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
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2009
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 Number: 000-50414
MiddleBrook Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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52-2208264
(I.R.S. Employer
Identification Number)
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7 Village Circle, Suite 100
Westlake, Texas
(Address of Principal Executive Offices)
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76262
(Zip Code)
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(817) 837-1200
(Registrants Telephone Number, Including Area Code)
None
(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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to be submitted and post such files). Yes
o
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 the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
As of October 30, 2009
,
86,511,898 shares of common stock of the registrant were outstanding.
MIDDLEBROOK PHARMACEUTICALS, INC.
INDEX
FORM 10-Q
2
PART I FINANCIAL INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made under the heading Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q
contain forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the
Exchange Act) and the Securities Act of 1933, that reflect our current plans, beliefs, estimates
and views with respect to, among other things, future events and financial performance. In some
cases, forward-looking statements are identified by words such as believe, anticipate,
expect, intend, plan, potential, estimate, will, may, predict, should, could,
would and similar expressions. Specifically, this Quarterly Report on Form 10-Q contains, among
others, forward-looking statements regarding our future financial
performance and growth
prospects, our need for additional capital and the sufficiency of our
cash resources, the successful commercialization of MOXATAG and its
market position and growth, the impact of the strep throat season,
estimated expense savings from
our sales force realignment, our ability to in-license, co-promote or
acquire other products,
the status of the KEFLEX PULSYS Phase III study and our product
development efforts, the amounts of charge-backs and rebates we
record, the impact of market and foreign currency risk, our ability
to rely on previous FDA findings for our PULSYS product candidates,
and our failure to achieve the targets for 2009 bonuses. You should not place undue reliance on these
forward-looking statements. The forward-looking statements included herein and any expectations
based on such forward-looking statements are subject to risks and uncertainties and other important
factors that could cause actual results to differ materially from the results contemplated by the
forward-looking statements, including, but not limited to:
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the failure to obtain market acceptance or to successfully
commercialize MOXATAG and any decrease in sales of KEFLEX 750mg;
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the severity of the strep throat season;
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unsuccessful product development candidates and the
effectiveness of the PULSYS technology;
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the effectiveness of our sales and marketing efforts;
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our ability to meet our anticipated operating needs with our revenues, existing cash and
our revolving line of credit and our ability to obtain additional financing;
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current market conditions on our products and business;
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our obligations related to product returns;
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our reliance on third parties to provide us with the active pharmaceutical ingredients in
our products and product candidates, and to perform certain aspects
of the manufacturing,
packaging and distribution of our products;
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our ability to protect our intellectual property;
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our reliance on and continued consolidation of our top customers and continued pricing
pressures;
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reimbursement of our products under managed care programs;
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our exposure to credit rate, interest rate and exchange rate risk;
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as well as other risks and uncertainties identified in Part I, Item 1A. Risk Factors and Part II,
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations in
our Annual Report on Form 10-K for the year ended December 31, 2008 and in Part II, Item 1A. Risk
Factors in this Quarterly Report on Form 10-Q.
We operate in a continually changing business environment, and new risks and uncertainties
emerge from time to time. Management cannot predict these new risks or uncertainties, nor can it
assess the impact, if any, that any such risks or uncertainties may have on our business or the
extent to which any factor, or combination of factors, may cause actual results to differ from
those projected in any forward-looking statement. Accordingly, the risks and uncertainties to which
we are subject can be expected to change over time, and we undertake no obligation to update
publicly or review the risks or uncertainties described in this Quarterly Report on Form 10-Q. We
also undertake no obligation to update publicly or review any of the forward-looking statements
made in this Quarterly Report on Form 10-Q, whether as a result of new information, future
developments or otherwise.
In addition, with respect to all of our forward-looking statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
KEFLEX, KEFLEX 250 MG, KEFLEX 500 MG, KEFLEX 750 MG, MiddleBrook, MiddleBrook Pharmaceuticals
(stylized), MiddleBrook Pharmaceuticals, Inc., M1 (stylized), MOX-10, MOXAKIT, MOXATAG1 (stylized),
MOXATAG, MOXATEN, MOX-PAK, MOXPAK, MOXPAK (stylized), and PULSYS are our trademarks and have been
registered in the U.S. Patent and Trademark Office or are the subject of pending U.S. trademarks
applications. Each of the other trademarks, tradenames, or service marks appearing in this document
belongs to the respective holder. Except as otherwise indicated by the context, references to
we, us, our, MiddleBrook, or the Company, refer to MiddleBrook Pharmaceuticals, Inc. and
its subsidiaries.
3
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
MIDDLEBROOK PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
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September 30, 2009
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December 31, 2008
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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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25,403
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$
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30,520
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Marketable securities
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3,000
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44,242
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Accounts receivable, net of allowances of $524 and $380
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1,765
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426
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Inventories, net
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3,716
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335
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Other current assets
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2,659
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2,638
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Total current assets
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36,543
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78,161
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Property and equipment, net
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6,393
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4,192
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Other noncurrent assets
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1,532
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1,395
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Intangible assets, net
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10,706
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11,445
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Total assets
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$
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55,174
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$
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95,193
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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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1,282
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$
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2,993
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Other current liabilities
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10,950
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6,141
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Total current liabilities
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12,232
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9,134
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Deferred contract revenue
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11,625
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11,625
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Other long-term liabilities
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3,548
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2,503
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Total liabilities
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27,405
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23,262
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Stockholders equity:
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Preferred stock, $0.01 par value; 25,000 shares
authorized, no shares issued or outstanding at
September 30, 2009 and December 31, 2008
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Common stock, $0.01 par value; 225,000 shares
authorized, 86,512 and 86,433 shares issued and
outstanding at September 30, 2009 and December 31,
2008, respectively
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865
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864
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Capital in excess of par value
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310,374
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307,705
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Accumulated deficit
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(283,470
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(236,914
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Accumulated other comprehensive income
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276
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Total stockholders equity
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27,769
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71,931
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Total liabilities and stockholders equity
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$
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55,174
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$
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95,193
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
MIDDLEBROOK PHARMACEUTICALS, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2009
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2008
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2009
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2008
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(Unaudited)
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(Unaudited)
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Product sales
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$
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1,115
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$
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2,267
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$
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12,232
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$
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7,183
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Costs and expenses:
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Cost of product sales
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517
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350
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1,553
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1,345
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Research and development
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1,445
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6,898
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4,830
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14,270
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Selling, general and administrative
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16,166
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7,004
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52,659
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15,695
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Total costs and expenses
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18,128
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14,252
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59,042
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31,310
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Loss from operations
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(17,013
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(11,985
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(46,810
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(24,127
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Interest income
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20
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172
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384
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387
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Interest expense
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(31
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(83
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Warrant expense
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(954
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(6,714
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Other income (expense)
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113
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128
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Loss before income taxes
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$
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(16,911
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$
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(12,767
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$
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(46,381
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$
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(30,454
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Income taxes
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53
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174
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Net loss
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$
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(16,964
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$
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(12,767
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$
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(46,555
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$
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(30,454
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Loss attributable to noncontrolling interest
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305
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485
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Net loss attributable to MiddleBrook
Pharmaceuticals
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$
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(16,964
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$
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(12,462
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$
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(46,555
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$
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(29,969
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Basic and diluted net loss per share
attributable to MiddleBrook Pharmaceuticals
common stockholders
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$
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(0.20
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$
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(0.19
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$
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(0.54
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$
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(0.52
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Shares used in calculation of basic and
diluted net loss per share
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86,509
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64,649
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86,476
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58,021
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
MIDDLEBROOK PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Nine Months Ended September 30,
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2009
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2008
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(Unaudited)
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Cash flows from operating activities:
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Net loss
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$
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(46,555
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$
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(30,454
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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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2,757
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5,850
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Warrant expense
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6,714
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Stock-based compensation
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2,597
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1,256
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Deferred rent and credit on lease concession
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(7
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(223
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)
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Amortization of premium (discounts) on marketable securities
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(25
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(30
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)
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Net realized
gains on investments
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63
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Loss on fixed assets and facilities
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966
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968
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Deferred tax expense
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174
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Changes in:
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Accounts receivable
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(1,338
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)
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111
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Inventories
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(3,381
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)
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269
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Other current assets
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(237
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)
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472
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Other noncurrent assets
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(137
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)
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(250
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)
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Accounts payable
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(1,711
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)
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931
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Other liabilities
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2,033
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(657
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)
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Net cash used in operating activities
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(44,801
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)
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(15,043
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)
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Cash flows from investing activities:
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Repurchase of Keflex assets from Deerfield
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(12,190
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)
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Purchases of marketable securities
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(5,206
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)
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(11,240
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)
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Sales and maturities of marketable securities
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46,149
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2,380
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Purchases of property and equipment
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(53
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)
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(39
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)
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Proceeds from sale of property and equipment
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472
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Net cash provided by/(used in) investing activities
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40,890
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(20,617
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)
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Cash flows from financing activities:
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Principal payments on capital lease obligations
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(1,279
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)
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Proceeds from private placement of common stock, net of issue costs
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115,943
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Payment to settle warrant liability
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(8,814
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)
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Proceeds from exercise of common stock options
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73
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758
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Proceeds from exercise of common stock warrants
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164
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Net cash (used in)/provided by financing activities
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(1,206
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)
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108,051
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Net (decrease)/increase in cash and cash equivalents
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(5,117
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)
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72,391
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Cash and cash equivalents, beginning of period
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30,520
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1,952
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|
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Cash and cash equivalents, end of period
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$
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25,403
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$
|
74,343
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Supplemental disclosure of cash flow information:
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Cash paid for interest
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$
|
83
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|
$
|
|
|
|
|
|
|
|
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|
Supplemental disclosure of noncash investing and financing transactions:
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|
|
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Capital lease obligations incurred for leased vehicles
|
|
$
|
4,967
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|
|
$
|
|
|
Capital lease obligations for terminated leases
|
|
$
|
(795
|
)
|
|
$
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
MIDDLEBROOK PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of MiddleBrook
Pharmaceuticals, Inc. (MiddleBrook or the Company) have been prepared in accordance with
accounting principles generally accepted in the United States (GAAP) and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information
and disclosures required by GAAP for complete financial statements. Therefore, these condensed
consolidated financial statements should be read in conjunction with the Companys Annual Report on
Form 10-K for the year ended December 31, 2008, as filed on March 13, 2009 with the Securities and
Exchange Commission (SEC). The interim condensed consolidated financial statements reflect all
adjustments that, in the opinion of management, are necessary for a fair statement of the Companys
financial condition and results of operations for the periods presented. Except as otherwise
disclosed, all such adjustments are of a normal recurring nature.
The Company has experienced significant operating losses since its inception in 2000. As of
September 30, 2009, the Company had an accumulated deficit of $283.5 million. The process of
developing and commercializing the Companys products requires significant research and development
work, preclinical testing and clinical trials, as well as regulatory approvals, substantial
marketing and sales efforts, and manufacturing capabilities. These activities, together with the
Companys general and administrative expenses, require significant investments and are expected to
continue to result in significant operating losses for the foreseeable future. In January 2008, the
Company received approval from the U.S. Food and Drug Administration (FDA) to market its lead
product, MOXATAG (amoxicillin extended-release) Tablets, 775 mg, which it began to market on March
16, 2009. The Company has and will continue to incur significant expenses associated with the
commercialization of MOXATAG. To date, revenues recognized from the KEFLEX (immediate-release
cephalexin) and MOXATAG products have been limited and have not been sufficient for the Company to
achieve or sustain profitability. The Company expects to incur a loss from operations in 2009. The
Company believes its existing cash resources and available borrowings under its revolving line of
credit will be sufficient to fund its operations through the first quarter of 2010 at its planned
levels of research, development, sales and marketing activities, including the commercialization of
MOXATAG, barring unforeseen developments.
The accompanying unaudited condensed consolidated financial statements have been prepared on a
basis that contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Companys ability to continue as a going concern
is dependent upon its ability to successfully commercialize MOXATAG. Although the Company continues
to pursue MOXATAGs commercialization, there is no assurance that it will be successful. The
Company currently plans to enter into arrangements with other parties to raise additional capital,
which may dilute the ownership of its equity investors. The Company may also seek other sources of
financing, including additional debt. There can be no guarantee other financing will be available
to the Company on acceptable terms, if at all.
The Companys estimates of future capital requirements are uncertain and will depend on a
number of factors, including the success of its commercialization of MOXATAG, the progress of its
research and development of product candidates, the timing and outcome of regulatory approvals,
cash received from sales of its MOXATAG product and immediate-release KEFLEX products, payments
received or made under any future collaborative agreements, the costs involved in enforcing patent
claims and other intellectual property rights, the acquisition of licenses for new products or
compounds, the status of competitive products, the availability of financing and the Companys or
its potential partners success in developing markets for its product candidates. Changes in the
Companys commercialization and development plans, partnering activities, regulatory activities and
other developments may increase its rate of spending and decrease the period of time its available
resources will fund its operations. Insufficient funds may require the Company to delay, scale back
or eliminate some or all of its research, development or commercialization programs, or may
adversely affect the Companys ability to operate as a going concern.
