e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(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
March 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
000-51863
VANDA PHARMACEUTICALS
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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03-0491827
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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9605 Medical Center Drive, Suite 300
Rockville, Maryland
(Address of principal
executive offices)
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20850
(Zip
Code)
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(240) 599-4500
(Registrants telephone
number, including area code)
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 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit 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):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a 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 May 7, 2009, there were 26,653,478 shares of the
registrants common stock issued and outstanding.
Vanda
Pharmaceuticals Inc.
(A Development Stage Enterprise)
Form 10-Q
Index
For the
Three Months Ended March 31, 2009
2
Part I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements (Unaudited).
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VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)
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March 31,
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December 31,
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2009
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2008
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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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33,833,465
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$
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39,079,304
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Marketable securities
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8,810,919
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7,378,798
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Prepaid expenses, deposits and other current assets
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1,118,672
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1,287,400
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Total current assets
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43,763,056
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47,745,502
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Property and equipment, net
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1,635,316
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1,758,111
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Restricted cash
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430,230
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430,230
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Total assets
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$
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45,828,602
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$
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49,933,843
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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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1,415,384
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$
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512,382
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Accrued liabilities
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2,065,219
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2,898,417
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Total current liabilities
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3,480,603
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3,410,799
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Deferred rent
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503,791
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502,770
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Total liabilities
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3,984,394
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3,913,569
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Commitments and contingencies
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Stockholders equity
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Preferred stock, $0.001 par value; 20,000,000 shares
authorized and none issued and outstanding at March 31,
2009 and December 31, 2008
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Common stock, $0.001 par value; 150,000,000 shares
authorized as of March 31, 2009 and December 31, 2008;
and 26,653,478 shares issued and outstanding as of
March 31, 2009 and December 31, 2008
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26,653
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26,653
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Additional paid-in capital
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273,296,804
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270,988,157
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Accumulated other comprehensive loss
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(754
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)
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(20,029
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)
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Deficit accumulated during the development stage
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(231,478,495
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)
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(224,974,507
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)
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Total stockholders equity
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41,844,208
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46,020,274
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Total liabilities and stockholders equity
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$
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45,828,602
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$
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49,933,843
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Period from
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March 13,
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2003
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Three Months Ended
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(Inception) to
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March 31,
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March 31,
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March 31,
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2009
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2008
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2009
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Revenue
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$
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$
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$
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81,545
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Operating expenses:
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Research and development
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2,333,344
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11,102,665
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151,918,658
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General and administrative
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4,224,031
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8,959,214
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90,142,874
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Total operating expenses
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6,557,375
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20,061,879
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242,061,532
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Loss from operations
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(6,557,375
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)
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(20,061,879
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)
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(241,979,987
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)
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Other income (expense):
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Interest income
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53,387
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|
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865,750
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10,533,056
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Interest expense
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|
|
|
|
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(80,485
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)
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Other income, net
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|
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71,947
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|
|
|
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|
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Total other income, net
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53,387
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865,750
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10,524,518
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Loss before tax provision
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(6,503,988
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)
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|
(19,196,129
|
)
|
|
|
(231,455,469
|
)
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|
|
|
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|
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|
|
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Tax provision
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23,026
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|
|
|
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|
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Net loss
|
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|
(6,503,988
|
)
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|
|
(19,196,129
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)
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|
(231,478,495
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)
|
Beneficial conversion feature deemed dividend to
preferred stockholders
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|
|
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|
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(33,486,623
|
)
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|
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|
|
|
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Net loss attributable to common stockholders
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|
$
|
(6,503,988
|
)
|
|
$
|
(19,196,129
|
)
|
|
$
|
(264,965,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common
stockholders
|
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$
|
(0.24
|
)
|
|
$
|
(0.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Shares used in calculation of basic and diluted net loss per
share attributable to common stockholders
|
|
|
26,653,478
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|
|
|
26,648,344
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
During the
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Development Stage
|
|
|
Loss
|
|
|
Total
|
|
|
Balances at December 31, 2008
|
|
|
26,653,478
|
|
|
$
|
26,653
|
|
|
$
|
270,988,157
|
|
|
$
|
(20,029
|
)
|
|
$
|
(224,974,507
|
)
|
|
|
|
|
|
$
|
46,020,274
|
|
Employee stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,302,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,302,794
|
|
Non-employee stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,853
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,503,988
|
)
|
|
$
|
(6,503,988
|
)
|
|
|
|
|
Net unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,275
|
|
|
|
|
|
|
|
19,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,484,713
|
)
|
|
|
(6,484,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2009
|
|
|
26,653,478
|
|
|
$
|
26,653
|
|
|
$
|
273,296,804
|
|
|
$
|
(754
|
)
|
|
$
|
(231,478,495
|
)
|
|
|
|
|
|
$
|
41,844,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
March 13,
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
Three Months Ended
|
|
|
(Inception) to
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,503,988
|
)
|
|
$
|
(19,196,129
|
)
|
|
$
|
(231,478,495
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
122,795
|
|
|
|
122,629
|
|
|
|
2,622,456
|
|
Employee and non-employee stock-based compensation
|
|
|
2,308,647
|
|
|
|
5,105,714
|
|
|
|
46,631,959
|
|
Loss on disposal of assets
|
|
|
|
|
|
|
610
|
|
|
|
57,458
|
|
Amortization of net discounts on short-term investments
|
|
|
38,263
|
|
|
|
(162,519
|
)
|
|
|
(2,189,057
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses, deposits and other current assets
|
|
|
168,728
|
|
|
|
606,421
|
|
|
|
(1,118,672
|
)
|
Accounts payable
|
|
|
903,002
|
|
|
|
(1,355,101
|
)
|
|
|
1,415,384
|
|
Accrued expenses
|
|
|
(833,198
|
)
|
|
|
(1,299,209
|
)
|
|
|
2,065,219
|
|
Other liabilities
|
|
|
1,021
|
|
|
|
68,365
|
|
|
|
503,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(3,794,730
|
)
|
|
|
(16,109,219
|
)
|
|
|
(181,489,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(186,442
|
)
|
|
|
(4,381,391
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
200,179
|
|
Purchases of marketable securities
|
|
|
(5,077,656
|
)
|
|
|
(1,485,150
|
)
|
|
|
(272,896,398
|
)
|
Proceeds from sales of marketable securities
|
|
|
126,547
|
|
|
|
2,790,026
|
|
|
|
97,100,390
|
|
Maturities of marketable securities
|
|
|
3,500,000
|
|
|
|
29,060,000
|
|
|
|
169,175,000
|
|
Investment in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(430,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,451,109
|
)
|
|
|
30,178,434
|
|
|
|
(11,232,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on note payable
|
|
|
|
|
|
|
|
|
|
|
515,147
|
|
Principal payments on obligations under capital lease
|
|
|
|
|
|
|
|
|
|
|
(91,797
|
)
|
Principal payments on note payable
|
|
|
|
|
|
|
|
|
|
|
(515,147
|
)
|
Proceeds from issuance of preferred stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
61,795,187
|
|
Proceeds from exercise of stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
307,509
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
164,588,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
226,599,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation
|
|
|
|
|
|
|
16,745
|
|
|
|
(43,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(5,245,839
|
)
|
|
|
14,085,960
|
|
|
|
33,833,465
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
39,079,304
|
|
|
|
41,929,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
33,833,465
|
|
|
$
|
56,015,493
|
|
|
$
|
33,833,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
|
|
1.
|
Business
Organization and Presentation
|
Business
organization
Vanda Pharmaceuticals Inc. (Vanda or the Company) is a
biopharmaceutical company focused on the development and
commercialization of small molecule therapeutics, with exclusive
worldwide commercial rights to two products in clinical
development for various central nervous system disorders. Vanda
commenced its operations in 2003. The Companys lead
product, iloperidone, which the Company intends to market under
the tradename
Fanapttm,
is a compound for the treatment of schizophrenia. The Company
submitted a New Drug Application (NDA) for
Fanapttm
in schizophrenia to the United States Food and Drug
Administration (FDA) on September 27, 2007. On
November 27, 2007, the FDA accepted the NDA for
Fanapttm
in schizophrenia. In July 2008, the Company announced that the
FDA had initially determined that Vandas NDA was not
approvable and indicated, among other things, that the Company
would have to conduct additional studies and submit that data
before the FDA would approve
Fanapttm
for commercial sale for the treatment of schizophrenia. In
September 2008, the Company met with the FDA to discuss the
FDAs determination. The FDA asked the Company to provide a
complete response to the not-approvable letter, which the
Company submitted on November 6, 2008 and which was
subsequently accepted by the FDA for review. Pending the
FDAs reply to the Companys complete response, the
Company suspended all non-essential
Fanapttm-related
activities. On May 6, 2009, the Company announced that the
FDA had approved the NDA for
Fanapttm.
Tasimelteon is a compound for the treatment of sleep and mood
disorders. In November 2006, Vanda announced positive top-line
results from the Phase III trial of tasimelteon in
transient insomnia. In June 2008, the Company announced positive
top-line results from the Phase III trial of tasimelteon in
chronic primary insomnia. In addition, the Company believes that
tasimelteon may be effective in the treatment of sleep disorders
caused by jet lag. Tasimelteon is also ready for Phase II
trials for the treatment of depression. The Companys
rights to VSF-173, a compound for the treatment of excessive
sleepiness, were terminated as a result of the Companys
failure to satisfy a specific development milestone within the
time period specified in the license agreement pursuant to which
the Company was granted such rights.
Capital
resources
Since its inception, the Company has devoted substantially all
of its efforts to business planning, research and development,
market research, recruiting management and technical staff,
acquiring operating assets and raising capital. Accordingly, the
Company is considered to be in the development stage as defined
in Statement of Financial Accounting Standards (SFAS)
No. 7, Accounting and Reporting by Development Stage
Enterprises.
The Companys activities will necessitate significant uses
of working capital throughout 2009 and beyond. Based on the
Companys current operating plans, the Company believes
that its existing cash, cash equivalents and marketable
securities, will be sufficient to meet the Companys
anticipated operating needs through 2009. However, given the
recent approval by the FDA of the Companys NDA for
Fanapttm,
it is currently
re-evaluating
all of its longer-term operating plans and cannot, at this time,
reasonably determine the sufficiency of its existing resources
with respect to the attainment of these plans. Although the
Companys longer-term operating plans have not yet been
finalized, it is likely that it will need to raise additional
funds in order to execute on them. In the Companys
capital-raising efforts, the Company may seek to sell additional
equity or debt securities or obtain a bank credit facility, or
enter into partnerships, other collaboration agreements or
strategic transactions. The sale of additional equity or debt
securities, if convertible, could result in dilution to its
stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants
that would restrict the Companys operations. However,
given the current global economic climate, the Company may have
more difficulty raising funds than it would during a period of
economic stability, and the Company may not be able to raise
additional funds on acceptable terms, or at all.
7
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
If the Company is unable to secure sufficient capital to fund
its commercial and research and development activities, the
Company may not be able to continue operations, or the Company
may have to enter into partnerships, other collaboration
agreements or strategic transactions that could require the
Company to share commercial rights to its products to a greater
extent or at earlier stages in the drug development process than
is currently intended. These partnerships, collaborations or
strategic transactions, if consummated prior to
proof-of-efficacy or safety of a given product, could impair the
Companys ability to realize value from that product.
Basis
of presentation
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America. The consolidated
financial statements include the accounts of the Company and its
wholly-owned Singapore subsidiary that ceased operations during
2007. All inter-company balances and transactions have been
eliminated.
The accompanying unaudited condensed consolidated financial
statements of Vanda Pharmaceuticals Inc. have been prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP) and the rules and regulations of
the Securities and Exchange Commission (SEC) for interim
financial information. Accordingly, they do not include all the
information and footnotes required by GAAP for complete
financial statements and should be read in conjunction with the
Companys consolidated financial statements for the year
ended December 31, 2008 included in the Companys
annual report on the
Form 10-K/A.
The financial information as of March 31, 2009 and for the
period of the three months ended March 31, 2009 and 2008
and for the period from March 13, 2003 (inception) to
March 31, 2009, is unaudited, but in the opinion of
management all adjustments, consisting only of normal recurring
accruals, considered necessary for a fair statement of the
results of these interim periods have been included. The
condensed consolidated balance sheet data as of
December 31, 2008 was derived from audited financial
statements but does not include all disclosures required by GAAP.
The results of the Companys operations for any interim
period are not necessarily indicative of the results that may be
expected for any other interim period or for a full fiscal year.
The financial information included herein should be read in
conjunction with the consolidated financial statements and notes
in the Companys annual report incorporated by reference in
the
Form 10-K/A
for the year ended December 31, 2008.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of
estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates that affect the reported
amounts of assets and liabilities at the date of the financial
statements, disclosure of contingent assets and liabilities, and
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash
and cash equivalents
For purposes of the condensed consolidated balance sheets and
condensed consolidated statements of cash flows, cash
equivalents represent highly-liquid investments with a maturity
date of three months or less at the date of purchase.
Marketable
securities
The Company classifies all of its marketable securities as
available-for-sale securities. The Companys investment
policy requires the selection of high-quality issuers, with bond
ratings of AAA to A1+/P1.
8
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Available-for-sale securities are carried at fair market value,
with unrealized gains and losses reported as a component of
stockholders equity in accumulated other comprehensive
income/loss. Interest and dividend income is recorded when
earned and included in interest income. Premiums and discounts
on marketable securities are amortized and accreted,
respectively, to maturity and included in interest income. The
Company uses the specific identification method in computing
realized gains and losses on the sale of investments, which
would be included in the condensed consolidated statements of
operations when generated. Marketable securities with a maturity
of more than one year as of the balance sheet date are
classified as long-term securities.
Concentrations
of credit risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash, cash equivalents and marketable securities. The Company
places its cash, cash equivalents and marketable securities with
what the Company believes to be highly-rated financial
institutions. At March 31, 2009, the Company maintained all
of its cash, cash equivalents and marketable securities in three
financial institutions. Deposits held with these institutions
may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand, and the
Company believes there is minimal risk of losses on such
balances.
Employee
stock-based compensation
The Company accounts for the stock-based compensation expenses
in accordance with the Financial Accounting Standards Board
(FASB) revised SFAS No. 123, Share-Based Payment
(SFAS 123(R)) adopted on January 1, 2006.
Accordingly, compensation costs for all stock-based awards to
employees and directors are measured based on the grant date
fair value of those awards and recognized over the period during
which the employee or director is required to perform service in
exchange for the award. The Company generally recognizes the
expense over the awards vesting period.
Prior to January 1, 2006, the Company accounted for
stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and FASB Interpretation
No. 28, Accounting for Stock Appreciation Rights and
Other Variable Stock Option Plan or Award Plans
(FIN 28). Under APB 25, the stock-based compensation
expense was recognized over the vesting period of the option to
the extent that the fair value of the stock exceeded the
exercise price of the stock at the date of grant.
The Company adopted SFAS 123(R) using the modified
prospective transition method. The valuation provisions of
SFAS 123(R) apply to new stock-based awards and to
stock-based awards that were outstanding at the effective date
and subsequently modified or cancelled. Estimated compensation
expense for stock-based awards outstanding at the effective date
have been recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes
under FASB Statement No. 123, Accounting for Stock-Based
Compensation (SFAS 123). In accordance with the
modified prospective transition method, the Companys
consolidated financial statements for prior periods were not
restated to reflect, and do not include, the impact of
SFAS 123(R).
