antiviral product candidate, FV-100, is an orally available nucleoside analogue
prodrug being developed for the treatment of herpes zoster, or shingles, which is caused by
varicella zoster virus. The safety and pharmacokinetics of FV-100 is currently being evaluated in a
multiple ascending dose study in healthy subjects. The Companys development pipeline also
includes: a series of novel nucleoside polymerase inhibitors for the treatment of HCV; a series of
HIV integrase inhibitors, which are an emerging class of anti-retroviral agents being developed for
the treatment of HIV; and a series of nucleoside analogues with antiviral activity against
cytomegalovirus, or CMV. The Company has also licensed the rights to use certain intellectual
property from its proprietary MSCRAMM
®
protein platform to Wyeth for its use in the
development of staphylococcal vaccines and to 3M Company for its use in developing diagnostic
applications. In addition, the Company continues to pursue licensing, co-development
collaborations, or other business arrangements to support the further development of Aurexis, its
humanized monoclonal antibody being developed to treat serious S
taphylococcus aureus
infections.
The Company has incurred operating losses in each year since its inception and expects such annual
losses to continue.
The Company plans to continue to finance its operations with its existing cash, cash equivalents,
short-term and long-term investments, and future equity and/or debt financings or proceeds from
potential future collaborations or partnerships or other financing arrangements. The Companys
ability to continue its operations is dependent, in the near term, upon managing its existing cash
resources, advancing the development of its product candidates, entering into additional
in-licensing, collaboration and partnership agreements, executing future financings or transactions
and ultimately, achieving positive cash flow from operations. There can be no assurance that
additional funds will be available on terms acceptable to the Company, if at all, or that the
Company will ever become profitable.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. They do not
include all information and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements included in the Annual
Report on Form 10-K for the year ended December 31, 2007. The Companys significant accounting
policies have not changed since December 31, 2007, except as outlined below:
Recent Accounting Pronouncements.
Effective January 1, 2008, the Company adopted Financial
Accounting Standards Board (FASB) SFAS No. 157,
Fair Value Measurements
and SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities"
. SFAS No. 157 provides enhanced
guidance for using fair value to measure assets and liabilities and expands disclosure with respect
to fair value measurements. In February 2008, the FASB issued FSP 157-2 which allows companies to
elect a one year deferral of adoption of SFAS No. 157 for non-financial assets and non-financial
liabilities that are recognized or disclosed at fair value in the financial statements on a
non-recurring basis. On January 1, 2008, the Company adopted the provisions of SFAS No. 157 for
financial assets and liabilities. As permitted by SFAS No.157-2, the Company elected to defer the
adoption of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis,
until January 1, 2009. Please see Note 8-Fair Value Measurements. SFAS No. 159 expands
opportunities to use fair value measurement in financial reporting and permits entities to choose
to measure many financial instruments and certain other items at fair value. In adopting SFAS No.
159, the Company did not elect to measure any new assets or liabilities at their respective fair
values.
6
In December 2007, the FASB issued SFAS No. 141 (Revised),
Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements for how an acquirer of a business recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities assumed
(including intangibles), and any non-controlling interest in an acquiree. SFAS No. 141R also
provides guidance for recognizing and measuring the goodwill acquired in a business combination and
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal
years beginning after December 15, 2008. The adoption of SFAS No. 141R on January 1, 2009, will
require the Company to expense all future direct transaction costs associated with business
combinations.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for a
parent companys non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The
adoption of SFAS No. 160 on January 1, 2009, will require the Company to record future gains or
losses upon changes in control, which is not expected to have a significant impact on the Companys
consolidated financial statements based on its current operations.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities,
which changes the disclosure requirements for derivative instruments and hedging
activities. SFAS No. 161 requires enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items are accounted for
under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and its related
interpretations, and (c) how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. This statements disclosure requirements
are effective for fiscal years and interim periods beginning after November 15, 2008, and its
adoption is not expected to have a significant impact on the Companys consolidated financial
statements.
In May 2008, the FASB issued SFAS 162,
The Hierarchy of Generally Accepted Accounting Principles,
which identifies the sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements of non-governmental entities that
are presented in conformity with generally accepted accounting principles (GAAP) in the United
States. The effective date of SFAS 162 is yet to be determined; it will become effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles
. SFAS 162 is not expected to have a significant impact on the Companys consolidated
financial statements.
3. Net Loss Per Share
The Company calculates net income (loss) per share in accordance with SFAS No. 128, Earnings Per
Share (SFAS No. 128). Under the provisions of SFAS No. 128, basic net income (loss) per share
is computed by dividing the net income (loss) for the period by the weighted average number of
common shares outstanding for the period. Diluted net income (loss) per share is computed by
dividing the net income by the weighted average number of common shares and dilutive common stock
equivalents outstanding (commonly and hereinafter referred to as common stock equivalents). Common
stock equivalents consist of common shares issuable upon the exercise of stock options, warrants,
and restricted shares. For diluted net income or net loss per share, common stock equivalents are
excluded from the calculation of diluted net income or net loss per share if their effect is
anti-dilutive.
The following table sets forth the computation of historical basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available for common stockholders
|
|
$
|
(2,208,875
|
)
|
|
$
|
(2,324,316
|
)
|
|
$
|
(5,656,674
|
)
|
|
$
|
(1,862,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used
to
compute basic earnings per share
|
|
|
42,909,471
|
|
|
|
30,812,510
|
|
|
|
42,850,270
|
|
|
|
30,659,861
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted earnings per share
|
|
|
42,909,471
|
|
|
|
30,812,510
|
|
|
|
42,850,270
|
|
|
|
30,659,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of antidilutive stock options and
restricted stock excluded from computation
|
|
|
5,398,310
|
|
|
|
2,716,166
|
|
|
|
5,398,310
|
|
|
|
2,716,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of antidilutive warrants excluded from
computation
|
|
|
8,535,097
|
|
|
|
2,608,035
|
|
|
|
8,535,097
|
|
|
|
2,608,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
4. Acquisition
On September 19, 2007, the Company completed the acquisition of all of the common shares of
FermaVir Pharmaceuticals, Inc. (FermaVir) pursuant to an Agreement and Plan of Merger and
Reorganization dated as of April 9, 2007 (the merger agreement). Pursuant to the Merger
Agreement, FermaVir merged with and into Frost Acquisition Corp., a wholly-owned subsidiary of the
Company (the merger sub), with the merger sub continuing as a wholly-owned subsidiary of the
Company under the name FermaVir Pharmaceuticals, Inc. The assets of FermaVir included FV-100, an
orally bioavailable nucleoside analogue being developed for the treatment of shingles, and a series
of preclinical stage compounds with antiviral activity against CMV. The consolidated statements of
operations include the results of FermaVir from September 19, 2007, the closing date of the
acquisition.