The Company previously announced that it had planned to start its Phase III clinical trial for
the KEFLEX PULSYS product candidate in 2010, contingent upon the success of the MOXATAG launch and
FDA agreement with the Companys clinical protocol. The Company submitted a Special Protocol
Assessment (SPA) to the FDA in June 2009 for its KEFLEX PULSYS product candidate, and the FDA
responded to the Companys SPA on July 30, 2009. At this time, the Company has not gained agreement
with the FDA regarding the non-inferiority design and planned analysis of the study as outlined in
the SPA. Accordingly, the Company is delaying the development of its KEFLEX PULSYS product
candidate. Any future development is contingent upon the successful commercialization of MOXATAG,
adequate financial resources and the FDAs agreement with a revised study design.
2. Summary of Significant Accounting Policies
Financial Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 168,
The FASB Accounting Standards Codification
TM
and
the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
,
which establishes the FASB Accounting Standards Codification (the Codification or ASC) as the
official single source of authoritative GAAP. All existing accounting standards are superseded by
the Codification, and
all other accounting guidance not included in the Codification will be considered
non-authoritative. The Codification also includes all relevant SEC guidance organized using the
same topical structure in separate sections within the Codification.
7
Following the Codification, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (ASU), which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the changes to the
Codification.
The Codification is not intended to change GAAP, but it will change the way GAAP is organized
and presented. The Codification is effective for interim and annual periods ending after September
15, 2009. The Company has adopted the provisions of SFAS 168, which is now referred to as ASC 105,
Generally Accepted Accounting Principles, beginning with this Quarterly Report on Form 10-Q. The
impact on the Companys financial statements is limited to disclosures, as all future references to
authoritative accounting literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, the Company is providing the Codification
cross-reference topic alongside the references to the standards issued and adopted prior to the
adoption of the Codification.
Consolidation
The condensed consolidated financial statements include the accounts of the Company, together
with the accounts of Kef Pharmaceuticals, Inc. (Kef) and Lex Pharmaceuticals, Inc. (Lex), two
variable interest entities for which MiddleBrook was the primary beneficiary, as defined by ASC
810, Consolidation (formerly FASB Interpretation No. 46 (revised 2003),
Consolidation of
Variable Interest Entities
). Kef and Lex are legal entities that were formed in October 2007 by
Deerfield Management L.P. (Deerfield), which purchased certain non-PULSYS KEFLEX assets from the
Company, including KEFLEX product inventories, in 2007. See Note 4.
Noncontrolling Interest
Deerfield Transaction
for a discussion of the Deerfield transaction. The Company repurchased the
non-PULSYS KEFLEX assets from Deerfield on September 4, 2008 by purchasing all of the outstanding
capital stock of both Kef and Lex pursuant to an agreement dated July 1, 2008 (the Deerfield
Agreement), entered into with Deerfield and certain of its
affiliates, including Kef and Lex
(collectively, Kef, Lex and Deerfield are hereinafter referred to as the Deerfield Entities).
All significant intercompany accounts and transactions between MiddleBrook and the two variable
interest entities, Kef and Lex, have been eliminated effective September 4, 2008. After the
repurchase of the non-PULSYS KEFLEX assets from the Deerfield Entities, the balances of the
accounts remain fully consolidated as part of the Company.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Derivative Financial Instruments
The Company has historically entered into foreign currency forward exchange contracts to hedge
forecasted inventory and sample purchase transactions that are subject to foreign exchange exposure
to either the euro or British pound sterling. These instruments were designated as cash flow hedges
in accordance with ASC 815, Derivatives and Hedging (formerly SFAS No. 133,
Accounting for
Derivative Instruments and Hedging Activities as amended by SFAS No. 137, No. 138 and No. 149
) and
were recorded in the Companys condensed consolidated balance sheet at fair value in either Other
current assets (for unrealized gains) or Other current liabilities (for unrealized losses). In
accordance with ASC 815 (formerly SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133
), which became effective January 1,
2009, the Company expanded its disclosures associated with its use and accounting of derivative
instruments. The adoption of this new accounting pronouncement did not have an impact on the
Companys financial statements beyond the required expanded disclosures.
For derivatives designated as cash flow hedges, the effective portions of the changes in the
fair value of the derivative were recorded in Accumulated other comprehensive income and recognized
in the income statement when the hedged item affected earnings, through Cost of goods sold for
inventory and Selling, general and administrative for samples. Ineffective portions of changes in
the fair value of cash flow hedges were recognized in Other expense. Hedge effectiveness for
foreign currency forward contracts is measured by comparing the cumulative change in the fair value
of the hedge contract with the cumulative change in the fair value of the hedged item. These
contracts are highly effective in hedging the variability in future cash flows attributable to
changes in currency exchange rates.
The Company formally documents its hedge relationships, including identifying the hedging
instruments and the hedged items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. This process includes identifying the designated derivative to
forecasted transactions. The Company also formally assesses, both at inception and at least
quarterly thereafter, whether the derivatives used in hedging transactions are highly effective in
offsetting changes in the fair value of the hedged item. The maturities of the forward exchange
contracts generally coincide with the settlement dates of the underlying exposure.
8
The Company does not use derivatives for trading purposes and restricts all derivative
transactions to those intended for hedging
purposes.
The Company had the following outstanding balances on foreign exchange forward contracts at
the respective dates:
|
|
|
|
|
|
|
|
|
|
|
Units of Foreign Currency
|
|
|
|
(in thousands)
|
|
Foreign Currency
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
Euro
|
|
|
0
|
|
|
|
2,000
|
|
British pound sterling
|
|
£
|
0
|
|
|
£
|
1,000
|
|
The fair value of these contracts is reported in the balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
Fair Value at
|
|
|
Fair Value at
|
|
|
|
Location
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
(in thousands)
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts
|
|
Other current assets
|
|
$
|
0
|
|
|
$
|
216
|
|
Foreign Exchange Forward Contracts
|
|
Other current liabilities
|
|
|
0
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
0
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
For additional information on the fair value measurements of the derivative instruments and
other financial instruments, see Note 15.
Fair Value Measurements
.
For the nine-month period ended September 30, 2009, the Company recognized $15,000 in Other
expense due to hedge ineffectiveness. There were no amounts recognized for ineffectiveness for the
three-month period ended September 30, 2009 or the three- or nine-month periods ended September 30,
2008. As of December 31, 2008, Accumulated other comprehensive income included the net unrealized
gains on the forward contracts of $116,000, net of taxes. There were no derivative contracts, and
therefore no unrealized amounts, outstanding as of September 30, 2009.
Accounts Receivable
Accounts receivable represent amounts due from trade customers for sales of pharmaceutical
products. Allowances for estimated product discounts, chargebacks and wholesaler rebates are
recorded as reductions to gross accounts receivable. Amounts due for returns and estimated rebates
payable to third parties are included in Other current liabilities.
Intangible Assets
Identifiable intangible assets with definite lives are amortized on a straight-line basis over
their estimated useful lives. The non-PULSYS KEFLEX assets are being amortized over 12 years to
coincide with the expiration date of certain patents owned by the Company that it intends to
utilize for the KEFLEX PULSYS product candidate. Based on the FDAs response to the Companys SPA
received on July 30, 2009, the Company has not gained agreement with the FDA regarding its
non-inferiority design and planned analysis of the Phase III trial for its KEFLEX PULSYS product
candidate as outlined in the SPA. Accordingly, the Company has delayed the Phase III trial pending
the successful commercialization of MOXATAG, adequate financial resources and the FDAs agreement
with a revised study design. Based on the FDAs response, the Company has performed an impairment
analysis of the intangible asset and has determined that it is not impaired at this time. The
Company will continue to monitor the value and life of the asset in relation to the status of the
Phase III trial for KEFLEX PULSYS.
The KEFLEX brand name and other intangible assets were acquired for marketing purposes, and
the related amortization is charged to selling expense. The Company does not have identifiable
intangible assets with indefinite lives.
Leases Capital
The Company leases vehicles for its field sales force to assist them in performing their
responsibilities of calling on physicians and pharmacists. These vehicle leases are accounted for
as capital leases. The Company has recorded a $5.0 million asset and an offsetting liability for
the present value of the minimum lease payments at the inception of the lease. The asset is
included within Property and equipment, net and is depreciated over the term of the leases. The
liability is reduced as the monthly payments are made, with a portion applied to the obligation and
the balance recorded as interest expense. During the third quarter of 2009, the Company completed a
reduction of its field sales force, which resulted in the termination
of automobile leases with a net book value of $0.8 million. The net book value of the terminated automobile leases was
removed from Property and equipment, net and the associated liabilities were removed from other current
and long-term liabilities. As of September 30, 2009, the remaining net book value for ongoing
leases is $2.9 million, which is included in Property and
equipment, net; the associated
liabilities of $1.5 million are included in Other current
liabilities and $1.4 million are included in
Other long-term liabilities.
9
Registration Payment Arrangements
The Company views a registration rights agreement containing a liquidated damages provision as
a separate freestanding contract that has nominal value, and the Company has followed that
accounting approach consistent with ASC 480, Distinguishing Liabilities from Equity (formerly
FASB Staff Position (FSP) No. EITF 00-19-2,
Accounting for Registration Payment Arrangements
).
Under this approach, the registration rights agreement is accounted for separately from the
financial instrument and measured in accordance with ASC 450, Contingencies (formerly SFAS No. 5,
Accounting for Contingencies
). Should the Company conclude that it is more likely than not that a
liability for liquidated damages will occur, the Company would record the estimated cash value of
the liquidated damages liability at that time.
Segment and Geographic Information
In accordance with ASC 280, Segment Reporting (formerly SFAS No. 131,
Disclosure about
Segments of an Enterprise and Related Information
), the Company has determined that it operates in
one business segment. The Company is organized along functional lines of responsibility and does
not utilize a product, divisional or regional organizational structure. The entire business is
managed by a single management team that reports to the chief executive officer.
Long-lived assets, consisting of property and equipment, are located both in the United States
and Ireland. Below is geographic information for the nine months ended and as of September 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and
|
|
Geographic Information
|
|
Product Sales
|
|
|
Equipment
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
12,232
|
|
|
$
|
4,489
|
|
Ireland
|
|
|
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,232
|
|
|
$
|
6,393
|
|
|
|
|
|
|
|
|
Other Recent Accounting Pronouncements
In December 2007, the FASB issued ASC 805, Business Combinations (formerly SFAS No. 141
(revised 2007),
Business Combinations
), which became effective for financial statements issued
for fiscal years beginning on or after December 15, 2008. ASC 805 established principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree,
and goodwill acquired in a business combination. ASC 805 also established disclosure requirements
to enable the evaluation of the nature and financial effects of the business combination. The
adoption of ASC 805 had no impact on the Companys results of operations and financial condition
and will be implemented prospectively, as circumstances require.
In December 2007, the FASB changed the accounting and reporting for minority interests in ASC
810, Consolidation (formerly SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
). Minority interests are recharacterized as noncontrolling
interests (NCI) and classified as a component of equity. ASC 810 also requires that entities
provide sufficient disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. ASC 810 is effective for the Company
beginning with the current fiscal year. The Company has adjusted the presentations and disclosures
relating to NCI in the three- and nine-month periods ended September 30, 2008, as required by ASC
810.
In February 2008, the FASB deferred the effective date of parts of ASC 820, Fair Value
Measurements and Disclosures (formerly SFAS No. 157
, Fair Value Measurements
) for nonfinancial
assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, in order to
provide the FASB additional time to consider the effect of certain implementation issues that had
arisen from the application of ASC 820 to these nonfinancial assets and nonfinancial liabilities.
ASC 820 defined fair value, established a framework for measuring fair value in accordance with
GAAP, and expanded disclosures about fair value measurements. The adoption of ASC 820 for
nonfinancial assets and nonfinancial liabilities did not have a material impact on the Companys
results of operations and financial condition.
In May 2009, the FASB issued ASC 855, Subsequent Events (formerly SFAS No. 165,
Subsequent
Events
), which is effective for interim or annual financial periods ending after June 15, 2009.
ASC 855 established guidance regarding circumstances under which subsequent events must be
recognized, the period during which to evaluate events subsequent to the financial statement date,
and disclosures associated with those events. The Company has incorporated the required disclosures
in this Quarterly Report on Form 10-Q.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167), which is not yet included within the ASC Codification. SFAS 167 amends certain
requirements of FASB Interpretation No. 46(R) to improve financial reporting by companies involved
with variable interest entities and to provide more relevant and reliable information to users of
financial statements. SFAS 167 is effective for fiscal years beginning after November 15, 2009. The
Company is evaluating the impact
that the adoption of SFAS 167 will have on its consolidated financial statements.
10
In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, Measuring
Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. ASU
2009-05 provides clarification and guidance regarding how to value a liability when a quoted price
in an active market is not available for that liability. ASU 2009-05 is effective beginning with
the first reporting period (including interim periods) after its
issuance, which, for the Company, is this Quarterly
Report on Form 10-Q. The adoption of ASU 2009-05 did not have a material impact on
the Companys results of operations and financial condition.
3. Revenue and Deferred Revenue
The Company records revenue from sales of pharmaceutical products under the KEFLEX brand name
and, beginning in the first quarter of 2009, under the MOXATAG brand name.
