UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
fiscal year ended December 31, 2007
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Commission
file number 000-26648
OPKO
HEALTH, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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DELAWARE
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75-2402409
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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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4400
Biscayne Blvd., Suite 1180, Miami, FL 33137
(Address
of Principal Executive Offices, Zip Code)
Registrant’s
Telephone Number, Including Area Code: (305) 575-4138
Securities
registered pursuant to section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $.01 par value per
share
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American
Stock Exchange
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes ¨
No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨
No þ
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 ¨
No þ
Indicate
by check mark if disclosures of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company
(as
defined in Rule 12b-2 of the Exchange Act).
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Large
Accelerated filer ¨
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Accelerated
filer ¨
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Non-Accelerated
filer þ
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Smaller
Reporting Company ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 Act). Yes ¨
No þ
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
last sold, as of the last business day of the Registrant’s most recently
completed second fiscal quarter was: $236,986,298.
As
of
March 21, 2008 the registrant had 182,150,969 shares of common stock
outstanding.
Documents
Incorporated by Reference
Portions
of the registrant’s definitive proxy statement for its 2008 Annual Meeting of
Stockholders are incorporated by reference in Items 10, 11, 12, 13, and 14
of
Part III of this Annual Report on Form 10-K.
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Page
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Part
I.
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Item
1.
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Business
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6
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Item
1A.
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Risk
Factors
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23
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Item
1B.
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Unresolved
Staff Comments
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39
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Item
2.
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Properties
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39
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Item
3.
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Legal
Proceedings
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39
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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39
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Part
II.
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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41
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Item
6.
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Selected
Financial Data
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42
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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43
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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49
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Item
8.
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Financial
Statements and Supplementary Data
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50
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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73
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Item
9A(T).
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Controls
and Procedures
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73
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Item
9B.
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Other
Information
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74
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Part
III.
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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Item
11.
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Executive
Compensation
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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Item
14.
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Principal
Accountants Fees and Services
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Part
IV.
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Item
15.
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Exhibits,
Financial Statement Schedules
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76
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78
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| Certifications |
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2
CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains “forward-looking statements,” as that term
is defined under the Private Securities Reform Act of 1995, or PSLRA, Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements include statements
about our expectations, beliefs or intentions regarding our product development
efforts, business, financial condition, results of operations, strategies or
prospects. You can identify forward-looking statements by the fact that these
statements do not relate strictly to historical or current matters. Rather,
forward-looking statements relate to anticipated or expected events, activities,
trends or results as of the date they are made. Because forward-looking
statements relate to matters that have not yet occurred, these statements are
inherently subject to risks and uncertainties that could cause our actual
results to differ materially from any future results expressed or implied by
the
forward-looking statements. Many factors could cause our actual activities
or
results to differ materially from the activities and results anticipated in
forward-looking statements. These factors include those described below and
in
“Item 1A-Risk Factors” of this Annual Report on Form 10-K. We do not undertake
any obligation to update forward-looking statements. We intend that all
forward-looking statements be subject to the safe-harbor provisions of the
PSLRA. These forward-looking statements are only predictions and reflect our
views as of the date they are made with respect to future events and financial
performance.
Risks
and
uncertainties, the occurrence of which could adversely affect our business,
include the following:
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We
have a history of operating losses and we do not expect to become
profitable in the near future.
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Our
technologies are in an early stage of development and are
unproven.
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Our
drug research and development activities may not result in commercially
viable products.
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We
are highly dependent on the success of our lead product candidate,
bevasiranib, and we cannot give any assurance that it will receive
regulatory approval or be successfully
commercialized.
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The
results of previous clinical trials may not be predictive of future
results, and our current and planned clinical trials may not satisfy
the
requirements of the FDA or other non-United States regulatory
authorities.
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We
will require substantial additional funding, which may not be available
to
us on acceptable terms, or at all.
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If
our competitors develop and market products that are more effective,
safer
or less expensive than our future product candidates, our commercial
opportunities will be negatively
impacted.
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The
regulatory approval process is expensive, time consuming and uncertain
and
may prevent us or our collaboration partners from obtaining approvals
for
the commercialization of some or all of our product
candidates.
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Failure
to recruit and enroll patients for clinical trials may cause the
development of our product candidates to be
delayed.
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Even
if we obtain regulatory approvals for our product candidates, the
terms of
approvals and ongoing regulation of our products may limit how we
manufacture and market our product candidates, which could materially
impair our ability to generate anticipated
revenues.
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We
may not meet regulatory quality standards applicable to our manufacturing
and quality processes.
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We
may be unable to resolve issues relating to an FDA warning letter
in a
timely manner.
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Even
if we receive regulatory approval to market our product candidates,
the
market may not be receptive to our
products.
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If
we fail to attract and retain key management and scientific personnel,
we
may be unable to successfully develop or commercialize our product
candidates.
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As
we evolve from a company primarily involved in development to a company
also involved in commercialization, we may encounter difficulties
in
managing our growth and expanding our operations
successfully.
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3
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If
we fail to acquire and develop other products or product candidates
at all
or on commercially reasonable terms, we may be unable to diversify
or grow
our business.
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We
have no experience manufacturing our pharmaceutical product candidates
and
we therefore rely on third parties to manufacture and supply our
pharmaceutical product candidates, and would need to meet various
standards necessary to satisfy FDA regulations when we commence
manufacturing.
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We
currently have no pharmaceutical marketing, sales or distribution
organization. If we are unable to develop our sales and marketing
and
distribution capability on our own or through collaborations with
marketing partners, we will not be successful in commercializing
our
pharmaceutical product candidates.
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Independent
clinical investigators and contract research organizations that we
engage
to conduct our clinical trials may not be diligent, careful or
timely.
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The
success of our business may be dependent on the actions of our
collaborative partners.
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If
we are unable to obtain and enforce patent protection for our products,
our business could be materially
harmed.
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If
we are unable to protect the confidentiality of our proprietary
information and know-how, the value of our technology and products
could
be adversely affected.
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We
will rely heavily on licenses from third
parties.
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We
license patent rights to certain of our technology from third-party
owners. If such owners do not properly maintain or enforce the patents
underlying such licenses, our competitive position and business prospects
will be harmed.
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Our
commercial success depends significantly on our ability to operate
without
infringing the patents and other proprietary rights of third
parties.
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Medicare
prescription drug coverage legislation and future legislative or
regulatory reform of the health care system may affect our ability
to sell
our products profitably.
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Failure
to obtain regulatory approval outside the United States will prevent
us
from marketing our product candidates
abroad.
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Acquisitions
may disrupt our business, distract our management and may not proceed
as
planned; and we may encounter difficulties in integrating acquired
businesses.
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Non-United
States governments often impose strict price controls, which may
adversely
affect our future profitability.
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Our
business may become subject to economic, political, regulatory and
other
risks associated with international
operations.
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The
market price of our common stock may fluctuate
significantly.
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Directors,
executive officers, principal stockholders and affiliated entities
own a
significant percentage of our capital stock, and they may make decisions
that you do not consider to be in your best interests or in the best
interests of our stockholders.
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Compliance
with changing regulations concerning corporate governance and public
disclosure may result in additional
expenses.
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4
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If
we are unable to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, as they apply to us, or our internal
controls
over financial reporting are not effective, the reliability of our
financial statements may be questioned and our common stock price
may
suffer.
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We
may be unable to maintain our listing on the American Stock Exchange,
which could cause our stock price to fall and decrease the liquidity
of
our common stock.
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Future
issuances of common stock and hedging activities may depress the
trading
price of our common stock.
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Provisions
in our charter documents and Delaware law could discourage an acquisition
of us by a third party, even if the acquisition would be favorable
to
you.
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We
do not intend to pay cash dividends on our common stock in the foreseeable
future.
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5
PART
I
Unless
the context otherwise requires, all references in this Annual Report on Form
10-K to the “Company”, “OPKO”, “we”, “our”, “ours”, and “us” refers to OPKO
Health, Inc., a Delaware corporation, including our wholly-owned
subsidiaries.
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BUSINESS
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OVERVIEW
We
are a
specialty healthcare company focused on the discovery, development and
commercialization of proprietary pharmaceuticals, drug delivery technologies,
diagnostic systems, and instruments for the treatment, diagnosis and management
of ophthalmic disorders. Our business presently consists of the development
of
ophthalmic pharmaceuticals and the development, commercialization and sale
of
ophthalmic diagnostic and imaging systems and instrumentation products. Our
objective is to establish industry-leading positions in large and rapidly
growing segments of ophthalmology by leveraging our preclinical and development
expertise and our novel and proprietary technologies. We actively explore
opportunities to acquire complementary pharmaceuticals, compounds, and
technologies, which could, individually or in the aggregate, materially increase
the scale of our business. We also intend to explore strategic opportunities
in
other medical markets that would allow us to benefit from our business and
global distribution expertise, and which have operational characteristics that
are similar to ophthalmology, such as dermatology. We intend to expand under
the
following strategic objectives.
Leverage
R&D strengths to develop our pharmaceutical product
pipeline.
We plan
to leverage our strengths in siRNA drug development, RNAi technology, and all
phases of pharmaceutical research and development to further develop and
commercialize a pipeline of pharmaceutical products used in the treatment of
ophthalmic disorders with unmet medical needs, such as Age-Related Macular
Degeneration, or AMD, glaucoma, diabetic retinopathy, and dry eye, among others.
Develop
novel diagnostic and disease management technologies.
We plan
to invest in and develop novel technologies and products to diagnose ophthalmic
disorders at the earliest stages and to monitor the disease state and track
the
impact of intervention over time and during the course of treatment. We believe
these technologies will improve our understanding of disease processes, help
individualize treatment options, improve clinical decision making and enhance
clinical outcomes and quality of life for patients with a variety of ocular
disorders, including AMD, diabetic retinopathy and glaucoma.
Utilize
expertise and resources to develop other ophthalmic products.
We also
plan to use our expertise and resources to develop and commercialize other
types
of ophthalmic products beyond pharmaceutical products and diagnostic and imaging
systems, including without limitation, drug delivery systems and other
ophthalmic devices which aid in the management of ocular disorders.
Acquire
additional ophthalmic businesses, therapies and technologies and expand into
complementary businesses.
We
continue to seek to expand our current operations by acquiring additional
ophthalmic businesses and therapeutic and diagnostic technologies. We also
intend to explore strategic opportunities in other medical markets that would
allow us to benefit from our business and global distribution expertise, and
which have operational characteristics that are similar to ophthalmology, such
as dermatology. While we have not yet made any definitive plans to acquire
any
dermatology-related businesses, we believe that there are opportunities to
apply
our expertise to this field.
Utilize
expertise and resources to enhance our competitive position.
We
intend to utilize our wide-ranging technological innovation and proprietary
position to enhance our competitive position in the ophthalmic products market.
For example, we intend to utilize our diagnostic and instrumentation products
to
measure disease progression and treatment outcomes of our pharmaceutical
products in clinical trials.
Key
elements of our strategy are to:
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Obtain
regulatory approval for our lead product candidate, bevasiranib,
for Wet
AMD;
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Develop
a focused commercialization capability in the United
States;
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Strategically
utilize our R&D resources to advance our product
pipeline;
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6
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Develop
and grow our instrumentation business beyond diagnostic and imaging
systems to include drug delivery devices and other therapeutic devices
and
technologies;
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Utilize
our ophthalmic expertise to identify and acquire companies with innovative
ophthalmic technologies; and
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Expand
into other medical markets, including dermatology, which we believe
are
complementary to and synergistic with our ophthalmology
business.
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Corporate
Information
We
were
originally incorporated in Delaware in October 1991 under the name Cytoclonal
Pharmaceutics, Inc., which was later changed to eXegenics, Inc. On March
27, 2007, we were part of a three-way merger with Froptix Corporation, or
Froptix, a research and development company, and Acuity Pharmaceuticals,
Inc., or Acuity, a research and development company. This transaction was
accounted for as a reverse merger between Froptix and eXegenics, with the
combined company then acquiring Acuity. eXegenics was previously involved in
the
research, creation, and development of drugs for the treatment and/or prevention
of cancer and infectious diseases; however, eXegenics had been a public shell
company without any operations since 2003. On June 8, 2007, we changed our
name
to OPKO Health, Inc.
On
November 28, 2007, we acquired Ophthalmic Technologies, Inc., or OTI, an Ontario
corporation pursuant to a definitive share purchase agreement with OTI and
its
shareholders. As a result of this agreement, we have entered into the ophthalmic
instrumentation market and have begun generating revenue from this
business.
Our
shares are publicly traded on the American Stock Exchange under the ticker
“OPK”. Our principal executive offices are located in Miami, Florida. Our
clinical operations are based in Morristown, New Jersey. OTI has offices in
Toronto, Ontario, Canada, with a research and development branch office in
Kingston, Ontario, Canada. OTI also maintains a research and development office
in the United Kingdom at the University of Kent. We maintain a website at
www.OPKO.com.
BUSINESS
We
presently have eight compounds and technologies in research and development
for
the ophthalmic pharmaceutical market. Our most advanced drug candidate is
bevasiranib, which we are developing for the treatment of Wet AMD. In July
2007,
we initiated the first of two required pivotal Phase III trials for bevasiranib.
Bevasiranib is the first therapy in late stage clinical development based on
the
Nobel Prize-winning RNA interference, or RNAi technology, and we believe it
is
the most advanced siRNA-based drug currently in development. Bevasiranib is
administered locally to the eye through an intravitreal injection, and is
designed to require administration every eight to 12 weeks. Lucentis®, an FDA
approved treatment for the treatment of Wet AMD currently on the market, is
recommended to be administered through intravitreal injection every four weeks.
We are also researching and developing several novel pharmaceutical products
for
ophthalmic disorders, including Dry AMD, diabetic retinopathy and Diabetic
Macular Edema, or DME, dry eye, viral conjunctivitis, and prevention of ocular
infection. The following table lists our most advanced pharmaceutical product
candidates, the initial indications that we plan to address through their
development, and their development stage.
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Product
Candidate
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Initial
Indication
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Development
Stage
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Bevasiranib
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Wet
AMD
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Phase
III
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Bevasiranib
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Diabetic
Retinopathy/DME
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Phase
I / II
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Civamide
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Dry
Eye
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Phase
I/II
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ACU-HHY-011
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Wet
AMD, Diabetic Retinopathy/DME
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Pre-Clinical
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ACU-XSP-001
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Allergy
and Inflammation
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Pre-Clinical
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Wound
Dressing
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Post-surgical
Wound Healing
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Late
Stage Research
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ACU-HTR-028
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Wound-Healing-Antifibrotic
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Pre-Clinical
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Dry-AMD
Compound
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AMD
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Pre-Clinical
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N-Chlorotaurine
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Viral
Conjunctivitis
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Late
Stage Research
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7
In
April
2007, we acquired 33% of Ophthalmic Technologies, Inc., or OTI, and in November
2007, we acquired the remaining 67% of OTI. Through OTI, we presently market
four ophthalmic diagnostic systems and instrumentation products in over 60
countries worldwide. We offer innovative systems with advanced imaging
capabilities and tools designed to meet the needs of eye care
professionals.
We
offer
a full line of advanced imaging products and ultrasound used by eye care
professionals for both routine and specialized care. These technologically
advanced systems are routinely used in the screening and management of major
eye
diseases, provide key information for treatment decisions, and complement our
therapeutic products. In the future, for example, we expect that patient
outcomes will be significantly optimized by the use of our instrumentation
products in individualizing treatment as well as monitoring and tracking disease
progression and treatment outcomes. We believe our OCT / SLO system is an
innovative product offering significant advantages over current technology
and
providing a flexible platform that can process a wide variety of diagnostic
tests. OTI has offices in Canada and the United Kingdom, and a growing
distributor network that currently covers more than 60 countries.
OPHTHALMIC
PHARMACEUTICAL MARKET
In
the
developed world, major vision threatening disorders include cataracts, glaucoma,
AMD, and diabetic retinopathy/DME. To date, we have primarily focused our
resources on developing drugs to prevent and treat AMD, as well as diabetic
retinopathy/DME.
The
ophthalmic pharmaceutical market in the developed world is driven
by:
| · |
An
aging population and increased life
expectancy;
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Increased
incidence of chronic and age-related disorders with vision destroying
characteristics, such as Diabetes (Type I and II), and other metabolic
syndromes;
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Better
understanding of the pathophysiology of
diseases;
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Emerging
technologies to diagnose, treat and manage ophthalmic diseases;
and
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Improved
access to medical care.
|
Age
Related Macular Degeneration (“AMD”)
AMD
is a
back-of-the-eye disease involving the retina, macula and fovea, which is
characterized by loss of central visual acuity. AMD affects the central part
of
the retina, known as the macula. The extent of vision loss is dependent on
the
degree to which the center of the macula, the fovea, is affected. The fovea
is
responsible for vision acuity. The rest of the retina outside of the macular
area is responsible for peripheral vision, which is usually unaffected in AMD
patients. Untreated AMD can significantly impact an affected individual’s
quality of life.
8
AMD
accounts for approximately 55% of blindness in the United States. Direct and
indirect costs attributed to the treatment of AMD in the United States are
approximately $30 to $40 billion annually, according to the National Eye
Institute, a division of the National Institutes of Health. Age is the primary
risk factor for AMD, and the number of cases of AMD is expected to increase
significantly as the population ages. AMD afflicts approximately 9 million
Americans, and the current Wet AMD treatment market is approaching 2 million
patients in the United States. There are two forms of AMD, Dry and Wet. Wet
AMD
is the result of the formation of new, leaky, poorly organized blood vessels
under the retina, which is known as neovascularization. The blood vessels are
delicate and break easily, causing bleeding, swelling and the formation of
scar
tissue, which results in visual impairment and/or blindness. Although more
common than Wet AMD, Dry AMD typically results in a less severe, more gradual
loss of vision. Wet
AMD
is considered a more serious disease, with clinically demonstrated vision loss
occurring within three to six months of diagnosis. Currently
there is no known proven pharmaceutical therapy for Dry AMD.
Diabetic
Retinopathy/Diabetic Macular Edema
Diabetic
retinopathy is the most common diabetic eye disease. It is caused by damage
to blood vessels in the retina. Diabetic Macular Edema, or DME, a medical
condition which occurs when the damaged blood vessels leak fluid and lipids
onto
the macula, the portion of the retina that allows us to see detail, is present
in approximately 25% of all diabetic retinopathy cases. DME can occur at any
stage in diabetic retinopathy development, and it is possible for advanced
diabetic retinopathy and DME to occur simultaneously in the same patient. DME
is
the leading cause of visual impairment for people with diabetic retinopathy,
and
the population suffering from DME is expected to grow as a result of an
increasing incidence of Type II diabetes in the United States.
9
OPHTHALMIC
PHARMACEUTICAL BUSINESS
We
have
concentrated significant resources to address ophthalmic disease in large and
growing markets by employing a powerful and rapidly progressing technology,
known as RNAi, to develop our lead product candidate, bevasiranib. In October
2006, the Nobel prize in Medicine was awarded to the two individuals who
discovered RNAi. We have taken advantage of this major scientific breakthrough
by inventing and developing siRNAs that shut down the production of proteins
that cause ophthalmic diseases. We believe we are a pioneer in this area as
we
conducted the first clinical trials ever with an siRNA and obtained the first
clinical proof of concept with a siRNA. We intend to market bevasiranib, which
is our most advanced therapeutic compound, as a treatment for Wet AMD.
Bevasiranib is a first in class siRNA drug designed to silence the genes that
cause vascular endothelial growth factor, or VEGF, which is believed to be
largely responsible for the vision loss associated with Wet AMD and other
related ocular conditions. We believe that bevasiranib is the most advanced
siRNA-based drug currently in development. We believe that RNA-interference
based drugs have the potential to be a significant advancement over the VEGF
inhibitors presently on the market because they block the synthesis of VEGF
as
opposed to merely neutralizing existing VEGF. In addition, RNA-interference
based drugs should require less frequent administration than VEGF inhibitors
and
have a better safety profile.
We
have
utilized our expertise in ophthalmology and RNAi technology to take bevasiranib
from the laboratory through animal models into clinical trials. We have
completed two Phase II clinical trials studying the use of bevasiranib as a
treatment for Wet AMD and DME. Bevasiranib demonstrated safety and potential
to
show efficacy in our Phase II clinical trial for Wet AMD in 129 patients.
Results showed bevasiranib to be safe and well-tolerated, with a dose-related
effect evident across multiple endpoints including near vision, choroidal
neovascularization, or CNV, size and time to rescue.
In
July
2007, we commenced our pivotal multi-national Phase III COBALT, or Combining
Bevasiranib And Lucentis® Therapy, clinical trial of bevasiranib for the
treatment of Wet AMD. The trial will include more than 330 Wet AMD patients
and
will assess whether bevasiranib administered every eight or 12 weeks is safe
and
has equivalent efficacy in preventing vision loss as Lucentis® administered
every four weeks. Interim analysis of safety and efficacy will be made at week
60.
We
believe that bevasiranib will be an improvement over existing and anticipated
therapies for Wet AMD as it addresses the underlying source of VEGF production,
rather than merely neutralizing existing VEGF. Currently marketed drugs for
the
treatment of Wet AMD are antagonist-based and are only designed to neutralize
existing VEGF. We also believe bevasiranib has a better safety profile than
VEGF
inhibitors in that we do not believe it has the serious systemic side effects
associated with VEGF inhibitors in some patients.
We
are
also developing product candidates for additional ophthalmic disorders,
including the treatment of dry eye, diabetic retinopathy and DME, complications
of ocular surgery, viral conjunctivitis, and the fibrotic component of Wet
AMD
and Dry AMD. In order to treat these disorders, we are using compounds that
induce lacrimation, are anti-angiogenic, anti-inflammatory, anti-fibrotic and
anti-Drusen. These products address eye diseases with large markets and major
unmet medical needs, and range in developmental stage from clinical to
preclinical.
Bevasiranib
Commercial Potential
We
have
an exclusive license to commercialize bevasiranib. We believe there are three
primary potential therapeutic profiles for bevasiranib in the marketplace:
maintenance therapy, primary therapy and preventative treatment.
Maintenance
Therapy.
We
anticipate that bevasiranib will be used by itself as a maintenance therapy
to
inhibit VEGF production following an initiation therapy with an approved VEGF
antagonist drug. After the antagonist has absorbed extracellular VEGF,
bevasiranib could be used to suppress the formation of new VEGF and maintain
a
patient’s vision.
Primary
Therapy.
It is
possible that not all patients will require the VEGF antagonist initiation
regimen due to low VEGF load at time of diagnosis. These patients may get the
full benefit from bevasiranib alone. Additionally, not all patients respond
favorably to the currently marketed VEGF antagonist. Finally, when used in
combination with other therapies bevasiranib’s sustained VEGF suppression may
add to the antagonist’s activity and provide a better outcome than that of the
VEGF antagonist alone.
10
Preventative
Therapy.
Certain
patients who do not yet have the wet form of AMD may be determined to be at
high-risk for progressing to the wet form. Bevasiranib may prevent these
high-risk patients from progressing to Wet AMD. The current VEGF antagonist
products will not likely provide any benefit to this type of patient because
of
the lack of any VEGF to absorb.
Clinical
Results and Program Status of Bevasiranib
The
following table summarizes the status of our material clinical trials of
bevasiranib to date:
|
Indication
|
Trial
Name
|
Phase
|
Objectives
|
Number
of Patients
|
Enrollment
Status
|
|||||
|
Wet
AMD
|
CARBON
study
|
Phase
III
|
Dose
ranging, Safety and Efficacy
|
~500
|
Initiation
planned for 2009
|
|||||
|
Wet
AMD
|
COBALT
study
|
Phase
III
|
Safety
and Efficacy
|
~330
|
Initiated
July 2007
|
|||||
|
Wet
AMD
|
CARE
Trial
|
Phase
II
|
Safety
/ Dosage / Efficacy
|
129
|
Complete
|
|||||
|
Wet
AMD
|
NA
|
Phase
I
|
Safety
|
15
|
Complete
|
|||||
|
DME
|
RACE
Trial
|
Phase
II
|
Safety
/ Dosage / Efficacy
|
48
|
Complete
|
Clinical
Trials for the Treatment of Wet AMD
The
COBALT Study. In
July
2007, we initiated this pivotal Phase III study of bevasiranib for the treatment
of Wet AMD. The multi-national COBALT study is currently open and enrolling
patients. The trial will include approximately 330 wet AMD patients and will
assess whether bevasiranib administered every eight or 12 weeks is safe and
has
equivalent efficacy in preventing vision loss as Lucentis® administered every
four weeks. This study has been designed to show that bevasiranib is safe and
efficacious for the treatment of wet AMD following an initiation with Lucentis®.
Additionally, the study has been designed to demonstrate that in patients that
receive an initiation therapy with Lucentis®, a less frequent administration of
bevasiranib is equivalent or superior to monthly treatments of
Lucentis®.
We
currently anticipate initiating a second Phase III clinical trial of bevasiranib
in or around 2009. This clinical trial of bevasiranib for the treatment of
Wet
AMD will be referred to as the CARBON study. The trial will include more than
~500 Wet AMD patients and will compare the safety and efficacy of three doses
of
bevasiranib administered every eight weeks to Lucentis®, an approved treatment
for Wet AMD, administered every four weeks.
The
CARE™ Trial, a Phase II Clinical Trial for Wet AMD.
The
“Cand5 Anti-VEGF RNAi Evaluation, or CARE study,” a 129 patient Phase II
clinical study in patients with predominantly and minimally classic Wet AMD,
was
completed successfully. The results of the CARE study demonstrated that
bevasiranib is safe and well-tolerated for doses up to 3.0 mg/eye. An important
measure of Wet AMD is choroidal neovascularization, or CNV. In the CARE study,
bevasiranib was shown to inhibit the growth of CNV, and demonstrated the effects
of RNA interference-based VEGF suppression.
Phase
I Clinical Trial for Wet AMD.
This
Phase I trial was an open label, dose escalation study that included 15 patients
and tested five dose levels administered by intravitreal injection at six-week
intervals. Bevasiranib was shown to be safe and well-tolerated following
repeated administration of escalating doses, up to 3.0 mg per eye. Further,
this
study indicated that the study drug was below the limit of detection in the
peripheral blood at any of the doses tested. The absence of systemic exposure
to
bevasiranib is significant because anti-VEGF agents have been shown to have
serious systemic side effects in some patients.
Clinical
Trials for the Treatment of DME
The
R.A.C.E.™ Trial,
a Pilot
Phase II Clinical Trial for DME. The RNAi Assessment of bevasiranib in Diabetic
Macular Edema, or R.A.C.E. trial, was a pilot phase II investigation of the
safety and preliminary efficacy of bevasiranib in patients with DME. This 48
patient multi-center, double-masked and randomized trial studied three dose
levels of bevasiranib.
In
this
pilot study, there was a trend showing a decrease in macular thickness between
weeks eight and twelve, where the higher doses result in a larger reduction
in
thickness than the lowest dose. This trial also showed no detectable levels
of
bevasiranib in patients at all doses and time-points. These results further
support the findings of the CARE study and serve as a confirmation of the safety
and biologic activity in a second VEGF-driven ocular condition.
11
ACU-HHY-011
for the Treatment of Wet AMD
We
have a
worldwide exclusive license to commercialize ACU-HHY-011, which is an siRNA
targeting HIF-1α, believed to be the most important transcription factor
involved in the cellular response to hypoxia, a key step in the
neovascularization process which occurs in Wet AMD. HIF-1α is upstream of the
target for bevasiranib and preclinical data suggests that targeting HIF-1α may
have advantages over other approaches to treating Wet AMD. HIF-1α modulates the
expression of more than 60 genes, including multiple angiogenic factors under
hypoxic conditions, such as VEGF, angiopoietin-1, angiopoietin-2, placental
growth factor, and platelet-derived growth factor-B.
ACU-HTR-028
for the Treatment of Fibrosis
We
have a
worldwide exclusive license to commercialize siRNAs targeting transforming
growth factor-b receptor Type II, or TbRII, which is an important mediator
of
wound healing and has been shown to play a significant causative role in ocular
inflammation and scarring. This compound may have a therapeutic application
as
an eye drop to prevent complications from ocular surgery, and will also be
developed as an adjunct therapy to bevasiranib or ACU-HHY-011 in Wet AMD
patients to reduce the damage caused by the fibrotic component of Wet
AMD.
Compounds
for the Treatment of Dry AMD
We
have
worldwide exclusive licenses to commercialize compounds from the University
of
Florida Research Foundation which have potential to treat Dry AMD by eliminating
disease-causing accumulations of protein molecules at the back of the eye.
Proteins must fold into their correct three-dimensional conformation to achieve
their biological function. The loss of vision associated with Dry AMD is thought
to be caused by the destructive effects of the misfolded protein and debris
aggregates likes lipofuscin. Autophagy is a cellular process by which cellular
protein aggregates and dysfunctional organelles like mitochondria are degraded.
If methods for increasing autophagy were available, they might enhance the
elimination of misfolded proteins, and eliminate the destructive effects
associated with their accumulation. These compounds may mitigate retinal
degeneration by causing the elimination or reduction of drusen in patients
with
Dry AMD.