The fair value of the issuance of 11,469,260 shares of Inhibitex common stock in exchange for all
outstanding FermaVir common shares was $18,924,279 or $1.65 per share, based on the average of the
closing prices for a range of trading days (April 7, 2007 through April 11, 2007, inclusive) around
and including the announcement date of the merger transaction. The fair value of FermaVirs stock
options and stock warrants assumed by Inhibitex for all employees and non-employees was determined
using the Black-Scholes option pricing model with the following weighted average assumptions: stock
price of $1.65, which is the value ascribed to the Inhibitexs common stock in determining the
purchase price; volatility of 71%; dividend rate of 0%; risk-free interest rate of 4.6%; and a
weighted average expected life of 8.3 years.
The estimated purchase price was calculated as follows:
|
|
|
|
|
Fair value of Inhibitex common stock
issued
|
|
$
|
18,924,279
|
|
Estimated fair value of FermaVir stock options and
stock warrants assumed
|
|
|
9,212,033
|
|
Estimated transaction and exit
costs
|
|
|
1,930,352
|
|
Cash advance consideration as note
receivable
|
|
|
1,500,000
|
|
|
|
|
|
Total purchase
price
|
|
$
|
31,566,664
|
|
|
|
|
|
The acquisition was accounted for as an acquisition of assets in accordance with SFAS, No. 142,
Goodwill and Other Intangible Assets
. The total estimated purchase price was allocated to the
tangible and intangible assets acquired and liabilities assumed in connection with the transaction,
based on their estimated fair values. The purchase price allocation is preliminary and additional
adjustments may occur. As FermaVir was a development stage enterprise, the acquisition was not
considered to be a business combination, and the excess allocation of the preliminary purchase
price did not result in goodwill, but rather was reallocated to the acquired assets.
The preliminary allocation of the total purchase price, as shown above, to the acquired tangible
and intangible assets and assumed liabilities of FermaVir based on their fair values as of the
acquisition date are as follows:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
68,953
|
|
Prepaid expenses and other current
assets
|
|
|
23,009
|
|
Property and equipment,
net
|
|
|
3,600
|
|
Other
assets
|
|
|
43,890
|
|
Accounts
payable
|
|
|
(870,754
|
)
|
Accrued
expenses
|
|
|
(271,743
|
)
|
|
|
|
|
Net fair value of acquired assets and
liabilities
|
|
|
(1,003,045
|
)
|
In-process research and
development
|
|
|
32,569,709
|
|
|
|
|
|
Total purchase
price
|
|
$
|
31,566,664
|
|
|
|
|
|
8
The acquired in-process research and development (IPR&D) project per U.S. GAAP is FV-100, a
compound in development for the treatment of shingles. The series of compounds with antiviral
activity against CMV did not qualify as a project for IPR&D purposes and were excluded from the
purchase price allocation. The accounting fair value of IPR&D for FV-100 was $21,200,000. Further
due to the application of Emerging Issues Task Force (EITF) 98-3, the remaining purchase price
was reallocated to FV-100, rather than to goodwill.
The fair value of the IPR&D project was determined utilizing the income approach, assuming that the
rights to the IPR&D project will be sublicensed in the future to third parties in exchange for
certain upfront, milestone and royalty payments, and that the Company will have no further
involvement in the ongoing development and commercialization of the projects. Under the income
approach, the expected future net cash flows from sublicensing the IPR&D project are estimated,
risk-adjusted to reflect the risks inherent in the development process and discounted to their net
present value. Because the acquired IPR&D project is in the early stages of the development cycle
and has no alternative future use, the amount allocated to IPR&D was recorded as an expense
immediately upon completion of the acquisition.
The Company has accrued exit costs in connection with the acquisition of FermaVir. The liability
outstanding as of June 30, 2008 is $198,084, which consists of anticipated relocation and other
expenses incurred in connection with the acquisition.
Pro Forma Results of Operations
The results of operations of FermaVir are included in Inhibitexs consolidated financial statements
from September 19, 2007, the closing date of the acquisition. The following table presents pro
forma results of operations and gives effect to the acquisition transaction as if the acquisition
was consummated on January 1, 2007. The unaudited pro forma results of operations are not
necessarily indicative of what would have occurred had the acquisition of assets been completed at
the beginning of the period or of the results that may occur in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
787,500
|
|
|
$
|
685,000
|
|
|
$
|
1,575,000
|
|
|
$
|
1,353,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
$
|
3,330,441
|
|
|
$
|
4,614,542
|
|
|
$
|
8,078,056
|
|
|
$
|
10,068,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,208,875
|
)
|
|
$
|
(9,368,625
|
)
|
|
$
|
(5,656,674
|
)
|
|
$
|
(13,132,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss
per common share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Share-Based Award Plans
The Company has two share-based award plans, one of which has shares reserved for future
share-based awards. For the three months ended June 30, 2008 and 2007, the Company recorded
share-based compensation expense related to grants from this plan of $395,171 and $409,716,
respectively, or $0.01 and $0.01 basic and fully diluted per share. For the six months ended
June 30, 2008 and 2007, the Company recorded share-based compensation expense related to grants
from this plan of $855,653 and $887,110, respectively, or $0.02 and $0.03 basic and fully diluted
per share. No income tax benefit was recognized in the statements of operations and no share-based
compensation expense was capitalized as part of any assets for the three and six months ended
June 30, 2008 and 2007.