For stock awards granted in 2008, 2007 and 2006, the fair value
of these awards are amortized using the accelerated attribution
method. For stock awards granted prior to January 1, 2006,
expenses are amortized under the accelerated attribution method
for options that were modified after the original grant date and
under the straight-line attribution method for all other
options. As stock-based compensation expense recognized in the
consolidated statements of operations is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. Pre-vesting forfeitures on the
9
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
options granted during 2008, 2007 and 2006, were estimated to be
approximately 2% based on the Companys historical
experience. In the pro forma information required under
SFAS 123 for the periods prior to January 1, 2006, the
Company accounted for forfeitures as they occurred. At no time
was the cumulative expense recognized less than the fair value
of the vested options. The cumulative effect adjustment of
adopting the change in estimating forfeitures was not considered
material to the Companys financial statements for periods
prior to January 1, 2006 upon implementation of
SFAS 123(R).
Total stock-based compensation expense recognized during the
three months ended March 31, 2009 and 2008 and the period
from March 13, 2003 (inception) to March 31, 2009 was
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
March 13, 2003
|
|
|
|
Ended
|
|
|
Ended
|
|
|
(inception) to
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
March 31, 2009
|
|
|
Research and development
|
|
$
|
227,120
|
|
|
$
|
1,155,393
|
|
|
$
|
7,767,309
|
|
General and administrative
|
|
|
2,075,674
|
|
|
|
3,963,144
|
|
|
|
38,711,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
2,302,794
|
|
|
$
|
5,118,537
|
|
|
$
|
46,478,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense per basic and diluted share of
common stock
|
|
$
|
0.09
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of stock-based compensation expense
per share
|
|
|
26,653,478
|
|
|
|
26,648,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009, approximately $7.1 million of
total unrecognized compensation costs related to non-vested
awards are expected to be recognized over a weighted average
period of 1.09 years.
As of March 31, 2009, the Company had two equity incentive
plans, the Second Amended and Restated Management Equity Plan
(the 2004 Plan) and the 2006 Equity Incentive Plan (the 2006
Plan) that were adopted in December 2004 and April 2006,
respectively. An aggregate of 1,127,652 shares were subject
to outstanding options granted under the 2004 Plan as of
March 31, 2009, and no additional options will be granted
under this plan. As of March 31, 2009 there are
4,516,639 shares of the Companys common stock
reserved under the 2006 Plan of which 2,980,618 shares were
subject to outstanding options and restricted stock units issued
to employees and non-employees.
Options are subject to terms and conditions established by the
compensation committee of the board of directors. None of the
stock-based awards are classified as a liability as of
March 31, 2009. Option awards have
10-year
contractual terms and all options granted prior to
December 31, 2006, options granted to new employees, and
certain options granted to existing employees vest and become
exercisable on the first anniversary of the grant date with
respect to 25% of the shares subject to the option awards. The
remaining 75% of the shares subject to the option awards vest
and become exercisable monthly in equal installments thereafter
over three years. Certain option awards granted to existing
employees after December 31, 2006 vest and become
exercisable monthly in equal installments over four years. The
initial stock options granted to directors upon their election
vest and become exercisable in equal monthly installments over a
period of four years, while the subsequent annual stock option
grants to directors vest and become exercisable in equal monthly
installments over a period of one year. Certain option awards to
executives and directors provide for accelerated vesting if
there is a change in control of the Company.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option pricing model that
uses the assumptions noted in the following table. Expected
volatility rates are based on historical volatility of the
common stock of comparable entities and other factors due to the
lack of historic information of the Companys publicly
traded common stock. The expected term of options granted is
based
10
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
on the transition approach provided by Staff Accounting Bulletin
(SAB) No. 107 as the options meet the plain
vanilla criteria required by this guidance. The risk-free
interest rates are based on the U.S. Treasury yield for a
period consistent with the expected term of the option in effect
at the time of the grant. The Company has not paid dividends to
its stockholders since its inception and does not plan to pay
dividends in the foreseeable future.
Assumptions used in the Black-Scholes-Merton option pricing
model for employee and director stock options granted during the
three months ended March 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Expected dividend yield
|
|
|
|
|
|
|
0
|
%
|
Weighted average expected volatility
|
|
|
|
|
|
|
68
|
%
|
Weighted average expected term (years)
|
|
|
|
|
|
|
6.25
|
|
Weighted average risk-free rate
|
|
|
|
|
|
|
3.14
|
%
|
A summary of option activity for the 2004 Plan is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Remaining Term
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
at Grant Date
|
|
|
(Years)
|
|
|
Intrinsic Value
|
|
|
Outstanding at December 31, 2008
|
|
|
1,154,248
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(26,596
|
)
|
|
|
3.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009
|
|
|
1,127,652
|
|
|
|
1.69
|
|
|
|
6.47
|
|
|
$
|
434,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009
|
|
|
996,881
|
|
|
|
1.64
|
|
|
|
6.44
|
|
|
$
|
391,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of option activity for the 2006 Plan is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Remaining Term
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
at Grant Date
|
|
|
(Years)
|
|
|
Intrinsic Value
|
|
|
Outstanding at December 31, 2008
|
|
|
2,676,381
|
|
|
$
|
17.22
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(51,790
|
)
|
|
|
12.14
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(281,973
|
)
|
|
|
11.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009
|
|
|
2,342,618
|
|
|
|
18.40
|
|
|
|
8.27
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009
|
|
|
1,243,331
|
|
|
|
21.11
|
|
|
|
8.10
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no options granted or exercised during the three
months ended March 31, 2009.
Restricted stock is a stock award that entitles the holder to
receive shares of the Companys common stock as the award
vests. The Company issued restricted stock to one employee in
2007 and restricted stock units (RSUs) to all employees who
remained with the Company following the workforce reduction in
December 2008 and three employees terminated as a result of the
workforce reduction who entered into consulting agreements with
the Company. The restricted stock issued in 2007 vested annually
with respect to 25% of the shares each year after the grant. For
the RSUs issued in 2008 to the retained employees, 50% of
11
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
such shares vested upon approval by the FDA of the NDA for
Fanapttm,
and 50% of such shares vest on December 31, 2009. Pursuant
to the FDA approval, the Company will recognize $163,000 in
expense relating to the RSUs. Upon a change of control of the
Company, 100% of the unvested restricted stock units will vest.
For the RSUs issued in 2008 to the terminated employees who
entered into consulting agreements with the Company, 50% of the
RSUs vest if the terminated employee is subsequently rehired by
the Company and 50% of the RSUs vest on December 31, 2009,
provided that the terminated employee has been rehired by the
Company and remains employed by the Company at such date.
Notwithstanding the foregoing, for certain of these consultants
50% of the RSUs shall vest upon such employees rehiring by the
Company as a full-time employee, provided, however, that if the
Company is subject to change of control within 30 days
following the date of the FDAs approval of the
Companys NDA for
Fanapttm
(May 6, 2009) and prior to such employees
rehiring, then 50% of the RSUs shall vest upon the consummation
of such change of control and 50% of the RSUs shall vest upon
the earlier of a change in control and December 31, 2009.
The fair value of each restricted stock award was based on the
closing price of the Companys stock on the date of grant
which equals the RSUs intrinsic value. As of March 31,
2009, there was approximately $121,777 of total unrecognized
compensation cost related to unvested restricted stock awards
granted under the Companys stock incentive plans. The cost
is expected to be recognized through December 2009.
A summary of restricted stock activity for the 2006 Plan is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Price/Share
|
|
|
Intrinsic Value
|
|
|
Unvested at December 31, 2008
|
|
|
623,000
|
|
|
|
0.57
|
|
|
$
|
311,500
|
|
Granted
|
|
|
35,000
|
|
|
|
0.80
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(20,000
|
)
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2009
|
|
|
638,000
|
|
|
|
0.58
|
|
|
$
|
574,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses
Management is required to estimate accrued expenses as part of
the process of preparing financial statements. The estimation of
accrued expenses involves identifying services that have been
performed on the Companys behalf, and then estimating the
level of service performed and the associated cost incurred for
such services as of each balance sheet date in the financial
statements. Accrued expenses include professional service fees,
such as lawyers and accountants, contract service fees, such as
those under contracts with clinical monitors, data management
organizations and investigators in conjunction with clinical
trials, fees to contract manufacturers in conjunction with the
production of clinical materials, fees for marketing and other
commercialization activities, and severance related costs due to
the Companys workforce reduction which occurred in the
fourth quarter of 2008. Pursuant to managements assessment
of the services that have been performed on clinical trials and
other contracts, the Company recognizes these expenses as the
services are provided. Such management assessments include, but
are not limited to: (1) an evaluation by the project
manager of the work that has been completed during the period,
(2) measurement of progress prepared internally
and/or
provided by the third-party service provider, (3) analyses
of data that justify the progress, and
(4) managements judgment.
12
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Research
and development expenses
The Companys research and development expenses consist
primarily of fees for services provided by third parties in
connection with the clinical trials, costs of contract
manufacturing services, milestone license fees, costs of
materials used in clinical trials and research and development,
cost for regulatory consultants and filings, depreciation of
capital resources used to develop products, related facilities
costs, and salaries, other employee related costs and
stock-based compensation for the research and development
personnel. The Company expenses research and development costs
as they are incurred, including payments made to date under the
license agreements. Prior to FDA approval, all
manufacturing-related costs were included in research and
development expenses. Post FDA approval of
Fanapttm,
manufacturing costs related to this product will be capitalized.
Costs related to the acquisitions of intellectual property have
been expensed as incurred since the underlying technology
associated with these acquisitions were made in connection with
the Companys research and development efforts and have no
alternative future use. Milestone payments are accrued in
accordance with SFAS No. 5, Accounting for
Contingencies, when it is deemed probable that the milestone
event will be achieved.
General
and administrative expenses
General and administrative expenses consist primarily of
salaries, other employee related costs and stock-based
compensation for personnel serving executive, business
development, marketing, finance, accounting, information
technology and human resource functions, facility costs not
otherwise included in research and development expenses,
insurance costs and professional fees for legal, accounting and
other professional services. General and administrative expenses
also include third party expenses incurred to support business
development, marketing and other business activities related to
Fanapttm.
Income
taxes
The Company accounts for income taxes under the liability method
in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes (SFAS 109), which
requires companies to account for deferred income taxes using
the asset and liability method. Under the asset and liability
method, current income tax expense or benefit is the amount of
income taxes expected to be payable or refundable for the
current year. A deferred income tax asset or liability is
recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax credits and loss carryforwards. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Tax rate
changes are reflected in income during the period such changes
are enacted. Changes in ownership may limit the amount of net
operating loss carryforwards that can be utilized in the future
to offset taxable income.
Segment
information
Management has determined that the Company operates in one
business segment which is the development and commercialization
of pharmaceutical products.
Recent
accounting pronouncements
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. In February 2008, the
FASB agreed to delay the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
13
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
November 15, 2008. The Company has adopted the provisions
of SFAS 157 as of January 1, 2008, for financial
instruments. Although the adoption of SFAS 157 did not
materially impact its financial condition, results of
operations, or cash flow, the Company is now required to provide
additional disclosures as part of its financial statements.
Under FAS No. 159, entities are permitted to choose to
measure many financial instruments and certain other items at
fair value. The Company did not elect the fair value measurement
option under FAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
including an amendment to FAS 115 (SFAS 159),
for any of its financial assets or liabilities.
In June 2008, the FASB issued FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
EITF 03-6-1).
FSP
EITF 03-6-1
clarified that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders.
Awards of this nature are considered participating securities
and the two-class method of computing basic and diluted earnings
per share must be applied. FSP
EITF 03-6-1
is effective for fiscal years beginning after December 15,
2008. The implementation of this standard did not have a
material impact on our consolidated financial position and
results of operations.
Net loss attributable to common stockholders per share is
calculated in accordance with SFAS No. 128,
Earnings per Share and SAB No. 98. Basic
earnings per share (EPS) is calculated by dividing the net
income or loss attributable to common stockholders by the
weighted average number of shares of common stock outstanding,
reduced by the weighted average unvested shares of common stock
subject to repurchase.
Diluted EPS is computed by dividing the net income or loss
attributable to common stockholders by the weighted average
number of other potential common stock outstanding for the
period. Other potential common stock includes stock options,
warrants and restricted stock units, but only to the extent that
their inclusion is dilutive. The Company incurred a net loss in
all periods presented, causing inclusion of any potentially
dilutive securities to have an anti-dilutive affect, resulting
in dilutive loss per share attributable to common stockholders
and basic loss per share attributable to common stockholders
being equivalent. The Company did not have any common shares
issued for nominal consideration as defined under the terms of
SAB No. 98, which would be included in EPS
calculations.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,503,988
|
)
|
|
$
|
(19,196,129
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
26,653,478
|
|
|
|
26,652,728
|
|
Weighted average unvested shares of common stock subject to
repurchase
|
|
|
|
|
|
|
(4,384
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share
|
|
|
26,653,478
|
|
|
|
26,648,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share applicable to common
stockholders
|
|
$
|
(0.24
|
)
|
|
$
|
(0.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities not included in diluted net loss per
share calculation:
|
|
|
|
|
|
|
|
|
Options to purchase common stock and restricted stock units
|
|
|
4,108,270
|
|
|
|
3,859,330
|
|
|
|
|
|
|
|
|
|
|
14
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
The following is a summary of the Companys
available-for-sale
marketable securities as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
6,812,504
|
|
|
$
|
1,526
|
|
|
$
|
(80
|
)
|
|
$
|
6,813,950
|
|
U.S. corporate debt
|
|
|
1,999,169
|
|
|
|
|
|
|
|
(2,200
|
)
|
|
|
1,996,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,811,673
|
|
|
$
|
1,526
|
|
|
$
|
(2,280
|
)
|
|
$
|
8,810,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Companys
available-for-sale
marketable securities as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
1,992,452
|
|
|
$
|
7,408
|
|
|
$
|
|
|
|
$
|
1,999,860
|
|
U.S. corporate debt
|
|
|
5,279,828
|
|
|
|
2,336
|
|
|
|
(29,818
|
)
|
|
|
5,252,346
|
|
U.S. asset-based securities
|
|
|
126,547
|
|
|
|
45
|
|
|
|
|
|
|
|
126,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,398,827
|
|
|
$
|
9,789
|
|
|
$
|
(29,818
|
)
|
|
$
|
7,378,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Prepaid
Expenses, Deposits and Other Current Assets
|
The following is a summary of the Companys prepaid
expenses, deposits and other current assets, as of
March 31, 2009, and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deposits with vendors
|
|
$
|
210,000
|
|
|
$
|
210,000
|
|
Prepaid insurance
|
|
|
42,378
|
|
|
|
282,391
|
|
Accrued interest income
|
|
|
95,402
|
|
|
|
53,378
|
|
Other prepaid expenses
|
|
|
355,462
|
|
|
|
326,201
|
|
Other receivables
|
|
|
415,430
|
|
|
|
415,430
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,118,672
|
|
|
$
|
1,287,400
|
|
|
|
|
|
|
|
|
|
|
15
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
6.
|
Property
and Equipment
|
The following is a summary of the Companys property and
equipment at cost, as of March 31, 2009 and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Life
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
|
Laboratory equipment
|
|
|
5
|
|
|
$
|
1,348,098
|
|
|
$
|
1,348,098
|
|
Computer equipment
|
|
|
3
|
|
|
|
776,921
|
|
|
|
776,921
|
|
Furniture and fixtures
|
|
|
7
|
|
|
|
705,784
|
|
|
|
705,784
|
|
Leasehold improvements
|
|
|
10
|
|
|
|
844,158
|
|
|
|
844,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,674,961
|
|
|
|
3,674,961
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(2,039,645
|
)
|
|
|
(1,916,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,635,316
|
|
|
$
|
1,758,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the three months ended
March 31, 2009 and 2008 were $122,795 and $122,629,
respectively, and for the period from March 13, 2003
(inception) to March 31, 2009 was $2,622,456.