Civamide
for the Treatment of Dry Eye
In
September 2007, we acquired worldwide rights to
commercialize products containing civamide for the treatment of ophthalmic
conditions in humans, particularly dry eye. There is only one FDA approved
prescription product available for dry eye. Dry eye syndrome is caused by a
variety of conditions, such as insufficient tear production. Nine million
Americans are estimated to suffer from moderate to severe dry eye. An additional
20 to 30 million people may have a mild form of the condition. Dry eye syndrome
is more common with advancing age and the incidence appears to be increasing
with our aging population and the increasing popularity of procedures that
can
cause dry eye, such as vision-correction surgery and cosmetic eyelid surgery.
Wound Dressing
In
October 2007, we acquired worldwide rights to commercialize an ocular product
for use following invasive retinal procedures to prevent the development of
endophthalmitis, a devastating complication that can lead to blindness and
loss
of the affected eye. There are estimated to be over 1.5 million invasive retinal
procedures, including both surgeries and intravitreal injections, being
currently performed in the U.S. alone. While most patients suffer no adverse
effects from intravitreal injections, all patients who receive invasive retinal
procedures are at risk of developing endophthalmitis. The product is in
late-stage research.
N-chlorotaurine
In
April
2006, we entered into a license agreement with Pathogenics, Inc. (“Pathogenics”)
under which we were granted an exclusive, irrevocable license, with the right
to
sublicense, under Pathogenics intellectual property to make, have made, use,
sell, offer for sale, import, or otherwise commercialize N-chlorotaurine and
licensed products for the treatment of ophthalmic disease or infection in any
territory. We were also granted non-exclusive rights to all data resulting
from
a phase I clinical trial with N-chlorotaurine in Austria. We are obligated
to
use commercially reasonable efforts to develop and commercialize the licensed
product, including commercially reasonable efforts to initiate pre-clinical
activities necessary to file an IND with the FDA to initiate a phase I clinical
trial for N-chlorotaurine for an ophthalmic indication. Pathogenics will have
a
non-exclusive right to such information for the treatment of non-ophthalmic
diseases or infections.
OPHTHALMIC
INSTRUMENTATION MARKET
The
market for ophthalmic instrumentation, including imaging systems and other
devices, is approximately $1.5 billion and growing at a rate of approximately
10% annually. This growth is primarily driven by an aging patient population,
technological innovation and improvement in treatment options, as well as
improved awareness in patients actively seeking treatment. Ophthalmic
instruments, imaging products, and other medical devices are sold to a variety
of eye care practitioners, including retinal and glaucoma specialists,
ophthalmologists, optometrists, retail optometry chain outlets, teaching
institutions, and military hospitals.
12
OPHTHALMIC
INSTRUMENTATION BUSINESS
Our
instrumentation business consists of the development, commercialization and
sale
of ophthalmic diagnostic and imaging systems and instrumentation products.
Currently, the instrumentation business is primarily based on the technology
platform established by Ophthalmic Technologies, Inc. (OTI), which offers
innovative systems with advanced diagnostic imaging capabilities and tools
that
meet the needs of eye care professionals. We continue to build our presence
in
the international marketplace currently covering more than 60 countries using
the distributor network built by OTI. Additionally, we are developing our own
direct sales force in the United States to sell our products primarily to
retinal and glaucoma specialists and ophthalmologists.
We
plan
to utilize our expertise and resources to expand our business to include other
types of ophthalmic products. These efforts may lead to our acquiring or
developing products which aid in the prevention, diagnosis, treatment, and
management of ocular disorders. The product types may include diagnostic and
imaging instruments, other instrumentation products, and drug delivery systems
and technologies.
We
plan
to develop and sell novel technologies utilized to diagnose ophthalmic diseases
at the earliest stages and track them for change over time, and during the
course of treatment. We expect these technologies to improve physician treatment
decisions and enhance outcomes for a variety of ocular disorders, including
AMD,
diabetic retinopathy, and glaucoma, among others.
Optical
Coherence Tomography / Confocal Scanning
Ophthalmoscopy
We
have
developed a spectral imaging system which combines Spectral Optical Coherence
Tomography, together with a Confocal Scanning Ophthalmoscope, or OCT / SLO,
in a
single platform that is used in the diagnosis of a variety of ocular disorders.
We believe this is an innovative product that offers significant advantages
over
current technology in resolution and functionality. OCT technology is being
rapidly adopted by the eye care community for diagnosing AMD and diabetic
retinopathy and also tracking the course of treatment. The OCT / SLO is unique
in that it offers microperimetry capability, which provides the physician with
the ability to correlate loss of visual function with abnormalities in the
retina. Additionally, the OCT / SLO diagnostic platform offers a foundation
upon which to build a multitude of diagnostic tests. In the future, we plan
to
incorporate a number of imaging and other diagnostic test modalities into the
OCT / SLO platform.
Ultrasound
We
develop, manufacture, market and sell a full line of advanced ophthalmic
ultrasound systems used by eye care professionals for both routine and
specialized care. Our ultrasound systems include A-scans, B-scans, and
Ultrasound Bio-microscope, or UBM, high frequency B-scan systems. A-scan
technology is principally used for eye axial length measurement in the
calculation of the power for an intraocular lens implant. These systems are
routinely used prior to cataract surgery.
The
B-scan system displays internal structures of the eye, often when these
structures are not visible by traditional light-based imaging methods. This
system has the ability to pass through opacities and reveal internal
structures.
The
UBM
system is a high frequency ultrasound device that provides detailed structural
assessment of the anterior segment of the eye and is typically used in glaucoma
evaluation and certain refractive surgeries that require precise positioning
of
lens implantation.
Research
and development program expenses
To
date,
the majority of our research and development expenses have been incurred to
develop our bevasiranib programs. During 2006, our research and development
expenses of $0.5 million reflect the sponsored research between Froptix and
the
University of Florida. During 2007, we incurred $10.9 million in research and
development expenses, a majority of which reflects costs to develop bevasiranib.
In addition, during 2007 we recorded $243.8 million for acquired in process
research and development related to our acquisition of Acuity.
INTELLECTUAL
PROPERTY
We
believe that technology innovation is driving breakthroughs in vision
healthcare. We have adopted a comprehensive intellectual property strategy
which
blends the efforts to innovate in a focused manner with the efforts of our
business development activities to strategically in-license intellectual
property rights. We develop, protect, and defend our own intellectual property
rights as dictated by the developing competitive environment. We value our
intellectual property assets and believe we have benefited from early and
insightful efforts at understanding the disease and the molecular basis of
potential pharmaceutical intervention.
13
We actively
seek, when appropriate and available, protection for our products and
proprietary information by means of United States and foreign patents,
trademarks, trade secrets, copyrights, and contractual arrangements. Patent
protection in the pharmaceutical field, however, can involve complex legal
and
factual issues. Moreover, broad patent protection for new formulations or new
methods of use of existing chemical entities is sometimes difficult to obtain,
primarily because the active ingredient and many of the formulation techniques
have been known for some time. Consequently, some patents claiming new
formulations or new methods of use for old drugs may not provide meaningful
protection against competition. There can be no assurance that any steps taken
to protect such proprietary information will be effective.
We
own or
have exclusively licensed more than eight issued patents in the United States
and five foreign patents, as well as more than 100 United States and foreign
patent applications. Our acquisition of OTI has given us access to an additional
seven
U.S.
patents in the field of ophthalmic instrumentation, as well as ten
U.S.
patent applications and 18
foreign
patent applications.
We
have
exclusively licensed technology, patents, and patent applications from the
University of Pennsylvania related to siRNA directed to specific mRNA targets
for therapeutic use. These applications include targeting VEGF, HIF-1α,
and intracellular adhesion molecules, or ICAM, among other therapeutic targets.
In particular, we have exclusively licensed two issued U.S. patents that cover
bevasiranib and methods of using bevasiranib.
In
addition, we have exclusively licensed technology, patents, and patent
applications related to (i) the treatment of ophthalmic disorders characterized
by excessive neovascularization, angiogenesis or leakage, (ii) siRNA targeting
TGF-bRI; and (iii) compounds or technologies to treat a variety of ocular
disorders, including without limitation, Dry AMD and retinitis pigmentosa,
viral
conjunctivitis, dry eye, and ocular infection. See “Licenses and Collaborative
Relationships”.
LICENSES
AND COLLABORATIVE RELATIONSHIPS
Our
strategy is to develop a portfolio of product candidates through a combination
of internal development and external partnerships. Collaborations are key to
our
strategy and we continue to build relationships and forge partnerships with
companies both inside and outside of ophthalmology. We have completed strategic
deals with the Trustees of the University of Pennsylvania, the University of
Illinois, the University of Florida Research Foundation, Pathogenics, Inc.,
and
Intradigm Corporation, among others.
The
Trustees of the University of Pennsylvania
In
March
2003, we entered into two world-wide exclusive license agreements with The
Trustees of the University of Pennsylvania to commercialize siRNA targeting
VEGF, HIF-1α, ICAM, and other therapeutic targets. In consideration
for
the
licenses, we are obligated to make certain milestone payments to the University
of Pennsylvania. We also agreed to pay the University of Pennsylvania earned
royalties based on the number of products we sell that use the inventions
claimed in the licensed patents. We agreed to use commercially reasonable
efforts to develop, commercialize, market, and sell such products covered by
the
license agreements.
The
term
of the agreements is for the later of the expiration or abandonment of the
last
patent or ten years after the first commercial sale of the first licensed
product. We may terminate either of the agreements upon 60 days’ prior written
notice. The University of Pennsylvania may terminate either of the agreements
if
we are more than 90 days late in a payment owed to the University of
Pennsylvania, we breach the agreements and do not cure within 90 days after
receiving written notice from the University of Pennsylvania, if we become
insolvent or we are involved in bankruptcy proceedings.
Intradigm
Corporation
In
June
2005, we entered into a license and collaboration agreement with Intradigm
Corporation, or Intradigm, for intellectual property covering the treatment
of
ophthalmic diseases characterized by excessive neovascularization, angiogenesis,
or leakage. Under the terms of the agreement, we have agreed to jointly develop
a topical siRNA compound. After selection the topical siRNA compound, we are
obligated to use commercially reasonable efforts to market, distribute, and
sell
the topical siRNA in the United States and any selected foreign country. We
have
agreed to pay to Intradigm certain milestone payments upon the achievement
of
specified milestones and royalty payments on all net sales of the topical siRNA
and other licensed products.
14
The
term
of the agreement is 20 years, unless earlier terminated in accordance with
the
agreement. Either party may terminate upon mutual written consent, upon written
notice by a party if the other party dissolves or enters into bankruptcy or
insolvency proceedings, or upon 90 days prior written notice of a material
breach of the agreement without cure.
The
Board of Trustees of the University of Illinois
In
August
2006, we entered into an exclusive worldwide license agreement with The Board
of
Trustees of the University of Illinois to commercialize intellectual property
related to ophthalmic siRNA targeting TGF-bRII for the treatment of ophthalmic
disease. In September 2007, the license was amended to include all other fields
of use beyond the treatment of ophthalmic disease. The license agreement
obligates us to pay to the University of Illinois certain milestone payments
and
royalty payments on all net sales of licensed products and an annual license
fee
payment.
University
of Florida Research Foundation
In
April
2006, we entered into three world-wide exclusive license agreements with the
University of Florida Research Foundation. The license agreements obligate
us to
pay to University of Florida Research Foundation royalty payments on all net
sales of licensed products. We agreed to use our commercially reasonable
activities to commercialize products. The technology licensed from the
University of Florida Research Foundation includes autophagy inducing compounds
which are designed to enhance the elimination of misfolded proteins, and
eliminate the destructive effects associated with their accumulation, compounds
that affect important intracellular pathways which lead to the accumulation
of
properly folded mutant proteins, and potential drug candidates that are designed
to recruit stem cells which may aid in delaying or reversing the damage at
the
back of the eye associated with several retinal diseases including Dry AMD
and
retinitis pigmentosa. The term of each of the agreements is for the earlier
of
the date that no licensed patent remains an enforceable patent or the payment
of
earned royalties under the agreement once begun, ceases for more than two
calendar quarters. We may terminate any of the agreements upon 60 days’ prior
written notice. The University of Florida Research Foundation may terminate
any
of the agreements if we are more than 60 days late, after written demand, for
a
payment owed to the University of Florida Research Foundation, if we breach
the
agreements and do not cure within 60 days after receiving written notice from
the University of Florida Research Foundation, or if we become involved in
bankruptcy proceedings.
Civamide
License
In
September 2007, we entered into an exclusive worldwide license to commercialize
intellectual property related to pharmaceutical compositions or preparations
containing civamide for the treatment of ophthalmic conditions in humans,
particularly dry eye. The license agreement obligates us to pay the licensor
certain milestone payments and royalty payments on all net sales of licensed
products thereunder and all costs of research and development necessary to
obtain marketing authorizations for such licensed products. There is only one
FDA approved prescription product available for dry eye. Dry eye syndrome is
caused by a variety of conditions, such as insufficient tear production. Nine
million Americans are estimated to suffer from moderate to severe dry eye.
An
additional 20 to 30 million people may have a mild form of the condition. Dry
eye syndrome is more common with advancing age and the incidence appears to
be
increasing with our aging population and the increasing popularity of procedures
that can cause dry eye, such as vision-correction surgery and cosmetic eyelid
surgery. We intend to evaluate the safety and efficacy of civamide in patients
with moderate to severe dry eye. A Phase I/II proof of principal study in
moderate to severe dry eye is being planned in 2008.
Theta
Research Consultants
In
October 2007, we entered into an exclusive worldwide license to commercialize
intellectual property related to an ocular product for use following invasive
retinal procedures to prevent the development of endophthalmitis, a devastating
complication that can lead to blindness and loss of the affected eye. The
license agreement obligates us to make royalty payments on all net sales of
licensed products thereunder and all costs of research and development necessary
to obtain marketing authorizations for such licensed products. Experts believe
that the incidence of endophthalmitis is growing as a result of the rising
number of ocular surgeries being performed, the widespread adoption of
sutureless surgical techniques, and a significant increase in the number of
intravitreal injections. While most patients suffer no adverse effects from
intravitreal injections, all patients who receive invasive retinal procedures
are at risk of developing endophthalmitis.
15
Pathogenics
In
April
2006, we entered into a license agreement with Pathogenics under which we were
granted an exclusive, irrevocable license, with the right to sublicense, under
Pathogenics’ intellectual property to make, have made, use, sell, offer for
sale, import, or otherwise commercialize N-chlorotaurine and licensed products
for the treatment of ophthalmic disease or infection in any territory. We were
also granted non-exclusive rights to all data resulting from a phase I clinical
trial with N-chlorotaurine in Austria. We are obligated to use commercially
reasonable efforts to develop and commercialize the licensed product, including
commercially reasonable efforts to initiate pre-clinical activities necessary
to
file an IND with the FDA to initiate a phase I clinical trial for
N-chlorotaurine for an ophthalmic indication. Pathogenics will have a
non-exclusive right to such information for the treatment of non-ophthalmic
diseases or infections.
We
are
obligated to pay to Pathogenics certain milestone payments upon the achievement
of specified milestones and royalty payments on all net sales of licensed
products. We are also obligated to pay Pathogenics an annual minimum payment
if
the total payments made for such year are less than a specified minimum amount.
The term of the agreement is for the shorter of twenty years or the last to
expire of the Pathogenics intellectual property. We may terminate the agreement
for any reason upon written notice. The agreement may be terminated upon mutual
written consent of the parties, by either party upon written notice if either
party dissolves or is involved in a bankruptcy or insolvency proceeding or
upon
ninety days prior written notice if the other party is in material breach and
fails to cure.
COMPETITION
Wet
AMD
The
Wet
AMD treatment market is highly competitive with each competitive company eager
to expand market share. Several pharmaceutical and biotechnology companies
are
actively engaged in research and development related to new treatments for
Wet
AMD. We intend to leverage our technological innovation and proprietary position
utilizing RNAi and other platform technologies to effectively compete in the
ophthalmic drug market. Additionally, we intend to couple diagnostic tests
together with therapeutics in clinical trials to further enhance our competitive
position.
Genentech,
Allergan, Alcon Laboratories, Novartis, Alnylam, Regeneron and QLT all have
products or development programs for Wet AMD. For Wet AMD, we
currently believe that Genentech and Allergan are or will be our primary
competitors. Genentech’s Lucentis® and Avastin® products are both based on
antibody technology to block VEGF protein after it is produced. While both
of
the drugs provide most patients with an effective treatment, we believe that
bevasiranib has distinct advantages over these approaches, which will result
in
its use and contribute to a significant market share.
Lucentis®
and Avastin® block VEGF protein only after it is produced. Additionally,
Lucentis® and Avastin® are designed to require monthly injections for optimal
effectiveness and include cautions about potential arterial thromboembolic
events. Bevasiranib is designed to reduce injection frequency to bi-monthly
or
quarterly, and we do not believe it has the systemic side effect risks
associated with anti-VEGF antibodies. By using siRNA and stopping the production
of VEGF, we believe bevasiranib will provide a Wet AMD patient with a
longer-lasting and safer maintenance treatment following an initiation therapy
with either Lucentis® or Avastin®.
Allergan
is presently developing an siRNA based therapy with a product licensed from
Merck (formerly Sirna). This siRNA based therapy targets a particular VEGF
receptor and due to the fact that there are multiple receptors for VEGF, it
is
unclear whether that approach will yield a clinical benefit in Wet AMD.
Additionally this program is at an earlier stage than our bevasiranib program.
Diabetic
Retinopathy
We
believe that the primary competitors in the diabetic retinopathy/DME market
include Bausch & Lomb with its Fluocinolone acetonide product, Allergan with
its Dexamethasone product, Surmodics with its Triamcinolone acetonide product,
and Psividia/Alimeira Sciences with its Fluocinolone acetonide product. Many
of
these competitors have significantly greater financial resources than we do
to
fund further research and development.
16
Optical
Coherence Tomography
We
have
several competitors located in the United States and abroad. These include
companies with a far more diverse product offering than ours with significantly
greater market presence. Our primary competition for medical devices include
Carl Zeiss Meditec, Topcon Corporation, and Heidelberg Engineering. There are
a
number of competitors and smaller start-up companies that may also have
competing technologies and products.
The
ophthalmic device market is highly competitive. We intend to leverage our
technological innovations to effectively compete in the ophthalmic device
market. We differentiate our products on the basis of scan quality, precise
image registration, software functionality, and on a diagnostic test known
as
microperimetry. Microperimetry allows the clinician to obtain both structure
and
function from a single device. Additionally, in the future we intend to utilize
diagnostic tests to further refine and guide therapeutic treatments in clinical
trials in order to further enhance our competitive position.
GOVERNMENT
REGULATION OF OUR DRUG AND DEVICE DEVELOPMENT ACTIVITIES
The
United States federal government regulates healthcare through various agencies,
including but not limited to the following: (i) the FDA, which administers
the
FDCA, as well as other relevant laws; (ii) the Centers for Medicare &
Medicaid Services, or CMS, which administers the Medicare and Medicaid programs;
(iii) the Office of Inspector General, or OIG, which enforces various laws
aimed
at curtailing fraudulent or abusive practices, including by way of example,
the
Anti-Kickback Law, the Anti-Physician Referral Law, commonly referred to as
the
Stark law, the Anti-Inducement Law, the Civil Money Penalty Law, and the laws
that authorize the OIG to exclude healthcare providers and others from
participating in federal healthcare programs; and (iv) the Office of Civil
Rights, which administers the privacy aspects of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). All of the aforementioned
are agencies within the Department of Health and Human Services (HHS).
Healthcare is also provided or regulated, as the case may be, by the Department
of Defense through its TriCare program, the Department of Veterans Affairs,
especially through the Veterans Health Care Act of 1992, the Public Health
Service within HHS under Public Health Service Act § 340B (42 U.S.C. § 256b),
the Department of Justice through the Federal False Claims Act and various
criminal statutes, and state governments under the Medicaid and other state
sponsored or funded programs and their internal laws regulating all healthcare
activities.
The
testing, manufacture, distribution, advertising, and marketing of drug products
and medical devices are subject to extensive regulation by federal, state,
and
local governmental authorities in the United States, including the FDA, and
by
similar agencies in other countries. Any product that we develop must receive
all relevant regulatory approvals or clearances, as the case may be, before
it
may be marketed in a particular country. The PMA clearance processes for drugs
differ from those for devices.
The
regulatory process, which includes overseeing preclinical studies and clinical
trials of each pharmaceutical compound to establish its safety and efficacy
and
confirmation by the FDA that good laboratory, clinical, and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources, and gives larger companies
with greater financial resources a competitive advantage over us. Delays or
terminations of clinical trials that we undertake would likely impair our
development of product candidates. Delays or terminations could result from
a
number of factors, including stringent enrollment criteria, slow rate of
enrollment, size of patient population, having to compete with other clinical
trials for eligible patients, geographical considerations, and
others.
The
FDA
review processes can be lengthy and unpredictable, and we may encounter delays
or rejections of our applications when submitted. Generally, in order to gain
FDA approval, we must first conduct preclinical studies in a laboratory and
in
animal models to obtain preliminary information on a compound and to identify
any safety problems. The results of these studies are submitted as part of
an
IND application that the FDA must review before human clinical trials of an
investigational drug can commence.
Clinical
trials are normally done in three sequential phases and generally take two
to
five years or longer to complete. Phase I consists of testing the drug product
in a small number of humans, normally healthy volunteers, to determine
preliminary safety and tolerable dose range. Phase II usually involves studies
in a limited patient population to evaluate the effectiveness of the drug
product in humans having the disease or medical condition for which the product
is indicated, determine dosage tolerance and optimal dosage, and identify
possible common adverse effects and safety risks. Phase III consists of
additional controlled testing at multiple clinical sites to establish clinical
safety and effectiveness in an expanded patient population of geographically
dispersed test sites to evaluate the overall benefit-risk relationship for
administering the product and to provide an adequate basis for product labeling.
Phase IV clinical trials may be conducted after approval to gain additional
experience from the treatment of patients in the intended therapeutic
indication.
17
After
completion of clinical trials of a new drug product, FDA and foreign regulatory
authority marketing approval must be obtained. Assuming that the clinical data
support the product’s safety and effectiveness for its intended use, an NDA is
submitted to the FDA for its review. Generally, it takes one to three years
to
obtain approval. If questions arise during the FDA review process, approval
may
take a significantly longer period of time. The testing and approval processes
require substantial time and effort and we may not receive approval on a timely
basis, if at all, or the approval that we receive may be for a narrower
indication than we had originally sought, potentially undermining the commercial
viability of the product. Even if regulatory approvals are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions. For marketing outside the United States, we also will be subject
to
foreign regulatory requirements governing human clinical trials and marketing
approval for pharmaceutical products. The requirements governing the conduct
of
clinical trials, product licensing, pricing, and reimbursement vary widely
from
country to country.
None
of
our pharmaceutical products under development has been approved for marketing
in
the United States or elsewhere. We may not be able to obtain regulatory approval
for any such products under development in a timely manner, if at all. Failure
to obtain requisite governmental approvals or failure to obtain approvals of
the
scope requested will delay or preclude us, or our licensees or marketing
partners, from marketing our products, or limit the commercial use of our
products, and thereby would have a material adverse effect on our business,
financial condition, and results of operations. See “Risk Factors—The results of
previous clinical trials may not be predictive of future results, and our
current and planned clinical trials may not satisfy the requirements of the
FDA
or other non-United States regulatory authorities.”
Devices
are subject to varying levels of premarket regulatory control, the most
comprehensive of which requires that a clinical evaluation be conducted before
a
device receives approval for commercial distribution. The FDA classifies medical
devices into one of three classes: Class I devices are relatively simple and
can
be manufactured and distributed with general controls; Class II devices are
somewhat more complex and require greater scrutiny; Class III devices are new
and frequently help sustain life.
In
the
United States, a company generally can obtain permission to distribute a new
device in one of two ways. The first applies to any device that is substantially
equivalent to a device first marketed prior to May 1976, or to another device
marketed after that date, but which was substantially equivalent to a pre-May
1976 device. These devices are either Class I or Class II devices. To obtain
FDA
permission to distribute the device, the company generally must submit a section
510(k) submission, and receive an FDA order finding substantial equivalence
to a
predicate device (pre-May 1976 or post-May 1976 device that was substantially
equivalent to a pre-May 1976 device) and permitting commercial distribution
of
that device for its intended use. A 510(k) submission must provide information
supporting a claim of substantial equivalence to the predicate device. If
clinical data from human experience are required to support the 510(k)
submission, these data must be gathered in compliance with investigational
device exemption, or IDE, regulations for investigations performed in the United
States. The 510(k) process is normally used for products of the type that the
Company proposes distributing. The FDA review process for premarket
notifications submitted pursuant to section 510(k) takes, on average, about
90
days, but it can take substantially longer if the FDA has concerns, and there
is
no guarantee that the FDA will “clear” the device for marketing, in which case
the device cannot be distributed in the United States. There is also no
guarantee that the FDA will deem the applicable device subject to the 510(k)
process, as opposed to the more time-consuming, resource-intensive and
problematic, PMA process described below.
The
second, more comprehensive, approval process applies to a new device that is
not
substantially equivalent to a pre-1976 product or that is to be used in
supporting or sustaining life or preventing impairment. These devices are
normally Class III devices. For example, most implantable devices are subject
to
the approval process. Two steps of FDA approval are generally required before
a
company can market a product in the United States that is subject to approval,
as opposed to clearance. First, a company must comply with IDE regulations
in
connection with any human clinical investigation of the device. These
regulations permit a company to undertake a clinical study of a “non-significant
risk” device without formal FDA approval. Prior express FDA approval is required
if the device is a significant risk device. Second, the FDA must review the
company’s PMA application, which contains, among other things, clinical
information acquired under the IDE. The FDA will approve the PMA application
if
it finds there is reasonable assurance that the device is safe and effective
for
its intended use. The PMA process takes substantially longer than the 510(k)
process and it is conceivable that the FDA would not agree with our assessment
that a device that we propose to distribute should be a Class I or Class II
device. If that were to occur we would be required to undertake the more complex
and costly PMA process. However, for either the 510(k) or the PMA process,
the
FDA could require us to run clinical trials, which would pose all of the same
risks and uncertainties associated with the clinical trials of drugs, described
above.
18
Even
when
a clinical study has been approved by the FDA or deemed approved, the study
is
subject to factors beyond a manufacturer’s control, including, but not limited
to the fact that the institutional review board at a given clinical site might
not approve the study, might decline to renew approval which is required
annually, or might suspend or terminate the study before the study has been
completed. Also, the interim results of a study may not be satisfactory; leading
the sponsor to terminate or suspend the study on its own initiative or the
FDA
may terminate or suspend the study. There is no assurance that a clinical study
at any given site will progress as anticipated; there may be an insufficient
number of patients who qualify for the study or who agree to participate in
the
study or the investigator at the site may have priorities other than the study.
Also, there can be no assurance that the clinical study will provide sufficient
evidence to assure the FDA that the product is safe and effective, a
prerequisite for FDA approval of a PMA, or substantially equivalent in terms
of
safety and effectiveness to a predicate device, a prerequisite for clearance
under 510(k). Even if the FDA approves or clears a device, it may limit its
intended uses in such a way that manufacturing and distributing the device
may
not be commercially feasible.
After
clearance or approval to market is given, the FDA and foreign regulatory
agencies, upon the occurrence of certain events, are authorized under various
circumstances to withdraw the clearance or approval or require changes to a
device, its manufacturing process or its labeling or additional proof that
regulatory requirements have been met.
A
manufacturer of a device approved through the PMA is not permitted to make
changes to the device which affect its safety or effectiveness without first
submitting a supplement application to its PMA and obtaining FDA approval for
that supplement. In some instances, the FDA may require clinical trials to
support a supplement application. A manufacturer of a device cleared through
the
510(k) process must submit another premarket notification if it intends to
make a change or modification in the device that could significantly affect
the
safety or effectiveness of the device, such as a significant change or
modification in design, material, chemical composition, energy source or
manufacturing process. Any change in the intended uses of a PMA device or a
510(k) device requires an approval supplement or cleared premarket notification.
Exported devices are subject to the regulatory requirements of each country
to
which the device is exported, as well as certain FDA export requirements.
A
company
that intends to manufacture medical devices is required to register with the
FDA
before it begins to manufacture the device for commercial distribution. As
a
result, we and any entity that manufactures products on our behalf will be
subject to periodic inspection by the FDA for compliance with the FDA’s Quality
System Regulation requirements and other regulations. In the European Community,
we will be required to maintain certain International Organization for
Standardization (“ISO”) certifications in order to sell products and we or our
manufacturers undergo periodic inspections by notified bodies to obtain and
maintain these certifications. These regulations require us or our manufacturers
to manufacture products and maintain documents in a prescribed manner with
respect to design, manufacturing, testing and control activities. Further,
we
are required to comply with various FDA and other agency requirements for
labeling and promotion. The Medical Device Reporting regulations require that
we
provide information to the FDA whenever there is evidence to reasonably suggest
that a device may have caused or contributed to a death or serious injury or,
if
a malfunction were to occur, could cause or contribute to a death or serious
injury. In addition, the FDA prohibits us from promoting a medical device for
unapproved indications.