Beginning July 15, 2009, the Company implemented a $20 maximum co-pay program for MOXATAG. The
program is designed to keep a patients net out-of-pocket co-pay expense for a MOXATAG prescription
at no more than $20. Patients can redeem a voucher at the point-of-sale in conjunction with having
a MOXATAG prescription filled. During the third quarter of 2009, a $1.7 million charge for this
program was recorded as a reduction of net revenues, resulting from a combination of vouchers
redeemed during the quarter and an estimated liability for future redemption of these vouchers.
The liability was calculated based on the estimated number of prescriptions in the channel (i.e.,
inventory that the Company has sold to retailers and wholesalers but
that has yet to be filled as
prescriptions for an end-user patient), combined with estimated voucher redemption rates and values.
While the liability was incurred and recorded in connection with the commencement of the
program in July 2009, it is associated with MOXATAG inventory sold into the channel during each of
the quarters of 2009. Had the program started simultaneously with the commercial launch of
MOXATAG, $0.4 million of the $1.7 million charge would have been recorded in the third quarter.
The remaining charge of $1.3 million was a cumulative catch-up charge relating to MOXATAG product
sold by the Company during the first and second quarters of 2009 that was in the channel for
potential use with a voucher. The Company continues to review the assumptions surrounding this
liability as additional information becomes available.
4. Noncontrolling Interest Deerfield Transaction
On November 7, 2007, the Company entered into a series of agreements with Deerfield, which
provided for a potential capital raise of up to $10 million in cash in two potential closings
through the sale or assignment of certain of the Companys non-PULSYS KEFLEX assets to two
Deerfield affiliates, Kef and Lex.
On July 1, 2008, the Company entered into a definitive securities purchase agreement for a
$100 million equity investment in the Company by EGI-MBRK, L.L.C. (EGI), an affiliate of Equity
Group Investments, L.L.C., in the form of 30,303,030 shares of MiddleBrook common stock at $3.30
per share and a five-year warrant to purchase a total of 12,121,212 shares of MiddleBrook common
stock at an exercise price of $3.90 per share. The transaction (the EGI Transaction) was subject
to stockholder approval and closed on September 4, 2008. A portion of the proceeds received from
the EGI Transaction was used to repurchase those certain KEFLEX (immediate-release cephalexin)
assets sold and assigned to two affiliates of Deerfield, Kef and Lex, by purchasing all of the
outstanding capital stock of both Kef and Lex.
Variable Interest Entities and Consolidation
Kef and Lex were determined to be variable interest entities of the Company, which was
determined to be the primary beneficiary. Thus, the Company consolidated the financial condition
and results of operations of Kef and Lex. Accordingly, the net losses of $305,000 and $485,000
attributable to the noncontrolling interest (the results of Kef and Lex) for the three- and
nine-month periods ended September 30, 2008, respectively, have been removed from the net loss in
the condensed consolidated statement of operations in order to determine the net loss attributable
to MiddleBrook.
Kef and Lex were acquired by the Company in connection with the EGI Transaction in September
2008. Therefore, Kef and Lex are fully consolidated in 2009, and there is no longer a
noncontrolling interest in these entities. For a more detailed explanation of the transactions with
Deerfield and EGI, refer to the Companys Annual Report on Form 10-K for the year ended December
31, 2008, as filed with the SEC on March 13, 2009.
5. Other Comprehensive Income
ASC 220, Comprehensive Income (formerly SFAS No. 130,
Reporting Comprehensive Income
)
requires a full set of general-purpose financial statements to include the reporting of
comprehensive income. Other comprehensive income consists of unrealized gains and losses on
available-for-sale marketable securities and unrealized gains and losses on foreign exchange
forward contracts. As of September 30, 2009, all previously
recorded unrealized gains and losses have been recognized as part of
income, resulting in no adjustment from Net loss to comprehensive loss.
11
The following table
presents the computation of comprehensive loss for the three
and nine months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Net loss
|
|
$
|
(16,964
|
)
|
|
$
|
(12,767
|
)
|
Net
unrealized investment gains
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(16,964
|
)
|
|
$
|
(12,730
|
)
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
|
|
|
|
305
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to MiddleBrook Pharmaceuticals
|
|
$
|
(16,964
|
)
|
|
$
|
(12,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Net loss
|
|
$
|
(46,555
|
)
|
|
$
|
(30,454
|
)
|
Net
unrealized investment gains
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(46,555
|
)
|
|
$
|
(30,417
|
)
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
|
|
|
|
485
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to MiddleBrook Pharmaceuticals
|
|
$
|
(46,555
|
)
|
|
$
|
(29,932
|
)
|
|
|
|
|
|
|
|
6. Earnings Per Share
Basic earnings per share is computed based on the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed based on the weighted-average
shares outstanding adjusted for all dilutive potential common shares. The dilutive impact, if any,
of potential common shares outstanding during the period, including outstanding stock options, is
measured by the treasury stock method. Potential common shares are not included in the computation
of diluted earnings per share if they are antidilutive. The Company incurred net losses for the
three- and nine-month periods ended September 30, 2009 and 2008, and accordingly, did not assume
exercise of any of the Companys outstanding stock options or warrants.
The following securities could potentially dilute basic earnings per share in the future and
were not included in the computation of diluted earnings per share because they would have been
antidilutive for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
(in thousands)
|
|
(Number of Underlying Common Shares)
|
|
2009
|
|
|
2008
|
|
Stock options
|
|
|
15,392
|
|
|
|
12,168
|
|
Warrants
|
|
|
25,562
|
|
|
|
25,562
|
|
|
|
|
|
|
|
|
Total
|
|
|
40,954
|
|
|
|
37,730
|
|
|
|
|
|
|
|
|
7. Marketable Securities
Marketable securities, including accrued interest, at September 30, 2009 and December 31, 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
Available-for-Sale
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Government debt securities
|
|
$
|
3,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
3,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
Available-for-Sale
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Corporate debt securities
|
|
$
|
11,331
|
|
|
$
|
68
|
|
|
$
|
|
|
|
$
|
11,399
|
|
Government debt securities
|
|
|
32,650
|
|
|
|
193
|
|
|
|
|
|
|
|
32,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
43,981
|
|
|
$
|
261
|
|
|
$
|
|
|
|
$
|
44,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above marketable debt securities consist of corporate and government agency bonds with
contractual maturities of less than six months. The Company realized $128,000 and $161,000 of gains
on its investments during the three- and nine-month periods ended September 30, 2009, respectively.
The Company did not realize any gains or losses on investments during the comparable periods
ended September 30, 2008. Any gains or losses to be recognized by the Company upon the sale of a
marketable security are specifically identified by investment. The Company did not have any
other-than-temporary declines in the fair value of its investments.
12
8. Accounts Receivable
Accounts receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Accounts receivable for product sales, gross
|
|
$
|
2,289
|
|
|
$
|
806
|
|
Allowances for rebates, discounts and chargebacks
|
|
|
(524
|
)
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
Accounts receivable for product sales, net
|
|
$
|
1,765
|
|
|
$
|
426
|
|
|
|
|
|
|
|
|
The Companys largest customers are large wholesalers of pharmaceutical products and
retailers. Three large wholesalers accounted for approximately 54.0%, 15.8% and 11.0%,
respectively, of the Companys accounts receivable for product sales as of September 30, 2009.
9. Inventories
Inventories, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Finished goods
|
|
$
|
2,682
|
|
|
$
|
374
|
|
Raw materials
|
|
|
1,291
|
|
|
|
|
|
Reserve for slow-moving inventory
|
|
|
(257
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
3,716
|
|
|
$
|
335
|
|
|
|
|
|
|
|
|
During both the three- and nine-month periods ended September 30, 2009, there was an
additional reserve of $218,000 recorded for slow-moving KEFLEX inventory. During the three- and
nine-month periods ended September 30, 2008, $39,000 and $318,000, respectively, was recorded for
obsolete and slow-moving inventory. There were no obsolete inventory stocks on hand at September
30, 2009 or December 31, 2008. During the three-month period ended September 30, 2009, the Company
purchased $1.3 million of active pharmaceutical ingredient to be utilized by the third-party
manufacturer in its MOXATAG product. This inventory is recorded as raw materials within the
Companys inventory balance.
10. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Computer equipment
|
|
$
|
751
|
|
|
$
|
697
|
|
Furniture and fixtures
|
|
|
834
|
|
|
|
834
|
|
Equipment
|
|
|
3,473
|
|
|
|
3,473
|
|
Automobiles capital leases
|
|
|
3,915
|
|
|
|
|
|
Leasehold improvements
|
|
|
9,239
|
|
|
|
9,239
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
18,212
|
|
|
|
14,243
|
|
Less accumulated depreciation
|
|
|
(11,819
|
)
|
|
|
(10,051
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
6,393
|
|
|
$
|
4,192
|
|
|
|
|
|
|
|
|
See Note 14.
Commitments and Contingencies,
for more detail.
13
11. Intangible Assets
Intangible assets at September 30, 2009 and December 31, 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
KEFLEX brand rights
|
|
$
|
11,757
|
|
|
$
|
(1,054
|
)
|
|
$
|
10,703
|
|
Patents acquired
|
|
|
120
|
|
|
|
(117
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
11,877
|
|
|
$
|
(1,171
|
)
|
|
$
|
10,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
KEFLEX brand rights
|
|
$
|
11,757
|
|
|
$
|
(324
|
)
|
|
$
|
11,433
|
|
Patents acquired
|
|
|
120
|
|
|
|
(108
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
11,877
|
|
|
$
|
(432
|
)
|
|
$
|
11,445
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets with definite lives are amortized on a straight-line basis over
their estimated useful lives. Prior to September 4, 2008, the KEFLEX brand rights were being
amortized over 10 years. Since the re-acquisition of the non-PULSYS KEFLEX intangible assets from
Deerfield on September 4, 2008, through purchasing all of the outstanding capital stock of Kef and
Lex, the assets are being amortized over 12 years, to coincide with patents associated with the
PULSYS technology that the Company currently intends to use for its KEFLEX PULSYS product
candidate.
Based on the FDAs response on July 30, 2009 to the Companys SPA, the Company has not gained
agreement with the FDA regarding its non-inferiority design and planned analysis of the Phase III
study for its KEFLEX PULSYS product candidate as outlined in the SPA. Accordingly, the Company has
delayed the Phase III trial pending the successful commercialization of MOXATAG, adequate financial
resources, and the FDAs agreement with a revised study design. Based on the FDAs response, the
Company has performed an impairment analysis of the intangible asset and has determined that it is
not impaired at this time. The Company will continue to monitor the value and life of the asset in
relation to the status of the Phase III trial for KEFLEX PULSYS.
Certain other Company-acquired patents are amortized over 10 years.
12. Restructuring
During the third quarter of 2009, the Company strategically realigned its field sales force
and eliminated corporate staff positions to more aggressively preserve its financial resources.
The Company terminated 63 field-based and 10 office-based employees. All employees were notified
and terminated within the quarter. In connection with the reduction-in-force, the Company recorded
$669,000 of severance expense and benefits. Of the total expense, $310,000 was recorded in
Selling, general and administrative, while the remaining $359,000 was recorded within Research and
development. The liability was recorded in current accrued expenses, as all amounts will be paid
out within one year. The majority of the payments were made before September 30, 2009.
A rollforward of accrued severance for the nine-month period ended September 30, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Accrued
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
in
|
|
|
|
|
|
|
September 30,
|
|
Accrued Severance (in thousands)
|
|
2008
|
|
|
2009
|
|
|
Cash Paid
|
|
|
2009
|
|
2009 Reduction-in-force
|
|
$
|
0
|
|
|
$
|
669
|
|
|
$
|
(629
|
)
|
|
$
|
40
|
|
2008 Severance
|
|
|
337
|
|
|
|
0
|
|
|
|
(337
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337
|
|
|
$
|
669
|
|
|
$
|
(966
|
)
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Income Taxes
As required by ASC 740, Income Taxes (formerly SFAS 109,
Accounting for Income Taxes
),
income tax expense or benefit for the year is allocated among continuing operations, discontinued
operations, extraordinary items, other comprehensive income, and items charged or credited directly
to stockholders equity. Pursuant to this intraperiod allocation requirement, for the three- and
nine-month periods ended September 30, 2009, $53,000 and $174,000 of tax expense, respectively, has
been allocated to the loss from continuing operations, and $53,000 and $174,000 of tax benefit,
respectively, has been allocated to other comprehensive income due to the reduced unrealized gains
recorded therein due to ASC 320 (formerly SFAS 115,
Accounting for Certain Investments in Debt and
Equity Securities
) and ASC 815. The Company did not record any tax provision or benefit for the
three- or nine- month periods ended September 30, 2008. The Company has provided a valuation
allowance for the full amount of its net deferred tax assets because realization of any future
benefit from deductible temporary differences and net operating loss carry forwards cannot be
sufficiently assured at December 31, 2008 and September 30, 2009.
The Company has federal and state net operating losses, federal research and experimentation
tax credit and state tax credit carryforwards available to reduce future taxable income. Under the
provisions of Sections 382 and 383 of the Internal Revenue Code, certain substantial changes in the
Companys ownership may result in a limitation on the amount of net operating loss and research and
experimentation tax credit carryforwards that may be utilized in future years. During 2001, 2005
and 2008, the Company may have experienced such ownership changes.