9
Stock Options
The fair value of each stock option award was estimated at its respective date of grant using the
Black-Scholes method with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted average risk-free interest rate
|
|
|
3.03
|
%
|
|
|
|
|
|
|
2.65
|
%
|
|
|
4.83
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected weighted average volatility
|
|
|
.68
|
|
|
|
|
|
|
|
.68
|
|
|
|
.76
|
|
Expected weighted average life of options (years)
|
|
|
4.0
|
|
|
|
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Weighted average fair value of options granted
|
|
$
|
0.34
|
|
|
|
|
|
|
$
|
0.45
|
|
|
$
|
0.91
|
|
The risk-free rate interest rate is based on the expected life of the option and the corresponding
U.S. Treasury bond, which in most cases is the U.S. five year Treasury bond. The expected term of
stock options granted is derived from actual and expected option behavior and represents the period
of time that options granted are expected to be outstanding. The Company uses historical data to
estimate option exercise patterns and future employee terminations to determine expected life and
forfeitures. Expected volatility is based on the historical volatility of the Companys publicly
traded common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Stock Options
|
|
|
Per Option
|
|
|
Term
|
|
|
($000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31,
2007
|
|
4,958,131
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
103,500
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,303
|
)
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
Forfeited or
expired
|
|
|
(199,965
|
)
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30,
2008
|
|
|
4,855,363
|
|
|
$
|
2.34
|
|
|
|
6.50
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of stock options granted during the six month period ended June 30,
2008 was $0.45. As of June 30, 2008 there was $1,930,789 of total unrecognized share-based
compensation expense related to unvested stock option awards, not discounted for future
forfeitures. This balance is expected to be recognized over a weighted-average period of 2.9 years.
Restricted Stock
A summary of the Companys unvested restricted stock as of June 30, 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
902,959
|
|
|
$
|
1.83
|
|
Granted
|
|
|
|
|
|
|
|
|
Released
|
|
|
(360,012
|
)
|
|
$
|
1.89
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
542,947
|
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
As of June 30, 2008 there was $124,712 of total unrecognized share-based compensation expense
related to unvested restricted stock granted, not discounted for future forfeitures. This balance
is expected to be recognized over a weighted average period of 0.2 years.
10
6. Contingency
On February 7, 2007, an arbitrator ruled the Company was liable to Nabi Biopharmaceuticals, Inc.
(Nabi) for cancellation fees and restitution in the aggregate amount of $4,500,000, including
$1,200,000 with respect to restitution for prior production and $3,300,000 relating to
cancellation fees, as a result of the Companys termination of a contract manufacturing
agreement with Nabi
during 2006. The Company recorded a charge of $4,500,000 in the fourth quarter of 2006 as a
result of this ruling. The ruling further provided that the Company pay interest at a rate of 9%
per annum on any unpaid balances commencing 30 days after the date of the award. In March 2007,
Nabi filed a petition with the Supreme Court of the State of New York (the Court) to confirm
the arbitrators award, and the Company cross-petitioned to have the award set aside.
On October 18, 2007, the Company learned that the Court had vacated the $3,300,000 portion of the
$4,500,000 arbitration award related to cancellation fees, but had confirmed the $1,200,000 award
of restitution for prior production. On January 28, 2008, the Company paid Nabi the $1,200,000
award, plus accrued interest. On January 30, 2008, Nabi filed a Notice of Appeal of the Courts
decision to the extent it vacated the $3,300,000 portion of the arbitration award relating to the
cancellation fees.
On August 1, 2008, the Company entered into a settlement agreement with Nabi Pharmaceuticals
(Nabi) in connection with the Companys termination of a production and supply agreement in 2006.
The Company agreed to pay Nabi $2,200,000 to settle all remaining claims. The Company had
previously accrued a total of $3,556,564 in research and development expense associated with this
dispute. Accordingly, the Company recorded a $1,356,564 reduction in research and development
expense with respect to this settlement in the second quarter of 2008.
7. Comprehensive Loss
The components of comprehensive loss for the three and six months ended June 30, 2008 and 2007 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,208,875
|
)
|
|
$
|
(2,324,316
|
)
|
|
$
|
(5,656,674
|
)
|
|
$
|
(1,862,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized (losses) gains on
investments
|
|
$
|
(149,836
|
)
|
|
$
|
9,139
|
|
|
$
|
(100,128
|
)
|
|
$
|
7,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(2,358,711
|
)
|
|
$
|
(2,315,177
|
)
|
|
$
|
(5,756,802
|
)
|
|
$
|
(1,854,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements"
. SFAS No. 157 provides
enhanced guidance for using fair value to measure assets and liabilities and expands disclosure
with respect to fair value measurements. This statement was originally effective for fiscal years
beginning after November 15, 2007. In February 2008, the FASB issued FSP 157-2 which allows
companies to elect a one year deferral of adoption of SFAS No. 157 for non-financial assets and
non-financial liabilities that are recognized or disclosed at fair value in the financial
statements on a non-recurring basis. On January 1, 2008, the Company adopted the provisions of SFAS
No. 157 for financial assets and liabilities. As permitted by SFAS No.157-2, the Company elected to
defer the adoption of SFAS No. 157 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis, until January 1, 2009. SFAS No. 157 provides a framework for measuring fair value
under U.S. GAAP and requires expanded disclosures regarding fair value measurements. SFAS No. 157
defines fair value as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. SFAS No. 157 also
establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
|
|
|
|
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or
liabilities. Our Level 1 assets and liabilities include
investments in marketable securities and cash equivalents.
|
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities.
|
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
|
11
The following table sets forth the financial assets and liabilities that were measured at a fair
value on a recurring basis at June 30, 2008 by level within the fair value hierarchy. The Company
did not have any non-financial assets or liabilities that were measured or disclosed at fair value
on a recurring basis at June 30, 2008. As required by SFAS No. 157, assets and liabilities measured
at fair value are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
active markets for
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
|
identical assets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash equivalents
(1)
|
|
$
|
12,808,558
|
|
|
$
|
12,808,558
|
|
|
$
|
|
|
|
$
|
|
|
Short and long-term investments available-for-sale
(2)
|
|
|
28,366,400
|
|
|
|
28,366,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,174,958
|
|
|
$
|
41,174,958
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Cash equivalents consist primarily of money market funds,
corporate notes and commercial paper securities with
original maturity dates of three months or less, for which
we determine fair value through quoted market prices.
|
|
(2)
|
|
Investments available-for-sale consists of corporate notes,
asset-backed securities, and government agency notes, for
which we determine fair value through quoted market prices.