The
FDA
in the course of enforcing the FD&C Act may subject a company to various
sanctions for violating FDA regulations or provisions of the Act, including
requiring recalls, issuing Warning Letters, seeking to impose civil money
penalties, seizing devices that the agency believes are non-compliant, seeking
to enjoin distribution of a specific type of device or other product, seeking
to
revoke a clearance or approval, seeking disgorgement of profits and seeking
to
criminally prosecute a company and its officers and other responsible parties.
The
levels of revenues and profitability of biopharmaceutical companies may be
affected by the continuing efforts of government and third party payers to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets, pricing or profitability of therapeutic and other
pharmaceutical products is subject to governmental control. In the United
States, there have been, and we expect that there will continue to be, a number
of federal and state proposals to implement similar governmental control. In
addition, in the United States and elsewhere, sales of therapeutic and other
pharmaceutical products are dependent in part on the availability and adequacy
of reimbursement from third party payers, such as the government or private
insurance plans. Third party payers are increasingly challenging established
prices, and new products that are more expensive than existing treatments may
have difficulty finding ready acceptance unless there is a clear therapeutic
benefit. We cannot assure you that any of our products will be considered cost
effective, or that reimbursement will be available or sufficient to allow us
to
sell them competitively and profitably.
19
Our
instrumentation products are subject to regulation by the FDA and similar
international health authorities. We also have an obligation to adhere to
the
FDA’s cGMP regulations. Additionally, we are subject to periodic FDA
inspections, quality control procedures, and other detailed validation
procedures. If the FDA finds deficiencies in the validation of our manufacturing
and quality control practices, they may impose restrictions on marketing
specific products until corrected. On
March
25, 2008, OTI received a warning letter in connection with an inspection
of
OTI’s
facilities. The warning letter cited several deficiencies in OTI’s quality
systems. We intend to fully cooperate with the FDA and have immediately begun
to
take corrective actions to remedy these deficiencies. See “Manufacturing
and
Quality”
below.
We
are
also subject to various federal, state, and international laws pertaining to
health care “fraud and abuse,” including anti-kickback laws and false claims
laws. Anti-kickback laws make it illegal to solicit, offer, receive or pay
any
remuneration in exchange for, or to induce, the referral of business, including
the purchase or prescription of a particular drug or the use of a service or
device. Federal and state false claims laws prohibit anyone from knowingly
and
willingly presenting, or causing to be presented for payment to third-party
payors (including Medicare and Medicaid), claims for reimbursed drugs or
services that are false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or services. If the
government were to allege against or convict us of violating these laws, there
could be a material adverse effect on us, including our stock price. Even an
unsuccessful challenge could cause adverse publicity and be costly to respond
to, which could have a materially adverse effect on our business, results of
operations and financial condition. We will consult counsel concerning the
potential application of these and other laws to our business and our sales,
marketing and other activities and will make good faith efforts to comply with
them. However, given their broad reach and the increasing attention given by
law
enforcement authorities, we cannot assure you that some of our activities will
not be challenged or deemed to violate some of these laws.
MANUFACTURING
AND QUALITY
We
currently have no pharmaceutical manufacturing facilities. We have entered
into
agreements with various third parties for the formulation and manufacture of
our
pharmaceutical clinical supplies. These suppliers and their manufacturing
facilities must comply with FDA regulations, current good laboratory practices,
or cGLPs, and current good manufacturing practices, or cGMPs. We plan to
outsource the manufacturing and formulation of our clinical
supplies.
OTI
has an instrumentation manufacturing facility in Toronto, Canada which
predominantly performs high level assembly. Certain of OTI’s components and
optical subsystems are produced by sub-contracted vendors that specialize in
optical device manufacturing.
On
March
25, 2008, OTI received a warning letter in connection with a FDA inspection
of
OTI’s facilities in July and August of 2007. The warning letter cited several
deficiencies in OTI’s quality, record keeping, and reporting systems relating to
certain of OTI’s products, including the OTI Scan 1000, OTI Scan 2000, and OTI
OCT/SLO combination imaging system. Based upon the observations noted in
the
warning letter, OTI is not currently in compliance with cGMP. The FDA indicated
that it has issued an Import Alert and may refuse admission of these products.
As a result, we will not be permitted to sell these devices in the United
States, and the pre-market approval application for the Company’s OCT/SLO
product will be delayed until the violations have been corrected.
We
plan
to cooperate fully with the FDA, and upon receipt of the warning letter,
we
immediately began to take corrective action to address the FDA’s concerns and to
assure the quality of OTI’s products. We are committed to providing high quality
products to our customers, and we plan to meet this commitment by working
diligently to remedy these deficiencies and to implement updated and improved
quality systems and concepts throughout the OTI organization.
SALES
& MARKETING
We
currently do not have pharmaceutical sales or marketing personnel. In order
to
commercialize any pharmaceutical products that are approved for commercial
sale,
we must either build a sales and marketing infrastructure or collaborate with
third parties with sales and marketing experience.
Our
instrumentation division presently has an eight-person sales and marketing
staff, including three salespersons calling on retinal specialists and
ophthalmologists, that is beginning to market our OTI products. OTI has offices
in Canada, the United States and the United Kingdom and a growing distributor
network that currently covers more than 60 countries. Our strategy is to
increase sales of existing products through expansion of our sales channel
in
the United States and to provide additional marketing resources to our
international distributor network.
SERVICE
& SUPPORT
We
currently offer service and telephone support for all of our marketed
instrumentation products. Warranties are given on all products against defects
and performance for a period of one year. Extended Service Contracts are
available for purchase. Product repairs are performed at our Toronto facility.
20
EMPLOYEES
As
of
December 31, 2007, we have 57 full-time employees. We plan to add to our
headcount in key functional areas that will allow us to further the development
of our product candidates. None of our employees are represented by a collective
bargaining agreement.
MANAGEMENT
Executive
Officers
The
following table sets forth information concerning our current executive
officers, including their ages:
|
Name
|
Age
|
Title
|
||
|
Phillip
Frost, M.D.
|
71
|
Chief
Executive Officer and Chairman of the Board
|
||
|
Jane
H. Hsiao, Ph.D., MBA
|
60
|
Chief
Technical Officer and Vice Chairman
|
||
|
Steven
D. Rubin
|
47
|
Executive
Vice President - Administration and Director
|
||
|
Rao
Uppaluri, Ph.D.
|
58
|
Senior
Vice President and Chief Financial Officer
|
||
|
Naveed
K. Shams, M.D., Ph.D.
|
51
|
Senior
Vice President - Research and Development and Chief Medical
Officer
|
Phillip
Frost, M.D. Dr.
Frost
became the CEO and Chairman of OPKO Health, Inc. upon the consummation of the
merger of Acuity Pharmaceuticals Inc., Froptix Corporation and eXegenics, Inc.
on March 27, 2007 (referred to as the “Acquisition”). Dr. Frost was named
the Vice Chairman of the Board of Teva Pharmaceutical Industries, Limited,
or
Teva, in January 2006 when Teva acquired IVAX Corporation, or IVAX. Dr. Frost
had served as Chairman of the Board of Directors and Chief Executive Officer
of
IVAX Corporation since 1987. He was Chairman of the Department of Dermatology
at
Mt. Sinai Medical Center of Greater Miami, Miami Beach, Florida from 1972 to
1986. Dr. Frost was Chairman of the Board of Directors of Key Pharmaceuticals,
Inc. from 1972 until the acquisition of Key Pharmaceuticals by Schering Plough
Corporation in 1986. Dr. Frost was named Chairman of the Board of Ladenburg
Thalmann Financial Services Inc., an investment banking, asset management,
and
securities brokerage firm providing services through its principal operating
subsidiary, Ladenburg Thalmann & Co. Inc., in July 2006 and has been a
director of Ladenburg Thalmann since March 2005. Dr. Frost also serves as
Chairman of the Board of Directors of Ideation Acquisition Corp., a special
purpose acquisition company formed for the purpose of acquiring businesses
in
digital media, and Modigene Inc., a development stage biopharmaceutical company.
He serves on the Board of Regents of the Smithsonian Institution, a member
of
the Board of Trustees of the University of Miami, a Trustee of each of the
Scripps Research Institutes, the Miami Jewish Home for the Aged, and the Mount
Sinai Medical Center and is Co-Vice Chairman of the Board of Governors of the
American Stock Exchange. Dr. Frost is also a director of Continucare
Corporation, a provider of outpatient healthcare and home healthcare services,
and Northrop Grumman Corp., a global defense and aerospace company.
Jane
H. Hsiao, Ph.D., MBA. Dr.
Hsiao
has served as Vice-Chairman and Chief Technical Officer of the Company since
May
2007. Dr. Hsiao served as the Vice Chairman-Technical Affairs of IVAX from
1995
to January 2006, when Teva acquired IVAX. Dr. Hsiao served as IVAX’s Chief
Technical Officer since 1996, and as Chairman, Chief Executive Officer and
President of IVAX Animal Health, IVAX’s veterinary products subsidiary, since
1998. From 1992 until 1995, Dr. Hsiao served as IVAX’s Chief Regulatory Officer
and Assistant to the Chairman. Dr. Hsiao has served as Chairman of the Board
of
Safestitch Medical, Inc., a medical device company, since September 2007. Dr.
Hsiao is also a director of Modigene, Inc., a development stage
biopharmaceutical company.
Steven
D. Rubin. Mr.
Rubin
has served as Executive Vice President - Administration since May 2007 and
a
director of the Company since February 2007. Mr. Rubin served as the Senior
Vice
President, General Counsel and Secretary of IVAX from August 2001 until
September 2006. Prior to joining IVAX, Mr. Rubin was Senior Vice President,
General Counsel and Secretary with privately-held Telergy, Inc., a provider
of
business telecommunications and diverse optical network solutions, from early
2000 to August 2001. In addition, he was with the Miami law firm of Stearns
Weaver Miller Weissler Alhadeff & Sitterson from 1986 to 2000, in the
Corporate and Securities Department. Mr. Rubin had been a shareholder of that
firm since 1991 and a director since 1998. Mr. Rubin currently serves on the
board of directors of Dreams, Inc., a vertically integrated sports licensing
and
products company, Safestitch Medical, Inc., a medical device company, Ideation
Acquisition Corp., a special purpose acquisition company formed for the purpose
of acquiring businesses in digital media, Modigene,
Inc., a development stage biopharmaceutical company, and Longfoot Communications
Corp., a public shell company seeking to identify a merger or business
combination candidate.
21
Rao
Uppaluri, Ph.D. Dr.
Uppaluri has served as our Senior Vice President and Chief Financial Officer
since May, 2007. Dr. Uppaluri served as the Vice President, Strategic Planning
and Treasurer of IVAX from 1997 until December 2006. Before joining IVAX,
from 1987 to August 1996, Dr. Uppaluri was Senior Vice President, Senior
Financial Officer and Chief Investment Officer with Intercontinental Bank,
a
publicly traded commercial bank in Florida. In addition, he served in various
positions, including Senior Vice President, Chief Investment Officer and
Controller, at Peninsula Federal Savings & Loan Association, a publicly
traded Florida S&L, from October 1983 to 1987. His prior employment, during
1974 to 1983, included engineering, marketing and research positions with
multinational companies and research institutes in India and the United States.
Dr. Uppaluri currently serves on the board of directors of Ideation Acquisition
Corp., a special purpose acquisition company formed for the purpose of acquiring
businesses in digital media,
and
Longfoot Communications Corp., a public shell company seeking to identify a
merger or business combination candidate.
Naveed
Shams, M.D., Ph.D.
Dr.
Shams has served as Chief Medical Officer and Senior Vice President of Research
and Development since January 2008. Prior to joining the Company, Dr. Shams
served from September 2003 through November 2007 as Senior Medical Director,
Head Ophthalmic Medical Affairs and Post-Marketing Team Leader at Genentech,
Inc., a pharmaceutical company, where he led the clinical team responsible
for
launching Lucentis®. Previously, Dr. Shams was also a Director, Clinical Science
for Novartis Ophthalmics, Inc. from April 1998 through September 2003, and
Senior Scientist and Glaucoma Group Leader-Discovery for Storz Ophthalmics
from
January 1995 through March 1998. Before joining industry, Dr. Shams was a member
of the Research Faculty at the Schepen’s Eye Research Institute and Department
of Ophthalmology at Harvard Medical School.
Code
of Ethics
We
have
adopted a Code of Business Conduct and Ethics. We require all employees,
including our principal executive officer and principal accounting officer
and
other senior officers and our employee directors, to read and to adhere to
the
Code of Business Conduct and Ethics in discharging their work-related
responsibilities. Employees are required to report any conduct that they
believe
in good faith to be an actual or apparent violation of the Code of Business
Conduct and Ethics. The Code of Business Conduct and Ethics is available
on our
website at http://www.OPKO.com.
22
|
RISK
FACTORS.
|
You
should carefully consider the risks described below, as well as other
information contained in this report, including the consolidated financial
statements and the notes thereto and “Management’s Discussion and Analysis of
Financial Condition and results of operations.” The occurrence of any of the
events discussed below could significantly and adversely affect our business,
prospects, results of operations, financial condition, and cash flows.
RISKS
RELATED TO OUR BUSINESS
The
occurrence of any of the events discussed below could significantly and
adversely affect our business, prospects, results of operations, financial
condition, and cash flows:
We
have a history of operating losses and we do not expect to become profitable
in
the near future.
We
are a
specialty healthcare company with a limited operating history. We are not
profitable and have incurred losses since our inception. We do not anticipate
that we will generate revenue from the sale of pharmaceutical products for
the
foreseeable future and we have generated limited revenue from our ophthalmic
instrumentation business. We have not yet submitted any pharmaceutical products
for approval or clearance by regulatory authorities and we do not currently
have
rights to any pharmaceutical product candidates that have been approved for
marketing. We continue to incur research and development and general and
administrative expenses related to our operations and, to date, we have devoted
most of our financial resources to research and development, including our
pre-clinical development activities and clinical trials. We expect to continue
to incur losses from our operations for the foreseeable future, and we expect
these losses to increase as we continue our research activities and conduct
development of, and seek regulatory approvals and clearances for, our product
candidates, and prepare for and begin to commercialize any approved or cleared
products. If our product candidates fail in clinical trials or do not gain
regulatory approval or clearance, or if our product candidates do not achieve
market acceptance, we may never become profitable. In addition, if we are
required by the U.S. Food and Drug Administration, or the FDA, to perform
studies in addition to those we currently anticipate, our expenses will increase
beyond expectations and the timing of any potential product approval may be
delayed. Even if we achieve profitability in the future, we may not be able
to
sustain profitability in subsequent periods.
Our
technologies are in an early stage of development and are
unproven.
We
are
engaged in the research and development of pharmaceutical products, drug
delivery technologies, and diagnostic systems and instruments for the treatment
and prevention of ophthalmic diseases. The effectiveness of our technologies
is
not well-known in, or accepted generally by, the clinical medical community.
There can be no assurance that we will be able to successfully employ our
technologies as therapeutic, diagnostic, or preventative solutions for any
ophthalmic disease. Our failure to establish the efficacy or safety of our
technologies would have a material adverse effect on our business.
In
addition, we have a limited operating history. Our operations to date have
been
primarily limited to organizing and staffing our company, developing our
technology, and undertaking pre-clinical studies and clinical trials of our
product candidates. We have not yet obtained regulatory approvals for any of
our
pharmaceutical product candidates. Consequently, any predictions you make about
our future success or viability may not be as accurate as they could be if
we
had a longer operating history.
Our
product research and development activities may not result in commercially
viable products.
Most
of
our product candidates are in the very early stages of development and are
prone
to the risks of failure inherent in drug and medical device product development.
We will likely be required to complete and undertake significant additional
clinical trials to demonstrate to the FDA that our product candidates are safe
and effective to the satisfaction of the FDA and other non-United States
regulatory authorities or for their intended uses, or are substantially
equivalent in terms of safety and effectiveness to an existing, lawfully
marketed non-premarket approved device. Clinical trials are expensive and
uncertain processes that often take years to complete. Failure can occur at
any
stage of the process, and successful early positive results do not ensure that
the entire clinical trial or later clinical trials will be successful. Product
candidates in clinical-stage trials may fail to show desired efficacy and safety
traits despite early promising results.
23
We
are highly dependent on the success of our lead product candidate, bevasiranib,
and our failure to commercialize bevasiranib, or the experience of significant
delays in doing so, would have a material adverse effect on our business,
results of operation, and financial condition.
We
have
invested a significant portion of our efforts and financial resources in the
development of bevasiranib. Bevasiranib has been studied in a Phase II clinical
drug trial for the treatment of Wet AMD, and we are presently studying
bevasiranib in Phase III clinical trials. Our Phase III clinical trials may
not
be successful, and bevasiranib may never receive regulatory approval or be
successfully commercialized. Our clinical development program for bevasiranib
may not receive regulatory approval if we fail to demonstrate that it is safe
and effective in clinical trials and, consequently, fail to obtain necessary
approvals from the FDA, or similar non-United States regulatory agencies, or
if
we have inadequate financial or other resources to advance bevasiranib through
the clinical trial process. Even if bevasiranib receives regulatory approval,
its approved labeling may be insufficient to permit adequate marketing. We
may
not be successful in marketing it for a number of other reasons, including
the
introduction by our competitors of more clinically-effective or cost-effective
alternatives or failure in our sales and marketing efforts. Any failure to
obtain approval of bevasiranib and successfully commercialize it would have
a
material and adverse impact on our business.
The
results of pre-clinical trials and previous clinical trials may not be
predictive of future results, and our current and planned clinical trials may
not satisfy the requirements of the FDA or other non-United States regulatory
authorities.
Positive
results from pre-clinical studies and early clinical trial experience should
not
be relied upon as evidence that later-stage or large-scale clinical trials
will
succeed. We will be required to demonstrate with substantial evidence through
well-controlled clinical trials that our product candidates either (i) are
safe
and effective for use in a diverse population of their intended uses or (ii)
with respect to Class I or Class II devices only, are substantially equivalent
in terms of safety and effectiveness to devices that are already marketed under
section 510(k) of the Food, Drug and Cosmetic Act. Success in early clinical
trials does not mean that future clinical trials will be successful because
product candidates in later-stage clinical trials may fail to demonstrate
sufficient safety and efficacy to the satisfaction of the FDA and other
non-United States regulatory authorities despite having progressed through
initial clinical trials.
Further,
our drug candidates may not be approved or cleared even if they achieve their
primary endpoints in Phase III clinical trials or registration trials nor may
our device candidates be approved or cleared, as the case may be, even though
clinical or other data are, in our view, adequate to support a device approval
or clearance. The FDA or other non-United States regulatory authorities may
disagree with our trial design and our interpretation of data from pre-clinical
studies and clinical trials. In addition, any of these regulatory authorities
may change requirements for the approval or clearance of a product candidate
even after reviewing and providing comment on a protocol for a pivotal clinical
trial that has the potential to result in FDA approval. In addition, any of
these regulatory authorities may also approve or clear a product candidate
for
fewer or more limited indications or uses than we request or may grant approval
or clearance contingent on the performance of costly post-marketing clinical
trials. In addition, the FDA or other non-United States regulatory authorities
may not approve the labeling claims necessary or desirable for the successful
commercialization of our product candidates.
In
addition, the results of our clinical trials may show that our product
candidates may cause undesirable side effects, which could interrupt, delay
or
halt clinical trials, resulting in the denial of regulatory approval by the
FDA
and other regulatory authorities.
In
light
of widely publicized events concerning the safety risk of certain drug products,
regulatory authorities, members of Congress, the Government Accounting Office,
medical professionals, and the general public have raised concerns about
potential drug safety issues. These events have resulted in the withdrawal
of
drug products, revisions to drug labeling that further limit use of the drug
products, and establishment of risk management programs that may, for instance,
restrict distribution of drug products. The increased attention to drug safety
issues may result in a more cautious approach by the FDA to clinical trials.
Data from clinical trials may receive greater scrutiny with respect to safety,
which may make the FDA or other regulatory authorities more likely to terminate
clinical trials before completion, or require longer or additional clinical
trials that may result in substantial additional expense and a delay or failure
in obtaining approval or approval for a more limited indication than originally
sought.
24
We
will require substantial additional funding, which may not be available to
us on
acceptable terms, or at all.
We
are
advancing and intend to continue to advance multiple product candidates through
clinical and pre-clinical development. We believe that our existing cash and
cash equivalents and short-term investments will be sufficient to enable us
to
fund our operating expenses and capital expenditure requirements at least for
the next twelve months. We have based this estimate on assumptions that may
prove to be wrong or subject to change, and we may be required to use our
available capital resources sooner than we currently expect. Because of the
numerous risks and uncertainties associated with the development and
commercialization of our product candidates, we are unable to estimate the
amounts of increased capital outlays and operating expenditures associated
with
our current and anticipated clinical trials. Our future capital requirements
will depend on a number of factors, including the continued progress of our
research and development of product candidates, the timing and outcome of
clinical trials and regulatory approvals, the costs involved in preparing,
filing, prosecuting, maintaining, defending, and enforcing patent claims and
other intellectual property rights, the status of competitive products, the
availability of financing, and our success in developing markets for our product
candidates.
We
will
need to raise substantial additional capital to engage in and continue our
clinical and pre-clinical development, and commercialization activities. Until
we can generate a sufficient amount of product revenue to finance our cash
requirements, which we may never do, we expect to finance future cash needs
primarily through public or private equity offerings, debt financings, or
strategic collaborations. We do not know whether additional funding will be
available on acceptable terms, or at all. If we are not able to secure
additional funding when needed, we may have to delay, reduce the scope of,
or
eliminate one or more of our clinical trials or research and development
programs. To the extent that we raise additional funds by issuing equity
securities, our stockholders may experience additional significant dilution,
and
debt financing, if available, may involve restrictive covenants. To the extent
that we raise additional funds through collaboration and licensing arrangements,
it may be necessary to relinquish some rights to our technologies or our product
candidates or grant licenses on terms that may not be favorable to us. We may
seek to access the public or private capital markets whenever conditions are
favorable, even if we do not have an immediate need for additional capital
at
that time.
If
our competitors develop and market products that are more effective, safer
or
less expensive than our future product candidates, our commercial opportunities
will be negatively impacted.
The
life
sciences industry is highly competitive, and we face significant competition
from many pharmaceutical, biopharmaceutical, biotechnology, and medical device
companies that are researching and marketing products designed to address AMD
and other ophthalmic diseases and conditions our products are designed to
diagnose, treat, or prevent. We are currently developing therapeutic,
diagnostic, and preventative products that will compete with other drugs,
therapies, and medical devices that currently exist or are being developed.
Products we may develop in the future are also likely to face competition from
other drugs, therapies, and medical devices. Many of our competitors have
significantly greater financial, manufacturing, marketing, and drug development
resources than we do. Large pharmaceutical companies, in particular, have
extensive experience in clinical testing and in obtaining regulatory approvals
or clearances for drugs or medical devices. These companies also have
significantly greater research and marketing capabilities than we do. Some
of
the pharmaceutical companies we expect to compete with include Genentech,
Allergan, Alcon Laboratories, Regeneron, QLT, Pfizer, Alnylam, and Bausch &
Lomb. In addition, many universities and private and public research
institutions may become active in ophthalmic disease research. Compared to
us,
many of our potential competitors have substantially greater capital resources,
development resources, including personnel and technology, clinical trial
experience, regulatory experience, expertise in prosecution of intellectual
property rights, manufacturing and distribution experience, and sales and
marketing experience. The development of other promising drugs for the treatment
of Dry AMD, which in certain patients is the precursor to Wet AMD, could
materially adversely affect the prospects for bevasiranib and other treatments
for Wet AMD.
We
believe that our ability to successfully compete will depend on, among other
things:
| · |
the
results of our clinical trials;
|
| · |
our
ability to recruit and enroll patients for our clinical
trials;
|
| · |
the
efficacy, safety and reliability of our product
candidates;
|
| · |
the
speed at which we develop our product
candidates;
|
25
| · |
our
ability to commercialize and market any of our product candidates
that may
receive regulatory approval or
clearance;
|
| · |
our
ability to design and successfully execute appropriate clinical
trials;
|
| · |
the
timing and scope of regulatory approvals or
clearances;
|
| · |
appropriate
coverage and adequate levels of reimbursement under private and
governmental health insurance plans, including
Medicare;
|
| · |
our
ability to protect intellectual property rights related to our
products;
|
| · |
our
ability to have our partners manufacture and sell commercial quantities
of
any approved products to the market;
and
|
| · |
acceptance
of future product candidates by physicians and other health care
providers.
|
If
our
competitors market products that are more effective, safer, easier to use or
less expensive than our future product candidates, if any, or that reach the
market sooner than our future product candidates, if any, we may not achieve
commercial success. In addition, both the biopharmaceutical and medical device
industries are characterized by rapid technological change. Because our research
approach integrates many technologies, it may be difficult for us to stay
abreast of the rapid changes in each technology. If we fail to stay at the
forefront of technological change, we may be unable to compete effectively.
Technological advances or products developed by our competitors may render
our
technologies or product candidates obsolete or less competitive.
Our
product development activities could be delayed or
stopped.
We
do not
know whether our planned clinical trials will be completed on schedule, or
at
all, and we cannot guarantee that our planned clinical trials will begin on
time
or at all. The commencement of our planned clinical trials could be
substantially delayed or prevented by several factors, including:
| · |
a
limited number of, and competition for, suitable patients with the
particular types of ophthalmic disease required for enrollment in
our
clinical trials or that otherwise meet the protocol’s inclusion criteria
and do not meet any of the exclusion
criteria;
|
| · |
a
limited number of, and competition for, suitable sites to conduct
our
clinical trials;
|
| · |
delay
or failure to obtain FDA approval or agreement to commence a clinical
trial;
|
| · |
delay
or failure to obtain sufficient supplies of the product candidate
for our
clinical trials;
|
| · |
requirements
to provide the drugs or medical devices required in our clinical
trial
protocols or clinical trials at no cost or cost, which may require
significant expenditures that we are unable or unwilling to
make;
|
| · |
delay
or failure to reach agreement on acceptable clinical trial agreement
terms
or clinical trial protocols with prospective sites or investigators;
and
|
| · |
delay
or failure to obtain institutional review board, or IRB, approval
to
conduct or renew a clinical trial at a prospective or accruing
site.
|
The
completion of our clinical trials could also be substantially delayed or
prevented by several factors, including:
| · |
slower
than expected rates of patient recruitment and
enrollment;
|
| · |
failure
of patients to complete the clinical
trial;
|
| · |
unforeseen
safety issues;
|
| · |
lack
of efficacy evidenced during clinical
trials;
|
26
| · |
termination
of our clinical trials by one or more clinical trial
sites;
|
| · |
inability
or unwillingness of patients or medical investigators to follow our
clinical trial protocols; and
|
| · |
inability
to monitor patients adequately during or after
treatment.
|
Our
clinical trials may be suspended or terminated at any time by the FDA, other
regulatory authorities, the IRB for any given site, or us. Additionally, changes
in regulatory requirements and guidance may occur and we may need to amend
clinical trial protocols to reflect these changes with appropriate regulatory
authorities. Amendments may require us to resubmit our clinical trial protocols
to IRBs for re-examination, which may impact the costs, timing, or successful
completion of a clinical trial. Any failure or significant delay in completing
clinical trials for our product candidates could materially harm our financial
results and the commercial prospects for our product candidates.
The
regulatory approval process is expensive, time consuming and uncertain and
may
prevent us or our collaboration partners from obtaining approvals for the
commercialization of some or all of our product
candidates.
The
research, testing, manufacturing, labeling, approval, selling, marketing, and
distribution of drug products or medical devices are subject to extensive
regulation by the FDA and other non-United States regulatory authorities, which
regulations differ from country to country. We are not permitted to market
our
product candidates in the United States until we receive approval of a new
drug
application, or NDA, a clearance letter under the premarket notification
process, or 510(k) process, or an approval of a pre-market approval, or PMA,
from the FDA. We have not submitted an NDA or PMA application or premarket
notification, nor have we received marketing approval or clearance for any
of
our pharmaceutical product candidates. Obtaining approval of an NDA or PMA
can
be a lengthy, expensive, and uncertain process. With respect to medical devices,
while the FDA reviews and clears a premarket notification in as little
as three months, there is no guarantee that our products will qualify for
this more expeditious regulatory process, which is reserved for Class I and
II
devices, nor is there any assurance that even if a device is reviewed under
the
510(k) process that the FDA will review it expeditiously or determine that
the
device is substantially equivalent to a lawfully marketed non-PMA device. If
the
FDA fails to make this finding, then we cannot market the device. In lieu of
acting on a premarket notification, the FDA may seek additional information
or
additional data which would further delay our ability to market the product.
Furthermore, we are not permitted to make changes to a device approved through
the PMA or 510(k) which affects the safety or efficacy of the device without
first submitting a supplement application to the PMA and obtaining FDA approval
or cleared premarket notification for that supplement. In some cases, the FDA
may require clinical trials to support a supplement application. In addition,
failure to comply with FDA, non-United States regulatory authorities, or other
applicable United States and non-United States regulatory requirements may,
either before or after product approval or clearance, if any, subject our
company to administrative or judicially imposed sanctions, including, but not
limited to the following:
| · |
restrictions
on the products, manufacturers, or manufacturing
process;
|
| · |
adverse
inspectional observations (Form 483), warning letters, or non-warning
letters incorporating inspectional
observations;
|
| · |
civil
and criminal penalties;
|
| · |
injunctions;
|
| · |
suspension
or withdrawal of regulatory approvals or
clearances;
|
| · |
product
seizures, detentions, or import
bans;
|
| · |
voluntary
or mandatory product recalls and publicity
requirements;
|
| · |
total
or partial suspension of
production;
|
| · |
imposition
of restrictions on operations, including costly new manufacturing
requirements; and
|
27
| · |
refusal
to approve or clear pending NDAs or supplements to approved NDAs,
applications or pre-market notifications.
|
Regulatory
approval of an NDA or NDA supplement, PMA, PMA supplement or clearance pursuant
to a pre-market notification is not guaranteed, and the approval or clearance
process, as the case may be, is expensive and may, especially in the case of
an
NDA or PMA application, take several years. The FDA also has substantial
discretion in the drug and medical device approval and clearance process.