The following is a summary of accrued liabilities, as of
March 31, 2009, and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued research and development expenses
|
|
$
|
666,076
|
|
|
$
|
925,124
|
|
Accrued consulting and other professional fees
|
|
|
470,930
|
|
|
|
233,829
|
|
Employee benefits
|
|
|
153,409
|
|
|
|
126,816
|
|
Accrued severance
|
|
|
774,804
|
|
|
|
1,612,648
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,065,219
|
|
|
$
|
2,898,417
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Commitments
and Contingencies
|
Operating
leases
The Company has commitments totaling approximately
$5.5 million under operating real estate leases for its
headquarters located in Rockville, Maryland, expiring in 2016.
Severance
payments
On December 16, 2008, the Company committed to a plan of
termination that resulted in a work force reduction of
17 employees, including two officers, in order to reduce
operating costs. The Company commenced notification of employees
affected by the workforce reduction on December 17, 2008.
16
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
The following table summarizes the activity in the three months
ended March 31, 2009 for the liability for the cash portion
of severance costs related to the
reductions-in-force:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Charge
|
|
|
Cash Paid
|
|
|
Balance
|
|
|
Workforce Reduction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research Development
|
|
$
|
571,391
|
|
|
$
|
|
|
|
$
|
319,013
|
|
|
$
|
252,378
|
|
General & Administrative
|
|
|
1,041,257
|
|
|
|
|
|
|
|
518,831
|
|
|
|
522,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,612,648
|
|
|
$
|
|
|
|
$
|
837,844
|
|
|
$
|
774,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
fees
The Company has engaged a regulatory consultant to assist in the
Companys efforts to obtain FDA approval of the
Fanapttm
NDA. The Company has committed to initial consulting expenses in
the aggregate amount of $2.0 million pursuant to this
engagement, which was expensed in 2008. In addition, the Company
retained the services of the consultant on a monthly basis at a
retainer fee of $250,000 per month effective as of
January 1, 2009. The Company is obligated to pay the
consultant a success fee of $6.0 million as a result of the
approval by the FDA of its NDA for
Fanapttm,
which amount will be offset by the aggregate amount of all
monthly retainer fees previously paid to the consultant (Success
Fee). The Success Fee is due within 60 days of such
approval. In addition to these fees, the Company is obligated to
reimburse the consultant for its ordinary and necessary business
expenses incurred in connection with its engagement.
Guarantees
and indemnifications
The Company has entered into a number of standard intellectual
property indemnification agreements in the ordinary course of
its business. Pursuant to these agreements, the Company
indemnifies, holds harmless, and agrees to reimburse the
indemnified party for losses suffered or incurred by the
indemnified party, generally the Companys business
partners or customers, in connection with any U.S. patent
or any copyright or other intellectual property infringement
claim by any third party with respect to the Companys
products. The term of these indemnification agreements is
generally perpetual from the date of execution of the agreement.
The maximum potential amount of future payments the Company
could be required to make under these indemnification agreements
is unlimited. Since inception, the Company has not incurred
costs to defend lawsuits or settle claims related to these
indemnification agreements. The Company also indemnifies its
officers and directors for certain events or occurrences,
subject to certain limits. The Company believes that the fair
value of the indemnification agreements is minimal, and
accordingly the Company has not recognized any liabilities
relating to these agreements as of March 31, 2009.
License
agreements
The Companys rights to develop and commercialize its
products are subject to the terms and conditions of licenses
granted to the Company by other pharmaceutical companies.
Fanapttm. The
Company acquired exclusive worldwide rights to patents for
Fanapttm
through a sublicense agreement with Novartis. A predecessor
company of sanofi-aventis, Hoechst Marion Roussel, Inc. (HMRI),
discovered iloperidone and completed early clinical work on the
compound. In 1996, following a review of its product portfolio,
HMRI licensed its rights to the iloperidone patents to Titan
Pharmaceuticals, Inc. (Titan) on an exclusive basis. In 1997,
soon after it had acquired its rights, Titan sublicensed its
rights to iloperidone on an exclusive basis to Novartis. In June
2004, the Company acquired exclusive worldwide rights to these
patents to develop and commercialize iloperidone through a
sublicense agreement with Novartis. In
17
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
partial consideration for this sublicense, the Company paid
Novartis an initial license fee of $500,000 and is obligated to
make future milestone payments to Novartis of less than
$100 million in the aggregate (the majority of which are
tied to sales milestones), as well as royalty payments to
Novartis at a rate which, as a percentage of net sales, is in
the mid-twenties. In November 2007, the Company met a milestone
under this license agreement relating to the acceptance of its
filing of the NDA for
Fanapttm
for the treatment of schizophrenia and made a milestone license
payment of $5 million to Novartis. As a result of the
FDAs approval of the Companys NDA for
Fanapttm,
it met an additional milestone under this license agreement
which requires the Company to make a milestone license payment
of $12 million to Novartis. This milestone license payment
is due within seven days of such approval.
The rights with respect to the patents to develop and
commercialize
Fanapttm
may terminate, in whole or in part, if the Company fails to meet
certain development or commercialization milestones relating to
the time it takes for the Company to launch
Fanapttm
commercially following regulatory approval, and the time it
takes for the Company to receive regulatory approval following
the submission of an NDA or equivalent foreign filing.
Additionally, the Companys rights may terminate in whole
or in part if the Company does not meet certain other
obligations under the sublicense agreement to make royalty and
milestone payments, if the Company fails to comply with
requirements in the sublicense agreement regarding its financial
condition, or if the Company does not abide by certain
restrictions in the sublicense agreement regarding other
development activities.
Tasimelteon. In February 2004, the Company
entered into a license agreement with Bristol-Myers Squibb (BMS)
under which the Company received an exclusive worldwide license
under certain patents and patent applications, and other
licenses to intellectual property, to develop and commercialize
tasimelteon. In partial consideration for the license, the
Company paid BMS an initial license fee of $500,000 and is
obligated to make future milestone payments to BMS of less than
$40 million in the aggregate (the majority of which are
tied to sales milestones) as well as royalty payments based on
the net sales of tasimelteon at a rate which, as a percentage of
net sales, is in the low teens. The Company made a milestone
payment to BMS of $1,000,000 under this license agreement in
2006 relating to the initiation of the Phase III clinical
trial for tasimelteon. The Company is also obligated under this
agreement to pay BMS a percentage of any sublicense fees,
upfront payments and milestone and other payments (excluding
royalties) that the Company receives from a third party in
connection with any sublicensing arrangement, at a rate which is
in the mid-twenties. The Company has agreed with BMS in the
license agreement for tasimelteon to use commercially reasonable
efforts to develop and commercialize tasimelteon and to meet
certain milestones in initiating and completing certain clinical
work.
BMS holds certain rights with respect to tasimelteon in the
license agreement. If the Company has not agreed to one or more
partnering arrangements to develop and commercialize tasimelteon
in certain significant markets with one or more third parties
after the completion of the Phase III program, BMS has the
option to exclusively develop and commercialize tasimelteon on
its own on pre-determined financial terms, including milestone
and royalty payments.
Either party may terminate the tasimelteon license agreement
under certain circumstances, including a material breach of the
agreement by the other. In the event that BMS has not exercised
its option to reacquire the rights to tasimelteon and the
Company terminates the license, or if BMS terminates the license
due to the Companys breach, all rights licensed and
developed by the Company under this agreement will revert or
otherwise be licensed back to BMS on an exclusive basis.
Future license payments. No amounts were
recorded as liabilities nor were any contractual obligations
relating to the license agreements included in the condensed
consolidated financial statements as of March 31, 2009,
since the amounts, timing and likelihood of these future
payments are unknown and will depend on the
18
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
successful outcome of future clinical trials, regulatory
filings, favorable FDA regulatory approvals, growth in product
sales and other factors.
Research
and development and marketing agreements
In course of its business the Company regularly enters into
agreements with clinical organizations to provide services
relating to clinical development and clinical manufacturing
activities under fee service arrangements. The Companys
current agreements for clinical services may be terminated on no
more than 60 days notice without incurring additional
charges, other than charges for work completed but not paid for
through the effective date of termination and other costs
incurred by the Companys contractors in closing out work
in progress as of the effective date of termination.
On January 1, 2007, the Company adopted the provisions of
Financial Accounting Standards Board Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income Taxes.
The adoption of FIN No. 48 did not have a material
effect on the Companys financial position or results of
operations. In addition, there are no uncertain tax positions
whose resolution in the next twelve months is expected to
materially affect operating results. The Company accounts for
income taxes using the asset and liability method. Deferred
income taxes are recognized by applying enacted statutory tax
rates applicable to future years to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. The measurement
of deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits for which future realization is
uncertain.
The Company has not recorded any tax provision or benefit for
the three months ended March 31, 2009 or 2008. The Company
has provided a valuation allowance for the full amount of its
net deferred tax assets since realization of any future benefit
from deductible temporary differences and net operating loss
cannot be sufficiently assured at March 31, 2009 and
December 31, 2008.
Under the Tax Reform Act of 1986, the amounts of and benefits
from the operating loss carryforwards may be impaired in certain
circumstances. Events which cause limitations in the amount of
net operating losses that the Company may utilize in any one
year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three year period.
Trading in shares of the Companys common stock has
resulted in ownership changes as defined in
Section 382 of the Internal Revenue Code of 1986, as
amended (the Code). As a result, the Companys net
operating loss carry forwards totaling $123.7 million at
December 31, 2008 are subject to an annual limitation
pursuant to the provisions of Section 382 of the Code,
which the Company estimates to be significant.
|
|
10.
|
Fair
Value Measurements
|
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. In February 2008, the
FASB agreed to delay the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. The Company has adopted the provisions
of SFAS 157 as of January 1, 2008, for financial
instruments. Although the adoption of SFAS 157 did not
materially impact its financial condition, results of
operations, or cash flow, the Company is now required to provide
additional disclosures as part of its financial statements.
Under FAS No. 159, entities are permitted to choose to
measure many financial
19
VANDA
PHARMACEUTICALS INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
instruments and certain other items at fair value. The Company
did not elect the fair value measurement option under
FAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment to
FAS 115 (SFAS 159), for any of its financial
assets or liabilities.
SFAS 157 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
|
|
|
|
Level 3 defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity
to develop its own assumptions
|
As of March 31, 2009, the Company held certain assets that
are required to be measured at fair value on a recurring basis.
The Company makes use of observable market based inputs to
calculate fair value, in which case the measurements are
classified within Level 2. The Company currently does not
have non-financial assets and non-financial liabilities that are
required to be measured at fair value on a recurring basis.
The following is a summary of the Companys assets that are
required to be measured at fair value as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
March 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Description :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
8,810,919
|
|
|
$
|
6,813,950
|
|
|
$
|
1,996,969
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,810,919
|
|
|
$
|
6,813,950
|
|
|
$
|
1,996,969
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Companys assets that are
required to be measured at fair value as of December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
December 31, 2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Description :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
7,378,798
|
|
|
$
|
1,999,860
|
|
|
$
|
5,378,938
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,378,798
|
|
|
$
|
1,999,860
|
|
|
$
|
5,378,938
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Various statements in this report are forward-looking
statements under the securities laws. Words such as, but
not limited to, believe, expect,
anticipate, estimate,
intend, plan, targets,
likely, will, would, and
could, and similar expressions or words, identify
forward-looking statements. Forward-looking statements are based
upon current expectations that involve risks, changes in
circumstances, assumptions and uncertainties. Vanda
Pharmaceuticals Inc. (We, Vanda or the Company) is at an early
stage of development and may not ever have any products that
generate significant revenue. Important factors that could cause
actual results to differ materially from those reflected in our
forward-looking statements include, among others:
|
|
|
|
|
delays in the completion of our clinical trials;
|
|
|
|
a failure of our products to be demonstrably safe and effective;
|
|
|
|
our failure to obtain regulatory approval for our products or to
comply with ongoing regulatory requirements for our products;
|
|
|
|
a lack of acceptance of our products in the marketplace, or a
failure to become or remain profitable;
|
|
|
|
our expectations regarding trends with respect to our costs and
expenses;
|
|
|
|
our inability to obtain the capital necessary to fund our
commercial, research and development activities;
|
|
|
|
our failure to identify or obtain rights to new products;
|
|
|
|
our failure to develop or obtain sales, marketing and
distribution resources and expertise or to otherwise manage our
growth;
|
|
|
|
a loss of any of our key scientists or management personnel;
|
|
|
|
losses incurred from product liability claims made against
us; and
|
|
|
|
a loss of rights to develop and commercialize our products under
our license and sublicense agreements.
|
All written and verbal forward-looking statements attributable
to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or
referred to in this section. We caution investors not to rely
too heavily on the forward-looking statements we make or that
are made on our behalf. We undertake no obligation, and
specifically decline any obligation, to update or revise
publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
We encourage you to read the discussion and analysis of our
financial condition and our condensed consolidated financial
statements contained in this quarterly report on
Form 10-Q.
We also encourage you to read Item 1A of Part II of
this quarterly report on
Form 10-Q,
entitled Risk Factors, which contains a more
complete discussion of the risks and uncertainties associated
with our business. In addition to the risks described above and
in Item 1A of Part II of this report, other unknown or
unpredictable factors also could affect our results. There can
be no assurance that the actual results or developments
anticipated by us will be realized or, even if substantially
realized, that they will have the expected consequences to, or
effects on, us. Therefore, no assurance can be given that the
outcomes stated in such forward-looking statements and estimates
will be achieved.
Overview
We are a biopharmaceutical company focused on the development
and commercialization of clinical-stage products for central
nervous system disorders, with exclusive worldwide commercial
rights to two products. We believe that each of our products
will address a large market with significant unmet medical needs
by offering advantages over currently available therapies. Our
product portfolio includes:
|
|
|
|
|
Fanapttm
(iloperidone), a compound for the treatment of schizophrenia. On
November 27, 2007, the FDA accepted a New Drug Application
(NDA) for
Fanapttm
for the treatment of schizophrenia. In July
|
21
|
|
|
|
|
2008, we announced that the FDA had initially determined that
our NDA was not approvable and indicated, among other things,
that we would have to conduct additional studies and submit that
data before the FDA would approve
Fanapttm
for commercial sale for the treatment of schizophrenia. In
September 2008, we met with the FDA to discuss the FDAs
determination. The FDA asked us to provide a complete response
to the not-approvable letter, which we submitted on
November 6, 2008 and which was subsequently accepted by the
FDA for review. Pending the FDAs reply to our complete
response, we suspended all non-essential
Fanapttm-related
activities. On May 6, 2009, we announced that the FDA had
approved our NDA for
Fanapttm.
We expect to commercialize
Fanapttm
with our own sales force
and/or
commercial partners in the United States and to seek partners
for commercialization of the compound outside of the United
States. We plan to make FanaptTM available in pharmacies in the
United States prior to the end of 2009.
|
|
|
|
|
|
Tasimelteon, a compound for the treatment of sleep and mood
disorders, including Circadian Rhythm Sleep Disorders (CRSD). In
November 2006, we announced positive top-line results from the
Phase III trial of tasimelteon in transient insomnia. In
June 2008, we announced positive top-line results from the
Phase III trial of tasimelteon in chronic primary insomnia.
In addition, we believe that tasimelteon may be effective in the
treatment of sleep disorders caused by jet lag, and intend to
conduct an end of Phase II meeting with the FDA in June
2009 to discuss this potential jet lag indication. We will have
to conduct additional trials prior to our filing of an NDA for
tasimelteon to treat sleep disorders. Tasimelteon is also ready
for Phase II trials for the treatment of depression. Given
the range of potential indications for tasimelteon, we intend to
pursue one or more partnerships for the development and
commercialization of tasimelteon worldwide.
|
We are a development stage enterprise and have accumulated net
losses of approximately $231.5 million since the inception
of our operations through March 31, 2009. We have no
product revenues to date and, other than
Fanapttm
in the United States, have no approved products for sale. Since
we began our operations in March 2003, we have devoted
substantially all of our resources to the in-licensing and
clinical development of our products. Our future operating
results will depend largely on our ability to successfully
develop and commercialize our lead product,
Fanapttm,
and on the progress of other products currently in our research
and development pipeline. The results of our operations will
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 which
are detailed in Item 1A of Part II of this quarterly
report on
Form 10-Q,
entitled Risk Factors.