14
The Company is primarily subject to U.S. federal and Maryland and Texas state corporate income
taxes.
The Companys policy is to recognize interest related to income tax matters, if any, in
interest expense and penalties related to income tax matters, if any, in operating expenses. As of
September 30, 2009 and December 31, 2008, the Company had no accruals for interest or penalties
related to income tax matters.
14. Commitments and Contingencies
Leases Facilities
As of September 30, 2009, $1.3 million of sublease loss is included in Other current
liabilities and another $2.0 million is included with Other long-term liabilities. These balances
include an additional charge of $1.0 million recorded in Research and development during the nine
months ended September 30, 2009, based on the updated timing of anticipated cash flows mainly
resulting from the Company entering into a lease amendment for a portion of one of its Maryland
facilities during the period.
Capital Leases Automobiles
In connection with hiring a field sales force during the first quarter of 2009, the Company
entered into leases under a master lease agreement in order to provide vehicles for the sales
force. These leases range in length from 30 to 40 months and include up to 75,000 miles. Based on
the details of the leases, the Company is accounting for these leases as capital leases. As a
result, the Company has recorded the present value of the minimum lease payments as an asset within
property and equipment, with an offsetting liability split between other current and long-term
liabilities. The Company is amortizing the value of the vehicle leases over the term of each lease
and allocates the lease payments between a reduction of the outstanding obligation and interest
expense.
The Company had
recorded a total gross asset value of $5.0 million associated with all
automobile leases. During the third quarter of 2009, the Company completed a reduction of its
field sales force, which resulted in the termination of automobile
leases with a net book
value of $0.8 million. The net book value associated with all
terminated automobile leases, along
with the remaining current and noncurrent liability balances, were removed from Property and
equipment, net and other current and long-term liabilities on the Companys condensed consolidated
balance sheet. As of September 30, 2009, $2.9 million of net book value of the automobiles remains
in Property and equipment, net associated with the ongoing capital leases, and the associated
liabilities of $1.5 million are included in Other current
liabilities and $1.4 million are included in
Other long-term liabilities. For the three- and nine-month periods ended September 30, 2009, the
Company paid $31,000 and $83,000, respectively, for imputed interest on capital leases.
15. Fair Value Measurements
ASC 850 (formerly SFAS 157,
Fair Value Measurements
) establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
|
|
Level 1 defined as observable inputs such as quoted prices in active markets;
|
|
|
|
|
Level 2 defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable; and
|
|
|
|
|
Level 3 defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions.
|
The following table summarizes the Companys fair value measurements as of September 30, 2009
and December 31, 2008 for assets measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at September 30, 2009
|
|
|
|
(in thousands)
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Assets:
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Marketable debt securities
|
|
$
|
|
|
|
$
|
3,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
3,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2008
|
|
|
|
(in thousands)
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Assets:
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Marketable debt securities
|
|
$
|
|
|
|
$
|
44,242
|
|
|
$
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
44,432
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
15
16. Related Party Transactions
Consulting Arrangements
On October 17, 2008, the Companys Board of Directors appointed Lord James Blyth to the Board
and elected him as its vice chairman. In connection with his new appointment, the Company entered
into a consulting agreement with Lord Blyth; pursuant to which Lord Blyth will provide strategic
guidance in late-stage development and commercialization of the Companys research and development
efforts. The consulting agreement has a term of 36 months beginning on October 17, 2008. As
compensation for his services under the consulting agreement, Lord Blyth received an option under
the MiddleBrook Amended and Restated Stock Incentive Plan to purchase 470,000 shares of the
Companys common stock with an exercise price of $1.34 per share, equal to the closing price of the
Companys common stock on the NASDAQ Global Market on October 16, 2008. The option has a term of
three years and fully vests one month prior to the expiration of the consulting agreement. The
Board may accelerate the vesting, or terminate the consulting agreement prior to the vesting of the
option, at any time in the Boards sole discretion based on a review of Lord Blyths contribution
to the Company. Lord Blyth will not be eligible to participate in any benefit programs that the
Company maintains for its employees. The Company will not reimburse Lord Blyth for any expenses
except for reasonable travel expenses incurred in connection with his performance of consulting
services, unless otherwise agreed by the Company.
17. Revolving Line of Credit
The Company entered into a Loan and Security Agreement, dated June 29, 2009 (the Loan
Agreement), pursuant to which the Company obtained a working capital-based secured revolving line
of credit (the Revolving Line) from Silicon Valley Bank (SVB) with borrowing availability up to
$10.0 million.
The Revolving Line provides an aggregate amount of up to the lesser of (i) $10.0 million, or
(ii) 80% of eligible domestic accounts receivable plus 35% of eligible domestic inventory, with
total inventory advances capped at the lesser of (a) 25% of overall outstanding disbursements under
the Revolving Line or (b) $1.0 million. The Revolving Line is subject to (i) a $2.0 million
sublimit available for cash management features and lines of credit, and (ii) a $2.0 million
sublimit for foreign exchange contracts. The Revolving Line matures on June 28, 2011.
Amounts advanced under the Revolving Line bear interest at an annual rate equal to the prime
rate plus 1.00% (with a rate floor of 5.00%), provided that the annual rate applicable to the
Revolving Line increases to an annual rate equal to the prime rate plus 2.00% (with a rate floor of
6.00%) if the Companys liquidity falls below $15.0 million. Interest on the Revolving Line is due
monthly, with the balance due at the maturity date.
The Companys obligations under the Loan Agreement are collateralized by a security interest
on substantially all of the Companys assets, excluding intellectual property, except that the
collateral includes all accounts and all proceeds of the Companys intellectual property. The Loan
Agreement contains certain restrictive loan covenants, including, among others, financial covenants
requiring a minimum tangible net worth and covenants limiting the Companys ability to dispose of
assets, make acquisitions, be acquired, incur indebtedness, grant liens or enter into negative
pledge agreements, make investments, make distributions in respect of the Companys capital stock
(including repurchases of such capital stock), or enter into transactions with affiliates. The Loan
Agreement also contains events of default that include, among others, failure to make payments when
due, inaccuracy of representations and warranties, violation of covenants, events constituting a
material adverse change, bankruptcy and insolvency events, material judgments, and cross defaults
to certain other agreements. The occurrence of an event of default could result in the acceleration
of the Companys obligations under the Loan Agreement and an increase to the applicable interest
rate, and would permit SVB to exercise remedies with respect to the collateral under the Loan
Agreement.
As of September 30,
2009, the Company was in compliance with the loan covenants, had $1.7
million in available borrowings under the Revolving Line, and had no amounts outstanding.
18. Subsequent Events
The Company has reviewed subsequent events that may impact its financial condition, results of
operations and disclosures as of November 5, 2009, the date of issuance of this Quarterly Report on
Form 10-Q. The impact of any event that would result in a material change to its estimates and
assumptions as of September 30, 2009 has been incorporated into the financial statements and
associated disclosures.
Effective November 1, 2009, the Companys wholly-owned subsidiaries Kef and Lex have merged into their parent company, MiddleBrook Pharmaceuticals, Inc. Any trademarks,
copyrights or other assets or rights have been assigned to the Company, and any and all liabilities
or obligations of Kef and Lex have been assumed by the Company.
16
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read
in conjunction with the condensed consolidated financial statements and the related notes included
elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and
related notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended December 31, 2008, as
filed with the Securities and Exchange Commission, or SEC, on March 13, 2009. This discussion
contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-looking statements for
many reasons including, but not limited to, those discussed herein and in our Annual Report on Form
10-K for the year ended December 31, 2008. See
Financial Information Special Note Regarding
Forward-Looking Statements.
Our Business
We are a pharmaceutical company focused on developing and commercializing anti-infective drug
products that fulfill unmet medical needs. We have developed a proprietary drug delivery technology
called PULSYS, which enables the pulsatile delivery, or delivery in rapid bursts, of certain drugs.
We believe our PULSYS technology offers prolonged release and absorption of drugs.
Our near-term corporate strategy is to develop and market antibiotics that have been used and
trusted for decades with improved dosing regimens and frequency of dosing, which we believe
improves patient dosing convenience and compliance. Additionally, we are pursuing opportunities to
in-license, co-promote or acquire products to more effectively utilize our sales force. We
currently have 26 U.S.-issued patents and six foreign patents covering our PULSYS technology, which
extend through 2020.
Our current PULSYS product, MOXATAG (amoxicillin extended-release) Tablets, 775 mg, received
U.S. Food and Drug Administration, or FDA, approval for marketing on January 23, 2008, and is the
first and only FDA-approved once-daily amoxicillin with no AB-rated generic. It is approved for the
treatment of pharyngitis/tonsillitis secondary to Streptococcus pyogenes, commonly known as strep
throat, for adults and pediatric patients age 12 and older. MOXATAG is dosed once daily, versus the
current most commonly prescribed generic amoxicillin treatment regimen for pharyngitis/tonsillitis
of 500 mg three times per day, according to the 2008 IMS Health National Disease and Therapeutic
Index. Our field sales force representatives and managers detail MOXATAG to approximately 27,000
primary care physicians and 12,500 pharmacies to educate health care professionals on the benefits
of our MOXATAG product. We have structured our sales territories to maximize the field sales
forces ability to detail health care professionals who have traditionally written most of the
prescriptions for the antibiotic treatment of strep throat.
We have two additional PULSYS product candidates. We had previously announced that we had
planned to start our Phase III clinical trial for our KEFLEX (Cephalexin) PULSYS product candidate
for the treatment of skin and skin structure infections in 2010. We believe the added convenience
of improving cephalexin from its typical two-to-four times per day dosing regimen to a once-daily
product represents an attractive commercial opportunity. We submitted a Special Protocol
Assessment, or SPA, to the FDA in June 2009 for our KEFLEX PULSYS product candidate. The FDA
responded to our SPA on July 30, 2009. At this time, we have not gained agreement with the FDA
regarding the non-inferiority design and planned analysis of the study as outlined in the SPA.
Accordingly, we are delaying the development of our KEFLEX PULSYS product candidate. Any future
development is contingent upon the successful commercialization of MOXATAG, adequate financial
resources and the FDAs agreement with a revised study design. We also intend to conduct a Phase II
trial to evaluate various dosing regimens of our amoxicillin pediatric PULSYS product candidate in
a sprinkle formulation, for use in pediatric patients more than two years old with
pharyngitis/tonsillitis secondary to Streptococcus pyogenes. Our Phase II trial for the pediatric
PULSYS sprinkle product is currently delayed based upon the availability of additional funds.
We currently market certain drug products that do not utilize our PULSYS technology and are
not protected by any other patents. We acquired the U.S. rights to KEFLEX (Cephalexin, USP)
capsules, the immediate-release brand of cephalexin, from Eli Lilly and Company, or Eli Lilly, in
2004. The Innovex division of Quintiles Transnational Corporation, or Innovex, provided us with a
contract sales force for the promotion of KEFLEX 750 mg capsules. However, in November 2008, we
terminated our agreement with Innovex, and we now rely on our internal field sales force to market
KEFLEX 750 mg in addition to MOXATAG.
Our future operating results will depend largely on our ability to successfully commercialize
both MOXATAG, our current PULSYS product, and our KEFLEX 750 mg product, as well as our ability to
develop, in-license, co-promote or acquire other products.
The results of our operations vary significantly from year to year and quarter to quarter and
depend on a number of factors, including risks related to our business, risks related to our
industry, and other risks detailed in our Annual Report on Form 10-K for the year ended December
31, 2008 and elsewhere in this Quarterly Report on Form 10-Q. In addition, aminopenicillin
antibiotics like MOXATAG experience seasonality, with prescriptions peaking between October and
March, according to IMS Health, National Prescription Audit. We do not believe that the cephalexin
antibiotic market experiences any seasonality.
17
Management Overview of 2009
Achievements of the First Nine Months of 2009
The following summarizes the key events that occurred during the first nine months of 2009:
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We launched MOXATAG, the first and only FDA-approved once-daily amoxicillin on March 16, 2009.
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We hired a nationwide field sales force and managers to detail MOXATAG and KEFLEX 750 mg.
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We entered into a loan agreement for a two-year $10.0 million working capital-based revolving
line of credit with Silicon Valley Bank on June 29, 2009.
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We implemented a $20 maximum co-pay program for MOXATAG.
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Focus for Remainder of 2009 and into 2010
Our primary focus for 2009 continues to be the commercialization of our MOXATAG product, along
with the continued commercialization of our KEFLEX 750 mg capsules. We will also need to continue
to preserve cash prior to our achieving commercial profitability and sustainable operating cash,
and will need to raise additional capital either through an equity or debt financing.
We are working to
validate additional active pharmaceutical ingredient providers for our
MOXATAG product and negotiating with a new third-party manufacturer for our KEFLEX products.
Additionally, we are actively seeking additional products to acquire, in-license or co-promote
to more effectively utilize our field sales force.
Based on the FDAs response to our SPA, we plan to evaluate the extent of the work to be
performed on our KEFLEX PULSYS product candidate. The Phase III trial for this product candidate
has been delayed because we have not gained agreement with the FDA regarding our non-inferiority
design and planned analysis of the study, as outlined in the SPA that we submitted to the FDA in
June. Any future development of the KEFLEX PULSYS product candidate is contingent upon the
successful commercialization of MOXATAG, adequate financial resources, and the FDAs agreement with
a revised study design.
