This report contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenues, projected costs and expenses, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking statements. The words "anticipate", "believe", "estimate", "intend", "may", "plan", "will", "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements reflect our current views with respect to future events. Because these forward-looking statements involve known and unknown risks and uncertainties, actual results, performance or achievements could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Critical Accounting Policies and Estimates", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q. We cannot guarantee any future results, levels of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so.
Idenix Pharmaceuticals, Inc., which we refer to together with our wholly owned subsidiaries as Idenix, we, us or our, is a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the United Statesand France. Currently, our primary research and development focus is on the treatment of patients with hepatitis C virus, or HCV. Our HCV discovery program is focused on nucleotide polymerase inhibitors and NS5A inhibitors. Our strategic goal is to develop safe, potent and convenient all-oral combinations of direct-acting antiviral, or DAA, drug candidates that are pan-genotypic without the use of pegylated interferon and ribavirin, or Peg-IFN/RBV. Our objective is to develop once-daily agents that have low potential for drug-drug interaction, high tolerability and are designed for use in multiple combination regimens. We are seeking to build a combination development strategy, both internally and with partners, to advance the future of HCV treatments. We believe that nucleotides will have a significant role in a combination DAA strategy for the treatment of HCV and therefore we are currently concentrating a substantial amount of our discovery efforts on this class of drugs. We believe we have strong nucleotide scientific expertise within our organization and should be able to leverage our intellectual patent portfolio to develop additional novel nucleotide drug candidates. The following table summarizes key information regarding our pipeline of HCV drug candidates/programs: Drug Candidates/Programs Description IDX21437 - Lead In the fourth quarter of 2013, we initiated a phase I/II Uridine-Based Nucleotide clinical trial outside the U.S. for IDX21437. In April Prodrug 2014, we completed a seven-day proof-of-concept study of IDX21437. IDX21437 monotherapy was well-tolerated and showed potent antiviral activity of mean maximal viral load reductions of 4.2 to 4.3 log10 IU/mL for patients infected with HCV genotype 1, 2 or 3 receiving 300 mg once-daily of IDX21437 for seven days. We expect to initiate an all-oral pan-genotypic combination phase II clinical trial of IDX21437 and samatasvir, our NS5A inhibitor, in mid-2014. IDX21459 - Uridine-Based IDX21459 is our follow-on uridine-based nucleotide Nucleotide Prodrug prodrug candidate that has shown a favorable preclinical profile including potent, pan-genotypic activity and favorable safety with respect to cardiac, mitochondrial and genotoxicity assessments. In April 2014, we initiated a phase I clinical trial in several countries outside the U.S. for IDX21459 to evaluate healthy volunteers and genotype 1 HCV-infected patients at multiple doses. Nucleotide Polymerase As part of our ongoing extensive nucleotide discovery Inhibitor Discovery effort, we continue to explore and develop a diverse Program spectrum of nucleotides with novel bases, prodrugs and sugar moieties. Our discovery efforts are currently focused on the identification of a novel nucleotide prodrug with a distinct resistance profile from our clinical nucleotide candidates that can be used in a combination 17
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April 2014, we elected not to continue our clinical development program for IDX20963, our nucleotide prodrug previously placed on clinical hold by the U.S. Food and Drug Administration, or FDA. Samatasvir (IDX719) - We expect to initiate an all-oral pan-genotypic NS5A Inhibitor combination phase II clinical trial of samatasvir and IDX21437 in mid-2014. In January 2013, we entered into a non-exclusive collaboration agreement with Janssen Pharmaceuticals, Inc., or Janssen, for the clinical evaluation of all-oral DAA combinations including samatasvir, simeprevir, a once-daily protease inhibitor jointly developed by Janssenand Medivir AB, or Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low-dose ritonavir, being developed by Janssen. Interim data from the phase II HELIX-1 clinical trial showed the regimen of samatasvir and simeprevir plus ribavirin was well-tolerated and that in patients receiving 50 mg of samatasvir and 150 mg of simeprevir plus ribavirin, 85% had undetectable virus levels at four weeks after completing therapy, or SVR4. The 50 mg dose was advanced into the ongoing 3-DAA HELIX-2 clinical trial. In the fourth quarter of 2013, we initiated a 12-week phase II HELIX-2 clinical trial which evaluates the three-DAA combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin, in genotype 1 HCV-infected patients who are either treatment-naÏve or have relapsed after treatment with interferon and ribavirin. This trial is ongoing and we expect to report SVR4 data in the second half of 2014. In March 2014, we and certain co-owners were granted a European Patent, EP 1 523 489, that covers 2'-methyl-2'-fluoro nucleosides for treating HCV. Subsequently, we filed infringement lawsuits against Gilead Sciences, Inc., and/or certain of its subsidiaries, which we refer to as Gilead, in France, Germanyand the United Kingdom. In these lawsuits, we are seeking remedies with respect to Gilead's marketing and sales of drugs containing SovaldiTM, which we believe infringes our European patent. Gilead has counterclaimed for invalidity in certain of these jurisdictions. We also have several other legal matters ongoing with Gilead including infringement lawsuits in the U.S. and Canada, an ongoing interference case declared by the U.S. Patent and Trademark Office, or USPTO, and invalidity matters in other foreign jurisdictions. In March 2014, related to the Norwayinvalidity proceeding, the Oslo District Courtdetermined that our patent NO 330 755 covering 2'-methyl-2'-fluoro nucleoside compounds useful in the treatment of HCV and other flaviviridae infections is invalid. We filed an appeal to challenge the court's decision. All of our drug candidates are currently in preclinical or early to mid-stage clinical development. Our drug development programs and the potential commercialization of our drug candidates will require substantial cash to fund costs that we incur in connection with preclinical studies and clinical trials, regulatory review, manufacturing and sales and marketing efforts. We have incurred losses in each year since our inception and at March 31, 2014, we had an accumulated deficit of $864.5 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result of continuing losses, we may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates. We are subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the successful development of products, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaboration partners, competition, technological and medical risks and management of growth.