Our activities will necessitate significant uses of working
capital throughout 2009 and beyond. Based on our current
operating plans, we believe that our existing cash, cash
equivalents and marketable securities, will be sufficient to
meet our anticipated operating needs through 2009. However,
given the recent approval by the FDA of our NDA for
Fanapttm,
we are currently re-evaluating all of our longer-term operating
plans and cannot, at this time, reasonably determine the
sufficiency of our existing resources with respect to the
attainment of these plans. Although our longer-term operating
plans have not yet been finalized, it is likely that we will
need to raise additional funds in order to execute on them. In
our capital-raising efforts, we may seek to sell additional
equity or debt securities or obtain a bank credit facility, or
enter into partnerships, other collaboration agreements or
strategic transactions. The sale of additional equity or debt
securities, if convertible, could result in dilution to our
stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants
that would restrict our operations. However, given the current
global economic climate, we may have more difficulty raising
funds than we would during a period of economic stability, and
we may not be able to raise additional funds on acceptable
terms, or at all. If we are unable to secure sufficient capital
to fund our commercial and research and development activities,
we may not be able to continue operations, or we may have to
enter into partnerships, other collaboration agreements or
strategic transactions that could require us to share commercial
rights to our products to a greater extent or at earlier stages
in the drug development process than is currently intended.
These partnerships, collaborations or strategic transactions, if
consummated prior to proof-of-efficacy or safety of a given
product, could impair our ability to realize value from that
product.
22
Fanapttm. We
have developed and will continue to develop
Fanapttm
to treat schizophrenia. We submitted an NDA for
Fanapttm
for the treatment of schizophrenia to the FDA on
September 27, 2007 and on November 27, 2007, the FDA
accepted our NDA. The application included data from 35 clinical
trials and more than 3,000 patients treated with
Fanapttm
and also contained pharmacogenetic data aimed to further improve
the benefit/risk profile of
Fanapttm
in the treatment of patients with schizophrenia. In July 2008,
we announced that the FDA had initially determined that our NDA
was not approvable and indicated, among other things, that we
would have to conduct additional studies and submit that data
before the FDA would approve
Fanapttm
for commercial sale for the treatment of schizophrenia. In
September 2008, we met with the FDA to discuss the FDAs
determination. The FDA asked us to provide a complete response
to the not-approvable letter, which we submitted on
November 6, 2008 and which was subsequently accepted by the
FDA for review. Pending the FDAs reply to our complete
response, we suspended all non-essential
Fanapttm-related
activities. On May 6, 2009, we announced that the FDA had
approved our NDA for
Fanapttm.
We plan to make
FanaptTM
available in pharmacies in the United States prior to the end of
2009.
From inception to March 31, 2009 we incurred approximately
$76.0 million in research and development costs directly
attributable to our development of
Fanapttm,
including a $5.0 million milestone license fee paid to
Novartis in 2007 upon the acceptance of our NDA. As a result of
the FDAs approval of our NDA for
Fanapttm,
we met an additional milestone under this license agreement
which requires us to make a license payment of
$12.0 million to Novartis. This milestone payment is due
within seven days of such approval.
We are also developing a 4-week injectable formulation for
Fanapttm,
for which we already have early Phase II data from a study
previously conducted by Novartis. We have completed essential
manufacturing activities and intend to resume the development of
the injectable formulation. We believe we will need to conduct
additional trials with this formulation to be able to file for
FDA approval.
Tasimelteon. Tasimelteon is our product under
development to treat sleep and mood disorders. Tasimelteon is a
melatonin receptor agonist that works by adjusting the human
body clock of circadian rhythm. Tasimelteon has
successfully completed a Phase III trial for the treatment
of transient insomnia in November 2006. In June 2008, we
announced positive top-line results from the Phase III
trial of tasimelteon in chronic primary insomnia. The trial was
a randomized, double-blind, and placebo-controlled study with
324 patients. The trial measured time to fall asleep and
sleep maintenance, as well as
next-day
performance. In addition, we believe that tasimelteon may be
effective in the treatment of sleep disorders caused by jet lag,
and intend to conduct an end of Phase II meeting with the
FDA in June 2009 to discuss this potential jet lag indication.
We will have to conduct additional trials prior to our filing of
an NDA for tasimelteon to treat sleep disorders. Tasimelteon is
also ready for Phase II trials for the treatment of
depression.
From inception to March 31, 2009, we incurred approximately
$51.8 million in direct research and development costs
directly attributable to our development of tasimelteon,
including a $1.0 million milestone license fee paid to BMS
in 2006 upon the initiation of our Phase III program.
VSF-173. On November 3, 2008, we received
written notice from Novartis that our license agreement with
respect to VSF-173 had terminated in accordance with its terms
as a result of our failure to satisfy a specific development
milestone within the time period specified in the license
agreement. As a result, we no longer have any rights with
respect to VSF-173 and Novartis has a non-exclusive worldwide
license to all information and intellectual property generated
by us or on our behalf related to our development of VSF-173. We
are currently evaluating any options that we may have with
respect to VSF-173, which may include the possibility of
entering into a new license agreement or other arrangement with
Novartis to allow us to resume our development of VSF-173;
however, there can be no assurance that we will be able to enter
into such an agreement or arrangement on acceptable terms, or at
all.
From inception to March 31, 2009, we incurred approximately
$6.7 million in research and development costs directly
attributable to our development of VSF-173, including a
milestone license fee of $1.0 million paid to Novartis upon
the initiation of our first Phase II clinical trial in
March of 2007.
Research
and development expenses
Our research and development expenses consist primarily of fees
paid to third-party professional service providers in connection
with the services they provide for our clinical trials, costs of
contract manufacturing
23
services, costs of materials used in clinical trials and
research and development, costs for regulatory consultants and
filings, depreciation of capital resources used to develop our
products, all related facilities costs, and salaries, benefits
and stock-based compensation expenses related to our research
and development personnel. We expense research and development
costs as incurred, including payments made to date under our
license agreements. We believe that significant investment in
product development is a competitive necessity and plan to
continue these investments in order to realize the potential of
our products and pharmacogenetics and pharmacogenomics
expertise. From inception through March 31, 2009 we
incurred research and development expenses in the aggregate of
approximately $151.9 million, including stock-based
compensation expenses of approximately $7.8 million. We
expect our research and development expenses to increase as we
continue to develop our products. We also expect to incur
licensing costs in the future that could be substantial, as we
continue our efforts to develop our products and to evaluate
potential in-license products or compounds.
The following table summarizes our product development
initiatives for the three months ended March 31, 2009 and
2008 and for the period from March 13, 2003 (inception) to
March 31, 2009. Included in this table are the research and
development expenses recognized in connection with our products
in clinical development. Included in Other product
candidates are the costs directly related to research
initiatives for all other product candidates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
March 13,
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
Three Months Ended
|
|
|
(Inception) to
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
Direct project costs(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fanapttm
(iloperidone)
|
|
$
|
1,436,000
|
|
|
$
|
2,326,000
|
|
|
$
|
75,965,000
|
|
Tasimelteon (VEC-162)
|
|
|
450,000
|
|
|
|
7,586,000
|
|
|
|
51,760,000
|
|
VSF-173
|
|
|
(1,000
|
)
|
|
|
277,000
|
|
|
|
6,710,000
|
|
Other product candidates
|
|
|
51,000
|
|
|
|
459,000
|
|
|
|
6,623,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct product costs
|
|
|
1,936,000
|
|
|
|
10,648,000
|
|
|
|
141,058,000
|
|
Indirect project costs(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
172,000
|
|
|
|
148,000
|
|
|
|
2,434,000
|
|
Depreciation
|
|
|
63,000
|
|
|
|
89,000
|
|
|
|
2,079,000
|
|
Other indirect overhead
|
|
|
162,000
|
|
|
|
218,000
|
|
|
|
6,348,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indirect expenses
|
|
|
397,000
|
|
|
|
455,000
|
|
|
|
10,861,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
2,333,000
|
|
|
$
|
11,103,000
|
|
|
$
|
151,919,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Many of our research and development costs are not attributable
to any individual project because we share resources across
several development projects. We record direct costs, including
personnel costs and related benefits and stock-based
compensation, on a
project-by-project
basis. We record indirect costs that support a number of our
research and development activities in the aggregate. |
General
and administrative expenses
General and administrative expenses consist primarily of
salaries and other related costs for personnel, including
stock-based compensation, serving executive, finance,
accounting, information technology, marketing and human resource
functions. Other costs include facility costs not otherwise
included in research and development expenses and fees for
legal, accounting and other professional services. We expect our
general and administrative expenses to increase in 2009 in
connection with the commercial launch of
Fanapttm.
From inception through March 31, 2009, we incurred general
and administrative expenses in the aggregate of approximately
$90.1 million, including stock-based compensation expenses
of approximately $38.7 million.
24
Critical
Accounting Policies
The preparation of our condensed consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
our financial statements, as well as the reported revenues and
expenses during the reported periods. We base our estimates on
historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
value of assets and liabilities that are not apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
Our significant accounting policies are described in the notes
to our audited consolidated financial statements for the year
ended December 31, 2008 included in our annual report on
Form 10-K/A.
However, we believe that the following critical accounting
policies relating to accrued expenses and stock-based
compensation expense are important to understanding and
evaluating our reported financial results, and we have
accordingly included them in this quarterly report on
Form 10-Q.
Accrued
expenses
As part of the process of preparing financial statements we are
required to estimate accrued expenses. The estimation of accrued
expenses involves identifying services that have been performed
on our behalf, and then estimating the level of service
performed and the associated cost incurred for such services as
of each balance sheet date in the financial statements. Accrued
expenses include professional service fees, such as lawyers and
accountants, contract service fees, such as those under
contracts with clinical monitors, data management organizations
and investigators in conjunction with clinical trials, fees to
contract manufacturers in conjunction with the production of
clinical materials, and fees for marketing and other
commercialization activities. Pursuant to our assessment of the
services that have been performed on clinical trials and other
contracts, we recognize these expenses as the services are
provided. Our assessments include, but are not limited to:
(1) an evaluation by the project manager of the work that
has been completed during the period, (2) measurement of
progress prepared internally
and/or
provided by the third-party service provider, (3) analyses
of data that justify the progress, and
(4) managements judgment. In the event that we do not
identify certain costs that have begun to be incurred or we
under- or over-estimate the level of services performed or the
costs of such services, our reported expenses for such period
would be too low or too high.
Stock-based
compensation
We adopted Statement of Financial Accounting Standards
No. 123(R), Share Based Payment, (SFAS 123(R))
on January 1, 2006 using the modified prospective
transition method of implementation and adopted the accelerated
attribution method. Prior to January 1, 2006 we followed
APB Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations, in
accounting for our stock-based compensation plans, rather than
the alternative fair value accounting method provided for under
SFAS No. 123, Accounting for Stock-Based
Compensation.
We currently use the Black-Scholes-Merton option pricing model
to determine the fair value of stock options. The determination
of the fair value of stock options on the date of grant using an
option pricing model is affected by our stock price as well as
assumptions regarding a number of complex and subjective
variables. These variables include the expected stock price
volatility over the expected term of the awards, actual and
projected employee stock option exercise behaviors, risk-free
interest rate and expected dividends. Expected volatility rates
are based on historical volatility of the common stock of
comparable entities and other factors due to the lack of
historic information of the Companys publicly traded
common stock. The expected term of options granted is based on
the transition approach provided by Staff Accounting Bulletin
(SAB) No. 107 as the options meet the
plain vanilla criteria required by this method. The
risk-free interest rates are based on the U.S. Treasury
yield for a period consistent with the expected term of the
option in effect at the time of the grant. We have not paid
dividends to our stockholders since the inception and do not
plan to pay dividends in the foreseeable future. The stock-based
compensation expense for a period is also affected by expected
forfeiture rate for the respective option grants. If our
estimates of the fair value of these
25
equity instruments or expected forfeitures are too high or too
low, it would have the effect of overstating or understating
expenses.
Total stock-based compensation expense, related to all of the
Companys stock-based awards, recognized under
SFAS 123(R) during the three months ending March 31,
2009 and 2008 was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Research and development
|
|
$
|
227,000
|
|
|
$
|
1,156,000
|
|
General and administrative
|
|
|
2,076,000
|
|
|
|
3,963,000
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
2,303,000
|
|
|
$
|
5,119,000
|
|
|
|
|
|
|
|
|
|
|
Recent
accounting pronouncements
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. In February 2008, the
FASB agreed to delay the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. We have adopted the provisions of
SFAS 157 as of January 1, 2008, for financial
instruments. Although the adoption of SFAS 157 did not
materially impact our financial condition, results of
operations, or cash flow, we are now required to provide
additional disclosures as part of its financial statements.
Under FAS No. 159, entities are permitted to choose to
measure many financial instruments and certain other items at
fair value. We did not elect the fair value measurement option
under FAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities including
an amendment to FAS 115 (SFAS 159), for any of
its financial assets or liabilities.
In June 2008, the FASB issued FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
EITF 03-6-1).
FSP
EITF 03-6-1
clarified that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders.
Awards of this nature are considered participating securities
and the two-class method of computing basic and diluted earnings
per share must be applied. FSP
EITF 03-6-1
is effective for fiscal years beginning after December 15,
2008. The implementation of this standard did not have a
material impact on our consolidated financial position and
results of operations.
Results
of Operations
We have a limited history of operations. We anticipate that our
results of operations will fluctuate for the foreseeable future
due to several factors, including any possible payments made or
received pursuant to licensing or collaboration agreements,
progress of our research and development efforts, the timing and
outcome of clinical trials and related possible regulatory
approvals and our ability to successfully commercialize our
products. Our limited operating history makes predictions of
future operations difficult or impossible. Since our inception,
we have incurred significant losses. As of March 31, 2009,
we had a deficit accumulated during the development stage of
approximately $231.5 million. We anticipate incurring
additional losses for the foreseeable future, and these losses
may be incurred at increasing rates.
Three
months ended March 31, 2009 compared to three months ended
March 31, 2008
Research and development expenses. Research
and development expenses decreased by approximately
$8.8 million, or 79.0%, to approximately $2.3 million
for the three months ended March 31, 2009 compared to
approximately $11.1 million for the three months ended
March 31, 2008.
26
The following table discloses the components of research and
development expenses reflecting all of our project expenses for
the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Direct project costs:
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
$
|
20,000
|
|
|
$
|
6,164,000
|
|
Contract research and development, consulting, materials and
other direct costs
|
|
|
1,189,000
|
|
|
|
2,218,000
|
|
Salaries, benefits and related costs
|
|
|
500,000
|
|
|
|
1,111,000
|
|
Stock-based compensation
|
|
|
227,000
|
|
|
|
1,155,000
|
|
|
|
|
|
|
|
|
|
|
Total direct costs
|
|
|
1,936,000
|
|
|
|
10,648,000
|
|
Indirect project costs
|
|
|
397,000
|
|
|
|
455,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,333,000
|
|
|
$
|
11,103,000
|
|
|
|
|
|
|
|
|
|
|
Direct costs decreased approximately $8.7 million for the
three months ended March 31, 2009 compared to the three
months ended March 31, 2008 as a result of lower clinical
trial and manufacturing expenses as well as lower stock based
compensation expense. Clinical trials expense decreased
approximately $6.1 million for the three months ended
March 31, 2009 compared to the three months ended
March 31, 2008 due to lower clinical trial costs relating
to the Phase III clinical trial for tasimelteon in chronic
primary insomnia which was completed in the second quarter of
2008. Contract research and development, consulting, materials
and other direct costs decreased approximately $1.0 million
for the three months ended March 31, 2009 relative to the
three months ended March 31, 2008, primarily as a result of
decreased manufacturing costs related to
Fanapttm
and tasimelteon. Salaries, benefits and related costs decreased
approximately $611,000 for the three months ended March 31,
2009 relative to the three months ended March 31, 2008
primarily due to our workforce reduction which occurred in the
fourth quarter of 2008. Stock-based compensation expense for the
three months ended March 31, 2009 decreased by
approximately $928,000 compared to the three months ended
March 31, 2008 as a result of the smaller expense generated
by the reduced workforce and there were no options issued in the
first quarter of 2009.