|
12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on
Form 10-Q
contains forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. In some cases,
you can identify forward-looking statements by terms such as may, will, should, could,
would, expect, plan, intend, anticipate, believe, estimate, project, predict,
forecast, potential, likely or possible, as well as the negative of such expressions, and
similar expressions intended to identify forward-looking statements. These forward-looking
statements include, without limitation, statements relating to:
|
|
The expected timing of completing a Phase I trial evaluating multiple ascending doses of FV-100 in
healthy volunteers in the fourth quarter of 2008;
|
|
|
|
the expected timing of initiating a Phase II trial of FV-100 in shingles patients around year end 2008;
|
|
|
|
our plans and the length of time it may take to select lead candidates for our HCV polymerase
inhibitor program and HIV integrase inhibitor program ;
|
|
|
|
our intent to pursue licenses, co-development, collaborations or other transactions to support the
further development of Aurexis;
|
|
|
|
our plans to support our existing collaborations;
|
|
|
|
the number of months that our current cash, cash equivalents, short-term and long-term investments
will allow us to operate;
|
|
|
|
our future financing requirements, the factors that may influence the timing and amount of these
requirements, and how we expect to fund them;
|
|
|
|
potential future revenue from collaborative research agreements, partnerships, license agreements or
materials transfer agreements;
|
|
|
|
our plans to present data at certain scientific meetings in the future;
|
|
|
|
and anticipated future and increased losses from operations.
|
These statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties including, without limitation: 3M Company or
Wyeth not terminating our license and collaborative research agreements; maintaining sufficient
resources, including executive management and key employees; our ability to successfully develop
current and future product candidates either in collaboration with a partner or independently;
our ability to obtain timely regulatory approval to advance our product candidates; the results
of ongoing lead optimization activities and future preclinical studies supporting the selection
of lead candidates for our HCV and/or HIV programs; our ongoing or future preclinical studies or
clinical trials demonstrating the appropriate safety and efficacy of our product candidates;
our ability to secure and our use of third-party contract clinical and preclinical research and
data management organizations; manufacturers fulfilling their contractual obligations or
otherwise perform satisfactorily in the future; manufacturing and maintaining sufficient
quantities of preclinical and clinical trial material on hand to complete our preclinical
studies or clinical trials on a timely basis; our ability enroll patients in clinical trials in
a timely manner; failure to obtain regulatory approval to commence or continue our clinical
trials or to market our product candidates for safety or other reasons; our ability to obtain,
protect and maintain our intellectual property rights for our product candidates from
unauthorized use by others; our collaborators fulfilling their obligations under our agreements
with them in the future; our ability to attract suitable organizations to collaborate on the
development and commercialization of our product candidates; the condition of the financial
equity and debt markets and our ability to raise sufficient funding in such markets; our ability
to manage our expenses, revenues and cash reserves as planned; changes in general economic
business or competitive conditions; and other statements contained elsewhere in this Quarterly
Report on
Form 10-Q
and risk factors described in or referred to in greater detail in the Risk
Factors section of
Form 10-K
for December 31, 2007 and in the Risk Factors section of
Form 10-Q for March 31, 2008. There may be events in the future that we are unable to predict
accurately, or over which we have no control. You should read this
Form 10-Q
and the documents
that we reference herein and have been filed or incorporated by reference as exhibits completely
and with the understanding that our actual future results may be materially different from what
we expect. Our business, financial condition, results of operations, and prospects may change.
We may not update these forward-looking statements, even though our situation may change in the
future, unless we have
obligations under the federal securities laws to update and disclose material developments
related to previously disclosed information. We qualify all of the information presented in this
Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
13
Inhibitex
®
, MSCRAMM
®
and Aurexis
®
are registered trademarks of
Inhibitex, Inc. MSCRAMM is an acronym for Microbial Surface Components Recognizing Adhesive Matrix
Molecules
.
The following discussion should be read in conjunction with the financial statements and the notes
thereto included in Item 1 of this Quarterly Report on
Form 10-Q
.
Overview
We are a biopharmaceutical company focused on the development of products to prevent and treat
serious infections. We are currently concentrating our efforts on the development of antiviral
small molecule compounds for the treatment of shingles, chronic hepatitis C, or HCV, and human
immunodeficiency virus, or HIV.
Our lead antiviral product candidate, FV-100, is an orally available nucleoside analogue prodrug
being developed for the treatment of herpes zoster, or shingles, which is caused by varicella
zoster virus. We have completed a Phase I clinical trial evaluating four single ascending doses of
FV-100 in healthy volunteers and have initiated enrollment in a multiple ascending dose study in
healthy subjects to further evaluate the safety and pharmacokinetics of FV-100. Our development
pipeline also includes: a series of novel nucleoside polymerase inhibitors for the treatment of
HCV; a series of HIV integrase inhibitors, which are an emerging class of anti-retroviral agents
being developed for the treatment of HIV; and nucleoside analogues with antiviral activity against
cytomegalovirus, or CMV. We have also licensed to Wyeth the rights to use certain intellectual
property from our proprietary MSCRAMM
®
protein platform for its use in the development
of staphylococcal vaccines and to 3M Company for its use in developing diagnostic applications. In
addition, we continue to pursue licensing, co-development collaborations and other business
arrangements to support the further development of Aurexis, our humanized monoclonal antibody being
developed to treat serious S
taphylococcus aureus
infections.
We plan to complete the multiple ascending dose study of FV-100 in healthy subjects in the fourth
quarter of 2008 and our goal is to initiate a Phase II trial of FV-100 in shingles patients around
year end 2008. We are also engaged in preclinical lead optimization activities with respect to our
HCV polymerase and HIV integrase and inhibitors, with a goal to select a lead clinical candidate
from our HCV program around the end of 2008 and a clinical candidate from our HIV program in the
first half of 2009.
We have neither received regulatory approval for any of our product candidates, nor do we have any
commercialization capabilities; therefore, it is possible that we may never successfully derive
additional collaboration revenues or any product revenues from any of our existing or future
product candidates or preclinical development programs.
We expect to incur losses for the foreseeable future as we intend to support the development of
our existing antiviral programs, or those we may obtain through future in-licensing, acquisition
or merger activities.
Recent Developments
Phase I FV-100 Clinical Trial
On August 5, 2008, we announced that we had completed a Phase I single
ascending dose clinical trial of FV-100, our highly potent and fast-acting orally available
nucleoside analogue in development for the treatment of shingles (herpes zoster). We reported that
there were no serious adverse events observed and that the compound was generally well tolerated in
the trial. In addition, pharmacokinetic data demonstrated that all doses evaluated in the trial
maintained drug plasma levels of the active form of FV-100 that exceeded its EC
50
for at
least 24 hours. We also reported that we had initiated enrollment in a multiple ascending dose
trial of FV-100 in healthy subjects, and anticipated completing this trial in the fourth quarter of
2008.