Despite the time and expense exerted, failure can occur at any stage, and we
could encounter problems that cause us to abandon clinical trials or to repeat
or perform additional pre-clinical studies and clinical trials. The number
of
pre-clinical studies and clinical trials that will be required for FDA approval
or clearance varies depending on the drug or medical device candidate, the
disease or condition that the drug or medical device candidate is designed
to
address, and the regulations applicable to any particular drug or medical device
candidate. The FDA can delay, limit or deny approval or clearance of a drug
or
medical device candidate for many reasons, including:
| · |
a
drug candidate may not be deemed safe or
effective;
|
| · |
a
medical device candidate may not be deemed to be substantially equivalent
to a lawfully marketed non-PMA device, in the case of a premarket
notification.
|
| · |
FDA
officials may not find the data from pre-clinical studies and clinical
trials sufficient;
|
| · |
the
FDA might not approve our or our third-party manufacturer’s processes or
facilities; or
|
| · |
the
FDA may change its approval or clearance policies or adopt new
regulations.
|
The
Company may, at some future date, seek approval of one or more drugs under
the
Federal Food, Drug, and Cosmetic Act, or FDCA, § 505(b)(2) which permits a
manufacturer to submit an NDA for an existing drug compound for intended uses
that have already been approved by the FDA, but with certain different
characteristics, such as a different route of administration. Section 505(b)(2)
allows a company to reference the clinical data already collected by the NDA
of
the drug supplemented by clinical trial results that address the change (e.g.,
route of administration). The Company is not presently involved in clinical
trials for a section 505(b)(2) drug or the submission of an NDA for such a
drug,
but could be in the future. If the Company were to submit an NDA under that
section, the Company could be sued for patent infringement by the pharmaceutical
company that owns the patent on the existing approved NDA drug. Such a suit
would automatically preclude the FDA from processing our NDA for 30 months
and
possibly longer. Defending such a suit would be costly. If we were to lose
the
litigation, we could be precluded from marketing the product until the NDA
holder’s patent expires. Such an adverse result would interfere without
strategic plans and would therefore have adverse financial implications for
the
company.
Our
product candidates may have undesirable side effects and cause our approved
drugs to be taken off the market.
If
a
product candidate receives marketing approval and we or others later identify
undesirable side effects caused by such products:
| · |
regulatory
authorities may require the addition of labeling statements, specific
warnings, a contraindication, or field alerts to physicians and
pharmacies;
|
| · |
regulatory
authorities may withdraw their approval of the product and require
us to
take our approved drug off the
market;
|
| · |
we
may be required to change the way the product is administered, conduct
additional clinical trials, or change the labeling of the
product;
|
| · |
we
may have limitations on how we promote our
drugs;
|
| · |
sales
of products may decrease
significantly;
|
| · |
we
may be subject to litigation or product liability claims;
and
|
| · |
our
reputation may suffer.
|
28
Any
of
these events could prevent us from achieving or maintaining market acceptance
of
the affected product or could substantially increase our commercialization
costs
and expenses, which in turn could delay or prevent us from generating
significant revenues from its sale.
We
may be unable to resolve issues related to an FDA warning letter in a timely
manner, which could delay the production and sale of our instrumentation
products.
We
are
currently taking remedial action in response to certain deficiencies in OTI’s
quality systems as cited by the FDA in a warning letter to OTI dated March
25,
2008. The warning letter noted several deficiencies in OTI’s quality control
systems relating to certain products. As stated in the warning letter, the
FDA
issued an Import Alert and may refuse admission of OTI’s Scan 1000, Scan 2000,
and OCT/SLO combination imaging system products. As a result, we will not
permitted to sell these devices in the United States, and pre-market approval
applications for the Company’s OCT/SLO product will be delayed until the
violations have been corrected.
While
we
intend to work with the FDA to resolve these issues, this work will require
the
dedication of significant incremental internal and external resources and
will
impede our ability to sell these products in the United States. There
can be no assurances regarding the length of time or cost it will take us
to
resolve these quality issues to our satisfaction and to the satisfaction of
the FDA. If our remedial actions are not satisfactory to the FDA, we may
have to
devote additional financial and human resources to our efforts, and the FDA
may
take further regulatory actions against us including, but not limited to,
assessing civil monetary penalties or imposing a consent decree on us, which
could result in further regulatory constraints, including the governance
of our
quality system by a third party. Our inability to resolve these issues or
the
taking of further regulatory action by the FDA may weaken our competitive
position and have a material adverse effect on our operations.
We
may not meet regulatory quality standards applicable to our manufacturing
and
quality processes, which could have an adverse effect on our business, financial
condition and results of operations.
As
a
medical device manufacturer, we are required to register with the FDA and
are
subject to periodic inspection by the FDA for compliance with its Quality
System
Regulation (QSR) requirements, which require manufacturers of medical devices
to
adhere to certain regulations, including testing, quality control and
documentation procedures. Compliance with applicable regulatory requirements
is
subject to continual review and is monitored rigorously through periodic
inspections by the FDA. In addition, most international jurisdictions have
adopted regulatory approval and periodic renewal requirements for medical
devices, and we must comply with these requirements in order to market our
products in these jurisdictions. In the European Community, we are required
to
maintain certain ISO certifications in order to sell our products and must
undergo periodic inspections by notified bodies to obtain and maintain these
certifications. Further, some emerging markets rely on the FDA’s Certificate for
Foreign Government (CFG) in lieu of their own regulatory approval requirements.
Our FDA warning letter prevents our ability to obtain CFGs;
therefore, our ability to market new products or renew marketing approvals
in
countries that rely on CFGs may be impacted until the warning letter is
resolved.
If
we, or
our manufacturers, fail to adhere to quality system regulations or ISO
requirements, this could delay production of our products and lead to fines,
difficulties in obtaining regulatory clearances, recalls or other consequences,
which could, in turn, have a material adverse effect on our financial condition
or results of operations.
Even
if we obtain regulatory approvals or clearances for our product candidates,
the
terms of approvals and ongoing regulation of our products may limit how we
manufacture and market our product candidates, which could materially impair
our
ability to generate anticipated revenues.
Once
regulatory approval has been granted, the approved or cleared product and its
manufacturer are subject to continual review. Any approved or cleared product
may only be promoted for its indicated uses. In addition, if the FDA or other
non-United States regulatory authorities approve any of our product candidates,
the labeling, packaging, adverse event reporting, storage, advertising, and
promotion for the product will be subject to extensive regulatory requirements.
We and the manufacturers of our products are also required to comply with
current Good Manufacturing Practicing, or cGMP regulations, or the FDA’s QSR
regulations, which include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation.
Moreover, device manufacturers are required to report adverse events by filing
Medical Device Reports with the FDA, which reports are publicly available.
Further, regulatory agencies must approve manufacturing facilities before they
can be used to manufacture our products, and these facilities are subject to
ongoing regulatory inspection. If we fail to comply with the regulatory
requirements of the FDA and other non-United States regulatory authorities,
or
if previously unknown problems with our products, manufacturers, or
manufacturing processes are discovered, we could be subject to administrative
or
judicially imposed sanctions.
In
addition, the FDA and other non-United States regulatory authorities may change
their policies and additional regulations may be enacted that could prevent
or
delay regulatory approval or clearance of our product candidates. We cannot
predict the likelihood, nature or extent of government regulation that may
arise
from future legislation or administrative action, either in the United States
or
abroad. If we are not able to maintain regulatory compliance, we would likely
not be permitted to market our future product candidates and we may not achieve
or sustain profitability.
Even
if we receive regulatory approval or clearance to market our product candidates,
the market may not be receptive to our products.
Even
if
our product candidates obtain regulatory approval or clearance, resulting
products may not gain market acceptance among physicians, patients, health
care
payors and/or the medical community. We believe that the degree of market
acceptance will depend on a number of factors, including:
| · |
timing
of market introduction of competitive
products;
|
| · |
the
safety and efficacy of our product compared to other
products;
|
| · |
prevalence
and severity of any side effects;
|
| · |
potential
advantages or disadvantages over alternative
treatments;
|
| · |
strength
of marketing and distribution
support;
|
| · |
price
of our future product candidates, both in absolute terms and relative
to
alternative treatments;
|
| · |
availability
of coverage and reimbursement from government and other third-party
payors;
|
| · |
potential
product liability claims;
|
| · |
limitations
or warnings contained in a product’s FDA-approved labeling;
and
|
| · |
changes
in the standard of care for the targeted indications for any of our
product candidates, which could reduce the marketing impact of any
claims
that we could make following FDA
approval.
|
In
addition, our efforts to educate the medical community and health care payors
on
the benefits of our product candidates may require significant resources and
may
never be successful.
29
If
our future product candidates fail to achieve market acceptance, we may not
be
able to generate significant revenue or achieve or sustain
profitability.
The
coverage and reimbursement status of newly approved or cleared drugs or medical
devices is uncertain, and failure of our pharmaceutical products and procedures
using our medical devices to be adequately covered by insurance and eligible
for
adequate reimbursement could limit our ability to market any future product
candidates we may develop and decrease our ability to generate revenue from
any
of our existing and future product candidates that may be approved or
cleared.
There
is
significant uncertainty related to the third-party coverage and reimbursement
of
newly approved or cleared drugs or medical devices. Many medical devices are
not
directly covered by insurance; instead, the procedure using the device is
subject to a coverage determination by the insurer. The commercial success
of
our existing and future product candidates in both domestic and international
markets will depend in part on the availability of coverage and adequate
reimbursement from third-party payors, including government payors, such as
the
Medicare and Medicaid programs, managed care organizations, and other
third-party payors. The government and other third-party payors are increasingly
attempting to contain health care costs by limiting both insurance coverage
and
the level of reimbursement for new drugs or devices and, as a result, they
may
not cover or provide adequate payment for our existing and future product
candidates. These payors may conclude that our future product candidates are
less safe, less effective, or less cost-effective than existing or
later-introduced products. These payors may also conclude that the overall
cost
of the procedure using one of our devices exceeds the overall cost of the
competing procedure using another type of device, and third-party payors may
not
approve our future product candidates for insurance coverage and adequate
reimbursement. The failure to obtain coverage and adequate or any reimbursement
for our existing and future product candidates, or health care cost containment
initiatives that limit or restrict reimbursement for our existing and future
product candidates, may reduce any future product revenue. Even though a drug
(not administered by a physician) may be approved by the FDA, this does not
mean
that a Prescription Drug Plan, or PDP, a private insurer operating under
Medicare part D, will list that drug on its formulary or will set a
reimbursement level. PDPs are not required to make every FDA-approved drug
available on their formularies. If our drug products are not listed on
sufficient number of PDP formularies or if the PDPs’ levels of reimbursement are
inadequate, the Company could be materially adversely affected.
If
we fail to attract and retain key management and scientific personnel, we may
be
unable to successfully develop or commercialize our product
candidates.
We
will
need to expand and effectively manage our managerial, operational, financial,
development, and other resources in order to successfully pursue our research,
development, and commercialization efforts for our existing and future product
candidates. Our success depends on our continued ability to attract, retain,
and
motivate highly qualified management and pre-clinical and clinical personnel.
The loss of the services or support of any of our senior management,
particularly Dr. Phillip Frost, our Chairman of the Board and Chief Executive
Officer, could delay or prevent the development and commercialization of our
product candidates. We do not maintain “key man” insurance policies on the lives
of any of our employees. We will need to hire additional personnel as we
continue to expand our research and development activities and build a sales
and
marketing function.
We
have
scientific and clinical advisors who assist us in formulating our research,
development, and clinical strategies. These advisors are not our employees
and
may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to us. In addition, these advisors
may have arrangements with other companies to assist those companies in
developing products or technologies that may compete with ours.
We
may
not be able to attract or retain qualified management and scientific personnel
in the future due to the intense competition for qualified personnel among
biotechnology, pharmaceutical, medical device, and other similar businesses.
If
we are unable to attract and retain the necessary personnel to accomplish our
business objectives, we may experience constraints that will impede
significantly the achievement of our research and development objectives, our
ability to raise additional capital and our ability to implement our business
strategy. In particular, if we lose any members of our senior management team,
we may not be able to find suitable replacements in a timely fashion or at
all
and our business may be harmed as a result.
As
we evolve from a company primarily involved in development to a company also
involved in commercialization, we may encounter difficulties in managing our
growth and expanding our operations successfully.
As
we
advance our product candidates through clinical trials, research, and
development we will need to expand our development, regulatory, manufacturing,
marketing, and sales capabilities or contract with third parties to provide
these capabilities for us. As our operations expand, we expect that we will
need
to manage additional relationships with such third parties, as well as
additional collaborators and suppliers. Maintaining these relationships and
managing our future growth will impose significant added responsibilities on
members of our management. We must be able to: manage our development efforts
effectively; manage our clinical trials effectively; hire, train and integrate
additional management, development, administrative and sales and marketing
personnel; improve our managerial, development, operational and finance systems;
and expand our facilities, all of which may impose a strain on our
administrative and operational infrastructure.
30
Furthermore,
we may acquire additional businesses, products or product candidates that
complement or augment our existing business. Integrating any newly acquired
business or product could be expensive and time-consuming. We may not be able
to
integrate any acquired business or product successfully or operate any acquired
business profitably. Our future financial performance will depend, in part,
on
our ability to manage any future growth effectively and our ability to integrate
any acquired businesses. We may not be able to accomplish these tasks, and
our
failure to accomplish any of them could prevent us from successfully growing
our
company.
If
we fail to acquire and develop other products or product candidates at all
or on
commercially reasonable terms, we may be unable to diversify or grow our
business.
We
intend
to continue to rely on acquisitions and in-licensing as the source of our
products and product candidates for development and commercialization. The
success of this strategy depends upon our ability to identify, select, and
acquire pharmaceutical products, drug delivery technologies, and medical device
product candidates. Proposing, negotiating, and implementing an economically
viable product acquisition or license is a lengthy and complex process. We
compete for partnering arrangements and license agreements with pharmaceutical,
biotechnology and medical device companies, and academic research institutions.
Our competitors may have stronger relationships with third parties with whom
we
are interested in collaborating and/or may have more established histories
of
developing and commercializing products. As a result, our competitors may have
a
competitive advantage in entering into partnering arrangements with such third
parties. In addition, even if we find promising product candidates, and generate
interest in a partnering or strategic arrangement to acquire such product
candidates, we may not be able to acquire rights to additional product
candidates or approved products on terms that we find acceptable, or at
all.
We
expect
that any product candidate to which we acquire rights will require additional
development efforts prior to commercial sale, including extensive clinical
testing and approval or clearance by the FDA and other non-United States
regulatory authorities. All product candidates are subject to the risks of
failure inherent in pharmaceutical or medical device product development,
including the possibility that the product candidate will not be shown to be
sufficiently safe and effective for approval by regulatory authorities. Even
if
the product candidates are approved or cleared, we cannot be sure that they
would be capable of economically feasible production or commercial
success.
We
have no experience or capability manufacturing large clinical-scale or
commercial-scale products and have no pharmaceutical manufacturing facility;
we
therefore rely on third parties to manufacture and supply our pharmaceutical
product candidates.
We
believe we currently have, or can access, sufficient supplies of bevasiranib
to
conduct and complete our planned Phase III clinical trials. If our manufacturing
partners are unable to produce bevasiranib or our other products in the amounts
that we require, we may not be able to establish a contract and obtain a
sufficient alternative supply from another supplier on a timely basis and in
the
quantities we require. We expect to continue to depend on third-party contract
manufacturers for the foreseeable future.
Our
product candidates require precise, high quality manufacturing. Any of our
contract manufacturers will be subject to ongoing periodic unannounced
inspection by the FDA and other non-United States regulatory authorities to
ensure strict compliance with QSR regulations for devices or cGMPs for drugs,
and other applicable government regulations and corresponding standards relating
to matters such as testing, quality control, and documentation procedures.
If
our contract manufacturers fail to achieve and maintain high manufacturing
standards in compliance with QSR or cGMPs, we may experience manufacturing
errors resulting in patient injury or death, product recalls or withdrawals,
delays or interruptions of production or failures in product testing or
delivery, delay or prevention of filing or approval of marketing applications
for our products, cost overruns, or other problems that could seriously harm
our
business.
31
Any
performance failure on the part of our contract manufacturers could delay
clinical development or regulatory approval or clearance of our product
candidates or commercialization of our future product candidates, depriving
us
of potential product revenue and resulting in additional losses. In addition,
our dependence on a third party for manufacturing may adversely affect our
future profit margins. Our ability to replace an existing manufacturer may
be
difficult because the number of potential manufacturers is limited and the
FDA
must approve any replacement manufacturer before it can begin manufacturing
our
product candidates. Such approval would result in additional non-clinical
testing and compliance inspections. It may be difficult or impossible for us
to
identify and engage a replacement manufacturer on acceptable terms in a timely
manner, or at all.
We
currently have limited marketing staff, no pharmaceutical sales or distribution
capabilities and have only recently commenced developing medical device sales
capabilities in the United States. If we are unable to develop our
pharmaceutical sales and marketing and distribution capability and our medical
device sales and marketing capabilities in the United States on our own or
through collaborations with marketing partners, we will not be successful in
commercializing our pharmaceutical product candidates or our medical device
product candidates in the United States.
We
currently have no pharmaceutical marketing, sales or distribution capabilities.
We have only recently commenced developing medical device sales capabilities
in
the United States. If our pharmaceutical product candidates are approved, we
intend to establish our sales and marketing organization with technical
expertise and supporting distribution capabilities to commercialize our product
candidates, which will be expensive and time-consuming. Any failure or delay
in
the development of any of our internal sales, marketing, and distribution
capabilities would adversely impact the commercialization of our products.
With
respect to our existing and future pharmaceutical product candidates, we may
choose to collaborate with third parties that have direct sales forces and
established distribution systems, either to augment our own sales force and
distribution systems or in lieu of our own sales force and distribution systems.
To the extent that we enter into co-promotion or other licensing arrangements,
our product revenue is likely to be lower than if we directly marketed or sold
our products. In addition, any revenue we receive will depend in whole or in
part upon the efforts of such third parties, which may not be successful and
are
generally not within our control. If we are unable to enter into such
arrangements on acceptable terms or at all, we may not be able to successfully
commercialize our existing and future product candidates. If we are not
successful in commercializing our existing and future product candidates, either
on our own or through collaborations with one or more third parties, our future
product revenue will suffer and we may incur significant additional
losses.
Independent
clinical investigators and contract research organizations that we engage to
conduct our clinical trials may not be diligent, careful or
timely.
We
depend
on independent clinical investigators to conduct our clinical trials. Contract
research organizations may also assist us in the collection and analysis of
data. These investigators and contract research organizations will not be our
employees, and we will not be able to control, other than by contract, the
amount of resources, including time, that they devote to products that we
develop. If independent investigators fail to devote sufficient resources to
the
development of product candidates or clinical trials, or if their performance
is
substandard, it will delay the approval or clearance and commercialization
of
any products that we develop. Further, the FDA requires that we comply with
standards, commonly referred to as good clinical practice, for conducting,
recording and reporting clinical trials to assure that data and reported results
are credible and accurate and that the rights, integrity, and confidentiality
of
trial subjects are protected. If our independent clinical investigators and
contract research organizations fail to comply with good clinical practice,
the
results of our clinical trials could be called into question and the clinical
development of our product candidates could be delayed. Failure of clinical
investigators or contract research organizations to meet their obligations
to us
or comply with federal regulations and good clinical practice procedures could
adversely affect the clinical development of our product candidates and harm
our
business.
The
success of our business may be dependent on the actions of our collaborative
partners.
We
expect
to enter into collaborative arrangements with established multinational
pharmaceutical and medical device companies, which will finance or otherwise
assist in the development, manufacture and marketing of products incorporating
our technology. We anticipate deriving some revenues from research and
development fees, license fees, milestone payments, and royalties from
collaborative partners. Our prospects, therefore, may depend to some extent
upon
our ability to attract and retain collaborative partners and to develop
technologies and products that meet the requirements of prospective
collaborative partners. In addition, our collaborative partners may have the
right to abandon research projects and terminate applicable agreements,
including funding obligations, prior to or upon the expiration of the
agreed-upon research terms. There can be no assurance that we will be successful
in establishing collaborative arrangements on acceptable terms or at all, that
collaborative partners will not terminate funding before completion of projects,
that our collaborative arrangements will result in successful product
commercialization, or that we will derive any revenues from such arrangements.
To the extent that we are unable to develop and maintain collaborative
arrangements, we would need substantial additional capital to undertake
research, development, and commercialization activities on our own.
32
If
we are unable to obtain and enforce patent protection for our products, our
business could be materially harmed.
Our
success depends, in part, on our ability to protect proprietary methods and
technologies that we develop or license under the patent and other intellectual
property laws of the United States and other countries, so that we can prevent
others from unlawfully using our inventions and proprietary information.
However, we may not hold proprietary rights to some patents required for us
to
commercialize our proposed products. Because certain United States patent
applications are confidential until patents issue, such as applications filed
prior to November 29, 2000, or applications filed after such date for which
nonpublication has been requested, third parties may have filed patent
applications for technology covered by our pending patent applications without
our being aware of those applications, and our patent applications may not
have
priority over those applications. For this and other reasons, we or our
third-party collaborators may be unable to secure desired patent rights, thereby
losing desired exclusivity. If licenses are not available to us on acceptable
terms, we may not be able to market the affected products or conduct the desired
activities, unless we challenge the validity, enforceability, or infringement
of
the third-party patent or otherwise circumvent the third-party
patent.
Our
strategy depends on our ability to rapidly identify and seek patent protection
for our discoveries. In addition, we will rely on third-party collaborators
to
file patent applications relating to proprietary technology that we develop
jointly during certain collaborations. The process of obtaining patent
protection is expensive and time-consuming. If our present or future
collaborators fail to file and prosecute all necessary and desirable patent
applications at a reasonable cost and in a timely manner, our business will
be
adversely affected. Despite our efforts and the efforts of our collaborators
to
protect our proprietary rights, unauthorized parties may be able to obtain
and
use information that we regard as proprietary.
The
issuance of a patent does not guarantee that it is valid or enforceable. Any
patents we have obtained, or obtain in the future, may be challenged,
invalidated, unenforceable, or circumvented. Moreover, the United States Patent
and Trademark Office, or USPTO, may commence interference proceedings involving
our patents or patent applications. Any challenge to, finding of
unenforceability or invalidation or circumvention of, our patents or patent
applications would be costly, would require significant time and attention
of
our management, and could have a material adverse effect on our business. In
addition, court decisions may introduce uncertainty in the enforceability or
scope of patents owned by biotechnology, pharmaceutical, and medical device
companies.
Our
pending patent applications may not result in issued patents. The patent
position of pharmaceutical, biotechnology, and medical device companies,
including ours, is generally uncertain and involves complex legal and factual
considerations. The standards that the USPTO and its foreign counterparts use
to
grant patents are not always applied predictably or uniformly and can change.
There is also no uniform, worldwide policy regarding the subject matter and
scope of claims granted or allowable in pharmaceutical, biotechnology, or
medical device patents. Accordingly, we do not know the degree of future
protection for our proprietary rights or the breadth of claims that will be
allowed in any patents issued to us or to others. The legal systems of certain
countries do not favor the aggressive enforcement of patents, and the laws
of
foreign countries may not protect our rights to the same extent as the laws
of
the United States. Therefore, the enforceability or scope of our owned or
licensed patents in the United States or in foreign countries cannot be
predicted with certainty, and, as a result, any patents that we own or license
may not provide sufficient protection against competitors. We may not be able
to
obtain or maintain patent protection for our pending patent applications, those
we may file in the future, or those we may license from third parties, including
the University of Pennsylvania, the University of Illinois, the University
of
Florida Research Foundation, Pathogenics, and Intradigm.
While
we
believe that our patent rights are enforceable, we cannot assure you that any
patents that have issued, that may issue, or that may be licensed to us will
be
enforceable or valid, or will not expire prior to the commercialization of
our
product candidates, thus allowing others to more effectively compete with us.
Therefore, any patents that we own or license may not adequately protect our
product candidates or our future products.
If
we are unable to protect the confidentiality of our proprietary information
and
know-how, the value of our technology and products could be adversely
affected.
In
addition to patent protection, we also rely on other proprietary rights,
including protection of trade secrets, know-how, and confidential and
proprietary information. To maintain the confidentiality of trade secrets and
proprietary information, we will seek to enter into confidentiality agreements
with our employees, consultants, and collaborators upon the commencement of
their relationships with us. These agreements generally require that all
confidential information developed by the individual or made known to the
individual by us during the course of the individual’s relationship with us be
kept confidential and not disclosed to third parties. Our agreements with
employees also generally provide that any inventions conceived by the individual
in the course of rendering services to us shall be our exclusive property.
However, we may not obtain these agreements in all circumstances, and
individuals with whom we have these agreements may not comply with their terms.
In the event of unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may not provide
meaningful protection, particularly for our trade secrets or other confidential
information. To the extent that our employees, consultants, or contractors
use
technology or know-how owned by third parties in their work for us, disputes
may
arise between us and those third parties as to the rights in related
inventions.
33
Adequate
remedies may not exist in the event of unauthorized use or disclosure of our
confidential information. The disclosure of our trade secrets would impair
our
competitive position and may materially harm our business, financial condition,
and results of operations.
We
will rely heavily on licenses from third parties.
Many
of
the patents and patent applications in our patent portfolio are not owned by
us,
but are licensed from third parties. For example, we rely on technology licensed
from the University of Pennsylvania, the University of Illinois, the University
of Florida Research Foundation, Pathogenics and Intradigm. Such license
agreements give us rights for the commercial exploitation of the patents
resulting from the respective patent applications, subject to certain provisions
of the license agreements. Failure to comply with these provisions could result
in the loss of our rights under these license agreements. Our inability to
rely
on these patents and patent applications, which are the basis of our technology,
would have a material adverse effect on our business.
We
license patent rights to certain of our technology from third-party owners.
If
such owners do not properly maintain or enforce the patents underlying such
licenses, our competitive position and business prospects will be
harmed.
We
have
obtained licenses from, among others, the University of Pennsylvania, the
University of Illinois, the University of Florida Research Foundation,
Pathogenics, and Intradigm that are necessary or useful for our business. In
addition, we intend to enter into additional licenses of third-party
intellectual property in the future.
Our
success will depend in part on our ability or the ability of our licensors
to
obtain, maintain, and enforce patent protection for our licensed intellectual
property and, in particular, those patents to which we have secured exclusive
rights in our field. We or our licensors may not successfully prosecute the
patent applications which are licensed to us. Even if patents issue in respect
of these patent applications, we or our licensors may fail to maintain these
patents, may determine not to pursue litigation against other companies that
are
infringing these patents, or may pursue such litigation less aggressively than
we would. Without protection for the intellectual property we have licensed,
other companies might be able to offer substantially identical products for
sale, which could adversely affect our competitive business position and harm
our business prospects.
Some
jurisdictions may require us, or those from whom we license patents, to grant
licenses to third parties. Such compulsory licenses could be extended to include
some of our product candidates, which may limit our potential revenue
opportunities.
Many
countries, including certain countries in Europe, have compulsory licensing
laws
under which a patent owner may be compelled to grant licenses to third parties.
In addition, most countries limit the enforceability of patents against
government agencies or government contractors. In these countries, the patent
owner may be limited to monetary relief from an infringement and may be unable
to enjoin infringement, which could materially diminish the value of the
patent.
Our
commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third
parties.
Other
entities may have or obtain patents or proprietary rights that could limit
our
ability to manufacture, use, sell, offer for sale or import products, or impair
our competitive position. In addition, to the extent that a third party develops
new technology that covers our products, we may be required to obtain licenses
to that technology, which licenses may not be available or may not be available
on commercially reasonable terms, if at all. If licenses are not available
to us
on acceptable terms, we will not be able to market the affected products or
conduct the desired activities, unless we challenge the validity, enforceability
or infringement of the third-party patent, or circumvent the third-party patent,
which would be costly and would require significant time and attention of our
management. Third parties may have or obtain valid and enforceable patents
or
proprietary rights that could block us from developing products using our
technology. Our failure to obtain a license to any technology that we require
may materially harm our business, financial condition, and results of
operations.
34
Additionally,
RNAi is a relatively new scientific technology that has generated many different
patent applications from organizations and individuals seeking to obtain
important patents in the field. These applications claim many different methods,
compositions, and processes relating to the discovery, development, and
commercialization of RNAi therapeutics. Because the field is so new, very few
of
these patent applications have been fully processed by government patent offices
around the world, and there is a great deal of uncertainty about which patents
will issue, when, to whom, and with what claims. It is likely that there will
be
significant litigation and other proceedings, such as interference and
opposition proceedings in various patent offices, relating to patent rights
in
RNAi technology. Others may attempt to invalidate our intellectual property
rights. Even if our rights are not directly challenged, disputes among third
parties could impact our intellectual property rights.