Results of Operations
Comparison of Three Months Ended
Collaboration revenue from related party consisted of revenues associated with our collaboration with
Novartis Pharma AG, or Novartis. Under the termination and revised relationship agreement entered into with Novartis in July 2012, or the 18
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termination agreement, we granted Novartis a non-exclusive license for combination trials, which is recognized over the term of the non-exclusive license, or seven years. These amounts are impacted by the net changes for Novartis' stock subscription rights.
Collaboration revenue from related party was
$(3.0) millionin the three months ended March 31, 2014as compared to $0.9 millionin the same period in 2013. The $3.9 milliondecrease was primarily due to charges against revenue of $2.5 milliondue to the impact of Novartis' stock subscription rights related to our registered direct offering in January 2014and $0.7 milliondue to the impact of Novartis' stock subscription rights related to stock options that would be issuable to Novartis. The stock subscription right is described in the footnotes to the condensed consolidated financial statements to this Quarterly Report on Form 10-Q. Cost of Revenues
We did not record cost of revenues in the three months ended
Research and Development Expenses
Research and development expenses were
$21.1 millionin the three months ended March 31, 2014as compared to $24.0 millionin the same period in 2013. The decrease of $2.9 millionwas primarily due to $3.9 millionof expenses related to the IDX184 and IDX19368 programs which were discontinued in early 2013, $3.8 millionrelated to the IDX20963 program which was discontinued in 2014 and $1.6 millionrelated to samatasvir. These costs were partially offset by increases in clinical trial expenses of $6.4 millionrelated to IDX21437. We expect our research and development expenses for 2014 to be higher than the amount incurred in 2013 mainly due to the planned advancement of IDX21437 and samatasvir into phase II clinical trials.
We will continue to devote substantial resources to our research and development activities, expand our research pipeline and engage in future development activities as we continue to advance our drug candidates and explore collaborations with other entities that we believe will create shareholder value.
General and Administrative Expenses
General and administrative expenses were
$10.3 millionin the three months ended March 31, 2014as compared to $7.5 millionin the same period in 2013. The increase of $2.8 millionwas mainly due to additional patent interference and patent litigation costs.
We expect our general and administrative expenses for 2014 to be higher than the amount incurred in 2013 mainly due to additional patent litigation costs.
Other Income, Net
Other income, net was
$0.3 millionin the three months ended March 31, 2014and was primarily comprised of research and development credits. This amount was substantially unchanged as compared to the same period in 2013.
Income Tax Expense
Income tax expense was less than
Liquidity and Capital Resources
Since our inception in 1998, we have financed our operations with proceeds obtained in connection with license and development arrangements and equity financings. The proceeds include:
• license, milestone, royalty and other payments from Novartis through
July 31, 2012; • license, milestone and stock purchase payments from ViiV and GlaxoSmithKline, or GSK through March 15, 2012;
• reimbursements from Novartis for costs we have incurred subsequent to
compounds Novartis previously licensed from us; 19
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the United Statesthrough September 30, 2007;
• net proceeds from
reimbursement of development costs;
• net proceeds from private placements of our convertible preferred stock in
1998, 1999 and 2001;
• net proceeds from offerings in
April 2011, November 2011, August 2012and January 2014;
• net proceeds from private placements of our common stock concurrent with
our public offerings in 2004, 2005 and
April 2011; and
• proceeds from the exercise of stock options granted pursuant to our equity
We had total cash and cash equivalents of
$205.0 millionand $122.0 millionas of March 31, 2014and December 31, 2013, respectively. We believe that our current cash and cash equivalents will be sufficient to sustain operations into at least the second half of 2015. Our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity. As of March 31, 2014, all of our investments were in money market funds. We have incurred losses in each year since our inception and at March 31, 2014, we had an accumulated deficit of $864.5 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result, we may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates. In January 2014, we issued 16.4 million shares of our common stock to Baupost Group, L.L.C., or Baupost, through a registered direct offering under a shelf registration and received $106.6 millionin net proceeds. Additional funding may not be available to us or, if available, may not be on terms favorable to us. Further, any additional equity financing may be dilutive to stockholders, other than Novartis, which has the right to maintain its current ownership level. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, reduce or eliminate one or more of our drug development programs, enter into new collaborative, strategic alliances or licensing arrangements that may not be favorable to us and reduce the number of our employees.