Settlement of Litigation with Nabi Pharmaceuticals
- On August 1, 2008, we entered into a
settlement agreement with Nabi Pharmaceuticals (Nabi) in connection with an ongoing contractual
dispute between the two companies arising from our termination of a production and supply
agreement in 2006. We agreed to pay Nabi $2.2 million to settle all remaining claims. We had
previously accrued a total of $3.6 million in research and development expense associated with this
dispute. Accordingly, we recorded a $1.4 million reduction in research and development expense with
respect to this settlement in the second quarter of 2008.
14
NASDAQ Listing Transfer
-
On July 9, 2008, we announced that we had received approval from the NASDAQ
Listing Qualifications Staff to transfer our listing of common stock from the NASDAQ Global Market
to the NASDAQ Capital Market. The listing transfer was in response to a letter we received from
NASDAQ in January 2008 regarding our non-compliance with Marketplace Rule 4450(a)(5), which
requires companies to maintain a minimum bid price of $1.00 per share for continued NASDAQ listing.
We have an additional 180 calendar days from July 8, 2008, or until January 5, 2009, to regain
compliance with NASDAQs minimum bid price requirement.
Critical Accounting Policies
Managements Discussion and Analysis of Results of Operations discusses our 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 estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
We base our estimates and judgments on historical experience, current economic and industry
conditions and on various other factors that are believed to be reasonable under the circumstances.
This forms the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe the following critical accounting policies require
significant judgment and estimates:
|
|
|
Revenue Recognition
|
|
|
|
|
Accrued Expenses
|
|
|
|
|
Share-based Compensation
|
There has been no change in the above critical accounting policies used to create the underlying
accounting assumptions and estimates used in 2008.
In addition in 2008, we adopted Financial Accounting Standards Board (FASB) SFAS No. 157,
Fair
Value Measurements
and SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities"
. SFAS No. 157 provides enhanced guidance for using fair value to measure assets and
liabilities and expands disclosure with respect to fair value measurements and SFAS No. 159 expands
opportunities to use fair value measurement in financial reporting and permits entities to choose
to measure many financial instruments and certain other items at fair value. In adopting SFAS No.
159, the Company did not elect to measure any new assets or liabilities at their respective fair
values. We are currently evaluating FASB issued SFAS No. 141 (Revised),
Business Combinations"
,
SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB
No. 51"
, SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities"
, and SFAS
No. 162,
The Hierarchy of Generally Accepted Accounting Principles .
None of these Financial
Accounting Standards Board pronouncements had or are expected to have a material impact on our
results of operations.
Results of Operations
Three Months Ended June 30, 2008 and 2007
Summary.
We reported a net loss of $2.2 million for the three months ended June 30, 2008, as
compared to a net loss of $2.3 million for the same period in 2007. Basic and diluted net loss
per share was $0.05 for the three months ended June 30, 2008, as compared to basic and diluted
net loss of $0.08 per share for the same period in 2007. The decrease in net loss in the second
quarter of 2008, as compared to 2007, was principally due to a decrease in general and
administrative expenses, a reduction in research and development expense associated with the
settlement of prior litigation and slightly higher revenue, offset by an increase in ongoing
research and development expenditures associated with the clinical development of FV-100, as
well as the preclinical development of our HCV nucleoside polymerase inhibitors and HIV
integrase inhibitors, and a decrease in net interest income. We expect to incur losses for the
foreseeable future as we intend to support the development of our antiviral programs.
15
Revenue.
Revenue increased to $0.8 million for the three months ended June 30, 2008 from $0.7
million for the same period in 2007. This increase of $0.1 million, or 14%, was the result of an
increase in periodic research-associated support fees received by the Company related to an
existing collaborative license and development agreement.
Research and Development Expense.
Research and development expense increased to $2.1 million during
the three months ended June 30, 2008, from $1.7 million for the same period in 2007. This increase
of $0.4 million, or 24%, was primarily the result of a $1.1 million increase in clinical,
preclinical and manufacturing-related expenses associated with the clinical and preclinical
development of FV-100 and our preclinical HCV and HIV programs, a $0.3 million increase in
salaries, benefits and share-based compensation, a $0.3 million increase in license fees,
patent-related legal fees and other expenses, a $0.1 million increase in depreciation and
facility-related expenses, offset by a $1.4 million reduction in expense associated with the
settlement of prior litigation related to a production and supply agreement.
Preclinical and clinical development costs decreased by a total of $0.3 million due to a $0.6
million increase in preclinical studies and clinical trial expenses predominantly associated with
our FV-100 program, a $0.3 million increase in sponsored research payments associated with our HIV
and HCV programs, and a $0.2 million increase in manufacturing-related expenses related to FV-100
process development expenses and chemistry associated with our HIV and HCV development programs,
offset by a $1.4 million reduction in expense associated with the settlement of prior litigation
related to a production and supply agreement . Salaries, benefits and share-based compensation
expenses increased due to an increase in personnel. License fees, patent-related legal fees and
other expenses increased due to higher patent expenses, license fees and other expenses.
Depreciation and facility related expenses increased due to a slight increase in facility expenses
and higher amount of depreciable equipment. The following table summarizes the components of our
research and development expense for the three months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Clinical, preclinical and
manufacturing-related
expenses
|
|
$
|
(0.3
|
)
|
|
$
|
|
|
Salaries, benefits and
share-based compensation
expense
|
|
|
1.1
|
|
|
|
0.8
|
|
License fees, patent-related
legal fees and other
expenses
|
|
|
0.7
|
|
|
|
0.4
|
|
Depreciation and facility related
expenses
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
Total research and development
expense
|
|
$
|
2.1
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
General and Administrative Expense.
General and administrative expense decreased to $1.2 million
during the three months ended June 30, 2008 from $2.0 million for the same period in 2007. This
decrease of $0.8 million, or 40%, was due to a $0.6 million decrease in salaries, benefits and
share-based compensation, a $0.1 million decrease in professional and legal fees and a decrease of
$0.1 million in other expenses.
Salaries, benefits and share-based compensation expense decreased by $0.6 million as a result of a
charge for non-recurring severance and termination benefits in 2007 and a decrease in personnel.