If
we become involved in patent litigation or other proceedings related to a
determination of rights, we could incur substantial costs and expenses,
substantial liability for damages or be required to stop our product development
and commercialization efforts.
Third
parties may sue us for infringing their patent rights. Likewise, we may need
to
resort to litigation to enforce a patent issued or licensed to us or to
determine the scope and validity of proprietary rights of others. In addition,
a
third-party may claim that we have improperly obtained or used its confidential
or proprietary information. Furthermore, in connection with our third-party
license agreements, we generally have agreed to indemnify the licensor for
costs
incurred in connection with litigation relating to intellectual property rights.
The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial, and the
litigation would divert our management’s efforts. Some of our competitors may be
able to sustain the costs of complex patent litigation more effectively than
we
can because they have substantially greater resources. Uncertainties resulting
from the initiation and continuation of any litigation could limit our ability
to continue our operations.
If
any
parties successfully claim that our creation or use of proprietary technologies
infringes upon their intellectual property rights, we might be forced to pay
damages, potentially including treble damages, if we are found to have willfully
infringed on such parties’ patent rights. In addition to any damages we might
have to pay, a court could require us to stop the infringing activity or obtain
a license. Any license required under any patent may not be made available
on
commercially acceptable terms, if at all. In addition, such licenses are likely
to be non-exclusive and, therefore, our competitors may have access to the
same
technology licensed to us. If we fail to obtain a required license and are
unable to design around a patent, we may be unable to effectively market some
of
our technology and products, which could limit our ability to generate revenues
or achieve profitability and possibly prevent us from generating revenue
sufficient to sustain our operations.
Medicare
legislation and future legislative or regulatory reform of the health care
system may affect our ability to sell our products
profitably.
In
the
United States, there have been a number of legislative and regulatory
initiatives, at both the federal and state government levels, to change the
healthcare system in ways that, if approved, could affect our ability to sell
our products profitably. For example, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, or MMA, extended Medicare, effective
January 1, 2006, to cover most outpatient prescription drugs that are not
administered by physicians and modified, effective January 1, 2004, the
methodology used by Medicare to reimburse for those drugs administered by
physicians. Our business could be harmed by the MMA, by the possible effect
of
this legislation on amounts that private payors will pay, and by other
healthcare reforms that may be enacted or adopted in the future. To the extent
that our products are deemed to be durable medical equipment, they may be
subject to distribution under the new Competitive Acquisition regulations,
also
part of MMA, and this could adversely affect the amount that patients or medical
providers can seek from payors. Non-durable medical equipment devices used
in
surgical procedures are normally paid directly by the hospital or health care
provider and not reimbursed separately by third-party payors. As a result,
these
types of devices are subject to intense price competition that can place a
small
manufacturer at a competitive disadvantage.
35
We
are
unable to predict what additional legislation or regulation, if any, relating
to
the health care industry or third-party coverage and reimbursement may be
enacted in the future or what effect such legislation or regulation would have
on our business. Any cost containment measures or other health care system
reforms that are adopted could have a material adverse effect on our ability
to
commercialize our existing and future product candidates
successfully.
Failure
to obtain regulatory approval outside the United States will prevent us from
marketing our product candidates abroad.
We
intend
to market certain of our existing and future product candidates in non-United
States markets. In order to market our existing and future product candidates
in
the European Union and many other non-United States jurisdictions, we must
obtain separate regulatory approvals. We have had limited interactions with
non-United States regulatory authorities, the approval procedures vary among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval or clearance.
Approval or clearance by the FDA does not ensure approval by regulatory
authorities in other countries, and approval by one or more non-United States
regulatory authority does not ensure approval by other regulatory authorities
in
other countries or by the FDA. The non-United States regulatory approval process
may include all of the risks associated with obtaining FDA approval or
clearance. We may not obtain non-United States regulatory approvals on a timely
basis, if at all. We may not be able to file for non-United States regulatory
approvals and may not receive necessary approvals to commercialize our existing
and future product candidates in any market.
Acquisitions
may result in disruptions to our business or distractions of our management
and
may not proceed as planned.
We
intend
to continue to expand our business through the acquisition of companies,
technologies, products, and services. Acquisitions involve a number of special
problems and risks, including, but not limited to:
| · |
difficulty
integrating acquired technologies, products, services, operations,
and
personnel with the existing businesses;
|
| · |
diversion
of management’s attention in connection with both negotiating the
acquisitions and integrating the businesses;
|
| · |
strain
on managerial and operational resources as management tries to oversee
larger operations;
|
| · |
exposure
to unforeseen liabilities of acquired
companies;
|
| · |
potential
costly and time-consuming litigation, including stockholder
lawsuits;
|
| · |
potential
issuance of securities to equity holders of the company being acquired
with rights that are superior to the rights of holders of our common
stock, or which may have a dilutive effect on our
stockholders;
|
| · |
the
need to incur additional debt or use cash;
and
|
| · |
the
requirement to record potentially significant additional future operating
costs for the amortization of intangible
assets.
|
As
a
result of these or other problems and risks, businesses we acquire may not
produce the revenues, earnings, or business synergies that we anticipated,
and
acquired products, services, or technologies might not perform as we expected.
As a result, we may incur higher costs and realize lower revenues than we had
anticipated. We may not be able to successfully address these problems and
we
cannot assure you that the acquisitions will be successfully identified and
completed or that, if acquisitions are completed, the acquired businesses,
products, services, or technologies will generate sufficient revenue to offset
the associated costs or other harmful effects on our business.
Any
of
these risks can be greater if an acquisition is large relative to our size.
Failure to manage effectively our growth through acquisitions could adversely
affect our growth prospects, business, results of operations, and financial
condition.
36
Non-United
States governments often impose strict price controls, which may adversely
affect our future profitability.
We
intend
to seek approval to market certain of our existing and future product candidates
in both the United States and in non-United States jurisdictions. If we obtain
approval in one or more non-United States jurisdictions, we will be subject
to
rules and regulations in those jurisdictions relating to our product. In some
countries, particularly countries of the European Union, each of which has
developed its own rules and regulations, pricing is subject to governmental
control. In these countries, pricing negotiations with governmental authorities
can take considerable time after the receipt of marketing approval for a drug
or
medical device candidate. 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 existing and future product candidates to other
available products. If reimbursement of our future product candidates is
unavailable or limited in scope or amount, or if pricing is set at
unsatisfactory levels, we may be unable to achieve or sustain
profitability.
Our
business may become subject to economic, political, regulatory and other risks
associated with international operations.
Our
business is subject to risks associated with conducting business
internationally, in part due to a number of our suppliers being located outside
the United States. Accordingly, our future results could be harmed by a variety
of factors, including:
| · |
difficulties
in compliance with non-United States laws and
regulations;
|
| · |
changes
in non-United States regulations and
customs;
|
| · |
changes
in non-United States currency exchange rates and currency
controls;
|
| · |
changes
in a specific country’s or region’s political or economic
environment;
|
| · |
trade
protection measures, import or export licensing requirements, or
other
restrictive actions by United States or non-United States
governments;
|
| · |
negative
consequences from changes in tax laws;
and
|
| · |
difficulties
associated with staffing and managing foreign operations, including
differing labor relations.
|
The
market price of our common stock may fluctuate
significantly.
The
market price of our common stock may fluctuate significantly in response to
numerous factors, some of which are beyond our control, such as:
| · |
the
announcement of new products or product enhancements by us or our
competitors;
|
| · |
developments
concerning intellectual property rights and regulatory
approvals;
|
| · |
variations
in our and our competitors’ results of
operations;
|
| · |
changes
in earnings estimates or recommendations by securities analysts,
if our
common stock is covered by analysts;
|
| · |
developments
in the biotechnology, pharmaceutical, and medical device
industry;
|
| · |
the
results of product liability or intellectual property
lawsuits;
|
| · |
future
issuances of common stock or other
securities;
|
| · |
the
addition or departure of key
personnel;
|
| · |
announcements
by us or our competitors of acquisitions, investments, or strategic
alliances; and
|
| · |
general
market conditions and other factors, including factors unrelated
to our
operating performance.
|
37
Further,
the stock market in general, and the market for biotechnology, pharmaceutical,
and medical device companies in particular, has recently experienced extreme
price and volume fluctuations. Continued market fluctuations could result in
extreme volatility in the price of our common stock, which could cause a decline
in the value of our common stock.
Trading
of our common stock is limited and restrictions imposed by securities regulation
and certain lockup agreements may further reduce our trading, making it
difficult for our stockholders to sell shares.
Our
common stock began trading on the American Stock Exchange in June 2007. To
date, the liquidity of our common stock is limited, not only in terms of the
number of shares that can be bought and sold at a given price, but also through
delays in the timing of transactions and changes in security analyst and media
coverage, if at all.
A
substantial percentage of
the outstanding shares of our common stock (including outstanding shares of
our
preferred stock on an as converted basis) are restricted securities and/or
are subject to lockup agreements which limit sales during a two-year period
ending March 27, 2009. These factors may result in lower prices for our common
stock than might otherwise be obtained and could also result in a larger spread
between the bid and ask prices for our common stock. In addition, without a
large float, our common stock is less liquid than the stock of companies with
broader public ownership and, as a result, the trading prices of our common
stock may be more volatile. In the absence of an active public trading market,
an investor may be unable to liquidate his investment in our common stock.
Further, the limited liquidity could be an indication that the trading price
is
not reflective of the actual fair market value of our common stock. Trading
of a
relatively small volume of our common stock may have a greater impact on the
trading price of our stock than would be the case if our public float were
larger.
Future
sales of our common stock could reduce our stock
price.
Some
or
all of the “restricted” shares of our common stock issued to former stockholders
of Froptix and Acuity in connection with the acquisition or held by other of
our
stockholders may be offered from time to time in the open market pursuant to
an
effective registration statement, or after April 2, 2008, pursuant to Rule
144.
In addition, as described herein, a substantial number of our shares of common
stock are subject to lockup agreements expiring on March 27, 2009, provided
that
(i) one third of the shares subject to the lockup shall be exempt from lockup
restrictions beginning March 27, 2008, (ii) one third of the shares subject
to
lockup shall be exempt from lockup restrictions beginning September 27, 2008,
and (iii) the restrictions on the remaining shares subject to lockup shall
lapse
on March 27, 2009. Future sales of a substantial number of shares of our common
stock in the public market pursuant to Rule 144 or after the lockup agreements
lapse, or the perception that such sales could occur, could adversely affect
the
price of our common stock.
Directors,
executive officers, principal stockholders and affiliated entities own a
majority of our capital stock, and they may make decisions that you do not
consider to be in the best interests of our
stockholders.
As
of
March 21, 2008, our directors, executive officers, principal stockholders,
and
affiliated entities beneficially owned, in the aggregate a majority of our
outstanding voting securities. As a result, if some or all of them acted
together, they would have the ability to control the election of our Board
of
Directors and the outcome of issues requiring approval by our stockholders.
This
concentration of ownership may also have the effect of delaying or preventing
a
change in control of our company that may be favored by other stockholders.
This
could prevent transactions in which stockholders might otherwise recover a
premium for their shares over current market prices.
Failure
to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and
operating results. In addition, current and potential shareholders could lose
confidence in our financial reporting, which could have a material adverse
effect on the price of our common stock.
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud. If we cannot provide reliable financial reports
or
prevent fraud, our results of operation could be harmed.
Section
404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments
of
the effectiveness of our internal control over financial reporting and a report
by our independent registered public accounting firm on the effectiveness of
internal control over financial reporting as of December 31, 2008. We
continuously monitor our existing internal control over financial reporting
systems to confirm that they are compliant with Section 404, and we may identify
deficiencies that we may not be able to remediate in time to meet the deadlines
imposed by the Sarbanes-Oxley Act. This process may divert internal resources
and will take a significant amount of time and effort to complete.
38
If,
at
any time, it is determined that we are not in compliance with Section 404,
we
may be required to implement new internal control procedures and reevaluate
our
financial reporting. We may experience higher than anticipated operating
expenses as well as increased independent auditor fees during the implementation
of these changes and thereafter. Further, we may need to hire additional
qualified personnel. If we fail to maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended from time
to
time, we may not be able to conclude on an ongoing basis that we have effective
internal control over financial reporting in accordance with Section 404 of
the
Sarbanes-Oxley Act, which could result in our being unable to obtain an
unqualified report on internal control from our independent auditors. Failure
to
maintain an effective internal control environment could also cause investors
to
lose confidence in our reported financial information, which could have a
material adverse effect on the price of our common stock.
Compliance
with changing regulations concerning corporate governance and public disclosure
may result in additional expenses.
There
have been changing laws, regulations, and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002,
new
regulations promulgated by the Securities and Exchange Commission and rules
promulgated by the American Stock Exchange, the other national securities
exchanges and the NASDAQ. These new or changed laws, regulations, and standards
are subject to varying interpretations in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing bodies, which
could
result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. As
a
result, our efforts to comply with evolving laws, regulations, and standards
are
likely to continue to result in increased general and administrative expenses
and a diversion of management time and attention from revenue-generating
activities to compliance activities. Our board members, Chief Executive Officer,
Chief Financial Officer, and Principal Accounting Officer could face an
increased risk of personal liability in connection with the performance of
their
duties. As a result, we may have difficulty attracting and retaining qualified
board members and executive officers, which could harm our business. If our
efforts to comply with new or changed laws, regulations, and standards differ
from the activities intended by regulatory or governing bodies, we could be
subject to liability under applicable laws or our reputation may be
harmed.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
|
PROPERTIES.
|
Our
principal corporate office is located at 4400 Biscayne Blvd, Suite 1180, Miami,
Florida. We lease this space from Frost Real Estate Holdings, LLC, an entity
which is controlled by Dr. Phillip Frost, our Chairman of the Board and Chief
Executive Officer. Pursuant to the lease agreement with Frost Real Estate
Holdings, we lease approximately 8,300 square feet, which encompasses space
for
our corporate offices, administrative services, preclinical research and
development, project management and pharmacology. The lease is for a five-year
term and currently requires annual rent of approximately $221,000, which amount
increases by approximately 4.5% per year.
We
also
lease approximately 2,000 square feet of office space in Morristown, New Jersey,
where additional clinical research and development is performed, and an animal
research facility at Mount Sinai Hospital in Miami Beach, Florida. Our OTI
subsidiary maintains offices in Toronto, Ontario, Canada and research and
development branch offices in Kingston, Ontario, and in the United Kingdom
at
the University of Kent.
|
LEGAL
PROCEEDINGS.
|
We
are
not currently a party to any material litigation. From time to time,
we may be involved in litigation arising in the ordinary course of our
business.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
Effective
as of December 4, 2007, stockholders holding a majority of the voting power
of
our outstanding stock approved the issuance to members of The Frost Group,
LLC,
or the Frost Group, a private investment group controlled by Dr. Phillip Frost,
M.D., our Chairman and CEO, of an aggregate of 10,869,565 shares of our common
stock in exchange for a $20 million investment in the Company. Stockholder
approval was in the form of a written consent of stockholders in lieu of a
special meeting in accordance with the relevant sections of the Delaware General
Corporation Law, and included those of our stockholders holding a majority
of
the voting power of our issued and outstanding shares of common stock and
preferred stock, voting together as a group. Stockholder approval was sought
solely in order to comply with applicable rules of the American Stock Exchange,
on which our common stock is listed.
39
The
foregoing is merely a summary of those matters submitted to a stockholder vote
during the fourth quarter of 2007, and is qualified in its entirety by the
full
text of our Definitive Information Statement on Schedule 14C, filed with the
SEC
on January 8, 2008, which is incorporated by reference into this Item 4 to
our
Annual Report on Form 10-K.
40
PART
II
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
We
changed our name from eXegenics, Inc. to OPKO Health, Inc in June 2007. Our
common stock has been traded publicly on the American Stock Exchange under
the
symbol “OPK” since June 11, 2007. Prior to June 11, 2007, our common stock
was quoted on the over-the-counter bulletin board, or the OTCBB, under the
symbol “EXEG.” Quotes on the OTCBB may have reflected inter-dealer prices
without retail markups, markdowns, or commissions and may not necessarily have
represented actual transactions. The following table sets forth, for the periods
indicated, the high and low sales prices per share of our common stock during
each of the quarters set forth below as reported on the OTCBB for the periods
from January 1, 2006 through June 8, 2007 and on the American Stock Exchange
from June 11, 2007 through December 31, 2007:
|
High
|
Low
|
||||||
|
2007
|
|||||||
|
First
Quarter
|
$
|
4.10
|
$
|
0.87
|
|||
|
Second
Quarter
|
5.50
|
3.20
|
|||||
|
April 1
- June 8, 2007
|
5.50
|
3.20
|
|||||
|
June 11,
2007 - June 30, 2007
|
4.33
|
3.42
|
|||||
|
Third
Quarter
|
4.94
|
3.36
|
|||||
|
Fourth
Quarter
|
4.53
|
2.50
|
|||||
|
2006
|
|||||||
|
First
Quarter
|
$
|
0.46
|
$
|
0.39
|
|||
|
Second
Quarter
|
0.45
|
0.38
|
|||||
|
Third
Quarter
|
1.09
|
0.38
|
|||||
|
Fourth
Quarter
|
0.99
|
0.72
|
|||||
As
of
March 21, 2008, there were approximately 436 holders of record of our common
stock.
The
Company has not declared or paid any cash dividends on its common stock. No
cash
dividends have been previously paid on our common stock and none are anticipated
in fiscal 2008.
Recent
Sales of Unregistered Securities
On
December 5, 2007, members of The Frost Group, LLC, a private investment group
controlled by Dr. Phillip Frost, M.D., our Chairman and CEO, made a $20 million
investment in the Company. Under the terms of the investment, we issued
10,869,565 shares of common stock, par value $.01, at $1.84 per share,
representing an approximately 40% discount to the average trading price of
the Company's stock on the American Stock Exchange for the five
trading days immediately preceding the effective date of board and stockholder
approval of the investment. The shares issued in the investment are restricted
securities, subject to a two year lockup, and no registration rights were
granted. The issuance of the shares was exempt from the registration
requirements under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof, because the transaction did not involve a public
offering.
41
Stock
Performance Graph
|
SELECTED
FINANCIAL DATA.
|
As
a
result of the reverse merger between Froptix Corporation, or Froptix and
eXegenics, Inc., or eXegenics, historical comparative results are those of
Froptix. Froptix was incorporated on June 23, 2006. The following selected
historical consolidated statement of operations data for the year ended December
31, 2007 and for the period from inception (June 23, 2006) through December
31,
2006 and the consolidated balance sheet data as of December 31, 2007 and
December 31, 2006, below are derived from our audited consolidated financial
statements and related notes thereto. The results of operations for the period
from inception (June 23, 2006) to December 31, 2006 include Froptix’s operating
results for the full period. The year ended December 31, 2007 includes the
results of operations from Froptix for the full year, the operating results
of
Acuity Pharmaceuticals, Inc., or Acuity, subsequent to our acquisition on March
27, 2007, and the operating results from Ophthalmic Technologies, Inc., or
OTI,
subsequent to our acquisition on November 28, 2007. In addition, the results
for
the 2007 period includes the minority interest loss of $0.6 million for a
portion of OTI's operating loss from the date of our investment in OTI on April
13, 2007 through the date of our acquisition on November 28, 2007.
|
(in
thousands, except share and per shares information)
|
For
the year ended
December
31, 2007
|
Period
from inception
(June
23, 2006) to
December
31, 2006
|
|||||
|
(unaudited)
|
(unaudited)
|
||||||
|
Statement
of operations data
|
|||||||
|
Revenue
|
$
|
847
|
$
|
-
|
|||
|
Cost
of goods sold
|
808
|
-
|
|||||
|
Gross
margin
|
39
|
-
|
|||||
|
Operating
expenses:
|
|||||||
|
Selling,
general and administrative
|
12,466
|
375
|
|||||
|
Research
and development
|
10,850
|
508
|
|||||
|
Write-off
of acquired in-process research and development
|
243,761
|
-
|
|||||
|
Other
operating expenses; primarily amortization of intangible
assets
|
150
|
||||||
|
Total
operating expenses
|
267,227
|
883
|
|||||
|
Operating
loss
|
(267,188
|
)
|
(883
|
)
|
|||
|
Other
(expense) income, net
|
(671
|
)
|
6
|
||||
|
Loss
before income taxes and loss from OTI
|
(267,859
|
)
|
(877
|
)
|
|||
|
Income
taxes
|
83
|
-
|
|||||
|
Net
loss before loss from OTI
|
(267,776
|
)
|
(877
|
)
|
|||
|
Loss
from OTI
|
(629
|
)
|
-
|
||||
|
Net
loss
|
(267,405
|
)
|
(877
|
)
|
|||
|
Preferred
stock dividend
|
(217
|
)
|
-
|
||||
|
Net
loss attributable to common shareholders
|
$
|
(268,622
|
)
|
$
|
(877
|
)
|
|
|
Loss
per share, basic and diluted
|
$
|
(2.09
|
)
|
$
|
(0.01
|
)
|
|
|
Weighted
average number of shares outstanding -
basic and diluted
|
128,772,080
|
58,733,556
|
|||||
|
Balance
sheet data
|
|||||||
|
Total
assets
|
$
|
39,568
|
$
|
116
|
|||
|
Working
capital
|
$
|
19,489
|
$
|
21
|
|||
|
Notes
payable, credit line with related party and capital lease obligations,
net
|
$
|
14,235
|
$
|
-
|
|||
|
Stockholders’
equity
|
$
|
16,784
|
$
|
21
|
|||
42
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
|
This
Annual Report on Form 10-K contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”),
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”), about our expectations, beliefs, or intentions regarding our
product development efforts, business, financial condition, results of
operations, strategies, or prospects. You can identify forward-looking
statements by the fact that these statements do not relate strictly to
historical or current matters. Rather, forward-looking statements relate to
anticipated or expected events, activities, trends, or results as of the date
they are made. Because forward-looking statements relate to matters that have
not yet occurred, these statements are inherently subject to risks and
uncertainties that could cause our actual results to differ materially from
any
future results expressed or implied by the forward-looking statements. Many
factors could cause our actual activities or results to differ materially from
the activities and results anticipated in forward-looking statements. These
factors include those contained in “Item 1A - Risk Factors” of this Annual
Report on Form 10-K. We do not undertake any obligation to update
forward-looking statements. We intend that all forward-looking statements be
subject to the safeharbor provisions of PSLRA. These forward-looking statements
are only predictions and reflect our views as of the date they are made with
respect to future events and financial performance.
OVERVIEW
We
are a
specialty healthcare company focused on the discovery, development, and
commercialization of proprietary pharmaceuticals, imaging and diagnostic
systems, and instruments for the treatment, diagnosis, and management of
ophthalmic disorders. Our business presently consists of the development of
ophthalmic pharmaceuticals and the development, commercialization and sale
of
ophthalmic diagnostic and imaging systems and instrumentation products. Our
objective is to establish industry-leading positions in large and rapidly
growing segments of ophthalmology by leveraging our preclinical and development
expertise and our novel and proprietary technologies. We actively explore
opportunities to acquire complementary pharmaceuticals, compounds, and
technologies, which could, individually or in the aggregate, materially increase
the scale of our business. We also intend to explore strategic opportunities
in
other medical markets that would allow us to benefit from our business and
global distribution expertise, and which have operational characteristics that
are similar to ophthalmology, such as dermatology.
43
We
expect
to incur substantial losses as we continue the development of our product
candidates, particularly bevasiranib, continue our other research and
development activities, and establish a sales and marketing infrastructure
in
anticipation of the commercialization of our product candidates. We currently
have limited commercialization capabilities, and it is possible that we may
never successfully commercialize any of our pharmaceutical product candidates.
To date, we have devoted substantially all of our efforts towards research
and
development. As of December 31, 2007, we had an accumulated deficit of $269.3
million. Since we do not generate revenue from any of our pharmaceutical product
candidates and have only generated limited revenue from our instrumentation
business, we expect to continue to generate losses in connection with the
continued clinical development of bevasiranib and the research and development
activities relating to our technology and other product candidates. Such
research and development activities are budgeted to expand over time and will
require further resources if we are to be successful. As a result, we believe
that our operating losses are likely to be substantial over the next several
years. We will need to obtain additional funds to further develop our research
and development programs, and there can be no assurance that additional capital
will be available to us on acceptable terms, or at all.
On
June
8, 2007, we changed our name to OPKO Health, Inc., or OPKO, from eXegenics,
Inc., or eXegenics. On March 27, 2007, we were part of a three-way merger (the
“Mergers”) between Froptix Corporation, or Froptix, a research and development
company, eXegenics, a public shell company, and Acuity Pharmaceuticals, Inc.,
or
Acuity, a research and development company. This transaction was accounted
for
as a reverse merger between Froptix and eXegenics, with the combined company
then acquiring Acuity. eXegenics, Inc., formerly known as Cytoclonal
Pharmaceuticals Inc., was previously involved in the research, creation, and
development of drugs for the treatment and/or prevention of cancer and
infectious diseases; however, eXegenics had been a public shell company without
any operations since 2003.
On
November 28, 2007, we acquired Ophthalmic Technologies, Inc., or OTI, an Ontario
corporation pursuant to a definitive Share Purchase Agreement with OTI and
its
shareholders. As a result of this agreement, we have entered into the ophthalmic
instrumentation market and have begun generating revenue from this business.
On
March
25, 2008, OTI received a warning letter citing several deficiencies in OTI’s
quality systems relating to three of its products, including the OCT/SLO
combination imaging system. Until we resolve these deficiencies to the
satisfaction of the FDA, we will not be permitted to sell these products in
the
United States.
RESULTS
OF OPERATIONS
For
The Years Ended December 31, 2007 and From Inception (June 23, 2006) Through
December 31, 2006
The
results of operations for the period from inception (June 23, 2006) through
December 31, 2006 include only the operating results of Froptix. The results
of
operations for 2007 include those of Froptix for the full period as well as
the
results of operations of Acuity from March 27, 2007 through December 31,
2007, and of OTI from November 28, 2007 through December 31, 2007. We had
limited operating activities during the 2006 period since our inception was
on
June 23, 2006. During 2007, we increased the level of activities in our research
and development programs to include the initiation of our first of two required
Phase III clinical trials for bevasiranib, our lead compound in development
and
the most clinically advanced siRNA drug in development. Further, during 2007,
we
began to build a commercial presence in the ophthalmic instrumentation business
in the U.S. as we prepared for the acquisition of OTI, and we assumed
the operations of OTI for instrumentation sales internationally in November.
In
addition, our general and administrative expenses have increased in line with
the operations of our ophthalmic pharmaceutical and instrumentation business
as
well as incurring the costs associated with being a public company.
Revenue.
Revenue
for the year ended December 31, 2007 was $0.8 million. All revenue generated
relates to product sold after our acquisition of OTI on November 28, 2007.
Until
the acquisition of OTI, we did not generate any revenue. During 2007, all
revenue relates to products that were shipped internationally. There were no
product sales in the U.S.
Gross
margin.
Gross
margin for the year ended December 31, 2007 was $39 thousand. The gross margin
related to product sold after our acquisition of OTI on November 28, 2007.
The gross margin was negatively impacted by manufacturing costs associated
with the introduction of our new OCT / SLO model. We anticipate that our margin
will increase as we begin manufacturing more components in-house.
Selling,
General and Administrative Expense.
Selling, general and administrative expense in 2007 was $12.5 million and
increased from $0.4 million during the 2006 period, primarily as a result of
increased personnel costs, including equity-based compensation, directors’ and
officers’ insurance, professional fees and other costs related to building
infrastructure as a public company. In addition, during 2007 we incurred
professional fees related to various business transactions, including the
acquisitions of Acuity and OTI. During 2007, we also incurred expenses related
to building a commercial presence in the ophthalmic instrumentation market
in the United States, including personnel and tradeshow costs. During the 2006
period, selling, general and administrative expense primarily included
equity-based compensation expense related to a consultant and professional
fees.
We did not have any employees during 2006. Equity
based compensation expense for the year ended December 31, 2007 was $7.4
million, of which, $4.4 million was included in selling, general and
administrative expense and $3.0 million was included in research and development
expense. During the period from our inception (June 23, 2006) through December
31, 2006, equity based compensation expense was $0.3 million, all of which
was
recorded in selling, general and administrative expense.
44
Research
and Development Expense.
Research and development expense for 2007 was $10.9 million and increased from
$0.5 million during the 2006 period, primarily as a result of the expense
related to our Phase III clinical trial for bevasiranib, which was initiated
in
July 2007. Research and development expenses for the year ended December 31,
2007 include personnel costs, including equity-based compensation and
professional fees as we initiated our Phase III clinical trial for bevasiranib.
During the third quarter of 2007, a reversal of equity-based compensation
expense of $8.1 million was recorded as a result of the termination of a
consulting agreement prior to the vesting of any of the equity based awards
issued under the consulting agreement. Originally, we accrued $0.3 million
for
this expense during 2006 and $7.8 million during the first six months of 2007.