Net cash used in operating activities was
Net cash used in investing activities was less than
Net cash provided by financing activities was
$107.8 millionand less than $0.1 millionin the three months ended March 31, 2014and 2013, respectively. The increase of $107.8 millionwas primarily due to the receipt of net proceeds of $106.6 millionrelated to the registered direct offering in January 2014.
Contractual Obligations and Commitments
Set forth below is a description of our contractual obligations as of
March 31, 2014: Payments Due by Period Less Than After 5 Contractual Obligations Total 1 Year 1-3 Years 4-5 Years Years (In Thousands) Operating leases $ 19,669 $ 3,470 $ 7,074 $ 5,994 $ 3,131Settlement payments and other agreements 1,559 1,448 111 - - Long-term obligations 5,346 - - 4,857 489 Total contractual obligations $ 26,574 $ 4,918$
Included in the table above is
$5.9 millionrelated to a settlement agreement we entered into in July 2008with the University of Alabama at Birmingham, or UAB, the University of Alabama at BirminghamResearch Foundation, or UABRF, an affiliate of UAB, and Emory Universityrelating to our telbivudine technology. Pursuant to this settlement 20
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agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of ß-L-2'-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, Le Centre National de la Recherche Scientifique, or CNRS, and L'Universite Montpellier II, or the
University of Montpellier, and which cover the use of Tyzeka®/Sebivo® have been resolved. Under the terms of the settlement agreement, we paid UABRF (on behalf of UABand Emory University) a $4.0 millionupfront payment and will make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Our payment obligations under the settlement agreement expire in August 2019. The settlement agreement was effective on June 1, 2008and included mutual releases of all claims and covenants not to sue among the parties. It also included a release from a third-party scientist who had claimed to have inventorship rights in certain Idenix/CNRS/ University of Montpellierpatents. Novartis is required to reimburse us for our contractual payments to UABRF in connection with our intellectual property related to Tyzeka®/Sebivo®. Included in receivables from related party at March 31, 2014was $6.1 millionfor the reimbursement from Novartis for these contractual payments to UABRF. Certain potential payment obligations relating to our HBV and HCV product and drug candidates that are described below are excluded from the contractual obligations table above as we cannot make a reliable estimate of the period in which the cash payments may be made. In May 2004, we entered into a settlement agreement with UAB which provides for a milestone payment of $1.0 millionto UAB upon receipt of regulatory approval in the United Statesto market and sell certain HCV products invented or discovered by our former chief executive officer during the period from November 1, 1999to November 1, 2000. This settlement agreement also provides that if such HCV products were approved and commercialized, we will pay UAB an amount equal to 0.5% of worldwide net sales of such HCV products with a minimum sales-based payment equal to $12.0 million. Such payments would be due even in the instance where we licensed such technology to a third-party. Currently, there are no such HCV products approved and therefore there was no related liability recorded as of March 31, 2014. We have potential payment obligations under the license agreement with the Universita degli Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide right to make, use and sell certain HCV technologies and the right to sublicense any of those rights. If we receive license fees, milestone payments or any other payments with respect to technology licensed to us by the University of Cagliari, we must provide payments to the University of Cagliari. In addition, we will be liable to the University of Cagliarifor a fixed royalty payment on worldwide sales of licensed drug products that derive from the specified patents. The license agreement terminates at the expiration of all royalty payment obligations, unless terminated earlier by us, by the mutual agreement of the parties or by a material breach of the terms of the agreement. In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and the University of Montpellier. The agreement includes provisions relating to ownership and commercialization of the technology which is discovered or obtained as part of the collaboration as well as rights regarding ownership and use of such technology, including telbivudine, which remain in effect following termination or expiration of the agreement. Under this cooperative agreement, we are obligated to make royalty payments for products derived from such patents, including products for HCV. Such payments would be due even in the instance where we licensed such patents to a third-party. In March 2003, we entered into a final settlement agreement with Sumitomo, under which the rights to develop and commercialize telbivudine in Japan, China, South Koreaand Taiwanpreviously granted to Sumitomo were returned to us. This agreement with Sumitomo became effective upon consummation of our collaboration with Novartis in May 2003. The settlement agreement we entered into with Sumitomo provides for a $5.0 millionmilestone payment to Sumitomo if and when the first commercial sale of telbivudine occurs in Japan. As part of the termination agreement, Novartis remains obligated to reimburse us for any such payment made to Sumitomo.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in
the United States of America. The preparation of the condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued expenses and share-based 21
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compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2013.