General and administrative expenses. General
and administrative expenses decreased by approximately
$4.7 million, or 52.9%, to approximately $4.2 million
for the three months ended March 31, 2009 from
approximately $9.0 million for the three months ended
March 31, 2008.
The following table discloses the components of our general and
administrative expenses for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Salaries, benefits and related costs
|
|
$
|
466,000
|
|
|
$
|
990,000
|
|
Stock-based compensation
|
|
|
2,076,000
|
|
|
|
3,963,000
|
|
Marketing, legal, accounting and other professional expenses
|
|
|
1,142,000
|
|
|
|
3,218,000
|
|
Other expenses
|
|
|
540,000
|
|
|
|
788,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,224,000
|
|
|
$
|
8,959,000
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and related costs decreased by approximately
$524,000 for the three months ended March 31, 2009 compared
to the three months ended March 31, 2008 primarily due to a
reduction in marketing personnel as we reduced our staff after
the receipt of the not approval letter regarding
Fanapttm
by the FDA. Stock-based compensation expense decreased by
approximately $1.9 million for the three months ended
March 31, 2009, compared to the three months ended
March 31, 2008, as a result of the smaller expense
generated by the reduced workforce and there were no options
issued in the first quarter of 2009.
27
Marketing, legal, accounting and other professional costs
decreased by approximately $2.1 million for the three
months ended March 31, 2009 compared to the three months
ended March 31, 2008 due primarily to reduced commercial
costs related to
Fanapttm
after the receipt of the not approvable letter regarding
Fanapttm
by the FDA.
Other income, net. Interest and other income
in the three months ended March 31, 2009 was approximately
$53,000 compared to approximately $866,000 in the three months
ended March 31, 2008. Interest income was lower for the
three months ended March 31, 2009, compared to the three
months ended March 31, 2008, due to lower average cash
balances and lower short-term interest rates for the three
months ended March 31, 2009.
Liquidity
and Capital Resources
We have funded our operations through March 31, 2009
principally with the net proceeds from private preferred stock
offerings totaling approximately $62.0 million, with net
proceeds from our April 2006 initial public offering of
approximately $53.3 million and with net proceeds from our
January 2007 follow-on offering of approximately
$111.3 million.
As of March 31, 2009, our total cash and cash equivalents
and marketable securities were approximately $42.6 million
compared to approximately $46.5 million at
December 31, 2008. Our cash and cash equivalents are
deposits in operating accounts and highly liquid investments
with an original maturity of 90 days or less at date of
purchase and consist of time deposits, investments in money
market funds with commercial banks and financial institutions,
and commercial paper of high-quality corporate issuers. As of
March 31, 2009 the Company also held a non-current deposit
of $430,000 that is used to collateralize a letter of credit
issued for its current office lease expiring in 2016.
As of March 31, 2009 and December 31, 2008, our
liquidity resources are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash and cash equivalents
|
|
$
|
33,833,000
|
|
|
$
|
39,079,000
|
|
U.S. Treasury and government agencies
|
|
|
6,814,000
|
|
|
|
2,000,000
|
|
U.S. corporate debt
|
|
|
1,997,000
|
|
|
|
5,252,000
|
|
U.S. asset-backed securities
|
|
|
|
|
|
|
127,000
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, short-term
|
|
|
8,811,000
|
|
|
|
7,379,000
|
|
Total
|
|
$
|
42,644,000
|
|
|
$
|
46,458,000
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
430,000
|
|
|
$
|
430,000
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009, we maintained all of our cash, cash
equivalents and marketable securities in three financial
institutions. Deposits held with these institutions may exceed
the amount of insurance provided on such deposits, but we do not
anticipate any losses with respect to such deposits.
In September 2006, the FASB issued statement No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. In February 2008, the
FASB agreed to delay the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. The Company has adopted the provisions
of SFAS 157 as of January 1, 2008, for financial
instruments. Although the adoption of SFAS 157 did not
materially impact its financial condition, results of
operations, or cash flow, the Company is now required to provide
additional disclosures as part of its financial statements.
Under FAS No. 159, entities are permitted to choose to
measure many financial instruments and certain other items at
fair value. The Company did not elect the fair value measurement
option under FAS No. 159 for any of its financial
assets or liabilities.
28
SFAS 157 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
|
|
|
|
Level 3 defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity
to develop its own assumptions
|
As March 31, 2009, we held certain assets that are required
to be measured at fair value on a recurring basis. We make use
of observable market-based inputs to calculate fair value, in
which case the measurements are classified within Level 2.
We currently do not have non-financial assets and non-financial
liabilities that are required to be measured at fair value on a
recurring basis.
The following is a summary of the Companys assets that are
required to be measured at fair value as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
March 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Description :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
8,811,000
|
|
|
$
|
6,814,000
|
|
|
$
|
1,997,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,811,000
|
|
|
$
|
6,814,000
|
|
|
$
|
1,997,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of our assets that are required to be
measured at fair value as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
December 31, 2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Description :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
7,379,000
|
|
|
$
|
2,000,000
|
|
|
$
|
5,379,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,379,000
|
|
|
$
|
2,000,000
|
|
|
$
|
5,379,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our activities will necessitate significant uses of working
capital throughout 2009 and beyond. Based on our current
operating plans, we believe that our existing cash, cash
equivalents and marketable securities, will be sufficient to
meet our anticipated operating needs through 2009. However,
given the recent approval by the FDA of our NDA for
Fanapttm,
we are currently re-evaluating all of our longer-term operating
plans and cannot, at this time, reasonably determine the
sufficiency of our existing resources with respect to the
attainment of these plans. Although our longer-term operating
plans have not yet been finalized, it is likely that we will
need to raise additional funds in order to execute on them. In
our capital-raising efforts, we may seek to sell additional
equity or debt securities or obtain a bank credit facility, or
enter into partnerships, other collaboration agreements or
strategic transactions. The sale of additional equity or debt
securities, if convertible, could result in dilution to our
stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants
that would restrict our operations. However, given the current
global economic climate, we may have more difficulty raising
funds than we would during a period of economic stability, and
we may not be able to raise additional funds on acceptable
terms, or at all. If we are unable to secure sufficient capital
to fund our commercial and research and development activities,
we may not be able to continue operations, or we may have to
enter into partnerships, other collaboration agreements or
strategic transactions that could require us to share commercial
rights to our products to a greater extent or at earlier stages
in the drug development process than is currently intended.
These
29
partnerships, collaborations or strategic transactions, if
consummated prior to proof-of-efficacy or safety of a given
product, could impair our ability to realize value from that
product.
Cash
Flow
The following table summarizes our cash flows for the three
months ended March 31, 2009, and March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(3,795,000
|
)
|
|
$
|
(16,109,000
|
)
|
Investing activities
|
|
|
(1,451,000
|
)
|
|
|
30,178,000
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash and equivalents
|
|
|
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(5,246,000
|
)
|
|
$
|
14,086,000
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations was approximately $3.8 million
and approximately $16.1 million for the three months ended
March 31, 2009 and 2008, respectively. The net loss for the
three months ended March 31, 2009 of approximately
$6.5 million was offset by increases in accrued expenses
and accounts payable of $0.1 million, decreases in prepaid
expenses of $0.2 million and $2.4 million in non-cash
depreciation, amortization, and stock-based compensation
expenses. Net cash provided by investing activities for the
three months ended March 31, 2009 was approximately
$1.5 million and consisted primarily of net proceeds of
marketable securities. There was no cash provided by financing
activities for the three months ended March 31, 2009.
Contractual
Obligations and Commitments
The following table summarizes our long-term contractual cash
obligations as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments Due by Period
|
|
|
|
|
|
|
April to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2013
|
|
|
Severance payments
|
|
$
|
775,000
|
|
|
$
|
759,000
|
|
|
$
|
16,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating leases
|
|
|
5,502,000
|
|
|
|
514,000
|
|
|
|
706,000
|
|
|
|
727,000
|
|
|
|
749,000
|
|
|
|
771,000
|
|
|
|
2,035,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,277,000
|
|
|
$
|
1,273,000
|
|
|
$
|
722,000
|
|
|
$
|
727,000
|
|
|
$
|
749,000
|
|
|
$
|
771,000
|
|
|
$
|
2,035,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
payments
On December 16, 2008, we committed to a plan of termination
that resulted in a work force reduction of 17 employees,
including two officers, in order to reduce operating costs. We
commenced notification of employees affected by the workforce
reduction on December 17, 2008. The following table
summarizes the activity in the three months ended March 31,
2009 for the liability for the cash portion of severance costs
related to the
reductions-in-force:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Beginning Balance
|
|
|
Charge
|
|
|
Cash Paid
|
|
|
Ending Balance
|
|
|
Workforce Reduction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research Development
|
|
$
|
571,000
|
|
|
$
|
|
|
|
$
|
319,000
|
|
|
$
|
252,000
|
|
General & Administrative
|
|
|
1,042,000
|
|
|
|
|
|
|
|
519,000
|
|
|
|
523,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,613,000
|
|
|
$
|
|
|
|
$
|
838,000
|
|
|
$
|
775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Operating
leases
Our commitments under operating leases shown above consist of
payments relating to our real estate leases for our current
headquarters located in Rockville, Maryland, expiring in 2016.
Consulting
fees
We have engaged a regulatory consultant to assist us in our
efforts to obtain FDA approval of the
Fanapttm
NDA. We have committed to initial consulting expenses in the
aggregate amount of $2.0 million pursuant to this
engagement, which was expensed in 2008. In addition, we retained
the services of the consultant on a monthly basis at a retainer
fee of $250,000 per month effective as of January 1, 2009.
We are obligated to pay the consultant a success fee of
$6.0 million as a result of the approval by the FDA of our
NDA for
Fanapttm,
which amount will be offset by the aggregate amount of all
monthly retainer fees previously paid to the consultant (Success
Fee). The Success Fee is due within 60 days of such
approval. In addition to these fees, we are obligated to
reimburse the consultant for its ordinary and necessary business
expenses incurred in connection with its engagement.
Clinical
research organization contracts and other
contracts
We have entered into agreements with clinical research
organizations responsible for conducting and monitoring our
clinical trials for
Fanapttm
and tasimelteon, and have also entered into agreements with
clinical supply manufacturing organizations and other outside
contractors who will be responsible for additional services
supporting our ongoing clinical development processes. These
contractual obligations are not reflected in the table above
because we may terminate them on no more than 60 days
notice without incurring additional charges (other than charges
for work completed but not paid for through the effective date
of termination and other costs incurred by our contractors in
closing out work in progress as of the effective date of
termination).
License
agreements
In February 2004 and June 2004, we entered into separate
licensing agreements with BMS and Novartis, respectively, for
the exclusive rights to develop and commercialize our two
products in clinical development. We are obligated to make
payments under the conditions in the agreements upon the
achievement of specified clinical, regulatory and commercial
milestones. If the products are successfully commercialized we
will be required to pay certain royalties based on net sales for
each of the licensed products. Please see the notes to the
condensed consolidated financial statements included with this
report for a more detailed description of these license
agreements.
As a result of the successful commencement of the Phase III
clinical study of tasimelteon in March 2006, we met the first
milestone specified in our licensing agreement with BMS and
subsequently paid a license fee of $1,000,000. During March
2007, we met our first milestone under the license agreement
with Novartis for VSF-173 relating to the initiation of the
Phase II clinical trial and subsequently paid a license fee
of $1,000,000. On November 3, 2008, we received written
notice from Novartis that the license agreement related to
VSF-173 had terminated in accordance with its terms as a result
of our failure to satisfy a specific development milestone
within the time period specified in the license agreement. As a
result, we no longer hold any rights with respect to VSF-173 and
Novartis has a non-exclusive worldwide license to all
information and intellectual property generated by or on behalf
of Vanda related to its development of VSF-173. As a result of
the acceptance by FDA of our NDA for
Fanapttm
in October 2007, we met a milestone under our license agreement
with Novartis and subsequently paid a $5,000,000 milestone
license fee. No amounts were recorded as liabilities relating to
the license agreements included in the consolidated financial
statements as of December 31, 2008, since the amounts,
timing and likelihood of these payments are unknown and will
depend on the successful outcome of future clinical trials,
regulatory filings, favorable regulatory approvals, growth in
product sales and other factors. As a result of the FDAs
approval of our NDA for
Fanapttm,
we met an additional milestone under this license agreement
which requires us to make a license payment of $12 million
to Novartis. This milestone payment is due within seven days of
such approval. For a more detailed description
31
of the risks associated with the outcome of such clinical
trials, regulatory filings, FDA approvals and product sales,
please see the section Risk Factors, Item 1A of
Part II of this quarterly report on
Form 10-Q.
Recent
Developments
On May 7, 2009, we announced that Tang Capital Partners,
LP, one of our stockholders, had notified us that it had
withdrawn its nominations of director candidates for election to
our Board of Directors at Vandas 2009 annual meeting of
stockholders and its stockholder proposal to liquidate Vanda.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
Interest
Rates
Our exposure to market risk is currently confined to our cash
and cash equivalents, marketable securities and restricted cash.
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 and
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.
Effects
of Inflation
Our most liquid assets are cash and cash equivalents and
marketable securities. Because of their liquidity, these assets
are not directly affected by inflation. We also believe that we
have intangible assets in the value of our intellectual
property. In accordance with generally accepted accounting
principles, we have not capitalized the value of this
intellectual property on our balance sheet. Due to the nature of
this intellectual property, we believe that these intangible
assets are not affected by inflation. Because we intend to
retain and continue to use our equipment, furniture and fixtures
and leasehold improvements, we believe that the incremental
inflation related to replacement costs of such items will not
materially affect our operations. However, the rate of inflation
affects our expenses, such as those for employee compensation
and contract services, which could increase our level of
expenses and the rate at which we use our resources.
Marketable
securities
We deposit our cash with financial institutions that we consider
to be of high credit quality and purchase marketable securities
which are generally investment grade, liquid, short-term fixed
income securities and money-market instruments denominated in
U.S. dollars.
Off-balance
sheet arrangements
We have no off-balance sheet arrangements, as defined in
Item 303(a)(4) of the Securities and Exchange
Commissions
Regulation S-K.
|
|
Item 4.
|
Controls
and Procedures.
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under the supervision and with the participation of the
Companys management, including the Chief Executive Officer
and Acting Chief Financial Officer, the Company evaluated the
effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) as of March 31, 2009. Based upon
that evaluation, the Companys Chief Executive Officer and
Acting Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective as of
March 31, 2009, the end of the period covered by this
quarterly report, to ensure that the information required to be
disclosed by the Company in the reports that it files or submits
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 our management, including
32
our Chief Executive Officer and Acting Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosures.
Changes
in Internal Control over Financial Reporting
There has been no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) during the first quarter of 2009 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. In
December 2008, the Company executed a work force reduction which
included the active Chief Financial Officer. The Company
executed changes to our key controls to mitigate segregation of
duties issues related to a reduced accounting and finance
department. However, the changes did not materially affect
internal control over financial reporting as of March 31,
2009.