Our Product Pipeline
A significant portion of our expenses have historically related to research and development of
investigational stage product candidates. Below is a summary of our current products in the
research and development stage. The development of both of these products is currently delayed. In
the event that we do not successfully commercialize MOXATAG and are unable to raise additional
capital from other sources, we may not have sufficient resources to complete our development
programs.
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PULSYS Product
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Targeted PULSYS
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Candidate/Program
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Key Indication(s)
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Added Value
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Program Status(1)
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KEFLEX (Cephalexin)
Adolescent &
Adult
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Skin and skin
structure infections
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Once daily for 10 days
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Plans for Phase III delayed
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Pediatric
Amoxicillin PULSYS
Sprinkle
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Pharyngitis/tonsillitis
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Shorter course of
therapy, or once
daily
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Plans for Phase II delayed
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(1)
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For an explanation of the terms Phase II and Phase III, please refer
to Item 1. Business
Government RegulationNew Drug Application
Process
in our Annual Report on Form 10-K for the year ended December
31, 2008.
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PULSYS Product Candidates
In addition to the two PULSYS products in development, we are considering the development of
additional PULSYS technology-based drugs, with the intention of incorporating one or more of the
following therapeutic advantages:
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once-a-day formulation;
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shorter duration of therapy;
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lower dose;
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reduced side effect profile;
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improved pediatric dosage form; and
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combination product with superior efficacy over either drug alone.
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Our drug product candidates primarily represent improved versions of approved and marketed
drugs, either delivered alone or in combination with other drugs. Because these existing drugs have
already been approved for marketing by the FDA, we anticipate being able to rely, in part, on the
FDAs prior findings regarding the safety and/or efficacy of these existing drugs when seeking FDA
approval of our PULSYS product candidates.
18
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States, or GAAP. We have based our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
In June 2009, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standard, or SFAS, No. 168,
The FASB Accounting Standards Codification
TM
and
the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
,
which establishes the FASB Accounting Standards Codification, which we refer to as the Codification
or ASC, as the official single source of authoritative GAAP. The Codification supersedes all
existing accounting standards.
The Codification is not intended to change GAAP, but it changes the way GAAP is organized and
presented. The provisions of this pronouncement are effective for interim and annual periods ending
after September 15, 2009. We have incorporated the provisions of SFAS 168, which is now referred
to as ASC 105, Generally Accepted Accounting Principles, in this Quarterly Report on Form 10-Q.
In order to ease the transition to the Codification, we are providing the Codification
cross-reference topic alongside the references to the standards issued and adopted prior to the
adoption of the Codification.
We believe the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our financial statements.
Revenue Recognition
We recognize revenue for the sale of pharmaceutical products as follows:
Product Sales.
Provisions for sales discounts and estimates for chargebacks, service fees,
rebates, co-pay assistance and product returns are established as a reduction of product sales
revenue at the time revenues are recognized, based on historical experience adjusted to reflect
known changes in the factors that impact these reserves. We recognize revenue in accordance with
ASC 605, Revenue Recognition (formerly the SEC Staff Accounting Bulletin, or SAB, No. 101,
Revenue Recognition in Financial Statements
, as amended by SAB No. 104,
Revision of Topic 13
).
During the first quarter of 2009, we launched our once-a-day amoxicillin product, MOXATAG. Our
MOXATAG customers are almost identical to those that purchase our KEFLEX product. Therefore, we
have utilized much of our experience with KEFLEX in order to estimate our provisions associated
with sales of MOXATAG. We will continue to monitor our estimates and assumptions to determine if a
different pattern emerges with MOXATAG and will adjust our provisions accordingly in the period the
change is made.
Product Returns.
Our return policy typically allows product returns for products within an
18-month window, which begins six months prior to the expiration date and continues up to 12 months
after the expiration date, which is typically three years from the date of manufacture.
As of September 30, 2009 and December 31, 2008, the liability for product returns was $1.5
million and $1.3 million, respectively, and was recorded within Other current liabilities on our
condensed consolidated balance sheet. The increased liability balance is the result of increased
sales in 2009 compared to 2008, associated with the launch of MOXATAG. We estimate the level of
sales that will ultimately be returned pursuant to our return policy and record a related reserve
at the time of sale. These amounts are deducted from our gross sales to determine our net revenues.
The amount of actual product returns may be higher or lower than the amounts accrued by us.
Changes in our estimates would be recorded in the income statement in the period of the change. If
we over- or under- estimate the quantity of product ultimately returned, it may have a material
impact on our financial statements. Based on historical experience, we have estimated and accrued
approximately 6% of gross product sales for KEFLEX 750 mg and 7% of gross product sales for all
other KEFLEX strengths to cover future product returns. We have based our estimates for MOXATAG on
the returns history of KEFLEX 750 mg.
Distribution Service Fees.
Consistent with industry practice, we enter into distribution and
inventory management agreements with our key wholesalers to provide incentives to effectively
manage channel inventory and provide timely and accurate data with respect to inventory levels and
data regarding sales activity.
The reserve for distribution service fees fluctuates based on the product mix and sales levels
to each wholesaler. As of September 30, 2009 and December 31, 2008, the reserves for distribution
service fees related to agreements with wholesalers were approximately $107,000 and $266,000,
respectively, and were recorded as a reduction of gross accounts receivable. The decreased reserve
balance compared to the prior year end is the result of lower sales during the third quarter of
2009 compared with the fourth quarter of 2008, combined with the timing of the deductions taken by
wholesalers. The reserve is calculated and recorded as a reduction of gross sales at the time the
product is sold, but the deduction is taken by the wholesaler against a future payment.
19
Chargebacks and Rebates.
Chargebacks and rebates represent the difference between the prices
at which we sell our products to wholesalers and the sales price ultimately paid under fixed price
contracts by third-party payors, including governmental agencies. We record an estimate at the time
of sale of the amount to be charged back to us or rebated to the end user.
As of September 30, 2009 and December 31, 2008, reserves for chargebacks were approximately
$371,000 and $97,000, respectively, and recorded as a reduction of gross accounts receivable. The
reserves for Medicaid rebates were approximately $170,000 and $67,000, respectively, for the same
periods and were recorded within Other current liabilities. The increases in the reserve balances
compared to prior year end are driven by the launch of MOXATAG during the first quarter of 2009,
combined with the timing of payment and deductions taken against the reserves.
Changes in our estimates would be recorded in our income statement in the period of the
change. Additionally, chargebacks and rebates are typically accrued and paid out or deducted by
customers within one to three fiscal quarters, compared to product returns, which could take up to
three years subsequent to the date of sale. As a result of the more predictable nature of
chargebacks and rebates, we do not believe that the actual amounts claimed will be materially
different than the amounts previously accrued and reflected in our financial statements.
Co-Pay Assistance Programs.
Our co-pay assistance program has evolved from our coupon and
check programs. The coupon and check redemptions are based on the specific terms of the coupon or
check and timing and quantity of distribution, combined with historical redemption rates. We
launched our co-pay assistance program in July 2009, which we designed to keep a patients net
out-of-pocket co-pay expense for a MOXATAG prescription at no more than $20. The co-pay voucher is
available at doctors offices or through the MOXATAG website. Patients can redeem the voucher at
the point-of-sale in conjunction with having a MOXATAG prescription filled. The estimated liability
for the redemption of these vouchers is based on the estimated number of prescriptions that will be
filled with a voucher compared to the number of prescriptions in the channel (i.e., inventory that
we have sold to retailers and wholesalers but that has yet to be filled as prescriptions for an end-user
patient). In addition to estimating the number of prescriptions to be filled, we also estimate the
number of prescriptions remaining in the channel and the value for which each voucher will be
redeemed to provide the $20 maximum co-pay benefit.
The initial liability
for this co-pay assistance program was estimated based on redemptions of
the vouchers to date, compared to prescriptions filled during the
same period, to assist in
determining the appropriate redemption rate for this program. The estimates will continue to be
reviewed and refined as additional information becomes available. The initial charge of $1.7
million for this program was recorded as an adjustment to revenues during the third quarter of 2009
based on vouchers redeemed and an estimated liability for remaining prescriptions in the channel,
the majority of which were sold by us in prior quarters of 2009. Had the program been initiated at
the time of the commercial launch of MOXATAG, $0.4 million of the $1.7 million total charge would
have been recorded in the third quarter of 2009, while the remaining portion of the charge would
have been allocated to revenues in the first and second quarters of 2009. The reserve for our
co-pay assistance program and check and coupon redemptions is recorded as a liability within Other
current liabilities.
Other Sales Allowances and Reserves.
We also record other sales allowances and reserves that
reduce our gross product revenue, including cash discounts and pricing discounts. Cash discount
reserves are recorded as an allowance against accounts receivable. Pricing discounts are based on
the specific terms of each discount and are recorded at the time of the sale of such discounted
product.
The following table shows the balances of liabilities and accounts receivable valuation
accounts resulting from sales reserves and allowances at each balance sheet date:
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September 30,
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December 31,
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2009
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2008
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(in thousands)
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Product returns
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$
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1,479
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$
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1,321
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Co-pay assistance(1)
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2,264
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122
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Rebates and other
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170
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67
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Accrued returns, rebates and other(2)
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3,913
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1,510
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Distribution service fees(3)
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107
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266
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Chargebacks(3)
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371
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97
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Cash discounts(3)
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46
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16
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(1)
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The co-pay assistance balance as of September 30, 2009 primarily consists of a liability for our co-pay assistance program
associated with MOXATAG. The liability is based on estimated redemption rates for prescriptions in the channel and was
initially recorded when the vouchers were available for physicians to distribute to their patients.
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(2)
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Accrued returns, rebates and other are reported within Other current liabilities on the condensed consolidated balance sheet.
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(3)
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Distribution fees, chargebacks and cash discounts are reported as valuation allowances against accounts receivable on the
condensed consolidated balance sheet.
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20
The following table summarizes the activity for the first nine months of 2009 associated with
accrued returns, distribution fees, chargebacks and other sales allowances:
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Total
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Rebates and
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Accrued Sales
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Product
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Distribution
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Cash
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Co-pay
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Other Sales
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Reserves &
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Returns
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Service Fees
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Chargebacks
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Discounts
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Assistance
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Allowances
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Allowances
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(in thousands)
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Balance at December 31, 2008
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$
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1,321
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$
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266
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$
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97
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$
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16
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$
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122
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$
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67
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$
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1,889
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Provision made for sales during period
|
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1,093
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525
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364
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364
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2,768
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|
196
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|
5,310
|
|
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Provision/(benefit) for sales in prior periods
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(100
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)
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|
|
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|
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|
(100
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)
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Payments/credits
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(935
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)
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(584
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)
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(90
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)
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|
(334
|
)
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|
(626
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)
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|
(93
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)
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|
(2,662
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)
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Balance at September 30, 2009
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$
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1,479
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$
|
107
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$
|
371
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|
$
|
46
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|
$
|
2,264
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|
$
|
170
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|
|
$
|
4,437
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Foreign Currency Forward Exchange Contracts
Historically, we have entered into foreign currency forward exchange contracts to hedge
forecasted inventory and sample purchase transactions that are subject to foreign exchange exposure
to either the euro or British pound sterling. These instruments were designated as cash flow hedges
in accordance with ASC 815, Derivatives and Hedging (formerly SFAS No. 133,
Accounting for
Derivative Instruments and Hedging Activities as amended by SFAS No. 137, No. 138 and No. 149
),
and were recorded in our condensed consolidated balance sheet at fair value in either Other current
assets (for unrealized gains) or Other current liabilities (for unrealized losses).
We do not use derivatives for trading purposes and restrict all derivative transactions to
those intended for hedging purposes. As of September 30, 2009, we had no outstanding foreign
currency forward exchange contracts.
Stock-Based Compensation
We determine the value of stock option grants using the Black-Scholes option-pricing model.
Our determination of fair value of share-based payment awards on the date of grant is affected by
our stock price, as well as assumptions regarding a number of highly complex and subjective
variables, including our expected stock price volatility over the term of the awards and projected
employee stock option exercise behaviors. This model requires that we estimate our future expected
stock price volatility, as well as the period of time that we expect the share-based awards to be
outstanding.
Income Taxes
We account for income taxes by the liability method. Under this method, deferred income taxes
are recognized for tax consequences in future years based on differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end, which are determined
by reference to enacted laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are provided if it is more
likely than not that some or all of the deferred tax assets will not be realized. As required by
ASC 740, Income Taxes (formerly SFAS 109,
Accounting for Income Taxes
), income tax expense or
benefit for the year is allocated among continuing operations, discontinued operations,
extraordinary items, other comprehensive income, and items charged or credited directly to
shareholders equity. Pursuant to this intraperiod allocation requirement, for the three- and
nine-month periods ending September 30, 2009, $53,000 and $174,000 of tax expense, respectively,
has been allocated to the loss from continuing operations, and $53,000 and $174,000 of tax benefit,
respectively, has been allocated to other comprehensive income in connection with the reduction of
unrealized gains that were recorded therein due to ASC 320, Investments Debt and Equity
Securities (formerly SFAS 115,
Accounting for Certain Investments in Debt and Equity Securities
)
and ASC 815. We did not record any tax provision or benefit for the three- or nine-month periods
ended September 30, 2008. We have provided a valuation allowance for the full amount of our net
deferred tax assets because realization of any future benefit from deductible temporary differences
and net operating loss carry forwards cannot be sufficiently assured at December 31, 2008 and
September 30, 2009.