Professional and legal fees decreased $0.1 million due to lower consulting and auditing expenses.
Other expenses decreased by $0.1 million due to a decrease in insurance premiums and various other
expenses.
The following table summarizes the components of our general and administrative expense for the
three months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Professional and legal
fees
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
Salaries, benefits and share-based
compensation expense
|
|
|
0.5
|
|
|
|
1.1
|
|
Other expenses
|
|
|
0.3
|
|
|
|
0.4
|
|
Depreciation and facility-related
expenses
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
Total general and administrative
expense
|
|
$
|
1.2
|
|
|
$
|
2.0
|
|
|
|
|
|
|
|
|
16
Six Months Ended June 30, 2008 and 2007
Summary.
We reported a net loss of $5.7 million for the six months ended June 30, 2008, as
compared to a net loss of $1.9 million for the same period in 2007. Basic and diluted net loss
per share was $0.13 for the six months ended June 30, 2008, as compared to basic and diluted net
loss of $0.06 per share for the same period in 2007. The increase in net loss and net loss per
share for the six months ended June 30, 2008, as compared to the same period of 2007, was the
result of an increase in research and development expenses primarily associated with the
preclinical and clinical development of FV-100, as well as the preclinical development of the
our HCV nucleoside polymerase inhibitor and HIV integrase inhibitor programs and a decrease in
net interest income and other income, offset by a decrease in general and administrative
expenses, slightly higher revenue and a reduction in research and development expense associated
the settlement of prior litigation related to a production and supply agreement. We expect to
incur losses for the foreseeable future as we intend to support the development of our antiviral
programs.
Revenue.
Revenue increased to $1.6 million for the six months ended June 30, 2008 from $1.4
million for the same period in 2007. This increase of $0.2 million or 14%, was the result of an
increase in periodic research-associated support fees received by the Company related to an
existing collaborative license and development agreement.
Research and Development Expense.
Research and development expense increased to $5.5 million during
the six months ended June 30, 2008, from $3.2 million for the same period in 2007. This increase of
$2.3 million, or 72%, was primarily the result of a $2.3 million increase in clinical, preclinical
and manufacturing-related expenses associated with the clinical and preclinical development of
Fv-100 and our HCV and HIV programs, a $0.6 million increase in salaries, benefits, and share-based
compensation, a $0.7 million increase in license fees, patent-related legal fees and other
expenses, a $0.1 million increase in depreciation and facility-related expenses, offset in part by
a $1.4 million reduction in expense associated with the settlement of prior litigation related to a
production and supply agreement.
Preclinical and clinical development costs increased by a total of $0.9 million due to a $1.4
million increase in preclinical studies and clinical trial expenses predominantly associated with
our FV-100 program, a $0.6 million increase in sponsored research payments associated with our HIV
and HCV development programs, a $0.3 million increase in manufacturing-related expenses related to
FV-100 process development expenses, and chemistry associated with our HIV and HCV development
programs, offset in part by a $1.4 million reduction in expense associated with the settlement of
prior litigation on a production and supply agreement. Salaries, benefits and share-based
compensation expenses increased due to an increase in personnel. License fees, patent-related
legal fees and other expenses increased due to higher patent expenses, license fees and other
expenses. Depreciation and facility related expenses increased slightly due to a higher amount of
depreciable equipment. The following table summarizes the components of our research and
development expense for the six months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Clinical, preclinical and
manufacturing-related expenses
|
|
$
|
0.9
|
|
|
$
|
|
|
Salaries, benefits and share-based
compensation expense
|
|
|
2.2
|
|
|
|
1.6
|
|
License fees, patent-related legal fees and
other expenses
|
|
|
1.3
|
|
|
|
0.6
|
|
Depreciation and facility related
expenses
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
Total research and development
expense
|
|
$
|
5.5
|
|
|
$
|
3.2
|
|
|
|
|
|
|
|
|
General and Administrative Expense.
General and administrative expense decreased to $2.6 million
during the six months ended June 30, 2008 from $3.3 million for the same period in 2007. This
decrease of $0.7 million, or 21%, was due to a $0.6 million decrease in salaries, benefits and
share-based compensation, a $0.1 million decrease in depreciation and facility-related expenses and
a decrease of $0.1 million in other expenses, offset by an increase of $0.1 million in professional
and legal fees.
Salaries, benefits and share-based compensation expense decreased by $0.6 million as a result of a
non-recurring charge for severance and termination benefits in 2007 and a decrease in personnel.
Depreciation and facility-related expenses decreased by $0.1 million due to lower expenses to
maintain our facilities. Other expenses decreased by $0.1 million due to a decrease in insurance
premiums and various other expenses. Professional and legal fees increased by $0.1 million, due to
a non-recurring favorable mediation settlement with a third party for litigation-related legal fees
in 2007, offset by lower consulting, legal and auditing expenses in 2008.
17
The following table summarizes the components of our general and administrative expense for the six
months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Professional and legal
fees
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
Salaries, benefits and share-based
compensation expense
|
|
|
1.2
|
|
|
|
1.8
|
|
Other expenses
|
|
|
0.6
|
|
|
|
0.7
|
|
Depreciation and facility-related
expenses
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
Total general and administrative
expense
|
|
$
|
2.6
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
Other Income (Loss), net
.
Other income (loss), net decreased to $0.0 million for the six months
ended June 30, 2008 from $1.9 million for the comparable period in 2007. This decrease of $1.9
million was primarily due to the sale of excess raw material in 2007 that did not recur in 2008.
Liquidity and Capital Resources
Since our inception in May 1994 through June 30, 2008, we have funded our operations primarily with
$214.4 million in gross proceeds raised from a series of five private equity financings, our IPO in
June 2004, and two private placements of public equity (PIPE) financings.
For the six months ended June 30, 2008, cash, cash equivalents, short-term and long-term
investments decreased by $8.4 million, from $50.3 million to $41.9 million. This decrease was
primarily the result of net cash used for operating activities, payment of an arbitration award and
the repayment of capital lease obligations and notes payable.