Research and development expense during 2006 was related to our sponsored
research agreement with the University of Florida and costs related to the
prosecution of related patents.
We
anticipate that research and development expense during 2008 will primarily
relate to our bevasiranib program, including on-going costs for our initial
Phase III clinical trial. The trial was initiated in July 2007 and is expected
to last approximately 60 weeks once the trial is fully enrolled. We
currently anticipate enrollment will take approximately eighteen months. We
currently expect the total cost of this trial to be approximately $25 million,
although this estimate could vary significantly as the Phase III clinical trial
progresses.
Write-off
of Acquired In-Process Research and Development.
On
March 27, 2007, we acquired Acuity in a stock for stock transaction. We valued
our common stock issued to Acuity shareholders at the average closing price
of
the common stock on the date of the transaction and two days prior to the
transaction. We recorded the assets and liabilities acquired at fair value.
Approximately $243.8 million of the purchase price was allocated to in-process
research and development projects, which was immediately charged to
expense. We record expense for in-process research and development
projects which have not reached technological feasibility and which have no
alternative future use. At the time of our acquisition of Acuity, Acuity’s
lead product, bevasiranib, had not begun the first of two required
Phase III clinical trials and as such, had not reached a stage of technological
feasibility and had no alternative future use.
Other
Income and Expenses.
Other
expense was $0.7 million, net of $0.3 million of interest income for the year
ended December 31, 2007. Other expenses primarily consist of interest expense
incurred on our $4.0 million term loan and our $12.0 million line of credit,
partially offset by interest earned on our cash and cash equivalents. Other
income during the 2006 period reflected the interest earned on our cash and
cash
equivalents. We did not have any outstanding debt during that period. In
addition, the 2007 period includes the minority interest loss of $0.6 million
for a prorated portion of OTI’s operating loss from the date of our investment
in OTI on April 13, 2007 through the date of our acquisition on November 28,
2007.
Liquidity
And Capital Resources
At
December 31, 2007, we had cash and cash equivalents of approximately $23.4
million. Cash used in operations primarily reflects our net loss, offset by
our
non-cash operating expenses including the write-off of in-process research
and
development acquired in the acquisition of Acuity and equity-based compensation
expense. Since our inception, we have not generated significant revenue and
our
primary source of cash has been from the private placement of stock and through
credit facilities available to us.
In
connection with the acquisition of Acuity, we assumed the rights and obligations
under Acuity’s $4.0 million term loan ($2.4 million outstanding at December 31,
2007) with Horizon Financial Funding Company, LLC. The term loan bears interest
at 12.23% and is payable monthly. The principal is payable in 12 equal
monthly installments which commenced August 2007. On January 11, 2008, we repaid
in full all outstanding amounts and terminated all of our commitments under
the
term loan with Horizon. The total amount repaid in satisfaction of our
obligations under the term loan was $2.4 million. We realized a net savings
by
avoiding future interest charges over the remaining term of the
obligation.
45
We
also
assumed the rights and obligations of Acuity under the $7 million line of credit
with The Frost Group, LLC, or the Frost Group, a related party. The Frost Group
members include a trust controlled by Dr. Phillip Frost, who is the
Company’s Chief Executive Officer and Chairman of the board of directors,
Dr. Jane H. Hsiao, who is the Vice Chairman of the board of directors and
Chief Technical Officer, Steven D. Rubin who is Executive Vice President -
Administration and a director of the Company, and Rao Uppaluri who is the Chief
Financial Officer of the Company. At the time of the acquisition of Acuity,
we
amended and restated the Frost Group line of credit to provide additional
available borrowing capacity up to a total of $12 million, and we assumed
Acuity’s existing obligation to repay $4.0 million outstanding under the line of
credit. During 2007, we drew down the available amount under this credit line
of
$8.0 million for a total of $12.0 million borrowed. We are obligated to pay
interest upon maturity, capitalized quarterly, on outstanding borrowings under
the line of credit at a 10% annual rate, which is due July 11, 2009. The line
of
credit is collateralized by all of our personal property except our intellectual
property.
On
December 5, 2007, in exchange for a $20 million cash investment in the Company,
we agreed to issue 10,869,565 shares of our common stock, par value
$.01, to members of the Frost Group. The shares were issued at a price of $1.84
per share, representing an approximately 40% discount to the average trading
price of our stock on the American Stock Exchange for the five trading days
immediately preceding the date the board of directors and stockholders approved
the issuance of the shares. The shares issued in the private placement are
restricted securities, subject to a two year lockup, and no registration rights
have been granted.
We
expect
to incur losses from operations for the foreseeable future. We expect to incur
substantial research and development expenses, including expenses related to
the
hiring of personnel and additional clinical trials. We expect that selling,
general and administrative expenses will also increase as we expand our sales,
marketing and administrative staff, add infrastructure and incur additional
costs related to being a public company, including the costs of directors’ and
officers’ insurance, investor relations programs and increased professional
fees.
We
believe the cash and cash equivalents on hand at December 31, 2007 will be
sufficient to meet our anticipated cash requirements for operations and debt
service for at least the next 12 months. We based this estimate on assumptions
that may prove to be wrong or subject to change, and we may be required to
use
our available cash resources sooner than we currently expect. If we
accelerate our product development programs or initiate additional clinical
trials, we will need additional funds. Our future cash requirements will
depend on a number of factors, including the continued progress of our research
and development of product candidates, the timing and outcome of clinical trials
and regulatory approvals, the costs involved in preparing, filing, prosecuting,
maintaining, defending, and enforcing patent claims and other intellectual
property rights, the status of competitive products, the availability of
financing, and our success in developing markets for our product candidates.
If
we are not able to secure additional funding when needed, we may have to delay,
reduce the scope of, or eliminate one or more of our clinical trials or research
and development programs.
We
intend
to finance additional research and development projects, clinical trials and
our
future operations with a combination of private placements, payments from
potential strategic research and development, licensing and/or marketing
arrangements, public offerings, debt financing and revenues from future product
sales, if any. There can be no assurance, however, that additional capital
will
be available to us on acceptable terms, or at all.
The
following table provides information as of December 31, 2007 with respect to
the
amounts and timing of our known contractual obligation payments due by period.
|
Contractual
obligations
|
||||||||||||||||||||||
|
(in
thousands)
|
2008
|
2009
|
2010
|
2011
|
2012
|
After
2012
|
Total
|
|||||||||||||||
|
Open
purchase orders
|
$
|
1,469
|
$
|
-
|
$
|
$
|
|
$
|
-
|
$
|
-
|
$
|
1,469
|
|||||||||
|
Operating
leases
|
333
|
351
|
338
|
350
|
226
|
-
|
1,598
|
|||||||||||||||
|
Term
loan
|
2,392
|
-
|
-
|
-
|
-
|
-
|
2,392
|
|||||||||||||||
|
Credit
line
|
-
|
12,000
|
-
|
-
|
-
|
-
|
12,000
|
|||||||||||||||
|
Total
|
4,194
|
12,351
|
338
|
350
|
226
|
-
|
17,459
|
|||||||||||||||
The
preceding table does not include information where the amounts of the
obligations are not currently determinable, including contractual obligations
in
connection with clinical trials, which are payable on a per-patient basis and
product license agreements that include payments upon achievement of certain
milestones. In addition to the principal balance as shown on our credit line,
we
also must pay interest upon the maturity of the credit line in July
2009.
Critical
Accounting Policies and Estimates
Accounting
Estimates.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
46
Equity
Based Compensation. As of June 23, 2006 (the date of inception), we adopted
Statement of Financial Accounting Standards, or SFAS No. 123(R). Share-Based
Payments SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB No. 25. SFAS No. 123(R) requires that all
stock-based compensation be recognized as an expense in the financial statements
and that such cost be measured at the fair value of the award. We adopted SFAS
No. 123(R) upon our inception. Equity-based compensation arrangements to
non-employees are accounted for in accordance with SFAS No. 123(R) and Emerging
Issues Task Force Issue No. 96-18 (EITF 96-18), “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,” which requires that these equity
instruments are recorded at their fair value on the measurement date. As
prescribed under SFAS 123(R), we estimate the grant-date fair value of our
stock
option grants using a valuation model known as the Black-Scholes-Merton formula
or the “Black-Scholes Model” and allocate the resulting compensation expense
over the corresponding requisite service period associated with each grant.
The
Black-Scholes Model requires the use of several variables to estimate the
grant-date fair value of stock options including expected term, expected
volatility, expected dividends and risk-free interest rate. We perform
significant analyses to calculate and select the appropriate variable
assumptions used in the Black-Scholes Model. We also perform significant
analyses to estimate forfeitures of equity-based awards as required by SFAS
123(R). We are required to adjust our forfeiture estimates on at least an annual
basis based on the number of share-based awards that ultimately vest. The
selection of assumptions and estimated forfeiture rates is subject to
significant judgment and future changes to our assumptions and estimates may
have a material impact on our Consolidated Financial Statements.
As
of
December 31, 2007, we had $15.9 million of unrecognized compensation expense
related to unvested stock options that is expected to be recognized over a
weighted average period of 3 years.
Goodwill
and Intangible Assets.
The
allocation of the purchase price for acquisitions requires extensive use of
accounting estimates and judgments to allocate the purchase price to the
identifiable tangible and intangible assets acquired, including in-process
research and development, and liabilities assumed based on their respective
fair
values under the provisions of SFAS No. 141, Business Combinations (SFAS No.
141). Additionally, we must determine whether an acquired entity is considered
to be a business or a set of net assets, because a portion of the purchase
price
can only be allocated to goodwill in a business combination.
Appraisals
inherently require significant estimates and assumptions, including but not
limited to, determining the timing and estimated costs to complete the
in-process R&D projects, projecting regulatory approvals, estimating future
cash flows, and developing appropriate discount rates. We believe the estimated
fair values assigned to the Acuity and OTI assets acquired and liabilities
assumed are based on reasonable assumptions. However, the fair value estimates
for the purchase price allocation may change during the allowable allocation
period under SFAS No. 141, which is up to one year from the acquisition date,
if
additional information becomes available that would require changes to our
estimates.
Allowance
for Doubtful Accounts and Revenue Recognition.
Generally,
we recognize revenue from product sales when goods are shipped and title and
risk of loss transfer to our customers. Certain
of our products are sold directly to end-users and require that we deliver,
install and train the staff at the end-users’ facility. As a result, we do not
recognize revenue until the product is delivered, installed and training has
occurred. Return policies in certain international markets for our
medical device products provide for stringent guidelines in accordance with
the
terms of contractual agreements with customers. Our estimates for sales returns
are based upon the historical patterns of products returned matched against
the
sales from which they originated, and management’s evaluation of specific
factors that may increase the risk of product returns. The allowance for
doubtful accounts recognized in our consolidated balance sheets at December
31,
2007 was $0.5 million. The allowance for doubtful accounts at December 31,
2007 was due to the acquired OTI medical device products.
New
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board, or FASB, issued Interpretation
Number 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 applies
to all tax positions within the scope of SFAS 109, applies a “more likely than
not” threshold for tax benefit recognition, identifies a defined methodology for
measuring benefits, and increases the disclosure requirements for companies.
FIN
48 is mandatory for years beginning after December 15, 2006; accordingly, we
adopted FIN 48 effective January 1, 2007. As a result of our full valuation
allowance on our net deferred income tax assets, there was no impact of
adoption.
47
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS
157. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. This Statement applies to other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. We will adopt SFAS 157 beginning in the first quarter
of our 2008 fiscal year and do not expect the impact to be material to our
financial position or results of operations.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, or SFAS 159, which gives companies the option
to measure eligible financial assets, financial liabilities, and firm
commitments at fair value (i.e., the fair value option), on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted
for at fair value under other accounting standards. The election to use the
fair
value option is available when an entity first recognizes a financial asset
or
financial liability or upon entering into a firm commitment. Subsequent changes
in fair value must be recorded in earnings. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We will
adopt SFAS 159 beginning in the first quarter of our 2008 fiscal year and do
not
expect the impact to be material to our financial position or results of
operations.
In
June
2007, the EITF issued EITF Issue 07-03, Accounting for Advance Payments for
Goods or Services to Be Used in Future Research and Development, or EITF 07-03.
EITF 07-03 addresses the accounting for the non-refundable portion of a payment
made by a research and development entity for future research and development
activities. Under EITF 07-03, an entity would defer and capitalize
non-refundable advance payments made for research and development activities
until the related goods are delivered or the related services are performed.
EITF 07-03 is effective for fiscal years beginning after December 15, 2007.
We
plan to adopt EITF 07-03 beginning in the first quarter of our 2008 fiscal
year
and do not expect the impact to be material to our financial position or results
of operations.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS
141R
will require, among other things, the expensing of direct transaction costs,
including deal costs and restructuring costs as incurred, acquired IPR&D
assets to be capitalized, certain contingent assets and liabilities to be
recognized at fair value and earn-our arrangements, including contingent
consideration, may be required to be measured at fair value until settled,
with
changes in fair value recognized each period into earnings. In addition,
material adjustments made to the initial acquisition purchase accounting
will be
required to be recorded back to the acquisition date. This will cause companies
to revise previously reported results when reporting comparative financial
information in subsequent filings. SFAS No. 141R is effective for the Company
on
a prospective basis for transactions occurring in 2009 and earlier adoption
is
not permitted. SFAS No. 141R may have a material impact on the Company’s
consolidated financial position, results of operations and cash flows
if we enter into material business combinations after the standard’s
effective date.
48
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
In
the
normal course of doing business, we are exposed to the risks associated with
foreign currency exchange rates and changes in interest rates. We do not engage
in trading market risk sensitive instruments or purchasing hedging instruments
or “other than trading” instruments that are likely to expose us to significant
market risk, whether interest rate, foreign currency exchange, commodity price,
or equity price risk.
Our
exposure to market risk relates to our cash and investments and to our
borrowings. We maintain an investment portfolio of money market funds and
qualified purchaser funds. The securities in our investment portfolio are not
leveraged, and are, due to their very short-term nature, subject to minimal
interest rate risk. We currently do not hedge interest rate exposure. Because
of
the short-term maturities of our investments, we do not believe that a change
in
market interest rates would have a significant negative impact on the value
of
our investment portfolio except for reduced income in a low interest rate
environment. At December 31, 2007, we had cash and cash equivalents of $23.4
million. The weighted average interest rate related to our cash and cash
equivalents for the year ended December 31, 2007 was 4.9%. As of December 31,
2007, the principal value of our term loan and credit line was $14.6 million,
which bear a weighted average interest rate of 10.7%.
The
primary objective of our investment activities is to preserve principal while
at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, we invest our excess cash in debt instruments of the
U.S. Government and its agencies, bank obligations, repurchase agreements and
high-quality corporate issuers, and, by policy, restrict our exposure to any
single corporate issuer by imposing concentration limits. To minimize the
exposure due to adverse shifts in interest rates, we maintain investments at
an
average maturity of generally less than one month.
49
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA.
|
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
51
|
|
|
Consolidated
Balance Sheets
|
52
|
|
|
Consolidated
Statements of Operations
|
53
|
|
|
Consolidated
Statement of Shareholders’ Equity
|
54
|
|
|
Consolidated
Statements of Cash Flows
|
55
|
|
|
Notes
to Consolidated Financial Statements
|
56
- 72
|
50
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholders of OPKO Health, Inc.
We
have
audited the accompanying consolidated balance sheets of OPKO Health, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year
ended
December 31, 2007 and for the period from inception (June 23, 2006) to December
31, 2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of OPKO Health, Inc.
and
subsidiaries at December 31, 2007 and 2006, and the consolidated results of
their operations and their cash flows for the year ended December 31, 2007
and
for the period from inception (June 23, 2006) to December 31, 2006, in
conformity with U.S. generally accepted accounting principles.
|
|
/s/ Ernst & Young LLP | |
| Certified Public Accountants | ||
|
Miami,
Florida
|
||
| March 28, 2008 | ||
51
OPKO
Health, Inc.
CONSOLIDATED
BALANCE SHEETS
(in
thousands except share data)
|
December
31,
|
|||||||
|
2007
|
2006
|
||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
23,373
|
$
|
116
|
|||
|
Accounts
receivable, net
|
1,689
|
-
|
|||||
|
Inventory
|
2,214
|
-
|
|||||
|
Prepaid
expenses and other current assets
|
1,936
|
-
|
|||||
|
Total
current assets
|
29,212
|
116
|
|||||
|
Property
and equipment, net
|
410
|
-
|
|||||
|
Intangible
assets, net
|
9,931
|
-
|
|||||
|
Other
assets
|
15
|
-
|
|||||
|
Total
assets
|
$
|
39,568
|
$
|
116
|
|||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Accrued
expenses
|
$
|
3,858
|
$
|
95
|
|||
|
Accounts
payable
|
3,319
|
-
|
|||||
|
Current
portion of notes payable, net unamortized discount of $8 and capital
lease
obligations
|
2,546
|
-
|
|||||
|
Total
current liabilities
|
9,723
|
95
|
|||||
|
Long-term
liabilities and capital lease obligations
|
1,372
|
-
|
|||||
|
Line
of credit with related party, net unamortized discount of
$311
|
11,689
|
-
|
|||||
|
Total
liabilities
|
22,784
|
95
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Shareholders’ equity
|
|||||||
|
Series
A Preferred stock - $0.01 par value, 4,000,000 shares authorized;
954,799
and 0 shares issued and outstanding (liquidation value of $2,387
and $0)
December 31, 2007 and 2006, respectively
|
10
|
-
|
|||||
|
Series
C Preferred Stock - $0.01 par value, 500,000 shares authorized; no
shares
issued or outstanding
|
-
|
-
|
|||||
|
Common
Stock - $0.01 par value, 500,000,000 shares authorized; 178,344,608
and
61,775,002 shares issued and outstanding at December 31, 2007 and
2006,
respectively
|
1,783
|
618
|
|||||
|
Additional
paid-in-capital
|
284,273
|
280
|
|||||
|
Accumulated
deficit
|
(269,282
|
)
|
(877
|
)
|
|||
|
Total
shareholders’ equity
|
16,784
|
21
|
|||||
|
Total
liabilities and shareholders’ equity
|
$
|
39,568
|
$
|
116
|
|||
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
52
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands except share data)
|
For
the year ended December 31, 2007
|
For
the period from inception (June 23, 2006) to
December
31, 2006
|
||||||
|
Revenue
|
$
|
847
|
$
|
-
|
|||
|
Cost
of goods sold
|
808
|
-
|
|||||
|
Gross
margin
|
39
|
-
|
|||||
|
Operating
expenses
|
|||||||
|
Selling,
general and administrative
|
12,466
|
375
|
|||||
|
Research
and development
|
10,850
|
508
|
|||||
|
Write-off
of acquired in-process research and development
|
243,761
|
-
|
|||||
|
Other
operating expenses, principally amortization of intangible
assets
|
150
|
-
|
|||||
|
Total
operating expenses
|
267,227
|
883
|
|||||
|
Operating
loss
|
(267,188
|
)
|
(883
|
)
|
|||
|
Other
(expense) income, net
|
(671
|
)
|
6
|
||||
|
Loss
before income taxes and investment loss from OTI
|
(267,859
|
)
|
(877
|
)
|
|||
|
Income
taxes
|
83
|
-
|
|||||
|
Loss
before investment loss from OTI
|
(267,776
|
)
|
(877
|
)
|
|||
|
Loss
from investment in OTI
|
(629
|
)
|
-
|
||||
|
Net
loss
|
(268,405
|
)
|
(877
|
)
|
|||
|
Preferred
stock dividend
|
(217
|
)
|
-
|
||||
|
Net
loss attributable to common shareholders
|
$
|
(268,622
|
)
|
$
|
(877
|
)
|
|
|
Loss
per share, basic and diluted
|
$
|
(2.09
|
)
|
$
|
(0.01
|
)
|
|
|
Weighted
average number of shares outstanding, basic
and diluted
|
128,772,080
|
58,733,556
|
|||||
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
53
OPKO
Health, Inc.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in
thousands except share data)
For
the
period from inception (June 23, 2006) to December 31,
2007
|
Series
A Preferred Stock
|
Series
C Preferred Stock
|
Common
Stock
|
Additional
Paid-In
|
Accumulated
|
||||||||||||||||||||||||
|
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Capital
|
Deficit
|
Total
|
||||||||||||
|
Issuance
of capital stock to founders of
Froptix, $0.01 per share
|
-
|
$
|
-
|
-
|
$
|
-
|
61,775,002
|
$
|
618
|
$
|
20
|
$
|
-
|
$
|
638
|
|||||||||||||
|
Equity-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
260
|
-
|
260
|
|||||||||||||||||||
|
Net
loss for the period from inception (June
23, 2006) to December 31, 2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(877
|
)
|
(877
|
)
|
|||||||||||||||||
|
Balance
at December 31, 2006
|
-
|
-
|
-
|
-
|
61,775,002
|
618
|
280
|
(877
|
)
|
21
|
||||||||||||||||||
|
Equity-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
7,373
|
-
|
7,373
|
|||||||||||||||||||
|
Issuance
of equity securities for net monetary
assets at $0.43 per share
|
1,081,750
|
11
|
-
|
-
|
36,607,023
|
366
|
15,626
|
-
|
16,003
|
|||||||||||||||||||
|
Issuance
of equity securities to acquire Acuity
Pharmaceuticals, Inc. at $2.65 per
share
|
-
|
-
|
457,603
|
5
|
14,778,556
|
148
|
234,470
|
-
|
234,623
|
|||||||||||||||||||
|
Issuance
of equity securities to acquire Ophthalmic
Technologies, Inc. at $2.57
per share
|
-
|
-
|
-
|
-
|
2,682,928
|
27
|
6,905
|
-
|
6,932
|
|||||||||||||||||||
|
Issuance
of equity securities to acquire software
at $3.79 per share
|
-
|
-
|
-
|
-
|
30,000
|
- |
114
|
-
|
114
|
|||||||||||||||||||
|
Issuance
of common stock in private placement
to related party at $1.84 per
share
|
-
|
-
|
-
|
-
|
10,869,565
|
109
|
19,891
|
-
|
20,000
|
|||||||||||||||||||
|
Issuance
of common stock upon automatic
conversion of Series C preferred
stock
|
-
|
-
|
(457,603
|
)
|
(5
|
)
|
45,760,300
|
457
|
(452
|
)
|
-
|
-
|
||||||||||||||||
|
Conversion
of Series A preferred stock
|
(213,751
|
)
|
(2
|
)
|
-
|
-
|
213,751
|
2
|
-
|
-
|
-
|
|||||||||||||||||
|
Exercise
of common stock options
|
-
|
-
|
-
|
-
|
641,972
|
6
|
117
|
-
|
123
|
|||||||||||||||||||
|
Exercise
of common warrants
|
-
|
-
|
-
|
-
|
4,985,511
|
50
|
(50
|
)
|
-
|
-
|
||||||||||||||||||
|
Preferred
stock dividend
|
86,800
|
1
|
-
|
-
|
-
|
- |
|
(1
|
)
|
-
|
-
|
|||||||||||||||||
|
Net
loss for the year ended December
31, 2007
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(268,405
|
)
|
(268,405
|
)
|
|||||||||||||||||
|
Balance
at December 31, 2007
|
954,799
|
$
|
10
|
-
|
$
|
-
|
178,344,608
|
$
|
1,783
|
$
|
284,273
|
$
|
(269,282
|
)
|
$
|
16,784
|
||||||||||||
The
accompanying Notes to Consolidated Financial Statements are an integral part
of
these statements.
54
OPKO
Health, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
For
the year ended December 31, 2007
|
For
the period from inception (June 23, 2006) to December 31,
2006
|
||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
loss
|
$
|
(268,405
|
)
|
$
|
(877
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
|
Depreciation
and amortization
|
184
|
-
|
|||||
|
Write-off
of acquired in-process research and development
|
243,761
|
-
|
|||||
|
Accretion
of debt discount related to notes payable
|
279
|
-
|
|||||
|
Loss
from investment in OTI
|
629
|
|
-
|
||||
|
Equity
based compensation - employees and non-employees
|
7,373
|
260
|
|||||
|
Changes
in:
|
|||||||
|
Accounts
receivable
|
(554
|
)
|
-
|
||||
|
Inventory
|
(317
|
)
|
-
|
||||
|
Prepaid
expenses and other current assets
|
(789
|
)
|
-
|
||||
|
Accounts
payable
|
(607
|
)
|
95
|
||||
|
Accrued
expenses
|
1,497
|
-
|
|||||
|
Net
cash used in operating activities
|
(16,949
|
)
|
(522
|
)
|
|||
|
Cash
flows from investing activities
|
|||||||
|
Investment
in 33% of Ophthalmic Technologies, Inc.
|
(5,000
|
)
|
-
|
||||
|
Acquisition
of businesses, net of cash
|
2,751
|
-
|
|||||
|
Capital
expenditures
|
(489
|
)
|
-
|
||||
|
Net
cash used in investing activities
|
(2,738
|
)
|
-
|
||||
|
Cash
flows from financing activities:
|
|||||||
|
Issuance
of common stock for cash to related party
|
20,000
|
638
|
|||||
|
Issuance
of common stock
|
16,284 |
-
|
|||||
|
Borrowings
under line of credit with related party
|
8,000
|
-
|
|||||
|
Insurance
financing
|
152
|
-
|
|||||
|
Proceeds
from the exercise of stock options
|
123
|
-
|
|||||
|
Repayments
of notes payable and capital lease obligations
|
(1,615
|
)
|
-
|
||||
|
Net
cash provided by financing activities
|
42,944
|
638
|
|||||
|
Net
change in cash and cash equivalents
|
23,257
|
116
|
|||||
|
Cash
and cash equivalents at beginning of period
|
116
|
-
|
|||||
|
Cash
and cash equivalents at end of period
|
$
|
23,373
|
$
|
116
|
|||
The
accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
55
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 Business and Organization
OPKO
Health, Inc. ("we" or the "Company") is a specialty healthcare company
focused on the discovery, development, and commercialization of proprietary
pharmaceuticals, diagnostic and imaging systems and instrumentation products
for
the treatment, diagnosis and management of ophthalmic diseases. We continue
to
seek to expand our current operations by acquiring additional ophthalmic
businesses and pharmaceutical and instrumentation technologies, as well as
exploring opportunities in other medical markets that have operational
characteristics similar to ophthalmology, such as dermatology. We are a Delaware
corporation, headquartered in Miami, Florida, with instrumentation operations
in
Toronto, Ontario and our clinical operations in Morristown, New Jersey.
On
June
8, 2007, we changed our name to OPKO Health, Inc. from eXegenics, Inc. Through
March 26, 2007, eXegenics was a public shell company whose assets consisted
of
cash and nominal other assets. On February 9, 2007, eXegenics, completed the
sale of 19,440,491 shares of its common stock for $8.0 million, constituting
51%
of its issued and outstanding shares of capital stock on a fully diluted basis,
to a small group of investors led by The Frost Group, LLC, or the Frost Group,
a
related party. The Frost Group members include a trust controlled by Dr. Phillip
Frost, who is the Company’s Chief Executive Officer and Chairman of the board of
directors, Dr. Jane H. Hsiao, who is the Company's Vice Chairman of the
board of directors and Chief Technical Officer, Steven D. Rubin who is the
Company's Executive Vice President - Administration and a director, and Rao
Uppaluri who is the Company's Chief Financial Officer. On March 27, 2007,
pursuant to the terms of a Merger Agreement and Plan of Reorganization, Froptix
Corporation, or Froptix, a development stage research and development company,
controlled by the Frost Group, and Acuity Pharmaceuticals, Inc., or Acuity,
a
development stage research and development company, and eXegenics were part
of a
three-way merger. Per that agreement, eXegenics issued new capital stock to
acquire all of the issued and outstanding capital stock of Froptix and Acuity.
Per
that agreement, eXegenics issued new capital stock to acquire all of the issued
and outstanding capital stock of Froptix and Acuity.
Froptix was
the
accounting acquirer in the three-way merger which was accounted for
as:
| · |
a
reverse merger between Froptix and eXegenics (a public shell company).
For
accounting purposes Froptix has been treated as the continuing registrant.
As a result, all post merger comparative historical financials statements
filed by us will be those of Froptix. Froptix was incorporated on
June 23,
2006. Further, Froptix’ historical shareholders’ equity prior to the
merger has been retroactively restated (recapitalized) for the equivalent
number of shares received in the reverse merger. Earnings and loss
per
share calculations have also been retroactively restated to give
effect to
the recapitalization for all periods presented. Lastly, the merger
between
Froptix and eXegenics has been accounted for as a capital transaction
equivalent to the issuance of capital stock by Froptix for the net
monetary assets of eXegenics.
|
| · |
an
asset acquisition of Acuity by Froptix. Refer to Note
2
|
As
a
result, at the closing of the Mergers, we issued (a) an aggregate of 61,775,002
shares of our common stock to the former holders of Froptix common stock, (b)
an
aggregate of 14,778,556 shares of our common stock to the former holders of
Acuity common stock and Acuity Series A preferred stock, and (c) an aggregate
45,760,300 shares of our common stock, to the former holders of Acuity Series
B
preferred stock which had converted into 457,603 shares of our Series C
preferred stock prior to the Series C preferred stock converting into our common
stock on June 23, 2007. We also granted 28,358,857 warrants to purchase shares
of our common stock to former shareholders of Froptix and Acuity and 15,810,115
options to purchase our common stock to former option holders of Froptix and
Acuity and 1,686,600 warrants to purchase our common stock, which had been
warrants to purchase our Series C preferred stock prior to our Series C
preferred stock converting to common stock on June 23, 2007. As
consideration for an increase in our credit line with the Frost Group, we
granted to the Frost Group an additional 4,000,000 warrants to purchase our
common stock in connection with the Mergers.