Other Recent Accounting Pronouncements
In December 2007, the FASB issued ASC 805, Business Combinations (formerly SFAS No. 141
(revised 2007),
Business Combinations)
, which is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008. ASC 805 established principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree, and
goodwill acquired in a business combination. ASC 805 also established disclosure requirements to
enable an evaluation of the nature and financial effects of a business combination. The adoption of
805 did not have a material impact on our results of operations and financial condition and will be
implemented prospectively, as circumstances require.
21
In December 2007, the FASB changed the accounting and reporting for minority interests in ASC
810, Consolidation (formerly SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
). Minority interests are recharacterized as noncontrolling
interests, or NCI, and classified as a component of equity. ASC 810 also requires that entities
provide sufficient disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. ASC 810 is
effective for us beginning with
the current fiscal year. We have adjusted the presentations and disclosures relating to NCI in the
three- and nine-month periods ended September 30, 2008, as required by ASC 810.
In February 2008, the FASB deferred the effective date of parts of ASC 820, Fair Value
Measurements and Disclosures (formerly SFAS No. 157
, Fair Value Measurements
) for nonfinancial
assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, in order to
provide the FASB additional time to consider the effect of certain implementation issues that had
arisen from the application of ASC 820 to these nonfinancial assets and nonfinancial liabilities.
ASC 820 defined fair value, established a framework for measuring fair value in accordance with
GAAP, and expanded disclosures about fair value measurements. The adoption of SFAS 157 for
nonfinancial assets and nonfinancial liabilities did not have a material impact on our results of
operations and financial condition.
In May 2009, the FASB issued ASC 855, Subsequent Events (formerly SFAS No. 165,
Subsequent
Events)
, which is effective for interim or annual financial periods ending after June 15, 2009.
ASC 855 establishes guidance regarding circumstances under which subsequent events must be
recognized, the period during which to evaluate events subsequent to the financial statement date,
and disclosures associated with those events. We have incorporated the required disclosures within
this Quarterly Report on Form 10-Q.
In June 2009,
the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R),
or
SFAS 167, which is not yet included within the ASC Codification. SFAS 167 amends certain
requirements of FASB Interpretation No. 46(R) to improve financial reporting by companies involved
with variable interest entities and to provide more relevant and reliable information to users of
financial statements. SFAS 167 is effective for fiscal years beginning after November 15, 2009. We
are evaluating the impact that the adoption of SFAS 167 will have on our consolidated financial
statements.
In August 2009,
the FASB issued Accounting Standards Update, or ASU, No. 2009-05, Measuring
Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. ASU
2009-05 provides clarification and guidance regarding how to value a liability when a quoted price
in an active market is not available for that liability. ASU 2009-05 is effective beginning with
the first reporting period (including interim periods) after its
issuance, which, for us, is this Quarterly
Report on Form 10-Q. The adoption of ASU 2009-05 did not have a material impact on our
results of operations and financial condition.
Results of Operations
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Revenues.
We recorded revenues from net product sales of $1.1 million and $2.3 million during
the three-month periods ended September 30, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
MOXATAG 775 mg tablets
|
|
$
|
(576
|
)
|
|
$
|
|
|
KEFLEX 750 mg capsules
|
|
|
1,131
|
|
|
|
1,461
|
|
KEFLEX 250 mg and 500 mg capsules
|
|
|
560
|
|
|
|
806
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,115
|
|
|
$
|
2,267
|
|
|
|
|
|
|
|
|
We began to sell MOXATAG during the first quarter of 2009 in anticipation of its marketing
launch on March 16, 2009. During the third quarter of 2009, we launched our $20 maximum co-pay
program designed to keep a patients net out-of-pocket co-pay expense for a MOXATAG prescription at
$20 or less. In conjunction with the launch of the program, we recorded a $1.7 million charge
during the third quarter of 2009 for our estimate of vouchers that will be redeemed with
prescriptions in the channel (i.e. inventory we have sold but that has not yet been filled as a
prescription at a pharmacy for an end-user patient) and those
vouchers that were redeemed
during the third quarter.
The expense for the co-pay assistance program is recorded as a reduction of revenues. Because
the majority of the prescriptions in the channel were sold during the first and second quarters of
2009 with initial stocking at pharmacies, the recognition of the initial liability and
corresponding reduction of revenues for the co-pay program, combined with normal, recurring sales
reserves and allowances, resulted in negative MOXATAG net revenues for the current quarter. Had we
launched the co-pay program simultaneously with the commercial launch of MOXATAG, $0.4 million of
the total charge would have been recorded in the third quarter of 2009. The remaining $1.3 million
of the total charge relates to a cumulative catch-up for MOXATAG product sold during the first and
second quarters of 2009 that was in the channel for potential use with a voucher.
Sales of KEFLEX products decreased during the third quarter of 2009 as compared to the same
period in 2008, primarily due to our sales force focusing its efforts on the successful launch and
commercialization of MOXATAG.
Cost of Product Sales.
Cost of product sales represents the purchase cost of our MOXATAG and
KEFLEX products sold, royalties on the KEFLEX 750 mg product, and any provisions recorded for
slow-moving or excess inventory that is not expected to be sold prior to reaching expiration.
22
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Product manufacturing costs
|
|
$
|
248
|
|
|
$
|
146
|
|
Royalty to Eli Lilly
|
|
|
51
|
|
|
|
165
|
|
Provisions for slow-moving/obsolete inventory
|
|
|
218
|
|
|
|
39
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
517
|
|
|
$
|
350
|
|
|
|
|
|
|
|
|
Cost of product sales increased from $350,000 during the three months ended September 30, 2008
to $517,000 during the three months ended September 30, 2009, primarily as the result of higher
gross sales combined with recording a $218,000 reserve for slow-moving KEFLEX inventory during the
three months ended September 30, 2009.
Research and Development Expenses.
Research and development expenses decreased $5.5 million,
or approximately 79.0%, to $1.4 million for the three months ended September 30, 2009, from $6.9
million for the three months ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
September 30,
|
|
|
Clinical
|
|
|
(in thousands)
|
|
|
Development
|
|
|
2009
|
|
|
2008
|
|
|
Phase
|
Direct Project Costs
|
|
|
|
|
|
|
|
|
|
|
MOXATAG(1)
|
|
$
|
975
|
|
|
$
|
1,546
|
|
|
Marketed
|
KEFLEX Product Development(2)
|
|
|
139
|
|
|
|
65
|
|
|
Plans for Phase III currently delayed
|
Other Product Candidates(3)
|
|
|
(10
|
)
|
|
|
|
|
|
Plans for Phase II currently delayed
|
|
|
|
|
|
|
|
|
|
Total Direct Project Costs
|
|
|
1,104
|
|
|
|
1,611
|
|
|
|
Indirect Project Costs
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
102
|
|
|
|
602
|
|
|
|
Depreciation
|
|
|
41
|
|
|
|
4,314
|
|
|
|
Other Indirect Overhead
|
|
|
198
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Indirect Project Costs
|
|
|
341
|
|
|
|
5,287
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research & Development Expense
|
|
$
|
1,445
|
|
|
$
|
6,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Research and development expenses incurred subsequent to the launch of
MOXATAG during the first quarter of 2009 include expenses incurred to
identify and validate a secondary supplier for MOXATAGs active
pharmaceutical ingredient and preliminary development of an additional
dose pack.
|
|
(2)
|
|
Based on the FDAs response on July 30, 2009 to our SPA, we have
delayed the KEFLEX PULSYS Phase III trial pending the successful
commercialization of MOXATAG, adequate financial resources, and the
FDAs agreement with a revised study design. See Our Business,
above, for further information.
|
|
(3)
|
|
Depending on the availability of funds, we intend to conduct a Phase
II clinical trial for our amoxicillin pediatric PULSYS sprinkle
product candidate. See Our Product Pipeline, above.
|
Direct project costs for the third quarter of 2009 decreased by $0.5 million compared to the
third quarter of 2008, primarily attributable to expenses associated with the development of
MOXATAG manufacturing capacity at our contract manufacturers
facility in Clonmel, Ireland, which
was ongoing during 2008. The decrease in capacity expenses is partially offset by 2009 development
work associated with the identification and validation of a secondary supplier for MOXATAGs active
pharmaceutical ingredient, combined with preliminary development work on an additional dose pack for
MOXATAG. Personnel-related costs also declined as a result of lower headcount, primarily in
research staff, as we have focused our resources on commercialization of MOXATAG, and the reversal
of the 2009 bonus liability during the third quarter of 2009, as we
do not expect to achieve the
targets to earn the payout.
The indirect project costs for the three months ended September 30, 2009 decreased $4.9
million in relation to the comparable 2008 period. The 2008 third quarter included significant
depreciation expense associated with the write-down of Maryland leasehold improvements and sale of
unused equipment.
23
Selling, General and Administrative Expenses.
Selling, general and administrative expenses
increased $9.2 million, or 130.8%, to $16.2 million for the three months ended September 30, 2009,
from $7.0 million for the three months ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Salaries, benefits and related costs
|
|
$
|
6,661
|
|
|
$
|
2,845
|
|
Marketing costs
|
|
|
4,753
|
|
|
|
477
|
|
Depreciation and amortization
|
|
|
1,003
|
|
|
|
645
|
|
Stock-based compensation
|
|
|
782
|
|
|
|
352
|
|
Facilities and equipment related
|
|
|
526
|
|
|
|
153
|
|
Travel and entertainment
|
|
|
474
|
|
|
|
169
|
|
Legal and consulting expenses
|
|
|
521
|
|
|
|
237
|
|
Contract sales/distribution expenses
|
|
|
263
|
|
|
|
1,404
|
|
Other expenses
|
|
|
1,183
|
|
|
|
722
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,166
|
|
|
$
|
7,004
|
|
|
|
|
|
|
|
|
Overall, costs increased by $9.2 million primarily due to the commercial launch of MOXATAG,
including hiring additional sales and marketing personnel and hiring a 300-person field sales force
during the first quarter of 2009, which drove the increase in personnel-related expenses, marketing
expenses, equipment-related costs and travel-related costs. The reduction in contract sales and
distribution expense is the result of eliminating the contract sales force during the fourth
quarter of 2008 prior to hiring our internal field sales force.
Nonoperational Income (Expense).
Nonoperational income (expense) during the three months ended
September 30, 2009 included $20,000 of interest income on cash and short-term investments, offset
by $31,000 of interest expense during the three months ended September 30, 2009 related to the
accounting for leased vehicles as capital leases, which allocates a portion of the monthly payment
to interest. Other income (expense) for the three months ended September 30, 2009 included $113,000
of realized gains from the sale of marketable securities and the settlement of foreign exchange
cash flow hedges. During the three months ended September 30, 2008, nonoperational income (expense)
included interest income on invested balances as well as the charge to adjust the liability for the
warrant issued to Deerfield to settlement value. This warrant liability was paid to Deerfield in
connection with the re-acquisition of the non-PULSYS KEFLEX intangible assets during the third
quarter of 2008 and is no longer outstanding during 2009.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Revenues.
We recorded revenues from net product sales of $12.2 million and $7.2 million during
the nine months ended September 30, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
MOXATAG 775 mg tablets
|
|
$
|
7,314
|
|
|
$
|
|
|
KEFLEX 750 mg capsules
|
|
|
3,338
|
|
|
|
4,948
|
|
KEFLEX 250 mg and 500 mg capsules
|
|
|
1,580
|
|
|
|
2,235
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,232
|
|
|
$
|
7,183
|
|
|
|
|
|
|
|
|
We began to sell MOXATAG during the first quarter of 2009 in anticipation of its marketing
launch on March 16, 2009. The majority of sales during the 2009 year-to-date period represent
initial quantities to distribute the product to pharmacy shelves, as well as some reorders. The
net revenues from MOXATAG have been negatively impacted by the recording of a $1.7 million charge
that reduced net revenues during the third quarter of 2009. The charge is associated with the July
2009 launch of our $20 maximum co-pay program for MOXATAG.
Sales of KEFLEX products decreased during the nine months ended September 30, 2009 compared to
the year ago period, primarily as a result of the sales forces focus on the successful launch and
commercialization of MOXATAG during 2009.
Cost of Product Sales.
Cost of product sales represents the purchase cost of our MOXATAG and
KEFLEX products sold, royalties on the KEFLEX 750 mg product, and any provisions recorded for
slow-moving or excess inventory that is not expected to be sold prior to reaching expiration.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Product manufacturing costs
|
|
$
|
1,078
|
|
|
$
|
470
|
|
Royalty to Eli Lilly
|
|
|
257
|
|
|
|
557
|
|
Provisions for slow-moving/obsolete inventory
|
|
|
218
|
|
|
|
318
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,553
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
Cost of product sales increased from $1.3 million during the nine months ended September 30,
2008 to $1.6 million during the nine months ended September 30, 2009, primarily as the result of
additional cost of products sold associated with our new product, MOXATAG, which was partially
offset by a reduction in the provisions for slow-moving KEFLEX inventory during the current year.