Net cash used in operating activities was $7.6 million for the six months ended June 30, 2008,
reflecting our net loss for the period of $5.7 million plus a net decrease in operating liabilities
over operating assets of $2.8 million, offset in part by non-cash charges of $0.9 million. Our net
loss resulted largely from the cost of funding our preclinical studies, clinical trials, other
research and development activities, and general and administrative expenses, offset in part by the
amortization of deferred revenue from our license and collaboration agreements and net interest
income. The net decrease in operating liabilities reflected a $3.2 million decrease in accrued
liabilities, which was largely due to the payment of a $1.2 million arbitration award and a $1.4
million reduction of accrued expense associated with the settlement of prior litigation related to
a production and supply agreement, and $0.1 million decrease in accounts payable and other
liabilities, offset by $0.4 million increase in deferred revenue. The net decrease in operating
assets reflected a $0.2 million decrease in prepaid and other current assets, offset by a $0.1
million increase in accounts receivable.
Net cash provided from investing activities during the six months ended June 30, 2008, was $7.6
million, which consisted of $8.1 million in net proceeds from short-term and long-term investments,
offset by $0.4 million in cash paid for capital expenditures and $0.1 million in exit costs related
to a previous acquisition.
Net cash used in financing activities during the six months ended June 30, 2008 was $0.6 million,
which consisted of $0.5 million in scheduled payments on our capital leases and notes payable and
$0.1 million in repurchase of our common stock.
At June 30, 2008, our cash, cash equivalents, short-term and long-term investments totaled
$41.9 million and our investments had a planned average maturity less than 12 months. Our cash,
cash equivalents, short-term and long-term investments are generally held in a variety of
interest-bearing instruments, generally consisting of United States government agency securities,
high-grade corporate bonds, asset-backed securities, commercial paper, certificates of deposit and
money market accounts.
Our future funding requirements are difficult to determine and will depend on a number of factors,
including:
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any changes in our strategy in the future;
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our development plans of our product candidates;
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the terms and timing of any collaborative, licensing and other arrangements that we may establish;
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the timing and costs and the variability thereof, associated with conducting preclinical studies;
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18
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the cost of manufacturing preclinical and clinical trial materials for our product candidates;
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the timing and costs and the variability thereof, associated with conducting clinical trials, the
rate of enrollment in such clinical trials and the results of these clinical trials;
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the cost and the time it takes to obtain the regulatory approvals required to advance the
development of our programs or product candidates;
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the number of product candidates we may advance into clinical development;
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future payments we may receive or make under existing or future license or collaboration
agreements if any and assuming existing agreements continue;
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whether we obtain additional preclinical or clinical-stage product candidates or programs through
future in-licensing or acquisition;
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the cost to maintain a corporate infrastructure to support being a publicly-traded company; and
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the cost of filing, prosecuting, and enforcing patent and other intellectual property claims.
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Based on our current strategy and operating plan, and considering the potential costs associated
with advancing the development of our existing pipeline on our planned timelines, we believe that
our existing cash, cash equivalents, short-term and long-term investments of $41.9 million as of
June 30, 2008, plus anticipated proceeds from existing licensing agreements and collaborations,
will enable us to operate for an approximate period of 21 months from June 30, 2008. This
estimate does not include the potential costs for the further development of any additional
development programs and any other significant transaction or change in our strategy or development
plans.
We currently do not have any commitments for future funding, nor do we anticipate that we will
generate significant revenue from the sale of any products in the foreseeable future. Therefore, in
order to meet our anticipated liquidity needs beyond 21 months, or possibly sooner in the event we
enter into other transactions or otherwise change our strategy or development plans, we may need to
obtain additional funding. We would expect to do so primarily through the sale of additional common
stock or other equity securities or licensing agreements, strategic collaborations, debt financing,
or any other financing vehicle. Funds from these sources may not be available to us on acceptable
terms, if at all, and our failure to raise such funds could have a material adverse impact on our
business strategy, plans, financial condition and results of operations. If adequate funds are not
available to us in the future, we may be required to delay, reduce the scope of, or eliminate one
or more of our research and development programs, delay or curtail our preclinical studies and
clinical trials, or obtain funds through license agreements, collaborative or partner arrangements
pursuant to which we will likely have to relinquish rights to certain product candidates that we
might otherwise choose to develop or commercialize independently. Additional equity financings may
be dilutive to holders of our common stock, and debt financing, if available, may involve
significant payment obligations and restrictive covenants that restrict how we operate our
business.
ITEM 4T. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, who is currently the same
individual, to allow timely decisions regarding required disclosure. Our management, under the
supervision of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures as of
the end of the period covered by this report. Based on the evaluation of these disclosure controls
and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective. It should be noted that any system of controls,
however well designed and operated, can provide only reasonable, and not absolute, assurance that
the objectives of the system are met. In addition, the design of any control system is based in
part upon certain assumptions about the likelihood of future events. Because of these and other
inherent limitations of control systems, there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended
June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 7, 2007, an arbitrator ruled we were liable to Nabi Biopharmaceuticals, Inc. or Nabi
for cancellation payments and restitution in the aggregate amount of approximately $4.5 million
as a result of our termination of a contract manufacturing agreement with Nabi during 2006. We
recorded a charge of $4.5 million in 2006 as a result of this arbitration ruling. The ruling
also provided for interest at a rate of 9% per annum on any unpaid balance commencing 30 days
after the date of the award. In March 2007, Nabi filed a petition with the Supreme Court of the
State of New York, or the Court, to confirm the arbitrators award, and we cross-petitioned to
have the award set aside or vacated.
On October 18, 2007, we learned that the Court had vacated approximately $3.3 million of the $4.5
million award and confirmed the $1.2 million portion of the award for restitution. On January 28,
2008, we paid the $1.2 million award plus accrued interest. On January 30, 2008, Nabi filed a
Notice of Appeal of the Courts decision to the extent it vacated the $3.3 million portion of the
arbitration award with respect to the cancellation fees.
On August 1, 2008, we entered into a settlement agreement with Nabi Pharmaceuticals (Nabi) in
connection with the Companys termination of a production and supply agreement in 2006. We agreed
to pay Nabi $2.2 million during the remainder of 2008 to settle all remaining claims.
ITEM 1A. RISK FACTORS
You should carefully consider the following discussion of risks, together with the other
information contained in this
Form 10-Q
. The occurrence of any of the following risks could
materially harm our business, our financial condition, and our ability to raise additional capital
in the future or ever become profitable. In that event, the market price of our common stock could
decline and you could lose part or all of your investment. The Risk Factors included in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007 and the Companys
Quarterly Report on
Form 10-Q
for the period ended March 31, 2008 have not materially changed,
except as set forth below.