On
November 28, 2007, we completed the acquisition of Ophthalmic Technologies,
Inc., or OTI and
as a
result we are no longer a development-stage company. Refer to Note
2.
Note
2 Acquisitions
On
March
27, 2007, we acquired Acuity in a stock for stock transaction. Refer to Note
1.
We valued our common stock issued to Acuity shareholders at the average closing
price of the common stock on the date of acquisition and the two days prior
to
the transaction. Acuity’s primary focus prior to our acquisition had been on the
development of its lead compound, bevasiranib, for the treatment of Wet
Age-Related Macular Degeneration, or Wet AMD. We believe the acquisition of
Acuity was complementary to our platform of compounds for ophthalmic diseases
and that Acuity had an advanced clinical product.
56
On
April
13, 2007, we invested $5 million in exchange for common shares of
Ophthalmic Technologies, Inc., or OTI, equaling one-third of the outstanding
equity of OTI. On November 28, 2007, we acquired the remaining outstanding
shares of OTI and issued approximately 2.7 million shares of our common stock
based upon a purchase price of $10,000,000 and a value of $3.55 per share.
OTI
provides diagnostic and imaging systems to eye care professionals worldwide
through its distributor network which covers over 60 countries. We believe
our
acquisition of OTI will provide a complementary product line to our
pharmaceutical business that will improve physician treatment decisions and
enhance outcomes for a variety of ocular disorders. The minority interest
results in OTI from April 13, 2007 through our acquisition of OTI on November
28, 2007 have been included in our financial statements.
The
following table summarizes the estimated fair value of the net assets acquired
and liabilities assumed in the acquisition of Acuity and OTI at the dates of
acquisition:
|
(in
thousands)
|
||||
|
Current
assets (including cash of $ 2,751)
|
$
|
6,032
|
||
|
Property
and equipment
|
85
|
|||
|
In-process
research and development
|
243,761
|
|||
|
Intangible
assets
|
8,087
|
|||
| Other assets | 602 | |||
|
Goodwill
|
1,732
|
|||
|
Accounts
payable and accrued expenses
|
(6,528
|
)
|
||
|
Line
of credit and term loan
|
(7,419
|
)
|
||
|
Total
purchase price
|
$
|
246,352
|
||
The
portion of the purchase price allocated to in-process research and development
of $243.8 million relates to the acquisition of Acuity and was immediately
expensed. The purchase price of Acuity includes $1.5 million of costs incurred
by us to acquire Acuity, including $1.3 million of costs associated with the
issuance of warrants to the Frost Group as a result of the increase of the
credit line with Acuity. Refer to Note 5. The purchase consideration issued
and
the purchase price allocation are preliminary pending completion of related
valuation procedures and as a result, the amounts are subject to
change.
The
following table summarizes that fair value assigned to our major intangible
assets classes:
|
(in
thousands)
|
Fair
value assigned
|
Weighted
average amortization period
|
|||||
|
Technology
|
$
|
4,597
|
10
years
|
||||
|
Customer
relationships
|
2,978
|
3
years
|
|||||
|
Covenants
not to compete
|
317
|
3
years
|
|||||
|
Tradename
|
195
|
3
years
|
|||||
|
Total
amortizing intangible assets
|
8,087
|
||||||
|
Goodwill
|
1,732
|
Indefinite
|
|||||
|
Total
intangible assets acquired
|
$
|
9,819
|
|||||
All
of
the intangible assets acquired and goodwill acquired relate to our acquisition
of OTI.
The
following table includes the pro forma results for the year ended December
31, 2007 and the period from inception (June 23, 2006) to December 31, 2006
of
the combined companies as though the acquisitions of Acuity and OTI had been
completed as of the beginning of each period, respectively.
|
(in
thousands, except per share amounts)
|
For
the year ended December 31, 2007
|
Period
from inception (June 23, 2006) through December 31, 2006
|
|||||
|
Revenue
|
$
|
12,148
|
$
|
5,570
|
|||
|
Net
loss
|
$
|
(278,097
|
)
|
$
|
(7,577
|
)
|
|
|
Basic
and diluted loss per share
|
$
|
(2.06
|
)
|
$
|
(0.10
|
)
|
|
57
This
unaudited pro forma financial information is presented for informational
purposes only. The unaudited pro forma financial information may not
necessarily reflect our future results of operations or what the results of
operations would have been had we owned and operated each company as of the
beginning of the periods presented.
Note
3 Summary of Significant Accounting Policies
Basis
of Presentation.
The
accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and with the instructions to Form 10-K and of Regulation S-X.
Use
of Estimates.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents.
We
consider all non-restrictive, highly liquid short-term investments purchased
with a maturity of three months or less on the date of purchase to be cash
equivalents.
Inventories.
Inventories are valued at the lower of cost or market (net realizable value).
Cost is determined by the first-in, first-out method.
Property
and Equipment.
Property and equipment are recorded at cost. Depreciation is provided using
the
straight-line method over the estimated useful lives of the assets, generally
five to ten years and includes amortization expense for assets capitalized
under capital leases. Expenditures for repairs and maintenance are charged
to
expense as incurred, while betterments are capitalized. Depreciation expense
for
the year ended December 31, 2007 was $35 thousand. We did not have any property
or equipment for the period from inception (June 23, 2006) to December 31,
2006 and as a result did not incur depreciation expense for that
period.
Goodwill
and Other Intangible Assets.
Goodwill represents the difference between the purchase price and the estimated
fair value of the net assets acquired when accounted for by the purchase method
of accounting and arises from our acquisition of OTI. Refer to Note 2. In
accordance with SFAS 142, “Goodwill and Intangible Assets,” we do not amortize
goodwill. Also in accordance with FAS 142, we will perform an annual impairment
test of goodwill. We
test
for impairment annually during the fourth quarter. We will continue to
evaluate our goodwill for impairment annually and whenever events and changes
in
circumstances suggest that the carrying amount may not be recoverable.
We
amortize intangible assets with definite lives on a straight-line basis over
their estimated useful lives, ranging from 3 to 10 years, and review for
impairment at least annually, or sooner when events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Amortization expense for the year ended December 31, 2007 was
$0.2
million. We did not have any intangible assets for the period from inception
to
December 31, 2006 and as a result did not incur amortization expense for that
period. Amortization expense for the years ended December 31, 2008, 2009, 2010,
2010 and 2011 is expected to be $1.6 million, $1.6 million, $1.5 million, $0.5
million and $0.5 million, respectively.
Impairment
of Long-Lived Assets.
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets, long-lived assets,
such as property and equipment, are reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable. Recoverability of assets to be held and used is measured by
a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of
an
asset exceeds its estimated future cash flows, then an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds
the
fair value of the asset.
58
Research
and Development.
Research and development costs are charged to expense as incurred. We
record expense for in-process research and development projects acquired which
have not reached technological feasibility and which have no alternative
future use.
Income
Taxes.
Income
taxes are accounted for under the asset-and-liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and the respective tax bases and operating
loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the enactment date. We
periodically evaluate the realizability of our net deferred tax assets. Our
tax
accruals
are analyzed periodically and adjustments are made as events occur to warrant
such adjustment.
Loss
Per Common Share.
Basic
and diluted earnings or loss per common share is based on the net loss increased
by dividends on preferred stock divided by the weighted average number of common
shares outstanding during the period. In the periods in which their effect
would
be anti-dilutive, no effect has been given to outstanding options, warrants
or
convertible preferred stock in the diluted computation. As of December 31,
2007,
we have 178,344,608 common shares outstanding, in addition, we have
options, warrants and convertible preferred stock outstanding at December 31,
2007 that, if converted or exercised would result in the issuance of an
additional 45,934,615 shares of common stock, resulting in 224,279,223 potential
common shares outstanding. The diluted loss per share does not include the
weighted average impact of the outstanding options and warrants of
30,508,179 for the year ended December 31, 2007 because their inclusion
would have been anti-dilutive.
Revenue
Recognition and Allowance for Doubtful
Accounts. Generally,
we recognize revenue from product sales when goods are shipped and title and
risk of loss transfer to our customers. Certain
of our products are sold directly to end-users and require that we deliver,
install and train the staff at the end-users’ facility. As a result, we do not
recognize revenue until the product is delivered, installed and training has
occurred.
Estimated
allowances for sales returns are based upon our history of product returns.
The
amount of allowance for doubtful accounts at December 31, 2007 was $0.5
million.
Equity-Based
Compensation.
We
follow the provisions of Financial Accounting Standards Board (“FASB”) Statement
of Financial Accounting Standards (“Statement”) No. 123 (revised 2004),
Share-Based Payment (“SFAS 123R”), which requires that a company measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost is
recognized in the statement of operations over the period during which an
employee is required to provide service in exchange for the award. SFAS 123R
also requires that excess tax benefits, as defined, realized from the exercise
of stock options be reported as a financing cash inflow rather than as a
reduction of taxes paid in cash flow from operations. Refer to Note 8.
Equity-based compensation arrangements to non-employees are accounted for in
accordance with SFAS No. 123R and Emerging Issues Task Force Issue No. 96-18
(EITF 96-18), “Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,”
which requires that these equity instruments be recorded at their fair
value on the measurement date. The measurement of equity-based compensation
is
subject to periodic adjustment as the underlying equity instruments vest.
Comprehensive
income or loss.
Our
comprehensive loss has no components other than net loss for all periods
presented.
Segment
reporting.
Our
chief operating decision-maker (or “CODM”) is comprised of our executive
management with the oversight of our board of directors. Our CODM review our
operating results and operating plans and make resource allocation decisions
on
a company-wide or aggregate basis. Accordingly, we operate as one segment.
Our
products are being used by and developed for retina specialists,
ophthalmologists, and optometrists. During 2007, all of our instrumentation
products were sold internationally.
59
New
accounting pronouncements:
In July
2006, the FASB issued Interpretation Number 48, Accounting for Uncertainty
in Income Taxes, or FIN 48. FIN 48 applies to all tax positions within the
scope
of SFAS 109, applies a “more likely than not” threshold for tax benefit
recognition, identifies a defined methodology for measuring benefits, and
increases the disclosure requirements for companies. FIN 48 is mandatory for
years beginning after December 15, 2006; accordingly, we adopted FIN 48
effective January 1, 2007. Refer to Note 9.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS
157. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. This Statement applies to other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. We will adopt SFAS 157 beginning in the first quarter
of our 2008 fiscal year and do not expect the impact to be material to our
financial position or results of operations.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, or SFAS 159, which gives companies the option
to measure eligible financial assets, financial liabilities, and firm
commitments at fair value (i.e., the fair value option), on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted
for at fair value under other accounting standards. The election to use the
fair
value option is available when an entity first recognizes a financial asset
or
financial liability or upon entering into a firm commitment. Subsequent changes
in fair value must be recorded in earnings. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We will
adopt SFAS 159 beginning in the first quarter of our 2008 fiscal year and do
not
expect the impact to be material to our financial position or results of
operations.
In
June
2007, the EITF issued EITF Issue 07-03, Accounting for Advance Payments for
Goods or Services to Be Used in Future Research and Development, or EITF 07-03.
EITF 07-03 addresses the accounting for the non-refundable portion of a payment
made by a research and development entity for future research and development
activities. Under EITF 07-03, an entity would defer and capitalize
non-refundable advance payments made for research and development activities
until the related goods are delivered or the related services are performed.
EITF 07-03 is effective for fiscal years beginning after December 15, 2007.
We
plan to adopt EITF 07-03 beginning in the first quarter of our 2008 fiscal
year
and do not expect the impact to be material to our financial position or results
of operations.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS
141R
will require, among other things, the expensing of direct transaction costs,
including deal costs and restructuring costs as incurred, acquired IPR&D
assets to be capitalized, certain contingent assets and liabilities to be
recognized at fair value and earn-our arrangements, including contingent
consideration, may be required to be measured at fair value until settled,
with
changes in fair value recognized each period into earnings. In addition,
material adjustments made to the initial acquisition purchase accounting
will be
required to be recorded back to the acquisition date. This will cause companies
to revise previously reported results when reporting comparative financial
information in subsequent filings. SFAS No. 141R is effective for the Company
on
a prospective basis for transactions occurring in 2009 and earlier adoption
is
not permitted. SFAS No. 141R may have a material impact on the Company’s
consolidated financial position, results of operations and cash flows
if we enter into material business combinations after the standard’s
effective date.
60
Note
4 Composition of Certain Financial Statement Captions
|
December
31,
|
|||||||
|
(in
thousands)
|
2007
|
2006
|
|||||
|
Accounts
receivable, net
|
|||||||
|
Accounts
receivable
|
$
|
2,154
|
$
|
-
|
|||
|
Less
allowance for doubtful accounts
|
(465
|
)
|
-
|
||||
|
$
|
1,689
|
$
|
-
|
||||
|
Inventories
|
|||||||
|
Raw
materials (components)
|
$
|
1,913
|
-
|
||||
|
Finished
products
|
301
|
-
|
|||||
|
Less
provision for inventory reserve
|
-
|
-
|
|||||
|
$
|
2,214
|
$
|
-
|
||||
|
Prepaid
expenses and other current assets
|
|||||||
|
Prepaid
clinical trial expenses
|
$
|
511
|
$
|
-
|
|||
|
Prepaid
insurance
|
426
|
-
|
|||||
|
Prepaid
supplies
|
456
|
-
|
|||||
|
Canadian
tax credit recoverable
|
225
|
-
|
|||||
|
Other
|
318
|
-
|
|||||
|
$
|
1,936
|
$
|
-
|
||||
|
Property
and equipment, net
|
|||||||
|
Machinery
and equipment
|
$
|
153
|
$
|
-
|
|||
|
Furniture
and fixtures
|
207
|
-
|
|||||
|
Software
|
117
|
-
|
|||||
|
Leasehold
improvements
|
27
|
-
|
|||||
|
Less
accumulated depreciation
|
(94
|
)
|
-
|
||||
|
$
|
410
|
$
|
-
|
||||
|
Intangible
assets
|
|||||||
|
Technology
|
$
|
4,597
|
$
|
-
|
|||
|
Customer
relationships
|
2,978
|
-
|
|||||
|
Covenants
not to compete
|
317
|
-
|
|||||
|
Tradename
|
195
|
-
|
|||||
|
Other
|
262
|
-
|
|||||
|
Less
amortization
|
(150
|
)
|
-
|
||||
|
Goodwill
|
1,732
|
-
|
|||||
|
$
|
9,931
|
$
|
-
|
||||
|
Accrued
expenses
|
|||||||
|
Accrued
royalties
|
$
|
313
|
$
|
-
|
|||
|
Accrued
distributor commissions
|
187
|
-
|
|||||
|
Product
warranties - medical device products
|
221
|
-
|
|||||
|
Clinical
trials
|
1,495
|
-
|
|||||
|
Customer
deposits
|
511
|
-
|
|||||
|
Other
|
1,131
|
95
|
|||||
|
|
$
|
3,858
|
$
|
95
|
|||
Note
5 Debt
On
January 11, 2007, Acuity entered into an agreement with the Frost Group whereby
the Frost Group provided a subordinated secured line of credit of up to $7.0
million to Acuity. In exchange for entering into this agreement, Acuity agreed
to grant to the Frost Group a warrant to purchase Acuity Series B Preferred
Stock which after the Merger became warrants to acquire up
to 647,800 shares of our common stock at an exercise price of approximately
$0.3854 per share and warrants to acquire Acuity
common stock which after the Merger become warrants to acquire
81,085 shares of our common stock at an exercise price of $0.0019
per share.
In
connection with the acquisition of Acuity, we assumed the rights and obligations
of Acuity under this line of credit. We also amended and restated this line
of
credit to increase the borrowing capacity to $12.0 million and assume
Acuity’s existing obligation to repay $4.0 million outstanding under the prior
line of credit. During 2007, we drew down the remaining available funds of
$8.0
million for a total of $12.0 million borrowed. We are obligated to pay interest
upon maturity, compounded quarterly on borrowings under the line of credit
at a
10% annual rate, which is due on July 11, 2009. The line of credit is
collateralized by all of our personal property, except intellectual property.
In
connection with the assumption and amendment of the line of credit, we granted
warrants to purchase 4,000,000 shares of our common stock to the Frost Group.
The fair value of the warrants was determined to be $12.4 million using the
Black-Scholes option valuation model. Because the issuance of the warrants
and
the increase in the line of credit were conditioned upon the completion of
the
Mergers, the value of the warrants has been allocated on a relative fair value
basis to the cost of the Acuity acquisition ($1.3 million), the cost of the
reverse merger between Froptix and eXegenics ($11.0 million) and debt commitment
fee ($0.1 million).
61
We
also
assumed the rights and obligations of Acuity’s $4.0 million term loan ($2.4
million outstanding of December 31, 2007) with Horizon Financial, Inc., in
connection with the Mergers. The term loan bears interest at 12.23%, which
is
payable monthly. The principal is payable in 12 equal monthly
installments which began August 2007. On January 11, 2008, we
repaid in full all outstanding amounts and terminated all of our commitments
under the term loan with Horizon.
Note
6 Equity Offering
On
December 5, 2007, in exchange for a $20 million cash investment in the Company,
we issued 10,869,565 shares of our common stock, par value $.01, to members
of
the Frost Group. The shares were issued at a price of $1.84 per share,
representing an approximately 40% discount to the average trading price of
our
stock on the American Stock Exchange for the five trading days immediately
preceding the date the board of directors and stockholders approved the issuance
of the shares. The shares issued in the private placement are restricted
securities, subject to a two year lockup, and no registration rights have been
granted. Refer to Note 11.
Note
7 Stockholders’ Equity
Our
authorized capital stock consists of 500,000,000 shares of common stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01
per share.
Common
Stock
Subject
to the rights of the holders of any shares of preferred stock currently
outstanding or which may be issued in the future, the holders of the common
stock are entitled to receive dividends from our funds legally available when,
as and if declared by our board of directors, and are entitled to share ratably
in all of our assets available for distribution to holders of common stock
upon
the liquidation, dissolution or winding-up of our affairs subject to the
liquidation preference, if any, of any then outstanding shares of preferred
stock. Holders of our common stock do not have any preemptive, subscription,
redemption or conversion rights. Holders of our common stock are entitled to
one
vote per share on all matters which they are entitled to vote upon at meetings
of stockholders or upon actions taken by written consent pursuant to Delaware
corporate law. The holders of our common stock do not have cumulative voting
rights, which means that the holders of a plurality of the outstanding shares
can elect all of our directors. All of the shares of our common stock currently
issued and outstanding are fully-paid and nonassessable. No dividends have
been
paid to holders of our common stock since our incorporation, and no cash
dividends are anticipated to be declared or paid in the reasonably foreseeable
future.
62
In
addition to our equity-based compensation plans, we have warrants to purchase
our common stock. Refer to Note 8 for additional information on our
share-based compensation plans. The table below provides additional information
for warrants outstanding as of December 31, 2007. In connection with the
Mergers, we issued a total of:
|
Warrants
|
Number
of warrants
|
Weighted
average exercise price
|
Expiration
date
|
|||||||
|
Outstanding
at December 31, 2006
|
-
|
-
|
-
|
|||||||
|
Issued
to former Acuity warrant holders’
|
6,472,652
|
$
|
0.02
|
Various
2015-2016
|
||||||
|
Issued
to Acuity shareholders’
|
6,253,236
|
$
|
0.86
|
March
27, 2017
|
||||||
|
Issued
to Acuity Series B warrant holders
|
1,686,000
|
$
|
0.39
|
Various
2015-2017
|
||||||
|
Issued
to Froptix shareholders’
|
15,632,969
|
$
|
0.86
|
March
27, 2017
|
||||||
|
Issued
in conjunction with debt commitment
|
4,000,000
|
$
|
0.50
|
March
27, 2017
|
||||||
|
Issued
to eXegenics warrant holders
|
290,000
|
$
|
0.75
|
August
13, 2007 through March 5, 2008
|
||||||
|
Exercised
|
(5,537,475
|
)
|
||||||||
|
Expired
|
(125,000
|
)
|
||||||||
|
Outstanding
at December 31, 2007
|
28,672,382
|
|||||||||
|
Exercisable
at December 31, 2007
|
28,672,382
|
|||||||||
Of
the
5,537,475 warrants exercised to purchase common stock, 551,964 shares were
surrendered in lieu of a cash payment via the net exercise feature of the
warrant agreements.
Preferred
Stock
Under
our
certificate of incorporation, our board of directors has the authority, without
further action by stockholders, to designate up to 10 million shares of
preferred stock in one or more series and to fix or alter, from time to time,
the designations, powers and rights of each series of preferred stock and the
qualifications, limitations or restrictions of any series of preferred stock,
including dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices, and the liquidation preference of any wholly issued series
of
preferred stock, any or all of which may be greater than the rights of the
common stock, and to establish the number of shares constituting any such
series.
Series
A Preferred Stock
Of
the
authorized preferred stock, 4,000,000 shares have been designated Series A
preferred stock. Dividends are payable on the Series A preferred stock in
the amount of $0.25 per share, payable annually in arrears. At the option of
our
board of directors, dividends will be paid either (i) wholly or partially in
cash or (ii) in newly issued shares of Series A preferred stock valued at $2.50
per share to the extent cash dividend is not paid.
Holders
of Series A preferred stock have the right to convert their shares, at their
option exercisable at any time, into shares of our common stock on a one-for-one
basis subject to anti-dilution adjustments. These anti-dilution adjustments
are
triggered in the event of any subdivision or combination of our outstanding
common stock, any payment by us of a stock dividend to holders of our common
stock or other occurrences specified in the certificate of designations relating
to the Series A preferred stock. We may elect to convert the Series A preferred
stock into common stock or a substantially equivalent preferred stock in the
case of a merger or consolidation in which we do not survive, a sale of all
or
substantially all of our assets or a substantial reorganization of us.
Each
share of Series A preferred stock is entitled to one vote on all matters on
which the common stock has the right to vote. Holders of Series A preferred
stock are also entitled to vote as a separate class on any proposed adverse
change in the rights, preferences or privileges of the Series A preferred stock
and any increase in the number of authorized shares of Series A preferred stock.
In the event of any liquidation or winding up of the Company, the holders of
the
Series A preferred stock will be entitled to receive $2.50 per share plus any
accrued and unpaid dividends before any distribution to the holders of the
common stock and any other class of series of preferred stock ranking junior
to
it.
63
We
may
redeem the outstanding shares of Series A preferred stock for $2.50 per share
(plus accrued and unpaid dividends), at any time.
Series
C Preferred Stock
Of
the
authorized preferred stock, 500,000 shares were designated Series C preferred
stock. On June 22, 2007, 457,603 Series C preferred stock were issued and
outstanding and held by 30 stockholders. Cumulative dividends were payable
on
the Series C preferred stock in the amount of $1.54 per share when declared
by
the board of directors. On June 22, 2007, all of the shares of Series C
preferred stock automatically converted into shares of common stock, on a
one-hundred-for-one basis.
64
Note
8 Equity-Based Compensation
We
maintain equity-based incentive compensation plans that provide for grants
of
stock options to our directors, officers, key employees and certain outside
consultants. Our 2007 Equity Incentive Plan includes all options assumed from
the companies combined in the Merger discussed in Note 1. Options granted
under the 1996 Stock Option Plan, 2000 Stock Option Plan and the plans assumed
from Froptix and Acuity are exercisable for a period of up to 10 years from
date
of grant. Options granted under the 2007 Equity Incentive Plan are exercisable
for a period up to 7 years. Vesting periods range from immediate to 4 years.
Adoption
of New Accounting Guidance and Transition
Upon
our
incorporation in June 2006, we adopted the fair value recognition provisions
of
SFAS No. 123R, which is a revision of SFAS No. 123, using the prospective
transition method.
SFAS
No.
123R requires that we classify the cash flows resulting from the tax benefit
that arises when the tax deductions exceed the compensation cost recognized
for
those options (excess tax benefits) as financing cash flows. There were no
excess tax benefits for the year ended December 31, 2007 or the period from
inception (June 23, 2006) to December 31, 2006.
Equity-based
compensation arrangements to non-employees are accounted for in accordance
with
SFAS No. 123R and Emerging Issues Task Force Issue No. 96-18 (EITF 96-18),
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services,” which requires
that these equity instruments are recorded at their fair value on the
measurement date. The measurement of equity-based compensation is subject to
periodic adjustment over the waiting time of the equity
instruments.
Valuation
and Expense Information
We
recorded equity based compensation expense of $7.4 million and $0.3
million, for the year ended December 31, 2007 and the period from inception
(June 23, 2006) to December 31, 2006, respectively, all of which were
reflected as operating expense. Of
the
$7.4 million of expense recorded during the year ended December 31, 2007, $4.4
million was included as selling, general and administration expense and $3.0
million was recorded as research and development expense. During
the third quarter of 2007, a reversal of equity-based compensation expense
of
$8.1 million was recorded as a result of the termination of a consulting
agreement prior to the vesting of any of the equity based awards issued under
a
consulting agreement. Originally, we accrued $0.3 million for this expense
during 2006 and $7.8 million during the first six months of
2007. During the 2006 period, all of the
equity-based compensation was recorded as selling, general and administration
expense. As of December 31, 2007, there was $16.0 million of total
unrecognized compensation cost related to non-vested stock options, which will
be expensed over a weighted-average period of 3.0 years. We did not recognize
a
tax benefit for equity-based compensation arrangements during the year ended
December 31, 2007.
As
required by SFAS No. 123R, we estimate forfeitures of stock options and
recognize compensation cost only for those awards expected to vest. Forfeiture
rates are determined for all employees and non-employee directors based on
historical experience and our estimate of future vesting. Estimated forfeiture
rates are adjusted from time to time based on actual forfeiture experience.
Stock
Options
In
accordance with SFAS No. 123R, we estimate the fair value of each stock option
on the date of grant using a Black-Scholes option-pricing formula, applying
the
following assumptions, and amortized the fair value to expense over the
option’s vesting period using the straight-line attribution approach for
employees and non-employee directors, and the amortization method allowed by
Financial Accounting Standards Board Interpretation 28, “Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans an
interpretation of APB Opinions No. 15 and 25”, for awards issued to
non-employees which allows for recognizing compensation expense on a graded
basis, with most of the compensation expense being recorded during the initial
period of vesting:
|
Year
Ended
|
||||
|
December
31, 2007
|
December
31, 2006
|
|||
|
Expected
term (in years)
|
3.5
- 9.7
|
9.5
|
||
|
Risk-free
interest rate
|
3.2%
- 5.2%
|
4.5%
|
||
|
Expected
volatility
|
73%
- 76%
|
35%
|
||
|
Expected
dividend yield
|
0%
|
0%
|
||
65
Expected
Term: The expected term of the stock options to employees and non-employee
directors was calculated using the shortcut method allowed by the provisions
of
SFAS No. 123R and interpreted by Staff Accounting Bulletin No. 110 (SAB 110).
We
believe this method is appropriate as our equity shares have been publicly
trade
for a limited period of time and as such we do not have sufficient historical
exercise data to provide a reasonable basis upon which to estimate expected
term. The expected term of stock options issued to non-employee
consultants is the remaining contractual life of the options
issued.
Risk-Free
Interest Rate: The risk-free interest rate is based on the rates paid on
securities issued by the U.S. Treasury with a term approximating the expected
life of the option.
Expected
Volatility: The expected volatility was based on a peer group of publicly-traded
stocks’ historical trading which we believe will be representative of the
volatility over the expected term of the options. We believe the peer group’s
historical volatility is appropriate as our equity shares have been publicly
traded for a limited period of time. The
expected volatility for the 2006 period utilized a different peer group than
the
year ended December 31, 2007 and as a result had a lower
volatility.
Expected
Dividend Yield: We do not intend to pay dividends on common stock for the
foreseeable future. Accordingly, we used a dividend yield of zero in the
assumptions.
We
maintain incentive stock plans that provide for the grants of stock options
to
our directors, officers, employees and outside consultants. For the year ended,
December 31, 2007, there were 18,038,329 shares of common stock reserved for
issuance under our 2007 Incentive Plan. We intend to issue new shares upon
the
exercise of options. Stock options granted under these plans have been granted
at an option price equal to the closing market value of the stock on the date
of
the grant. Options granted under these plans to employees typically become
exercisable over four years in equal annual installments after the date of
grant, and to non-employee directors become exercisable in full after one-year
after the grant date, subject to, in each case, continuous service with the
Company during the applicable vesting period. The Company assumed options to
grant common stock as part of the Merger, which reflected various vesting
schedules, including monthly vesting to employees and contractors.