33
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
None.
Investing in our common stock involves a high degree of risk.
You should consider carefully the risks and uncertainties
described below, together with all of the other information in
this report, including the consolidated financial statements and
the related notes appearing at the end of this quarterly report
on
Form 10-Q,
with respect to any investment in shares of our common stock. If
any of the following risks actually occurs, our business,
financial condition, results of operations and future prospects
would likely be materially and adversely affected. In that
event, the market price of our common stock could decline and
you could lose all or part of your investment.
Risks
related to our business and industry
We
intend to begin selling, marketing and distributing our first
approved product,
Fanapttm,
in 2009 and we will depend heavily on the success of this
product in the marketplace.
Prior to the anticipated commercial launch of
Fanapttm,
we have never sold or marketed our own products. Our ability to
generate product revenue for the next few years will depend
solely on the success of this product. The ability of
Fanapttm
to generate revenue at the levels we expect will depend on many
factors, including the following:
|
|
|
|
|
the ability of patients in the current uncertain economic
climate to be able to afford
Fanapttm
or obtain health care coverage that covers
Fanapttm;
|
|
|
|
acceptance of and ongoing satisfaction with
Fanapttm
in the United States and foreign markets by the medical
community, patients receiving therapy and third party payers;
|
|
|
|
a satisfactory efficacy and safety profile as demonstrated in a
broad patient population;
|
|
|
|
successfully expanding and sustaining manufacturing capacity to
meet demand;
|
|
|
|
safety concerns in the marketplace for schizophrenia therapies;
|
|
|
|
the competitive landscape for approved and developing therapies
that will compete with
Fanapttm; and
|
|
|
|
our ability to expand the indications for which we can market
Fanapttm.
|
Our
success is dependent on the success of our products. If our
products are determined to be unsafe or ineffective in humans,
whether commercially or in clinical trials, our business will be
materially harmed.
Despite the FDAs approval of our NDA for
Fanapttm
and the positive results of our completed trials for
Fanapttm
and tasimelteon, we are uncertain whether either of these
products will ultimately prove to be effective and safe in
humans. Frequently, products that have shown promising results
in clinical trials have suffered significant setbacks in later
clinical trials or even after they are approved for commercial
sale. Future uses of our products, whether in clinical trials or
commercially, may reveal that the product is ineffective,
unacceptably toxic, has other undesirable side effects or is
otherwise not fit for further use. If we are unable to discover
and develop products that are safe and effective, our business
will be materially harmed.
34
Any
failure or delay in completing clinical trials for our products
could severely harm our business.
Pre-clinical studies and clinical trials required to demonstrate
the safety and efficacy of our products are time-consuming and
expensive and together take several years to complete. The
completion of clinical trials for our products may be delayed by
many factors, including:
|
|
|
|
|
our inability to manufacture or obtain from third parties
materials sufficient for use in pre-clinical studies and
clinical trials
|
|
|
|
delays in patient enrollment and variability in the number and
types of patients available for clinical trials
|
|
|
|
difficulty in maintaining contact with patients after treatment,
resulting in incomplete data
|
|
|
|
poor effectiveness of products during clinical trials
|
|
|
|
unforeseen safety issues or side effects
|
|
|
|
governmental or regulatory delays and changes in regulatory
requirements and guidelines
|
If we fail to complete successfully one or more clinical trials
for our products, we may not receive the regulatory approvals
needed to market that product. Therefore, any failure or delay
in commencing or completing these clinical trials would harm our
business materially.
We
face heavy government regulation, FDA regulatory approval of our
products is uncertain and we are continually at risk of the FDA
requiring us to discontinue marketing any of our products that
have or in the future may obtain regulatory
approval.
The research, testing, manufacturing and marketing of drug
products such as those that we are developing are subject to
extensive regulation by federal, state and local government
authorities, including the FDA. To obtain regulatory approval of
a product, we must demonstrate to the satisfaction of the
applicable regulatory agency that, among other things, the
product is safe and effective for its intended use. In addition,
we must show that the manufacturing facilities used to produce
the products are in compliance with current Good Manufacturing
Practices regulations or cGMP.
The process of obtaining FDA and other required regulatory
approvals and clearances will require us to expend substantial
time and capital. Despite the time and expense expended,
regulatory approval is never guaranteed. The number of
pre-clinical and clinical trials that will be required for FDA
approval varies depending on the drug candidate, the disease or
condition that the drug candidate is in development for, and the
requirements applicable to that particular drug candidate. The
FDA can delay, limit or deny approval of a drug candidate for
many reasons, including that:
|
|
|
|
|
a drug candidate may not be shown to be safe or effective
|
|
|
|
the FDA may interpret data from pre-clinical and clinical trials
in different ways than we do
|
|
|
|
the FDA may not approve our manufacturing process
|
|
|
|
the FDA may change their approval policies or adopt new
regulations
|
|
|
|
the FDA may not meet, or may extend, the PDUFA date with respect
to a particular NDA
|
For example, if certain of our methods for analyzing our trial
data are not accepted by the FDA, we may fail to obtain
regulatory approval for our products.
Moreover, the marketing, distribution and manufacture of
approved products remain subject to extensive ongoing regulatory
requirements. Failure to comply with applicable regulatory
requirements could result in:
|
|
|
|
|
warning letters
|
|
|
|
fines
|
|
|
|
civil penalties
|
35
|
|
|
|
|
injunctions
|
|
|
|
recall or seizure of products
|
|
|
|
total or partial suspension of production
|
|
|
|
refusal of the government to grant future approvals
|
|
|
|
withdrawal of approvals
|
|
|
|
criminal prosecution
|
Any delay or failure by us to obtain regulatory approvals for
our products could diminish competitive advantages that we may
attain and would adversely affect the marketing of our products.
Other than
Fanapttm
in the United States, we have not received regulatory approval
to market any product in any jurisdiction.
Even following regulatory approval of our products, the FDA may
impose limitations on the indicated uses for which our products
may be marketed, subsequently withdraw approval or take other
actions against us or our products that are adverse to our
business. The FDA generally approves products for particular
indications. An approval for a more limited indication reduces
the size of the potential market for the product. Product
approvals, once granted, may be withdrawn if problems occur
after initial marketing.
We also are subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the
environment and the use and disposal of hazardous substances
used in connection with our discovery, research and development
work. In addition, we cannot predict the extent of government
regulations or the impact of new governmental regulations that
might significantly harm the discovery, development, production
and marketing of our products. We may be required to incur
significant costs to comply with current or future laws or
regulations, and we may be adversely affected by the cost of
such compliance.
We
intend to seek regulatory approvals for our products in foreign
jurisdictions, but we may not obtain any such
approvals.
We intend to market our products outside the United States with
one or more commercial partners. In order to market our products
in foreign jurisdictions, we may be required to obtain separate
regulatory approvals and to comply with numerous and varying
regulatory requirements. The approval procedure varies among
countries and jurisdictions and can involve additional trials,
and the time required to obtain approval may differ from that
required to obtain FDA approval. We have no experience with
obtaining any such foreign approvals. Additionally, the foreign
regulatory approval process may include all of the risks
associated with obtaining FDA approval. For all of these
reasons, we may not obtain foreign regulatory approvals on a
timely basis, if at all. Approval by the FDA does not ensure
approval by regulatory authorities in other countries or
jurisdictions, and approval by one foreign regulatory authority
does not ensure approval by regulatory authorities in other
foreign countries or jurisdictions or by the FDA. We may not be
able to file for regulatory approvals and may not receive
necessary approvals to commercialize our products in any market.
The failure to obtain these approvals could harm our business
materially.
Our
products may cause undesirable side effects or have other
properties that could delay or prevent their regulatory approval
or limit their marketability.
Undesirable side effects caused by our products could interrupt,
delay or halt clinical trials and could result in the denial of
regulatory approval by the FDA or other regulatory authorities
for any or all targeted indications, and in turn prevent us from
commercializing or continued commercialization of our products
and generating revenues from their sale. We will continue to
assess the side effect profile of our products in our ongoing
clinical development program.
36
In addition, if after receiving marketing approval of a product
we or others later identify undesirable side effects caused by
such product, we could face one or more of the following:
|
|
|
|
|
regulatory authorities may require the addition of labeling
statements, such as a black box warning or a
contraindication
|
|
|
|
regulatory authorities may withdraw their approval of the product
|
|
|
|
we may be required to change the way the product is
administered, conduct additional clinical trials or change the
labeling of the product
|
|
|
|
our reputation may suffer
|
Any of these events could prevent us from achieving or
maintaining market acceptance of the affected product or could
substantially increase the costs and expenses of commercializing
the product, which in turn could delay or prevent us from
generating significant revenues from its sale.
Even
after we obtain regulatory approvals, our products may never
achieve market acceptance.
Even after obtaining regulatory approvals for the sale of our
products, the commercial success of these products will depend,
among other things, on their acceptance by physicians, patients,
third-party payors and other members of the medical community as
a therapeutic and cost-effective alternative to competing
products and treatments. The degree of market acceptance of any
product will depend on a number of factors, including the
demonstration of its safety and efficacy, its
cost-effectiveness, its potential advantages over other
therapies, the reimbursement policies of government and
third-party payors with respect to such product, and the
effectiveness of our marketing and distribution capabilities. If
our products fail to gain market acceptance, we may be unable to
earn sufficient revenue to continue our business. If our
products do not become widely accepted by physicians, patients,
third-party payors and other members of the medical community,
it is unlikely that we will ever become profitable.
If we
fail to obtain the capital necessary to fund our research and
development activities and commercialization efforts, we may be
unable to continue operations or we may be forced to share our
rights to commercialize our products with third parties on terms
that may not be attractive to us.
Our activities will necessitate significant uses of working
capital throughout 2009 and beyond. Based on our current
operating plans, we believe that our existing cash, cash
equivalents and marketable securities, will be sufficient to
meet our anticipated operating needs through 2009. However,
given the recent approval by the FDA of our NDA for
Fanapttm,
we are currently re-evaluating all of our longer-term operating
plans and cannot, at this time, reasonably determine the
sufficiency of our existing resources with respect to the
attainment of these plans. Although our longer-term operating
plans have not yet been finalized, it is likely that we will
need to raise additional funds in order to execute on them. In
our capital-raising efforts, we may seek to sell additional
equity or debt securities or obtain a bank credit facility, or
enter into partnerships, other collaboration agreements or
strategic transactions. The sale of additional equity or debt
securities, if convertible, could result in dilution to our
stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants
that would restrict our operations. However, given the current
global economic climate, we may have more difficulty raising
funds than we would during a period of economic stability, and
we may not be able to raise additional funds on acceptable
terms, or at all. If we are unable to secure sufficient capital
to fund our commercial and research and development activities,
we may not be able to continue operations, or we may have to
enter into partnerships, other collaboration agreements or
strategic transactions that could require us to share commercial
rights to our products to a greater extent or at earlier stages
in the drug development process than is currently intended.
These partnerships, collaborations or strategic transactions, if
consummated prior to proof-of-efficacy or safety of a given
product, could impair our ability to realize value from that
product.
37
We
have incurred operating losses in each year since our inception
and expect to continue to incur substantial and increasing
losses for the foreseeable future.
We have a limited operating history. We have not generated any
revenue from product sales to date and we cannot estimate with
precision the extent of our future losses. Other than
Fanapttm
in the United States, we do not currently have any products that
have been approved for commercial sale and we may never generate
revenue from selling products or achieve profitability. We
expect to continue to incur substantial and increasing losses
for the foreseeable future, particularly in connection with the
commercial launch of
Fanapttm
or if we otherwise increase our research, clinical development
and administrative activities. As a result, we are uncertain
when or if we will achieve profitability and, if so, whether we
will be able to sustain it. We have been engaged in identifying
and developing compounds since March 2003. As of March 31,
2009, we have accumulated net losses of approximately
$231.5 million. Our ability to achieve revenue and
profitability is dependent on our ability to complete the
development of our products, obtain necessary regulatory
approvals, and have our products manufactured and marketed. We
cannot assure you that we will be profitable even if we
successfully commercialize our products. Failure to become and
remain profitable may adversely affect the market price of our
common stock and our ability to raise capital and continue
operations.
If our
contract research organizations do not successfully carry out
their duties or if we lose our relationships with contract
research organizations, our drug development efforts could be
delayed.
We are dependent on contract research organizations, third-party
vendors and investigators for pre-clinical testing and clinical
trials related to our drug discovery and development efforts and
we will likely continue to depend on them to assist in our
future discovery and development efforts. These parties are not
our employees and we cannot control the amount or timing of
resources that they devote to our programs. If they fail to
devote sufficient time and resources to our drug development
programs or if their performance is substandard, it will delay
the development and commercialization of our products. The
parties with which we contract for execution of our clinical
trials play a significant role in the conduct of the trials and
the subsequent collection and analysis of data. Their failure to
meet their obligations could adversely affect clinical
development of our products. Moreover, these parties may also
have relationships with other commercial entities, some of which
may compete with us. If they assist our competitors, it could
harm our competitive position.
If we lose our relationship with any one or more of these
parties, we could experience a significant delay in both
identifying another comparable provider and then contracting for
its services. We may be unable to retain an alternative provider
on reasonable terms, if at all. Even if we locate an alternative
provider, it is likely that this provider may need additional
time to respond to our needs and may not provide the same type
or level of service as the original provider. In addition, any
provider that we retain will be subject to current Good
Laboratory Practices or cGLP, and similar foreign standards and
we do not have control over compliance with these regulations by
these providers. Consequently, if these practices and standards
are not adhered to by these providers, the development and
commercialization of our products could be delayed.
We
rely on a limited number of manufacturers for our products and
our business will be seriously harmed if these manufacturers are
not able to satisfy our demand and alternative sources are not
available.
We do not have an in-house manufacturing capability and depend
completely on a small number of third-party manufacturers and
active pharmaceutical ingredient formulators for the manufacture
of our products. We do not have long-term agreements with any of
these third parties, and if they are unable or unwilling to
perform for any reason, we may not be able to locate alternative
acceptable manufacturers or formulators or enter into favorable
agreements with them. Any inability to acquire sufficient
quantities of our products in a timely manner from these third
parties could adversely affect our sales of our product, delay
clinical trials and prevent us from developing our products in a
cost-effective manner or on a timely basis. In addition,
manufacturers of our products are subject to cGMP and similar
foreign standards and we do not have control over compliance
with these regulations by our manufacturers. If one of our
contract manufacturers fails to maintain compliance, the
production of our products could be interrupted, resulting in
delays and additional costs. In addition, if the facilities of
such manufacturers do not pass a pre-approval or post-approval
plant
38
inspection, the FDA will not grant approval and may institute
restrictions on the marketing or sale of our products.
Our manufacturing strategy presents the following additional
risks:
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because most of our third-party manufacturers and formulators
are located outside of the United States, there may be
difficulties in importing our compounds or their components into
the United States as a result of, among other things, FDA import
inspections, incomplete or inaccurate import documentation or
defective packaging
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because of the complex nature of our products, our manufacturers
may not be able to successfully manufacture our products in a
cost-effective
and/or
timely manner
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Materials
necessary to manufacture our products may not be available on
commercially reasonable terms, or at all, which may delay the
development, regulatory approval and commercialization of our
products.