Risks Relating to our Development of our Product Candidates
All of our product candidates are still in the early stages of development and remain subject to
numerous preclinical studies, clinical testing and regulatory approval. If we are unable to
successfully develop our product candidates, our business will be materially harmed.
Our failure to successfully develop one or more of our product candidates may have a material
adverse effect on us, and possibly cause us to cease operations. To date, we have not commercially
marketed, distributed or sold any product candidates. The success of our business depends primarily
upon our ability to develop our product candidates through early-stages of development and to
ultimately commercialize our product candidates successfully or enter into collaborations with
larger biopharmaceutical companies to do so. Our most advanced product candidate is FV-100. We have completed a Phase I clinical trial evaluating
single ascending doses of FV-100 in healthy volunteers and have initiated enrollment in a multiple
ascending dose study in healthy subjects. We are also engaged in preclinical lead optimization activities with
respect to our HCV polymerase and HIV integrase inhibitors.
Our product candidates must satisfy rigorous standards of safety and efficacy before they can be
approved for sale. To satisfy these standards, we must engage in expensive and lengthy preclinical
studies and clinical testing and obtain regulatory approval of our product candidates. Despite our
efforts, our product candidates may not:
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offer therapeutic or other benefits over existing, comparable drugs;
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be proven safe and effective in clinical trials;
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have the desired effects or may include undesirable effects or the
drug candidates may have other unexpected characteristics;
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20
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meet applicable regulatory standards;
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be capable of being produced in commercial quantities at acceptable costs; or
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be successfully commercialized by us or by our partners.
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Even if we successfully advance our programs through preclinical studies or early-stage clinical
trials, there can be no assurance that later-stage trials will be successful. A number of companies
in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage
clinical trials even after achieving promising results in preclinical testing or early clinical
trials. Accordingly, the results from completed preclinical studies and clinical trials may not be
predictive of the results we may obtain in later-stage trials.
Our product candidates will require significant additional research and development efforts,
substantial financial resources and regulatory approvals prior to advancing into further clinical
development or being commercialized by us or collaborators. We cannot be certain that any of our
product candidates will successfully progress through the drug development process or will result
in clinically or commercially viable products. We do not expect any of our drug candidates to be
commercially available to us or collaborators for a number of years. If we are unable to
successfully develop our product candidates, our business will be materially harmed.
Risks Related to Owning Our Common Stock
We currently do not meet the standards for continued listing on The NASDAQ Capital Market, and we
cannot provide any assurance that we will meet these standards in the future. If we are delisted
from this exchange, the value of your investment may substantially decrease.
On July 9, 2008, we announced that we have received approval from the NASDAQ Listing Qualifications
Staff to transfer our listing of common stock from the NASDAQ Global Market to the NASDAQ Capital
Market. The listing transfer was in response to a letter we received from NASDAQ in January 2008
regarding our non-compliance with Marketplace Rule 4450(a)(5), which requires companies to maintain
a minimum bid price of $1.00 per share for continued NASDAQ listing. NASDAQs notice gave us until
July 8, 2008, to regain compliance with the minimum bid requirement, but also provided that,
alternatively, we could apply to transfer our stock listing to the NASDAQ Capital Market, which we
elected to do. We have an additional 180 calendar days from July 8, 2008, or until January 5, 2009,
to regain compliance with NASDAQs minimum bid price requirement. To maintain our listing on the
NASDAQ Capital Market, our common stock must have a closing bid price of $1.00 for ten consecutive
days before January 5, 2009, in addition to meeting other continued listing requirements of NASDAQ
Marketplace Rule 4450(a)(5). If we are unable to meet the closing bid price requirement before
January 5, 2009, our stock will be delisted from the NASDAQ Capital Market. Any delisting from the
NASDAQ Capital Market may adversely affect the trading price of our common stock, significantly
limit the liquidity of our common stock and impair our ability to raise additional funds.
21
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Under our 2004 Stock Incentive Plan (2004 Plan), employees may elect to withhold shares of common
stock to satisfy minimum statutory tax-withholding requirements arising from stock awards granted
under the 2004 Plan. As per U.S. GAAP these withheld shares are deemed a purchase of common shares
by the Company on the date of withholding. During the quarter ended June 30, 2008, the Company
withheld common shares to satisfy these tax withholding obligations as follows:
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Maximum Number
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Total Number
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(or Approximate
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Of Shares
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Dollar Value) of
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Total
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Purchased as
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Shares That May
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Number of
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Average
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Part of Publicly
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Yet Be Purchased
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Shares
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Price Paid
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Announced Plans
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under the Plans
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Purchased
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per Share
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or Programs
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Or Programs
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April 1 through April 30
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114,231
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$
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0.68
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N/A
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N/A
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May 1 through May 31
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N/A
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N/A
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June 1 through June 30
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N/A
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N/A
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Total
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114,231
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$
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0.68
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N/A
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting of Stockholders on June 04, 2008, at which the following action was
taken:
Stockholders approved the proposal to elect three class I directors of the
Company to hold office until the 2011 annual meeting and until the election and
qualification of their respective successors. The vote with respect to each of
the nominees was as follows:
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M. James Barrett, Ph.D.
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For
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22,298,751
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Withheld
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1,009,929
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Russell M. Medford,
M.D., Ph.D.
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For
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22,651,119
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Withheld
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657,561
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A. Keith Willard
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For
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22,643,889
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Withheld
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664,791
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Robert A. Hamm, Gabriele M. Cerrone, Russell H. Plumb, Michael A. Henos, Marc
L. Preminger and Christopher McGuigan also serve as directors of the Company
and each of their terms continued after the annual meeting of stockholders.
22
ITEM 6. EXHIBITS
The following is a list of exhibits filed as part of this Report:
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Exhibit No.
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Description
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31.1
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Section 302 Certification of the Chief Executive Officer and Chief Financial Officer
Required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer
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23
SIGNATURES
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.
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INHIBITEX, INC
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Date: August 12, 2008
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/s/ Russell H. Plumb
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Russell H. Plumb
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President, Chief Executive Officer,
Chief Financial Officer and Chief Accounting Officer
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24
EXHIBIT INDEX
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Exhibit No.
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Description
|
|
|
|
|
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|
31.1
|
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|
Section 302 Certification of the Chief Executive Officer and Chief Financial Officer as
Required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
|
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|
Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer
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25
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