The provisions are based on estimates of the future salability of inventory stocks.
24
Research and Development Expenses.
Research and development expenses decreased $9.4 million,
or approximately 66.2%, to $4.8 million for the nine months ended September 30, 2009, from $14.3
million for the nine months ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Clinical
|
|
|
|
(in thousands)
|
|
|
Development
|
|
|
|
2009
|
|
|
2008
|
|
|
Phase
|
|
Direct Project Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
MOXATAG(1)
|
|
$
|
3,328
|
|
|
$
|
5,673
|
|
|
Marketed
|
KEFLEX Product Development(2)
|
|
|
313
|
|
|
|
447
|
|
|
Plans for Phase III currently delayed
|
Other Product Candidates(3)
|
|
|
29
|
|
|
|
10
|
|
|
Plans for Phase II currently delayed
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Project Costs
|
|
|
3,670
|
|
|
|
6,130
|
|
|
|
|
|
Indirect Project Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
1,355
|
|
|
|
1,713
|
|
|
|
|
|
Depreciation
|
|
|
123
|
|
|
|
5,474
|
|
|
|
|
|
Other Indirect Overhead
|
|
|
(318
|
)
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Indirect Project Costs
|
|
|
1,160
|
|
|
|
8,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research & Development Expense
|
|
$
|
4,830
|
|
|
$
|
14,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Research and development expenses incurred subsequent to the launch of
MOXATAG during the first quarter of 2009 include expenses incurred to
identify and validate a secondary supplier for MOXATAGs active
pharmaceutical ingredient and preliminary development of an additional
dose pack.
|
|
(2)
|
|
Based on the FDAs response on July 30, 2009 to our SPA, we have
delayed the KEFLEX PULSYS Phase III trial pending the successful
commercialization of MOXATAG, adequate financial resources, and the
FDAs agreement with a revised study design. See Our Business,
above, for further information.
|
|
(3)
|
|
Depending on the availability of funds, we intend to conduct a Phase
II clinical trial for our amoxicillin pediatric PULSYS sprinkle
product candidate. See Our Product Pipeline, above.
|
Direct project costs for the nine months ended September 30, 2009 decreased by $2.5 million
compared to the same period in 2008. The decrease is primarily attributable to a decline in
expenses associated with the development of MOXATAG manufacturing capacity at our contract
manufacturers facility in Clonmel, Ireland, which was ongoing throughout 2008. The decrease in
capacity expenses is partially offset by 2009 development work associated with the identification
and validation of a secondary supplier for MOXATAGs active
pharmaceutical ingredient, combined with
preliminary development work on an additional dose pack for MOXATAG. Personnel-related costs also
declined as a result of lower headcount, primarily in research staff, as we have focused our
resources on commercialization of MOXATAG, in addition to the elimination of the 2009 bonus, as we
do not expect to achieve the targets to earn the payout.
The indirect project costs for the nine months ended September 30, 2009 include a $1.1 million
partial refund from the FDA; the FDA informed us that we qualified for a small business waiver at
the time of our MOXATAG NDA application. The decrease in facility costs during the nine months
ended September 30, 2009 in relation to the comparable 2008
period is due to our decision to exit portions
of our leased facilities in Maryland, which lowered costs and depreciation expense, subsequent to
our write-down of Maryland leasehold improvements and sale of unused equipment at the end of 2008.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses
increased $37.0 million, or 235.5%, to $52.7 million for the nine months ended September 30, 2009,
from $15.7 million for the nine months ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Salaries, benefits and related costs
|
|
$
|
22,724
|
|
|
$
|
4,301
|
|
Marketing costs
|
|
|
16,160
|
|
|
|
1,533
|
|
Stock-based compensation
|
|
|
2,388
|
|
|
|
833
|
|
Other expenses
|
|
|
3,570
|
|
|
|
2,305
|
|
Depreciation and amortization
|
|
|
2,485
|
|
|
|
1,345
|
|
Travel and entertainment
|
|
|
1,698
|
|
|
|
311
|
|
Facility and equipment-related expenses
|
|
|
1,597
|
|
|
|
428
|
|
Legal and consulting expenses
|
|
|
1,357
|
|
|
|
1,003
|
|
Contract sales/distribution expenses
|
|
|
680
|
|
|
|
3,636
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,659
|
|
|
$
|
15,695
|
|
|
|
|
|
|
|
|
Overall,
costs increased by $37.0 million, primarily due to the commercial launch of MOXATAG
during the first quarter of 2009. We hired additional sales and marketing personnel, including a
field sales force, during the first quarter of 2009, which drove the increase in personnel-related
expenses, marketing expenses, equipment-related costs and travel-related costs. The reduction in
contract sales and distribution expense is the result of eliminating the contract sales force
during the fourth quarter of 2008 prior to hiring our internal field sales force.
Nonoperational Income (Expense).
Nonoperational income (expense) in the nine months ended
September 30, 2009 included $384,000 of interest income associated with invested cash balances and
short-term investments, partially offset by interest expense of $83,000 during the nine-month
period ended September 30, 2009 related to the accounting for leased vehicles as capital leases,
which allocates a portion of the monthly payment to interest. Other income (expense) in the nine
months ended September 30, 2009 also included $128,000 associated with realized gains on
investments, the ineffective portion of the foreign exchange hedges and settlement of foreign
exchange hedge contracts. During the nine months ended September 30, 2008, nonoperational income
(expense) included $387,000 of interest income on invested balances, offset by the charge to adjust
the liability for the warrant issued to Deerfield to settlement value. This warrant liability was
paid to Deerfield in connection with the re-acquisition of the non-PULSYS KEFLEX intangible assets
during the third quarter of 2008 and is no longer outstanding during 2009.
25
Liquidity and Capital Resources
We have funded our operations principally with the proceeds of $54.5 million from a series of
five preferred stock offerings and one issue of convertible notes over the period from 2000 through
2003, the net proceeds of $54.3 million from our initial public offering in October 2003, and
private placements of common stock for net proceeds of $19.9 million and $96.0 million in January
2008 and September 2008, respectively. In addition, we have received funding of $8.0 million and
$28.3 million from GlaxoSmithKline and Par Pharmaceutical, respectively, as a result of
collaboration agreements for the development of new products.
In November 2007, we sold certain of our KEFLEX assets in exchange for $7.5 million (less a
$0.5 million payment to the purchaser to cover its expenses related to the transaction), while
retaining the right to continue operating the KEFLEX business, subject to certain royalty payments
to the purchaser and the right to repurchase the assets at a future date at predetermined prices.
We repurchased these assets when we acquired Kef and Lex in September 2008. See Note 4.
Noncontrolling Interest Deerfield Transaction,
in the condensed consolidated financial
statements to this Quarterly Report on Form 10-Q for additional information.
On July 1, 2008, we announced that we concluded our review of strategic alternatives with an
agreement for a $100 million equity investment by EGI. The transaction closed, following
stockholder approval, on September 4, 2008.
Loan Agreement
On June 29, 2009, we entered into a Loan and Security Agreement, which we refer to as the Loan
Agreement, with Silicon Valley Bank, or SVB, for a two-year $10.0 million revolving line of credit,
which we refer to as the Revolving Line, for working capital needs. The Revolving Line is subject
to a borrowing base of trade accounts receivable and inventories and is collateralized by our
assets, excluding intellectual property, except that the collateral includes all accounts and all
proceeds of our intellectual property. Amounts advanced under the Revolving Line bear interest at
an annual rate equal to the prime rate plus 1.00% (with a rate floor of 5.00%), provided that the
annual rate applicable to the Revolving Line increases to an annual rate equal to the prime rate
plus 2.00% (with a rate floor of 6.00%) if our liquidity falls below $15.0 million. Interest on the
Revolving Line is due monthly, with the balance due at the maturity date of June 28, 2011. No
balances were outstanding as of September 30, 2009, and $1.7 million was available for borrowing.
The Loan Agreement contains certain restrictive loan covenants, including, among others,
financial covenants requiring a minimum tangible net worth and covenants limiting our ability to
dispose of assets, make acquisitions, be acquired, incur indebtedness, grant liens or enter into
negative pledge agreements, make investments, make distributions in respect of our capital stock
(including repurchases of such capital stock) or enter into transactions with affiliates. The Loan
Agreement also contains events of default that include, among others, failure to make payments when
due, inaccuracy of representations and warranties, violation of covenants, events constituting a
material adverse change, bankruptcy and insolvency events, material judgments, and cross defaults
to certain other agreements. The occurrence of an event of default could result in the acceleration
of our obligations under the Loan Agreement and an increase to the applicable interest rate, and
would permit SVB to exercise remedies with respect to the collateral under the Loan Agreement. We
were in compliance with all loan covenants as of September 30, 2009.
Cash and Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
25,403
|
|
|
$
|
30,520
|
|
Marketable securities
|
|
|
3,000
|
|
|
|
44,242
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,403
|
|
|
$
|
74,762
|
|
|
|
|
|
|
|
|
Our cash and marketable securities balance decreased by $46.4 million during the first nine
months of 2009 from a balance of $74.8 million as of December 31, 2008. The decrease is due to cash
used in operations during the first nine months of 2009, primarily to hire sales and marketing
personnel, including a field sales force of approximately 300 representatives and managers, before
the realignment and additional expenses associated with the launch of MOXATAG during March 2009.
The continued commercialization efforts for MOXATAG have resulted in increased levels of cash used
in operating activities compared to the same period of 2008, a trend we expect to continue.
Our investment policy requires the selection of high-quality issuers, with bond ratings of AAA
to A1+/P1. We do not invest in auction rate securities. Due to our current liquidity needs, we do
not anticipate holding any security with a maturity greater than 12 months. At September 30, 2009
and December 31, 2008, we held no security with a maturity greater than 365 days from those dates.
We maintain cash balances with financial institutions in excess of insured limits. However, we
do not anticipate any losses with respect to such cash balances.
26
Cash Flow
The following table summarizes our sources and uses of cash and cash equivalents for the
nine-month periods ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(44,801
|
)
|
|
$
|
(15,043
|
)
|
Net cash provided by (used in) investing activities
|
|
|
40,890
|
|
|
|
(20,617
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(1,206
|
)
|
|
|
108,051
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(5,117
|
)
|
|
$
|
72,391
|
|
|
|
|
|
|
|
|
Cash used in operating activities increased primarily as a result of activities associated
with the launch of MOXATAG. Cash used for inventory, accounts payable, accounts receivable and
other current asset balances increased significantly during the nine months ended September 30,
2009 compared to the equivalent year-to-date period in 2008. We utilized cash to purchase increased
levels of inventory and prepaid samples (classified within Other current assets) and incurred
significant marketing expenses to support our commercialization of MOXATAG. The increased sales
during the first nine months of 2009 compared to the equivalent 2008 period resulted in an increase
to our accounts receivable balance. Cash paid for employee-related costs
increased significantly during the first nine months of 2009 compared to the same period in 2008 as
a result of the increased headcount in 2009. Cash paid to vendors in 2009 includes costs associated
with the commercial launch of MOXATAG during the first quarter of 2009.
Cash provided by investing activities in the nine months ended September 30, 2009 consisted
primarily of the sales and maturity of marketable securities, partially offset by purchases of
marketable securities. The majority of sold and matured marketable securities were used to increase
cash balances to support our operating activities. Cash used in investing activities during the
first nine months of 2008 includes purchases of marketable securities from the cash received in a
private placement in January 2008 and the repurchase of KEFLEX assets from Deerfield in conjunction
with the September 2008 EGI private placement. These outflows were partially offset by the
proceeds provided by the sale of marketable securities and unused equipment primarily in our
Maryland facility.
Net cash used in financing activities during the first nine months of 2009 consisted of
payments associated with the capital leases for vehicles, slightly offset by stock option
exercises. Financing activities during the first nine months of 2008 had provided an increase to
the cash balance through the private placements of common stock during January 2008 that provided
$19.9 million of net proceeds and, September 2008 that provided $96.0 million of net proceeds.
Higher proceeds from stock option and warrant exercises also contributed to the increased cash
balance, partially offset by the payment of $8.8 million to settle a warrant liability.
Contractual Commitments
During the nine months ended September 30, 2009, we entered into a master lease agreement to
provide vehicles for our field-based sales employees. These leases range in length from 30 to 40
months and include up to 75,000 miles. The vehicles are accounted for as capital leases. As a
result, we have recorded the present value of the minimum lease payments as an asset within
property and equipment, with an offsetting liability split between other current and long-term
liabilities. We are amortizing the value of the vehicle leases over the term of each lease and
allocating the lease payments between a reduction of the outstanding obligation and interest
expense. When we terminate leases, such as we did in the third quarter of 2009 as a result of the
reduction and realignment of our field sales force, the remaining net book value of the terminated
leases and associated liabilities are removed once the lease is settled with the lessor.
We continue to have commitments for leased facilities in Maryland that we are no longer
utilizing. During the nine months ended September 30, 2009, we adjusted the anticipated loss we had
recorded in 2008 for these unused facilities based on the updated
timing of anticipated cash flows,
mainly from a lease amendment entered into for a portion of one of the facilities. The additional
charge of $1.0 million was recorded in Research and development expense during the second quarter
of 2009.