We rely on our manufacturers to purchase from third-party
suppliers the materials necessary to produce our products for
our clinical trials and commercialization. Suppliers may not
sell these materials to our manufacturers at the times we need
them or on commercially reasonable terms. We do not have any
control over the process or timing of the acquisition of these
materials by our manufacturers. Moreover, we currently do not
have any agreements for the commercial production of these
materials. If our manufacturers are unable to obtain these
materials for our clinical trials, product testing, potential
regulatory approval of our products and commercial scale
manufacturing could be delayed, significantly affecting our
ability to further develop and commercialize our products. If we
or our manufacturers are unable to purchase these materials for
our products, there would be a shortage in supply or the
commercial launch of our products would be delayed, which would
materially affect our ability to generate revenues from the sale
of our products.
We
face substantial competition which may result in others
developing or commercializing products before or more
successfully than we do.
Our future success will depend on our ability to demonstrate and
maintain a competitive advantage with respect to our products
and our ability to identify and develop additional products or
compounds through the application of our pharmacogenetics and
pharmacogenomics expertise. Large, fully integrated
pharmaceutical companies, either alone or together with
collaborative partners, have substantially greater financial
resources and have significantly greater experience than we do
in:
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developing products
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undertaking pre-clinical testing and clinical trials
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obtaining FDA and other regulatory approvals of products
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manufacturing and marketing products
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These companies may invest heavily and quickly to discover and
develop novel products that could make our products obsolete.
Accordingly, our competitors may succeed in obtaining patent
protection, receiving FDA approval or commercializing superior
products or other competing products before we do.
We believe the primary competitors for each of our products are
as follows:
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For
Fanapttm
in the treatment of schizophrenia, the atypical antipsychotics
risperidone, including the depot formulation
Risperdal®
Consta®,
and
Invega®
(paliperidone), each by Ortho-McNeil-Janssen Pharmaceuticals,
Inc.,
Zyprexa®
(olanzapine) by Eli Lilly and Company,
Seroquel®
(quetiapine) by AstraZeneca PLC,
Abilify®
(aripiprazole) by Bristol-Myers Squibb Company/Otsuka
Pharmaceutical Co., Ltd.,
Geodon®
(ziprasidone) by Pfizer Inc., and generic clozapine, as well as
the typical antipsychotics haloperidol, chlorpromazine,
thioridazine, and sulpiride (all of which are generic). In
addition to the approved products, compounds in Phase III
trials (or for which an NDA has been recently filed) for the
treatment of schizophrenia include bifeprunox (Solvay
S.A./Lundbeck A/S), asenapine (Schering-Plough Corporation) and
pimavanserin (Acadia Pharmaceuticals).
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For tasimelteon in the treatment of insomnia,
Rozeremtm
(ramelteon) by Takeda Pharmaceuticals Company Limited, hypnotics
such as
Ambien®
CR (zolpidem) by sanofi-aventis,
Lunesta®
(eszopiclone) by Sepracor Inc. and
Sonata®
(zaleplon) by King Pharmaceuticals, Inc., generic compounds such
as zolpidem, trazodone and doxepin, and over-the-counter
remedies such as
Benadryl®
and Tylenol
PM®.
In addition to the approved products, compounds in
Phase III trials for insomnia (or for which an NDA has been
recently filed) include indiplon (Neurocrine Biosciences, Inc.)
low-dose doxepin
(Silenortm)
by Somaxon Pharmaceuticals, Inc. and
Intermezza®
(zolpidem tartarate sublingual lozenge) by Transcept
Pharmaceuticals, Inc.
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For tasimelteon in the treatment of depression, generic
antidepressants such as paroxetine, sertraline, fluoxetine and
buproprion,
Lexapro®
(escitalopram) by Lundbeck A/S /Forest Pharmaceuticals Inc., and
Effexor®
(venlafaxine) by Wyeth as well as other compounds such as
Cymbalta®
(duloxetine) by Eli Lilly and Valdoxan (agomelatine) by Novartis
and Les Laboratories Servier.
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Additionally, our ability to compete may be affected because
insurers and other third-party payors in some cases seek to
encourage the use of cheaper, generic products, which could make
our products less attractive.
We
have no experience selling, marketing or distributing products
and no internal capability to do so.
At present, we have limited marketing and sales personnel. In
order for us to commercialize
Fanapttm
or any other product, we must either acquire or internally
develop sales, marketing and distribution capabilities, or enter
into collaborations with partners to perform these services for
us. We may not be able to establish sales and distribution
partnerships on acceptable terms or at all, and if we do enter
into a distribution arrangement, our success will be dependent
upon the performance of our partner. In the event that we
attempt to acquire or develop our own in-house sales, marketing
and distribution capabilities, factors that may inhibit our
efforts to commercialize our products without partners or
licensees include:
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our inability to recruit and retain adequate numbers of
effective sales and marketing personnel
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the inability of sales personnel to obtain access to or persuade
adequate numbers of physicians to prescribe our products
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the lack of complementary products to be offered by our sales
personnel, which may put us at a competitive disadvantage
against companies with broader product lines
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unforeseen costs associated with creating our own sales and
marketing team or with entering into a partnering agreement with
an independent sales and marketing organization
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We
will need to increase the size of our organization and we may
experience difficulties in managing this growth.
As of March 31, 2009, we had 23 full-time employees.
In connection with the commercial launch of
Fanapttm
and the potential resumption of our developmental activities, we
will need to expand our managerial, operational, financial and
other resources in order for us to manage and fund our
operations, continue our development activities and
commercialize our products. Our current personnel, systems and
facilities are not adequate to support this future growth. To
manage our growth, we must:
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manage our clinical trials effectively
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manage our internal development efforts effectively
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improve our operational, financial, accounting and management
controls, reporting systems and procedures
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build marketing and sales organizations in order to
commercialize
Fanapttm
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attract and retain sufficient numbers of talented employees
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We may be unable to successfully implement these tasks on a
larger scale and, accordingly, may not achieve our development
and commercialization goals.
If we
cannot identify, or enter into licensing arrangements for, new
products or compounds, our ability to develop a diverse product
portfolio may be limited.
A component of our business strategy is acquiring rights to
develop and commercialize compounds discovered or developed by
other pharmaceutical and biotechnology companies for which we
may find effective uses and markets through our unique
pharmacogenetics and pharmacogenomics expertise. Competition for
the acquisition of these compounds is intense. If we are not
able to identify opportunities to acquire rights to
commercialize additional products, we may not be able to develop
a diverse portfolio of products and our business may be harmed.
Additionally, it may take substantial human and financial
resources to secure commercial rights to promising products or
compounds. Moreover, if other firms develop pharmacogenetics and
pharmacogenomics capabilities, we may face increased competition
in identifying and acquiring additional products or compounds.
If we
lose key scientists or management personnel, or if we fail to
recruit additional highly skilled personnel, it will impair our
ability to identify, develop and commercialize
products.
We are highly dependent on principal members of our management
team and scientific staff, including our Chief Executive
Officer, Mihael H. Polymeropoulos, M.D. These executives
each have significant pharmaceutical industry experience. The
loss of any such executives, including Dr. Polymeropoulos,
or any other principal member of our management team or
scientific staff, would impair our ability to identify, develop
and market new products.
Product
liability lawsuits could divert our resources, result in
substantial liabilities and reduce the commercial potential of
our products.
The risk that we may be sued on product liability claims is
inherent in the development of pharmaceutical products. For
example, we face a risk of product liability exposure related to
the testing of our products in clinical trials and will face
even greater risks upon commercialization by us of our products.
We believe that we may be at a greater risk of product liability
claims relative to other pharmaceutical companies because our
products are intended to treat behavioral disorders, and it is
possible that we may be held liable for the behavior and actions
of patients who use our products. These lawsuits may divert our
management from pursuing our business strategy and may be costly
to defend. In addition, if we are held liable in any of these
lawsuits, we may incur substantial liabilities and may be forced
to limit or forego further commercialization of one or more of
our products. Although we maintain product liability insurance,
our aggregate coverage limit under this insurance is $5,000,000,
and while we believe this amount of insurance is sufficient to
cover our product liability exposure, these limits may not be
high enough to fully cover potential liabilities. In addition,
product liability insurance is becoming increasingly expensive,
and we may not be able to obtain or maintain sufficient
insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims, which could prevent
or inhibit the commercial production and sale of our products.
Legislative
or regulatory reform of the healthcare system in the U.S. and
foreign jurisdictions may affect our ability to sell our
products profitably.
The continuing efforts of the U.S. and foreign governments,
insurance companies, managed care organizations and other payors
of health care services to contain or reduce health care costs
may adversely affect our ability to set prices for our products
which we believe are fair, and our ability to generate revenues
and achieve and maintain profitability.
Specifically, in both the United States and some foreign
jurisdictions there have been a number of legislative and
regulatory proposals to change the healthcare system in ways
that could affect our ability to sell our products profitably.
In the United States, the Medicare Prescription Drug Improvement
and Modernization Act of 2003 reforms the way Medicare will
cover and reimburse for pharmaceutical products. This
41
legislation could decrease the coverage and price that we may
receive for our products. Other third-party payors are
increasingly challenging the prices charged for medical products
and services. It will be time-consuming and expensive for us to
go through the process of seeking reimbursement from Medicare
and private payors. Our products may not be considered cost
effective, and coverage and reimbursement may not be available
or sufficient to allow us to sell our products on a competitive
and profitable basis. Further federal and state proposals and
healthcare reforms are likely which could limit the prices that
can be charged for the drugs we develop and may further limit
our commercial opportunity. Our results of operations could be
materially adversely affected by the Medicare prescription drug
coverage legislation, by the possible effect of this legislation
on amounts that private insurers will pay and by other
healthcare reforms that may be enacted or adopted in the future.
In some foreign countries, including major markets in the
European Union and Japan, the pricing of prescription
pharmaceuticals is subject to governmental control. In these
countries, pricing negotiations with governmental authorities
can take nine to twelve months or longer after the receipt of
regulatory marketing approval for a product. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct a clinical trial that compares the
cost-effectiveness of our product to other available therapies.
Our business could be materially harmed if reimbursement of our
products is unavailable or limited in scope or amount or if
pricing is set at unsatisfactory levels.
Recently
enacted legislation may make it more difficult and costly for us
to obtain regulatory approval of, and to produce, market and
distribute our products.
On September 27, 2007, then-President Bush signed into law
the Food and Drug Administration Amendments Act of 2007 or the
FDAAA. The FDAAA grants a variety of new powers to the FDA, many
of which are aimed at assuring drug safety and monitoring the
safety of drug products after approval. The recently enacted
amendments will among other things, require some new drug
applicants to submit risk evaluation and minimization strategies
to monitor and address potential safety issues for products upon
approval, grant the FDA the authority to impose risk management
measures for marketed products and to mandate labeling changes
in certain circumstances, and establish new requirements for
disclosing the results of clinical trials. Companies that
violate the new law are subject to substantial civil monetary
penalties. Additional measures have also been enacted to address
the perceived shortcomings in the FDAs handling of drug
safety issues, and to limit pharmaceutical company sales and
promotional practices. While we expect the FDAAA to have a
substantial effect on the pharmaceutical industry, the extent of
that effect is not yet known. As the FDA issues regulations,
guidance and interpretations relating to the new legislation,
the impact on the industry as well as our business will become
clearer. The new requirements and other changes that the FDAAA
imposes may make it more difficult, and likely more costly, to
obtain approval of new pharmaceutical products and to produce,
market and distribute existing products. Our ability to
commercialize approved products successfully may be hindered,
and our business may be harmed as a result.
Our
quarterly operating results may fluctuate
significantly.
Our operating results will continue to be subject to quarterly
fluctuations. The revenues we generate, if any, and our
operating results will be affected by numerous factors,
including:
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our addition or termination of development programs
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variations in the level of expenses related to our products or
future development programs
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our execution of collaborative, licensing or other arrangements,
and the timing of payments we may make or receive under these
arrangements
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any intellectual property infringement lawsuit in which we may
become involved
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regulatory developments affecting our products or those of our
competitors
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product sales
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cost of product sales
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marketing and other expenses
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manufacturing or supply issues
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If our quarterly operating results fall below the expectations
of investors or securities analysts, the price of our common
stock could decline substantially. Furthermore, any quarterly
fluctuations in our operating results may, in turn, cause the
price of our stock to fluctuate substantially. We believe that
quarterly comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an
indication of our future performance.
Risks
related to intellectual property and other legal
matters
Our
rights to develop and commercialize our products are subject in
part to the terms and conditions of licenses or sublicenses
granted to us by other pharmaceutical companies. With respect to
tasimelteon, these terms and conditions include an option in
favor of the licensor to reacquire rights to commercialize and
develop this product in certain circumstances.
Fanapttm
(iloperidone) is based in part on patents and other intellectual
property owned by sanofi-aventis and Novartis. Titan
Pharmaceuticals, Inc. (Titan) holds an exclusive license from
sanofi-aventis to the intellectual property owned by
sanofi-aventis, and Titan has sublicensed its rights under such
license on an exclusive basis to Novartis. We have acquired
exclusive rights to this and other intellectual property through
a further sublicense from Novartis. Our rights with respect to
the intellectual property to develop and commercialize
Fanapttm
may terminate, in whole or in part, if we fail to meet certain
milestones contained in our sublicense agreement with Novartis
relating to the time it takes for us to launch
Fanapttm
commercially following regulatory approval, and the time it
takes for us to receive regulatory approval following our
submission of the requisite foreign filings. We may also lose
our rights to develop and commercialize
Fanapttm
if we fail to pay royalties to Novartis, if we fail to comply
with certain requirements in the sublicense agreement regarding
our financial condition, or if we fail to comply with certain
restrictions regarding our other development activities.
Finally, our rights to develop and commercialize
Fanapttm
may be impaired if we do not cure breaches by Novartis and Titan
of similar obligations contained in these sublicense and license
agreements, although we are not aware of any such breach by
Titan or Novartis. In the event of an early termination of our
sublicense agreement, all rights licensed and developed by us
under this agreement may be extinguished, which would have a
material adverse effect on our business.
Tasimelteon is based in part on patents that we have licensed on
an exclusive basis and other intellectual property licensed from
Bristol-Myers Squibb Company (BMS). BMS holds certain rights
with respect to tasimelteon in the license agreement. If we have
not agreed to one or more partnering arrangements to develop and
commercialize tasimelteon in certain significant markets with
one or more third parties after the completion of the
Phase III program, BMS has the option to exclusively
develop and commercialize tasimelteon on its own on
pre-determined financial terms, including milestone and royalty
payments. BMS may terminate our license if we fail to meet
certain milestones or if we otherwise breach our royalty or
other obligations in the agreement. In the event that we
terminate our license, or if BMS terminates our license due to
our breach, all of our rights to tasimelteon (including any
intellectual property we develop with respect to tasimelteon)
will revert back to BMS or otherwise be licensed back to BMS on
an exclusive basis. Any termination or reversion of our rights
to develop or commercialize tasimelteon, including any
reacquisition by BMS of our rights, may have a material adverse
effect on our business
If our
efforts to protect the proprietary nature of the intellectual
property related to our products are not adequate, we may not be
able to compete effectively in our markets.
In addition to the rights we have licensed from Novartis and BMS
relating to our products, we rely upon intellectual property we
own relating to these products, including patents, patent
applications and trade secrets. As of March 31, 2009 we had
fourteen pending provisional patent applications in the United
States, eight U.S. national stage applications under U.S.C.
371 and seven pending Patent Cooperation Treaty applications,
which permit the pursuit of patents outside of the U.S.,
relating to our products in clinical development. Our patent
applications may be challenged or fail to result in issued
patents and our existing or future patents may
43
be too narrow to prevent third parties from developing or
designing around these patents. In addition, we rely on trade
secret protection and confidentiality agreements to protect
certain proprietary know-how that is not patentable, for
processes for which patents are difficult to enforce and for any
other elements of our drug development processes that involve
proprietary know-how, information and technology that is not
covered by patent applications. While we require all of our
employees, consultants, advisors and any third parties who have
access to our proprietary know-how, information and technology
to enter into confidentiality agreements, we cannot be certain
that this know-how, information and technology will not be
disclosed or that competitors will not otherwise gain access to
our trade secrets or independently develop substantially
equivalent information and techniques. Further, the laws of some
foreign countries do not protect proprietary rights to the same
extent as the laws of the United States. As a result, we may
encounter significant problems in protecting and defending our
intellectual property both in the United States and abroad. If
we are unable to protect or defend the intellectual property
related to our technologies, we will not be able to establish or
maintain a competitive advantage in our market.
If we
do not obtain protection under the Hatch-Waxman Act and similar
foreign legislation to extend our patents and to obtain market
exclusivity for our products, our business will be materially
harmed.
The United States Drug Price Competition and Patent Term
Restoration Act of 1984, more commonly known as the
Hatch-Waxman Act, provides for an extension of
patent protection for drug compounds for a period of up to five
years to compensate for time spent in development. Assuming we
gain a five-year extension for each of
Fanapttm
and tasimelteon, and that we continue to have rights under our
sublicense and license agreements with respect to these
products, we would have exclusive rights to
Fanapttms
United States new chemical entity patent (the
primary patent covering the compound as a new composition of
matter) until 2016 and to tasimelteons United States new
chemical entity patent until 2022. In Europe, similar
legislative enactments allow patent protection in the European
Union to be extended for up to five years through the grant of a
Supplementary Protection Certificate. Assuming we gain such a
five-year extension for each of
Fanapttm
and tasimelteon, and that we continue to have rights under our
sublicense and license agreements with respect to these
products, we would have exclusive rights to
Fanapttms
European new chemical entity patents until 2015 and to
tasimelteons European new chemical entity patents until
2022. Additionally, a directive in the European Union provides
that companies who receive regulatory approval for a new
compound will have a
10-year
period of market exclusivity for that compound (with the
possibility of a further one-year extension) in most countries
in Europe, beginning on the date of such European regulatory
approval, regardless of when the European new chemical entity
patent covering such compound expires. A generic version of the
approved drug may not be marketed or sold in Europe during such
market exclusivity period. This directive may be of particular
importance with respect to
Fanapttm,
since the European new chemical entity patent for
Fanapttm
will likely expire prior to the end of this
10-year
period of market exclusivity. However, there is no assurance
that we will receive the extensions of our patents or other
exclusive rights available under the Hatch-Waxman Act or similar
foreign legislation. If we fail to receive such extensions and
exclusive rights, our ability to prevent competitors from
manufacturing, marketing and selling generic versions of our
products will be materially impaired.
Litigation
or third-party claims of intellectual property infringement
could require us to divert resources and may prevent or delay
our drug discovery and development efforts.
Our commercial success depends in part on our not infringing the
patents and proprietary rights of third parties. Third parties
may assert that we are employing their proprietary technology
without authorization. In addition, third parties may obtain
patents in the future and claim that use of our technologies
infringes upon these patents. Furthermore, parties making claims
against us may obtain injunctive or other equitable relief,
which could effectively block our ability to develop and
commercialize one or more of our products. Defense of these
claims, regardless of their merit, would divert substantial
financial and employee resources from our business. In the event
of a successful claim of infringement against us, we may have to
pay substantial damages, obtain one or more licenses from third
parties or pay royalties. In addition, even in the absence of
litigation, we may need to obtain additional licenses from third
parties to advance our research or allow commercialization of
our products. We may fail to obtain any of these licenses at a
reasonable cost or on
44
reasonable terms, if at all. In that event, we would be unable
to develop and commercialize further one or more of our products.
In addition, in the future we could be required to initiate
litigation to enforce our proprietary rights against
infringement by third parties. Prosecution of these claims to
enforce our rights against others could divert substantial
financial and employee resources from our business. If we fail
to enforce our proprietary rights against others, our business
will be harmed.
If we
use hazardous and biological materials in a manner that causes
injury or violates applicable law, we may be liable for
damages.
Our research, development and commercialization activities
involve the controlled use of potentially hazardous substances,
including toxic chemical and biological materials. We could be
held liable for any contamination, injury or other damages
resulting from these hazardous substances. In addition, our
operations produce hazardous waste products. While third parties
are responsible for disposal of our hazardous waste, we could be
liable under environmental laws for any required cleanup of
sites at which our waste is disposed. Federal, state, foreign
and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these hazardous materials. If
we fail to comply with these laws and regulations at any time,
or if they change, we may be subject to criminal sanctions and
substantial civil liabilities, which may adversely affect our
business.
Even if we continue to comply with all applicable laws and
regulations regarding hazardous materials, we cannot eliminate
the risk of accidental contamination or discharge and our
resultant liability for any injuries or other damages caused by
these accidents. Although we maintain pollution liability
insurance, our coverage limit under this insurance is
$2,000,000, and while we believe this amount and type of
insurance is sufficient to cover risks typically associated with
our handling of materials, the insurance may not cover all
environmental liabilities, and these limits may not be high
enough to cover potential liabilities for these damages fully.
The amount of uninsured liabilities may exceed our financial
resources and materially harm our business.
Risks
related to our common stock
Our
stock price has been volatile and may be volatile in the future,
and purchasers of our common stock could incur substantial
losses.
The stock market has from time to time experienced significant
price and volume fluctuations, and the market prices of the
securities of life sciences companies without product revenues,
such as ours, have historically been highly volatile. Between
March 31, 2008 and March 31, 2009, the high and low
sale prices of our common stock as reported on the NASDAQ Global
Market varied between $6.59 and $0.45. The following factors, in
addition to the other risk factors described in this section,
may also have a significant impact on the market price of our
common stock:
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publicity regarding actual or potential testing or trial results
relating to products under development by us or our competitors
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the outcome of regulatory review relating to products under
development by us or our competitors
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regulatory developments in the United States and foreign
countries
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developments concerning any collaboration or other strategic
transaction we may undertake
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announcements of patent issuances or denials, technological
innovations or new commercial products by us or our competitors
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|
|
safety issues with our products
|
|
|
|
our ability to successfully execute our commercialization
strategies
|
|
|
|
actual or anticipated variations in our quarterly operating
results
|
|
|
|
changes in estimates of our financial results or recommendations
by securities analysts
|
45
|
|
|
|
|
additions or departures of key personnel or members of our board
of directors
|
|
|
|
publicity regarding actual or potential transactions involving
the Company
|
|
|
|
economic and other external factors beyond our control
|
As a result of these factors, holders of our common stock might
be unable to sell their shares at or above the price they paid
for such shares.
If
there are substantial sales of our common stock, our stock price
could decline.
A small number of institutional investors and private equity
funds hold a significant number of shares of our common stock.
Sales by these stockholders of a substantial number of shares,
or the expectation of such sales, could cause a significant
reduction in the market price of our common stock. Additionally,
a small number of early investors in our company have rights,
subject to certain conditions, to require us to file
registration statements to permit the resale of their shares in
the public market or to include their shares in registration
statements that we may file for ourselves or other stockholders.
In addition to our outstanding common stock, as of
March 31, 2009, there were a total of 4,108,270 shares
of common stock that we have registered and that we are
obligated to issue upon the exercise of currently outstanding
options and restricted stock units granted under our Second
Amended and Restated Management Equity Plan and 2006 Equity
Incentive Plan. Upon the exercise of these options in accordance
with their respective terms, these shares may be resold freely,
subject to restrictions imposed on our affiliates under
Rule 144. If significant sales of these shares occur in
short periods of time, these sales could reduce the market price
of our common stock. Any reduction in the trading price of our
common stock could impede our ability to raise capital on
attractive terms.
If we
fail to maintain the requirements for continued listing on the
NASDAQ Global Market, our common stock could be delisted from
trading, which would adversely affect the liquidity of our
common stock and our ability to raise additional
capital.
Our common stock is currently listed for quotation on the NASDAQ
Global Market. We are required to meet specified financial
requirements in order to maintain our listing on the NASDAQ
Global Market. One such requirement is that we maintain a
minimum closing bid price of at least $1.00 per share for our
common stock. Our common stock has recently closed at prices
below the minimum bid requirement. If the closing bid price of a
share of the Companys common stock were to fall below
$1.00 for a period of thirty (30) consecutive business
days, the Company would receive a deficiency notice from NASDAQ
advising us that we have 180 calendar days to regain compliance
by maintaining a minimum closing bid price of at least $1.00 for
a minimum of ten consecutive business days. Under certain
circumstances, NASDAQ could require that the minimum closing bid
price exceed $1.00 for more than ten consecutive days before
determining that a company complies with its continued listing
standards. On October 16, 2008, NASDAQ announced that,
effective as of such date and through Friday, January 16,
2009, it has suspended the enforcement of the rules requiring a
minimum $1.00 closing bid price. NASDAQ has extended its
suspension of the rules requiring a minimum $1.00 closing bid
price. These rules will be reinstated on Monday, July 20,
2009. If in the future, we fail to satisfy the NASDAQ Global
Markets continued listing requirements, our common stock
could be delisted from the NASDAQ Global Market, in which case
we may transfer to the NASDAQ Capital Market, which generally
has lower financial requirements for initial listing or, if we
fail to meet its listing requirements, the over-the-counter
bulletin board. There are many factors that may adversely affect
our minimum bid price, including those described in Item 1A
Risk Factors of Part II of this quarterly
report on
Form 10-Q,
which contains a more complete discussion of those factors and
other risks. Many of these factors are outside of our control.
As a result, we may not be able to sustain compliance with the
minimum bid price rule in the long term. Any potential delisting
of our common stock from the NASDAQ Global Market would make it
more difficult for our stockholders to sell our stock in the
public market and would likely result in decreased liquidity and
increased volatility for our common stock.
46
If
securities or industry analysts do not publish research or
reports or publish unfavorable research about our business, our
stock price and trading volume could decline.
The trading market for our common stock will depend in part on
the research and reports that securities or industry analysts
publish about us or our business. If one or more of the analysts
who covers the Company downgrades our stock, our stock price
would likely decline. If one or more of these analysts ceases to
cover us or fails to publish regular reports on us, interest in
the purchase of our stock could decrease, which could cause our
stock price or trading volume to decline.
Anti-takeover
provisions in our charter and bylaws, and in Delaware law, and
our rights plan could prevent or delay a change in control of
our company.
We are a Delaware corporation and the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control by prohibiting
us from engaging in a business combination with an interested
stockholder for a period of three years after the person becomes
an interested stockholder, even if a change of control would be
beneficial to our existing stockholders. In addition, our
amended and restated certificate of incorporation and bylaws may
discourage, delay or prevent a change in our management or
control over us that stockholders may consider favorable. Our
amended and restated certificate of incorporation and bylaws:
|
|
|
|
|
authorize the issuance of blank check preferred
stock that could be issued by our board of directors to thwart a
takeover attempt
|
|
|
|
do not provide for cumulative voting in the election of
directors, which would allow holders of less than a majority of
the stock to elect some directors
|
|
|
|
establish a classified board of directors, as a result of which
the successors to the directors whose terms have expired will be
elected to serve from the time of election and qualification
until the third annual meeting following their election
|
|
|
|
require that directors only be removed from office for cause
|
|
|
|
provide that vacancies on the board of directors, including
newly-created directorships, may be filled only by a majority
vote of directors then in office
|
|
|
|
limit who may call special meetings of stockholders
|
|
|
|
prohibit stockholder action by written consent, requiring all
actions to be taken at a meeting of the stockholders
|
|
|
|
establish advance notice requirements for nominating candidates
for election to the board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings
|
Moreover, on September 25, 2008, our board of directors
adopted a rights agreement, the provisions of which could result
in significant dilution of the proportionate ownership of a
potential acquirer and, accordingly, could discourage, delay or
prevent a change in our management or control over us.
We may
lose some or all of the value of some of our marketable
securities.
We engage one or more third parties to manage some of our cash
consistent with an investment policy that allows a range of
investments and maturities. The investments are intended to
preserve principal while providing liquidity adequate to meet
projected cash requirements. Risks of principal loss are
intended to be minimized through diversified short and medium
term investments of high quality, but the investments are not,
in every case, guaranteed or fully insured. In light of recent
changes in the credit market, some high quality short-term
investment securities, similar to the types of securities that
we invest in, have suffered illiquidity or events of default.
From time to time, we may suffer losses on our marketable
securities, which could have a material adverse impact on our
operations.
47
Unstable
market conditions may have serious adverse consequences on our
business.
The recent economic downturn and market instability has made the
business climate more volatile and more costly. Our general
business strategy may be adversely affected by unpredictable and
unstable market conditions. If the current equity and credit
markets deteriorate further, or do not improve, it may make any
necessary debt or equity financing more difficult, more costly,
and more dilutive. While we believe we have adequate capital
resources to meet current working capital and capital
expenditure requirements, a lingering economic downturn or
significant increase in our expenses could require additional
financing on less than attractive rates or on terms that are
excessively dilutive to existing stockholders. Failure to secure
any necessary financing in a timely manner and on favorable
terms could have a material adverse effect on our stock price
and could require us to delay or abandon clinical development
plans.
There is a risk that one or more of our current service
providers, manufacturers and other partners may encounter
difficulties during challenging economic times, which would
directly affect our ability to attain our operating goals on
schedule and on budget.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None.
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
|
|
Item 5.
|
Other
Information.
|
None.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Certification of the Principal Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Principal Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer and Acting Chief
Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
The certification attached as Exhibit 32.1 that accompanies
this Quarterly Report on
Form 10-Q
is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of
Vanda Pharmaceuticals Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Quarterly Report
on
Form 10-Q,
irrespective of any general incorporation language contained in
such filing.
48
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.
Vanda Pharmaceuticals Inc.
May 11, 2009
/s/ Mihael
H. Polymeropoulos, M.D.
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
(Principal executive officer)
May 11, 2009
Stephanie R. Irish
Acting Chief Financial Officer and Treasurer
(Principal financial and accounting officer)
49
VANDA
PHARMACEUTICALS INC.
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Certification of the Principal Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Principal Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer and Acting Chief
Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
The certification attached as Exhibit 32.1 that accompanies
this Quarterly Report on
Form 10-Q
is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of
Vanda Pharmaceuticals Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Quarterly Report
on
Form 10-Q,
irrespective of any general incorporation language contained in
such filing.
50
exv31w1
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mihael H. Polymeropoulos, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Vanda Pharmaceuticals Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b. |
|
designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c. |
|
evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
|
|
d. |
|
disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
|
a. |
|
all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
b. |
|
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
control over financial reporting. |
|
|
|
|
|
|
|
|
Date: May 11, 2009 |
/s/ Mihael H. Polymeropoulos
|
|
|
Mihael H. Polymeropoulos |
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
|
exv31w2
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephanie R. Irish, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Vanda Pharmaceuticals Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b. |
|
designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c. |
|
evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
|
|
d. |
|
disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
|
a. |
|
all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
b. |
|
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
control over financial reporting. |
|
|
|
|
|
|
|
|
Date: May 11, 2009 |
/s/ Stephanie R. Irish
|
|
|
Stephanie R. Irish |
|
|
Acting Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
exv32w1
EXHIBIT 32.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section
1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Vanda
Pharmaceuticals Inc., (the Company), does hereby certify, to the best of such officers
knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the Form 10-Q) of the
Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material
respects, the consolidated financial condition and results of operations of the Company.
|
|
|
|
|
Date: May 11, 2009
|
|
/s/ Mihael H. Polymeropoulos
Mihael H. Polymeropoulos
|
|
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
Date: May 11, 2009
|
|
/s/ Stephanie R. Irish
Stephanie R. Irish
|
|
|
|
|
Acting Chief Financial Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
|
|
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
(SEC) or its staff upon request. This certification accompanies the Form 10-Q to which it
relates, is not deemed filed with the SEC and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any
general incorporation language contained in such filing.