Operating Requirements
We expect to incur a loss from operations in 2009 and into 2010. We believe our existing cash
resources, along with potential borrowings under our available line of credit, will be sufficient
to fund our operations through the first quarter of 2010 at our planned levels of research,
development, and sales and marketing activities, including the continued commercialization of
MOXATAG, barring unforeseen developments.
We plan to seek to enter into arrangements with other parties to raise additional
capital, which may dilute the ownership of our equity investors. We may also seek other sources of
financing, including additional debt. There can be no guarantee other financing will be available
to us on acceptable terms, if at all. If adequate funds are not available, we may be required to
further reduce the scope of or eliminate our research and development programs, reduce our
commercialization efforts, effect changes to our facilities or personnel and we may be forced to
seek bankruptcy protection.
27
To minimize our cash requirements, we have continued our program of cost reductions, including
postponement of product development programs, reduction of headcount, realignment of our field
sales force, and elimination of other discretionary spending. During the third quarter of 2009, we
terminated 63 field-based and 10 office-based employees and recorded a charge $0.7 million for
associated severance expense and benefits. We estimate that this reduction in force will save
approximately $15 million on an annualized basis.
Our net cash requirements for 2009 and into 2010 will depend on, among other things, the cash
received from sales of MOXATAG and our existing non-PULSYS products (KEFLEX capsules in 250 mg, 500
mg and 750 mg strengths) and the cash expended for (1) cost of products sold, including royalties
due to Eli Lilly on KEFLEX 750 mg net revenues, (2) research and development spending, (3) sales
and marketing expenses for KEFLEX 750 mg and MOXATAG, and (4) general and administrative expenses.
Our cash receipts and cash expenditures assumptions for 2009 and into 2010 include the following:
(1) continuation of KEFLEX 750 mg monthly prescriptions at the current 9,000 to 13,000
prescriptions per month rate (end-user demand), which assumes no generic competitive product enters
the market in 2009 or 2010, (2) market acceptance of MOXATAG and associated end-user demand (we
anticipate more than half of 2009s demand occurring in the fourth quarter as a result of the strep
throat season), (3) the expenses associated with and impact of our internal sales force of representatives and managers, (4) marketing costs
associated with the commercial launch of MOXATAG, and (5) research and development programs for
PULSYS product candidates, which are under evaluation and dependent on the successful
commercialization of MOXATAG. We expect to incur a significant loss in 2009, as we expect that
revenues from product sales will not be sufficient to fully fund our operating costs. These 2009
and 2010 estimates are forward-looking statements that involve risks and uncertainties, and actual
results could vary materially.
We have experienced significant losses since our inception in 2000, and as of September 30,
2009, we had an accumulated deficit of $283.5 million. The process of developing and
commercializing our products requires significant research and development work, preclinical
testing and clinical trials, as well as regulatory approvals, significant marketing and sales
efforts, and manufacturing capabilities. To date, the revenues we have recognized from our MOXATAG
and non-PULSYS KEFLEX products have not been sufficient for us to achieve or sustain profitability.
Our product revenues are unpredictable in the near term and may fluctuate due to many factors, many
of which we cannot control, including the market acceptance of our products. If our products fail
to achieve market acceptance, our product revenues would not meet our expectations, which may
increase our capital requirements.
28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Our exposure to market risk is currently confined to our cash and cash equivalents, marketable
securities, and restricted cash, which generally have maturities of less than one year. We
currently do not hedge interest rate exposure. We have not used derivative financial instruments
for speculation or trading purposes. Because of the short-term maturities of our cash, cash
equivalents and marketable securities, we do not believe that an increase in market rates would
have any significant impact on the realized value of our investments.
Interest Rate Risk
Amounts advanced under our two-year $10.0 million Revolving Line bear interest at an annual
rate equal to the prime rate plus 1.00% (with a rate floor of 5.00%), provided that the annual rate
applicable to the Revolving Line increases to an annual rate equal to the prime rate plus 2.00%
(with a rate floor of 6.00%) if our liquidity falls below $15.0 million. While no amounts were
outstanding on the Revolving Line as of September 30, 2009, an increase in interest rate combined
with significant amounts advanced on the Revolving Line could have a material negative impact on
our results of operations and financial condition.
Foreign Currency Risk
Most of our trade payable transactions are conducted in U.S. dollars, or USD, although
purchases of our MOXATAG finished product and some services are paid in euros, or EUR, and
packaging for our MOXATAG samples is paid in British pound sterling, or GBP. In order to manage the
fluctuations in exchange rates between the USD and EUR and USD and GBP, we occasionally enter into
foreign currency forward exchange contracts that lock in the exchange rate for which we will buy
our inventory. We enter into these exchange contracts solely for hedging purposes and not for
trading purposes. These contracts are designated as cash flow hedges of the variability of the cash
flows due to changes in foreign exchange rates and marked-to-market with the resulting gains or
losses reflected in other comprehensive income (loss). Gains or losses will be included in Cost of
products sold at the time the products are sold, generally within the next twelve months. At
September 30, 2009, we had no outstanding foreign currency forward exchange contracts.
Item 4.
Controls and Procedures
Our management, including our principal executive and principal financial officers, has
evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2009. Our
disclosure controls and procedures are designed to provide reasonable assurance that the
information required to be disclosed in the reports we file or submit under the 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 management, including our
principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. Based on that evaluation, our principal executive and principal
financial officers have concluded that our disclosure controls and procedures, as defined by Rule
13a-15(e) under the Exchange Act, were effective at the reasonable assurance level as of September
30, 2009.
Our management, including our principal executive and principal financial officers, has
evaluated any changes in our internal control over financial reporting that occurred during the
quarterly period ended September 30, 2009, and has concluded that there was no change that occurred
during the quarterly period ended September 30, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting, as defined by Rule
13a-15(f) under the Exchange Act.
29
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
We are not a party to any material pending legal proceedings, other than ordinary routine
litigation incidental to our business.
Item 1A.
Risk Factors
In addition to risk factors set forth below and the other information set forth in this
Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended December 31, 2008, which could
materially affect our business, financial condition or future results. The risks described below
and in our Annual Report on Form 10-K are not the only risks we may face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial conditions and/or operating results. The
information below amends, updates and should be read in conjunction with the risk factors and
information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.
If clinical trials for our products are unsuccessful or delayed, we will be unable to meet our
anticipated development and commercialization timelines, which could have a material adverse effect
on our business, growth prospects and financial condition.
Our business strategy is focused on the development of additional drug products. The
development of drugs is subject to extensive regulation by the FDA, and FDA approval is required
before any new drug can legally be marketed in the United States. The FDA requires significant
research and development for product candidates, which generally involves successful completion of
preclinical laboratory testing, submission and approval of an investigational new drug application,
successful completion of human clinical trials, and submission and approval of a new drug
application. Preclinical testing and clinical trials must demonstrate that product candidates are
safe and effective for use in humans before the FDA will grant approval for their commercial sale.
In addition, clinical trials must also prove any claims that a product candidate is comparable or
superior to existing products. For drug products containing active ingredients in fixed
combinations that the FDA has not previously approved, clinical studies are also necessary to
establish the contribution of each active component to the effectiveness of the combination in an
appropriately identified patient population.
Conducting clinical trials is a lengthy, time-consuming and expensive process. The
commencement and rate of completion of clinical trials for our products may be delayed by many
factors, including:
|
|
lack of efficacy during the clinical trials;
|
|
|
|
unforeseen safety issues;
|
|
|
|
slower than expected rate of patient recruitment; or
|
|
|
|
government or regulatory delays.
|
Even if we receive promising results in preclinical and initial clinical trials for a product
candidate, the drug may subsequently prove unfeasible or impossible to generate sufficient safety
and efficacy data necessary for regulatory approval. The results from preclinical testing and early
clinical trials are often not predictive of results obtained in later clinical trials. For
example, in the event we incorrectly identify a dosage as appropriate for human clinical trials,
any results we receive from such trials may not properly reflect the optimal efficacy or safety of
our products and may not support approval in the absence of additional clinical trials using a
different dosage. Data obtained from preclinical and clinical studies are also susceptible to
varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may
encounter regulatory delays or rejections as a result of many factors, including results that do
not support our claims, perceived defects in the design of clinical trials and changes in
regulatory policy during the period of product development. Our business, financial condition and
results of operations may be materially adversely affected by any delays in, or termination of, our
clinical trials or a determination by the FDA that the results of our trials are inadequate to
justify regulatory approval.
We submitted a SPA to the FDA in June 2009 to obtain the FDAs agreement on the design of our
Phase III clinical trial for our KEFLEX PULSYS product candidate. The FDA responded to our SPA on
July 30, 2009, stating that it disagreed with the non-inferiority design and planned analysis of
the study as outlined in the SPA. Accordingly, we have delayed the development of our KEFLEX
PULSYS product candidate. Any future development is contingent upon the successful
commercialization of our MOXATAG product, adequate financial resources and the FDAs agreement with
a revised study design. If we are not able to successfully develop our KEFLEX PULSYS product
candidate, we may be unable to meet our anticipated development and commercialization timelines,
which could have a material adverse effect on our business, growth prospects and financial
condition, and we may need to revise our business strategy.
30
We will need additional capital, which may be difficult to obtain; the failure to raise capital
or obtain additional financing, or doing so on unattractive terms, could adversely affect our
financial condition.
We require substantial funds to commercialize our products and promote our brands, and we will
require significant capital to acquire, in-license or co-promote other product candidates and
conduct research and development of our potential products, including preclinical testing and
clinical trials. We believe that our existing cash resources, coupled with available borrowings
under our existing line of credit, will be sufficient to fund our anticipated levels of operations
through the first quarter of 2010. However, our near-term capital requirements will depend on many
factors, including:
|
|
|
the cash received from sales of MOXATAG and our existing KEFLEX products;
|
|
|
|
the success of our commercialization of our products and the costs associated with
related marketing, promotional and sales efforts;
|
|
|
|
potential acquisitions, in-licensing or co-promotion of other products or technologies;
|
|
|
|
the cost of products sold, including royalties due to Eli Lilly on KEFLEX 750 mg net
revenues, and the cost of manufacturing activities, including raw material sourcing
and regulatory compliance; and
|
|
|
|
the costs involved in establishing and protecting our patent, trademark and other
intellectual property rights.
|
Although we believe we have sufficient cash to fund our operations in the immediate near-term,
we believe we will need to raise additional capital to continue to
fund our operations. In addition, subject to our ability to
successfully commercialize MOXATAG and our receipt of regulatory
approvals to proceed with our research and development activities, we
expect that we will also need additional capital to implement our
longer-term corporate strategy of developing and commercializing
additional antibiotics using our PULSYS technology. However,
additional financing may not be available to us when we need it or on favorable terms, particularly
during the unfavorable economic conditions that currently exist and that may exist in the future.
We may face difficulty in obtaining additional debt financing, as substantially all of our
assets, other than our intellectual property, are already used to secure our obligations under our
existing Loan Agreement. In addition, the covenants under our Loan Agreement place certain
restrictions on our ability to incur additional indebtedness, as well as on our ability to create
or allow new security interests or liens on our property. Any new indebtedness we do incur may
require us to grant a first priority security interest in our intellectual property and a
subordinated security interest on substantially all of our other assets. If we pursue other sources
of capital, we could be required to seek funds through arrangements with others that may require us
to relinquish rights to some of our technologies, product candidates or products that we would
otherwise pursue on our own. If we raise additional funds by issuing equity securities, our
then-existing stockholders may experience dilution and the terms of any new equity securities may
have preferences over our common stock.
If we are unable to obtain adequate financing on a timely basis, we may be required to
significantly curtail our operations, effect further reductions in our facilities or personnel,
reduce our commercialization and marketing efforts, and further reduce the scope of or eliminate
our research and development, in-licensing, or acquisition programs, and we may be forced to seek
bankruptcy protection.
31
ITEM 6.
Exhibits
|
|
|
Exhibit
|
|
Description
|
|
|
|
3.1 (1)
|
|
Eighth Amended and Restated Certificate of Incorporation of Registrant
|
|
|
|
3.2 (1)
|
|
Amended and Restated Bylaws of Registrant
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
|
|
|
|
32.2
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
|
|
|
|
(1)
|
|
Incorporated by reference to our Quarterly Report on Form 10-Q filed August 6, 2009.
|
32
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.
|
|
|
|
|
|
MIDDLEBROOK PHARMACEUTICALS, INC.
|
|
Dated: November 5, 2009
|
/s/ DAVE BECKER
|
|
|
Dave Becker
|
|
|
Executive Vice President, Chief Financial Officer
|
|
33
EXHIBIT INDEX
|
|
|
Exhibit
|
|
Description
|
3.1 (1)
|
|
Eighth Amended and Restated Certificate of Incorporation of Registrant
|
|
|
|
3.2 (1)
|
|
Amended and Restated Bylaws of Registrant
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer pursuant to Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18
U.S.C. Section 1350.
|
|
|
|
32.2
|
|
Certification of Principal Financial Officer pursuant to Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18
U.S.C. Section 1350.
|
|
|
|
(1)
|
|
Incorporated by reference to our Quarterly Report on Form 10-Q filed August 6, 2009.
|
34
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