A
summary
of option activity under our stock plans as of December 31, 2007 and the changes
during the year is presented below:
|
Options
|
Number
of options
|
Weighted
average exercise price
|
Weighted
average remaining contractual term (years)
|
Aggregate
intrinsic value (in thousands)
|
|||||||||
|
Outstanding
at December 31, 2006
|
4,436,878
|
$
|
0.01
|
||||||||||
|
Assumed
from Acuity Pharmaceuticals
|
11,373,237
|
0.14
|
|||||||||||
|
Assumed
from eXegenics
|
305,000
|
0.59
|
|||||||||||
|
Granted
|
5,220,000
|
4.45
|
|||||||||||
|
Conversion
of Series C Stock Options to Common Stock Options
|
731,700
|
0.32
|
|||||||||||
|
Exercised
|
(654,220
|
)
|
0.26
|
||||||||||
|
Forfeited
|
(5,103,216
|
)
|
0.04
|
||||||||||
|
Expired
|
(1,945
|
)
|
0.04
|
||||||||||
|
Outstanding
at December 31, 2007
|
16,307,434
|
$
|
1.53
|
6.2
|
$
|
29,979
|
|||||||
|
Vested
and expected to vest at December 31, 2007
|
15,172,394
|
$
|
1.45
|
6.1
|
$
|
28,826
|
|||||||
|
Exercisable
at December 31, 2007
|
8,529,411
|
$
|
0.20
|
5.2
|
$
|
22,571
|
|||||||
The
amount of compensation costs recorded in 2007 related to stock options awards
is
$7.4 million and $0.3 million was recorded during 2006. As of December 31,
2007,
there was $15.9 million of unrecognized compensation cost related to the stock
options granted under our stock plans. That cost is expected to be recognized
over a weighted-average period of 3 years. The per share weighted-average
fair value of stock options granted during 2007 was $2.73. The total intrinsic
value of stock options exercised was $2.3 million during 2007. There were no
stock option exercises during 2006, our year of inception.
66
Note
9
Income Taxes
Income
before income taxes was taxed in the U.S. and Canada.
The
provision (benefit) for incomes taxes consists of the following:
|
(in
thousands)
|
For the Year
Ended
December 31, 2007
|
For the period from
inception (June 23, 2006) through
December 31,
2006
|
|||||
|
Current
|
|||||||
|
Federal
|
$
|
-
|
$
|
-
|
|||
|
State
|
-
|
-
|
|||||
|
Foreign
|
(83
|
)
|
-
|
||||
|
(83
|
)
|
-
|
|||||
|
Deferred
|
|||||||
|
Federal
|
(5,274
|
)
|
(199
|
)
|
|||
|
State
|
(333
|
)
|
(30
|
)
|
|||
|
Foreign
|
(106
|
)
|
-
|
||||
|
(5,714
|
)
|
(229
|
)
|
||||
|
Total
|
(5,797
|
)
|
(229
|
)
|
|||
|
Change
in valuation allowance
|
5,714
|
229
|
|||||
|
Total,
net
|
$
|
(83
|
)
|
$
|
-
|
||
Deferred
income tax assets and liabilities as of December 31, 2007 and December
31, 2006
are comprised of the following:
|
(in
thousands)
|
December 31, 2007
|
December 31, 2006
|
|||||
|
Deferred
income tax assets
|
|||||||
|
Federal
net operating loss
|
$
|
8,726
|
$
|
229
|
|||
|
State
net operating loss
|
1,665
|
-
|
|||||
|
Foreign
net operating loss
|
509
|
||||||
|
Capitalized
research and development expense
|
4,916
|
||||||
|
Research
and development tax credit
|
781
|
-
|
|||||
|
Canadian
research and development pool
|
1,269
|
-
|
|||||
|
Amortization
and depreciation
|
304
|
-
|
|||||
|
Other
|
983
|
-
|
|||||
|
Deferred
income tax assets
|
19,153
|
229
|
|||||
|
Deferred
income tax liabilities
|
|||||||
|
Intangible
assets
|
(3,090
|
)
|
-
|
||||
|
Other
|
(3
|
)
|
-
|
||||
|
Deferred
income tax liabilities
|
(3,093
|
)
|
-
|
||||
|
Net
deferred income tax assets
|
16,060
|
229
|
|||||
|
Valuation
allowance
|
(16,924
|
)
|
(229
|
)
|
|||
|
Net
deferred income tax liabilities
|
$
|
(864
|
)
|
$
|
-
|
||
The
increase in deferred income tax assets, liabilities and valuation allowances
at
December 31, 2007 reflect the acquisition of various legal entities, including
the tax attributes. The acquisitions were accounted for under U.S. GAAP
as asset
acquisitions. As of December 31, 2007, we have net operating loss carryforwards
of approximately $31.2 million that expire at various dates through 2027.
We
have research and development tax credit carryforwards of $0.8 million
that
expire in varying amounts through 2027. We have determined a full valuation
allowance is required against all of our tax assets that we do not expect
to be
utilized by the turn around of deferred income tax liabilities and recorded
a
deferred tax liability for the temporary differences arising from the
acquisition of non-deductible identifiable intangible assets of OTI that
are in
excess of OTI's tax assets.
Under
Section 382 of the Internal Revenue Code of 1986, as amended, certain
significant changes in ownership may restrict the future utilization of
our
income tax loss carryforwards and income tax credit carryforwards in the
United
States. The annual limitation is equal to the value of our stock immediately
before the ownership change, multiplied by the long-term tax-exempt rate
(i.e.,
the highest of the adjusted Federal long-term rates in effect for any month
in
the three-calendar-month period ending with the calendar month in which
the
change date occurs). This limitation may be increased under the IRC§ 338
Approach (IRS approved methodology for determining recognized Built-In
Gain). As
a result, federal net operating losses and tax credits may expire before
we are
able to fully utilize them. As we have recorded a full valuation allowance
against our net deferred income tax assets, there is no current impact
of this
limitation for financial reporting purposes. We are currently undergoing
a study
to determine what, if any limitations we have on our income tax loss carry
forwards and income tax credit carryforwards.
67
Adoption
of FIN 48
Prior
to
January 1, 2007, we recognized income taxes with respect to uncertain tax
positions based upon SFAS No. 5, “ Accounting for Contingencies" , or SFAS No.
5. Under SFAS No. 5, we would record a liability associated with an uncertain
tax position if the liability was both probable and estimable. Prior to January
1, 2007, the liabilities recorded under SFAS No. 5 including interest and
penalties related to income tax exposures, would have been recognized as
incurred within “income taxes” in our consolidated statements of operations. We
recorded no such liabilities in 2006.
Effective
January 1, 2007, we adopted FIN 48, "Accounting for Uncertainty in Income
Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 requires that
we
determine whether the benefit of our tax positions are more likely than not
to
be sustained upon audit, based on the technical merits of the tax position.
For
tax positions that are more likely than not to be sustained upon audit, we
recognize the greatest amount of the benefit that is more likely than not
to be
sustained in our consolidated financial statements. For tax positions that
are
not more likely than not to be sustained upon audit, we do not recognize
any
portion of the benefit in our consolidated financial statements. The provisions
of FIN 48 also provide guidance on derecognition, classification, interest
and
penalties, accounting in interim periods, and disclosure.
Our
policy for interest and penalties under FIN 48, related to income tax exposures,
was not impacted as a result of the adoption of the recognition and measurement
provisions of FIN 48. Therefore, we continue to recognize interest and penalties
as incurred within “income taxes” in our consolidated statements of operations,
when applicable.
There
was
no change to our accumulated deficit as of January 1, 2007 as a result of
the
adoption of the recognition and measurement provisions of FIN 48.
Uncertain
Income Tax Positions
We
file
income tax returns in the U.S. federal jurisdiction, Canada federal jurisdiction
and with various U.S. states and the Ontario province in Canada. We are subject
to tax audits in all jurisdictions for which we file tax returns. Tax audits
by
their very nature are often complex and can require several years to complete.
There are currently no tax audits that have commenced with respect to income
returns in any jurisdiction.
U.S.
Federal: Under the tax statute of limitations applicable to the Internal
Revenue
Code, we are no longer subject to U.S. federal income tax examinations by
the
Internal Revenue Service for years before 2003. However, because we are carrying
forward income tax attributes, such as net operating losses and tax credits
from
2002 and earlier tax years, these attributes can still be audited when utilized
on returns filed in the future.
State:
Under the statutes of limitation applicable to most state income tax laws,
we
are no longer subject to state income tax examinations by tax authorities
for
years before 2003 in states in which we have filed income tax returns. Certain
states may take the position that we are subject to income tax in such states
even though we have not filed income tax returns in such states and, depending
on the varying state income tax statutes and administrative practices, the
statute of limitations in such states may extend to years before
2003.
Foreign:
Under the statutes of limitations applicable to our foreign operations,
we are
no longer subject to tax examination for years before 2003 in jurisdictions
we
have filed income tax returns.
As
a
result of our January 1, 2007 implementation of FIN 48, the total amount
of
gross tax benefits, excluding the offsetting full valuation allowance, that
became unrecognized, was approximately $0.4 million. There were no accrued
interest and penalties resulting from such unrecognized tax benefits. As
of
December 31, 2007, the total amount of gross unrecognized tax benefits was
approximately $0.9 million, and accrued interest and penalties on such
unrecognized tax benefits was $0.
The
following table reconciles the activity in our gross unrecognized income
tax
benefits.
|
(in
thousands)
|
||||
|
Unrecognized
tax benefits January 1, 2007
|
$
|
412
|
||
|
Gross
increases - tax positions in prior period
|
468
|
|||
|
Gross
decreases - tax positions in prior period
|
-
|
|||
|
Unrecognized
tax benefits at December 31, 2007
|
$
|
880
|
||
The
net
unrecognized tax benefits that, if recognized, would impact the effective
tax
rate as of December 31, 2007 and December 31, 2006, were $0 and $0,
respectively.
68
Other
Income Tax Disclosures
The
significant elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
|
For
the Year Ended
|
For
the period from inception
(June
23, 2006) through
December
31, 2006
|
||||||
|
|
December 31,
2007
|
December 31,
2006
|
|||||
|
Federal
statutory rate
|
(35.0
|
)%
|
(35.0
|
)%
|
|||
|
State
income taxes, net of federal benefit
|
(3.9
|
)
|
(3.3
|
)
|
|||
|
Acquired
in-process research and development
|
35.3
|
—
|
|||||
|
Valuation
allowance
|
2.1
|
38.3
|
|||||
|
Other
|
1.5
|
—
|
|||||
|
Total
|
0.0
|
%
|
—
|
%
|
|||
We
paid
no income taxes in 2007 or 2006.
The
following table reconciles our losses before income taxes by
jurisdiction:
|
(in
thousands)
|
For the Year Ended
December 31,
2007
|
For the Period from
Inception
(June 23, 2006)
through
December 31,
2006
|
|||||
|
Pre-tax
loss
|
|||||||
|
U.S.
|
$
|
(267,542
|
)
|
$
|
(877
|
)
|
|
|
Foreign
|
(317
|
)
|
-
|
||||
|
Total
|
$
|
(267,859
|
)
|
$
|
(877
|
)
|
|
Note
10
Supplemental Cash Flow Information
Supplemental
cash flow information is summarized as follows:
|
(in
thousands)
|
For
the Year Ended
December
31,
2007
|
For
the Period From Inception
(June
23, 2006) through
December
31,
2006
|
|||||
|
Interest
paid
|
$
|
370
|
$
|
-
|
|||
|
Non-cash
financing
|
|||||||
|
Issuance
of capital stock to acquire Acuity
|
$
|
243,623
|
$
|
-
|
|||
|
Issuance
of capital stock to acquire OTI
|
6,932
|
-
|
|||||
|
Issuance
of capital stock to acquire other
|
114
|
-
|
|||||
|
Total
non-cash financing
|
$
|
250,669
|
$
|
-
|
|||
Note
11 Related Party Transactions
In
June
2007, we paid the $125,000 filing fee to the Federal Trade Commission in
connection with filings made by us and Dr. Frost, our Chairman and Chief
Executive Officer, under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (“HSR”). The filings permitted Dr. Frost and his affiliates to acquire
additional shares of our common stock upon expiration of the HSR
waiting period on July 12, 2007.
In
November 2007, we entered into an office lease with Frost Real Estate Holdings,
LLC, an entity affiliated with Dr. Frost, the Company's Chairman of the
Board and Chief Executive Officer. The lease is for approximately 8,300 square
feet of space in an office building in Miami, Florida, where the Company's
principal executive offices are located. We had previously been leasing this
space from Frost Real Estate Holdings on a month-to-month basis while the
parties were negotiating the lease. The lease provides for payments of
approximately $18,000 per month in the first year increasing annually to $24,000
per month in the fifth year, plus applicable sales tax. The rent is inclusive
of
operating expenses, property taxes and parking. The rent for the first year
has
been reduced to reflect a $30,000 credit for the costs of tenant
improvements.
On
December 5, 2007, we issued 10,869,565 shares of the our common stock, par
value
$.01, to members of the Frost Group in exchange for a $20 million cash
investment, or $1.84 per share, representing an approximately 40% discount
to
the average trading price of our stock on the American Stock Exchange for the
five days preceding the date our board of directors and stockholders approved
the issuance of the shares. The shares issued in the private placement were
restricted securities, subject to a two year lockup, and no registration rights
have been granted.
As
part
of the Mergers, we assumed a line of credit with the Frost Group from Acuity
and
amended and restated that line of credit to increase borrowing availability.
In
connection with the increase of the borrowing availability, we issued 4,000,000
warrants to the Frost Group. Refer to Note 5.
69
Note
12 Employee Benefit Plans
Effective
January 1, 2007, the OPKO Health Savings and Retirement Plan, or the Plan,
permits employees to contribute up to 50% of qualified pre-tax annual
compensation up to annual statutory limitations. The discretionary company
match
for employee contributions to the Plan is 100% of up to the first 4% of the
participant’s earnings contributed to the Plan. Our matching contributions to
the plan were approximately $0.1 million in 2007.
Note
13 Commitments and Contingencies
We
have
agreed to indemnify one of our former employees for damages or losses incurred
by such employee in connection with a lawsuit by the employee’s previous
employer for alleged breach of fiduciary duty and tortious interference with
contractual relationships and prospective business. The plaintiff in this matter
has also sought leave to amend its complaint to add the Company and the Frost
Group, LLC as defendants. We are opposing this motion, and intend to vigorously
defend the matter in the event we are named as a defendant. It is too early
to
assess the probability of a favorable or unfavorable outcome, or the loss or
range of loss or indemnification obligation, if any, and therefore, no amounts
have been accrued relating to this action.
We
are a
party to litigation in the ordinary course of business. We do not believe that
any such litigation will have a material adverse effect on our business,
financial condition, or results of operations.
Note
14 Strategic Alliances
Our
strategy is to develop a portfolio of product candidates through a combination
of internal development and external partnerships. We have completed strategic
deals with the Trustees of the University of Pennsylvania, the University of
Illinois, the University of Florida Research Foundation, Pathogenics, Inc.,
and
Intradigm Corporation, among others.
The
Trustees of the University of Pennsylvania
In
March
2003, we entered into two world-wide exclusive license agreements with The
Trustees of the University of Pennsylvania to commercialize
siRNA targeting VEGF, HIF-1α, ICAM, and other therapeutic targets. In
consideration for the licenses, we are obligated to make certain milestone
payments to the University of Pennsylvania. We also agreed to pay the University
of Pennsylvania earned
royalties based on the number of products we sell that use the inventions
claimed in the licensed patents. We agreed to use commercially reasonable
efforts to develop, commercialize, market, and sell such products covered by
the
license agreements.
The
term
of the agreements is for the later of the expiration or abandonment of the
last
patent or ten years after the first commercial sale of the first licensed
product. We may terminate either of the agreements upon 60 days’ prior written
notice. The University of Pennsylvania may terminate either of the agreements
if
we are more than 90 days late in a payment owed to the University of
Pennsylvania, we breach the agreements and do not cure within 90 days after
receiving written notice from the University of Pennsylvania, if we become
insolvent, or we are involved in bankruptcy proceedings.
Intradigm
Corporation
In
June
2005, we entered into a license and collaboration agreement with Intradigm
Corporation, or Intradigm, for intellectual property covering the treatment
of
ophthalmic diseases characterized by excessive neovascularization, angiogenesis,
or leakage. Under the terms of the agreement, we have agreed to jointly develop
a topical siRNA compound. After selection the topical siRNA compound, we
are
obligated to use commercially reasonable efforts to market, distribute, and
sell
the topical siRNA in the United States and any selected foreign country.
We have
agreed to pay to Intradigm certain milestone payments upon the achievement
of
specified milestones and royalty payments on all net sales of the topical
siRNA
and other licensed products.
The
term
of the agreement is 20 years, unless earlier terminated in accordance with
the
agreement. Either party may terminate upon mutual written consent, upon written
notice by a party if the other party dissolves or enters into bankruptcy
or
insolvency proceedings, or upon 90 days prior written notice of a material
breach of the agreement without cure.
70
The
Board of Trustees of the University of Illinois
In
August
2006, we entered into an exclusive worldwide license agreement with The Board
of
Trustees of the University of Illinois to commercialize intellectual property
related to ophthalmic siRNA targeting TGF-bRII for the treatment of ophthalmic
disease. In September 2007, the license was amended to include all other fields
of use beyond the treatment of ophthalmic disease. The license agreement
obligates us to pay to the University of Illinois certain milestone payments
and
royalty payments on all net sales of licensed products and an annual license
fee
payment.
University
of Florida Research Foundation
In
April
2006, we entered into three world-wide exclusive license agreements with the
University of Florida Research Foundation. The license agreements obligate
us to
pay to University of Florida Research Foundation royalty payments on all net
sales of licensed products. We agreed to use our commercially reasonable
activities to commercialize products. The term of each of the agreements
is for the earlier of the date that no licensed patent remains an enforceable
patent or the payment of earned royalties under the agreement once begun, ceases
for more than two calendar quarters. We may terminate any of the agreements
upon
60 days’ prior written notice. The University of Florida Research Foundation may
terminate any of the agreements if we are more than 60 days late, after written
demand, for a payment owed to the University of Florida Research Foundation,
if
we breach the agreements and do not cure within 60 days after receiving written
notice from the University of Florida Research Foundation, or if we become
involved in bankruptcy proceedings.
Civamide
License
In
September 2007, we entered into an exclusive worldwide license to commercialize
intellectual property related to pharmaceutical compositions or preparations
containing civamide for the treatment of ophthalmic conditions in humans,
particularly dry eye. The license agreement obligates us to pay the licensor
certain milestone payments and royalty payments on all net sales of licensed
products thereunder and all costs of research and development necessary to
obtain marketing authorizations for such licensed products.
Wound
Dressing
In
October 2007, we entered into an exclusive worldwide license to commercialize
intellectual property related to a novel ocular product for use following
invasive retinal procedures to prevent the development of endophthalmitis,
a
devastating complication that can lead to blindness and loss of the affected
eye. The license agreement obligates us to make royalty payments on all net
sales of licensed products thereunder and all costs of research and development
necessary to obtain marketing authorizations for such licensed products.
Pathogenics
In
April
2006, we entered into a license agreement with Pathogenics, Inc. (“Pathogenics”)
under which we were granted an exclusive, irrevocable license, with the right
to
sublicense, under Pathogenics intellectual property to make, have made, use,
sell, offer for sale, import, or otherwise commercialize N-chlorotaurine and
licensed products for the treatment of ophthalmic disease or infection in any
territory. We were also granted non-exclusive rights to all data resulting
from
a phase I clinical trial with N-chlorotaurine in Austria. We are obligated
to
use commercially reasonable efforts to develop and commercialize the licensed
product, including commercially reasonable efforts to initiate pre-clinical
activities necessary to file an IND with the FDA to initiate a phase I clinical
trial for N-chlorotaurine for an ophthalmic indication. Pathogenics will have
a
non-exclusive right to such information for the treatment of non-ophthalmic
diseases or infections.
71
We
are
obligated to pay to Pathogenics certain milestone payments upon the achievement
of specified milestones and royalty payments on all net sales of licensed
products. We are also obligated to pay Pathogenics an annual minimum payment
if
the total payments made for such year are less than a specified minimum amount.
The term of the agreement is for the shorter of twenty years or the last to
expire of the Pathogenics intellectual property. We may terminate the agreement
for any reason upon written notice. The agreement may be terminated upon mutual
written consent of the parties, by either party upon written notice if either
party dissolves or is involved in a bankruptcy or insolvency proceeding or
upon
ninety days prior written notice if the other party is in material breach and
fails to cure.
Note
15 Leases
We
conduct certain of our operations under operating lease agreements. Rent expense
was approximately $0.3 million for the year ended December 31, 2007. We did
not
have any lease expense from the period from inception (June 23, 2006) through
December 31, 2006.
As
of
December 31, 2007, the aggregate future minimum lease payments under all
non-cancelable operating leases with initial or remaining lease terms in excess
of one year are as follows:
|
Year
Ending
|
(in
thousands)
|
|||
|
2008
|
$
|
333
|
||
|
2009
|
351
|
|||
|
2010
|
338
|
|||
|
2011
|
350
|
|||
|
2012
|
226
|
|||
|
Total
minimum lease commitments
|
$
|
1,598
|
||
The
following schedule summarizes future minimum lease payments under capital leases
with terms greater than one
year
as of December 31, 2007.
|
Year
Ending
|
(in
thousands)
|
|||
|
2008
|
9
|
|||
|
2009
|
6
|
|||
|
2010
|
2
|
|||
|
Total
minimum lease payments
|
17
|
|||
|
Less
imputed interest
|
(2
|
)
|
||
|
Present
value of minimum lease payments
|
15
|
|||
|
Current
portion
|
9
|
|||
|
Long-term
portion
|
$
|
6
|
||
72
Note
16 Selected Quarterly Financial Data (Unaudited)
|
For
the 2007 Quarters Ended
|
|||||||||||||
|
(in
thousands)
|
March
31, 2007
|
June
30, 2007
|
September
30, 2007
|
December
31, 2007
|
|||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
847
|
|||||
|
Gross
margin
|
-
|
-
|
-
|
39
|
|||||||||
|
Net
(loss) income attributable to common shareholders
|
(249,945
|
)
|
(11,086
|
)
|
1,440
|
(9,031
|
)
|
||||||
|
Basic
and diluted (loss) income per share
|
$
|
(3.87
|
)
|
$
|
(0.09
|
)
|
$
|
0.01
|
$
|
(0.05
|
)
|
||
|
For
the 2006 Quarters Ended
|
||||||||||
|
(in
thousands)
|
|
Period
from
inception
(June
23, 2006) to
June
30, 2006
|
|
September
30,
2006
|
|
December
31,
2006
|
||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Gross
margin
|
-
|
-
|
-
|
|||||||
|
Net
loss attributable to common shareholders
|
(250
|
)
|
(7
|
)
|
(620
|
)
|
||||
|
Basic
and diluted loss per share
|
$
|
(3.68
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
Due
to
rounding, the quarterly per share amounts may not mathematically compute to
the
annual amount.
Until
our
acquisition of OTI on November 28, 2007, we did not record any revenue or gross
margin. The net loss for the first quarter of 2007 includes in-process research
and development expense of $243.7 million related to the acquisition of Acuity.
The third quarter of 2007 reflects the reversal of $8.1 million of equity-based
compensation expense due to the termination of a consulting agreement prior
to
the shares vesting. The equity-based compensation expense had previously been
recorded as follows: $7.8 million during the first six months of 2007, and
$0.3
million during 2006. Our inception was on June 23, 2006, and as a
result, there was no activity in the first quarter of 2006, and only
eight days of activity in the second quarter of 2006.
Note
17 Subsequent Events
On
March
25, 2008, OTI received a warning letter in connection with a FDA inspection
of
OTI’s facilities in July and August of 2007. The warning letter cited
several deficiencies in OTI’s quality, record keeping, and reporting systems
relating to certain of OTI’s products, including the OTI Scan 1000, OTI Scan
2000, and OTI OCT/SLO combination imaging system. Based upon the
observations noted in the warning letter, OTI is not currently in compliance
with cGMP. The FDA indicated that it has issued an Import Alert and may refuse
admission of these products. As a result, we will not be permitted to sell
these devices in the United States, and the pre-market approval application
for
the Company’s OCT/SLO product will be delayed until the violations have been
corrected.
We
plan
to cooperate fully with the FDA, and upon receipt of the warning letter,
we
immediately began to take corrective action to address the FDA’s concerns and to
assure the quality of OTI’s products. We are committed to providing high
quality products to our customers, and we plan to meet this commitment by
working diligently to remedy these deficiencies and to implement updated
and
improved quality systems and concepts throughout the OTI organization.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None.
|
CONTROLS
AND PROCEDURES.
|
Disclosure
Controls and Procedures
The
Company’s management, under the supervision and with the participation of the
Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),
has evaluated the effectiveness of the Company’s disclosure controls and
procedures as defined in Securities and Exchange Commission (“SEC”) Rule
13a-15(e) as of December 31, 2007. Based on that evaluation, management has
concluded that the Company’s disclosure controls and procedures are effective to
ensure that information the Company is required to disclose in reports that
it
files or submits under the Securities Exchange Act is communicated to
management, including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure and is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules and
forms.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended. All internal control
systems, no matter how well designed, have inherent limitations. Therefore,
even
those systems determined effective could provide only reasonable assurance
with
respect to financial statement preparation and presentation.
Under
the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation
of the
effectiveness of our internal control over financial reporting as of December
31, 2007, based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
As
permitted, our management’s assessment of and conclusion on the effectiveness of
our internal control over financial reporting did not include the internal
controls of Ophthalmic Technologies, Inc., because it was acquired by us
in a
purchase business combination during the fourth quarter of fiscal 2007. OTI
constituted
approximately 15% of our consolidated total assets at December 31, 2007 and
100%
of consolidated revenues for the year then ended.
73
Based
on
our evaluation under the framework in Internal Control - Integrated Framework,
our management concluded that our internal control over financial reporting
was
effective as of December 31, 2007.
This
annual report does not include an auditors report of Ernst & Young, LLP, our
independent registered public accounting firm, regarding internal control
over
financial reporting as of December 31, 2007 pursuant to temporary rules of
the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Pursuant
to Item 308T(a) of Regulation S-K, this Management’s Report on Internal Control
Over Financing Reporting shall not be deemed filed for purposes of Section
18 of
the Exchange Act or otherwise subject to the liabilities of that
section.
Changes
to the Company’s Internal Control Over Financial Reporting
Beginning
in the fourth quarter of 2007, we began designing and implementing standards
and
procedures at OTI, upgrading and establishing controls over accounting systems,
and adding employees who are trained and experienced in the preparation of
financial statements in accordance with U.S. GAAP to ensure that we have
in
place appropriate internal control over financial reporting at OTI. Other
than as set forth above with respect to OTI, there have been no changes to
the
Company’s internal control over financial reporting that occurred during the
Company’s fourth fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
|
OTHER
INFORMATION.
|
Effective
as of March 28, 2008, the Company’s Board of Directors approved amendments to
the Company’s Amended and Restated Bylaws primarily to remove the requirements
that the Company’s annual stockholders’ meeting be held in Delaware within five
months of the end of the fiscal year. In addition, the Company made the
appointment of certain officers discretionary, whereas, the Amended and Restated
Bylaws as in effect prior to these amendments made such appointments
mandatory.
74
PART
III
The
information required in Items
10
(Directors, Executive Officers and Corporate Governance), Item
11
(Executive Compensation), Item
12
(Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters), Item
13
(Certain
Relationships and Related Transactions, and Director Independence), and
Item
14
(Principal Accounting Fees and Services) is incorporated by reference to the
Company’s definitive proxy statement for the 2008 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission within 120 days of
December 31, 2007.
75
| (a) (1) |
Financial
Statements: Consolidated Financial Statements filed as part of this
report
are set forth under Part II, Item 8 of this
report.
|
| (2) |
Financial
Statement Schedules
|
| (3) |
Exhibits:
Each management contract or compensatory plan listed below is identified
with an asterisk. The Exhibits listed in the accompanying index are
filed
as part of this report
|
|
Exhibit
Number
|
Description
|
|
|
2.1(2)
|
Amended
and Restated Certificate of Incorporation.
|
|
|
2.2
|
Amended
and Restated By-Laws.
|
|
|
2.3(1)
|
Merger
Agreement and Plan of Reorganization, dated as of March 27, 2007,
by and
among Acuity Pharmaceuticals, Inc., Froptix Corporation, eXegenics,
Inc.,
e-Acquisition Company I-A, LLC, and e-Acquisition Company II-B,
LLC.
|
|
|
4.1(1)
|
Form
of Common Stock Warrant.
|
|
|
10.1(1)
|
Form
of Lockup Agreement.
|
|
|
10.2(1)
|
License
Agreement, dated as March 31, 2003, by and between the Trustees of
the University of Pennsylvania and Acuity Pharmaceuticals, Inc.
(Reich/Tolentino).
|
|
|
10.3(1)
|
License
Agreement, dated as March 31, 2003, by and between the Trustees of
the University of Pennsylvania and Acuity Pharmaceuticals, Inc.
(Reich/Gewirtz).
|
|
|
10.4(1)
|
First
Amendment to License Agreement, dated as August 1, 2003, by and between
the Trustees of the University of Pennsylvania and Acuity Pharmaceuticals,
Inc. (Reich/Tolentino).
|
|
|
10.5(1)
|
First
Amendment to License Agreement, dated as August 1, 2003, by and between
the Trustees of the University of Pennsylvania and Acuity Pharmaceuticals,
Inc. (Gewirtz).
|
|
|
10.6(1)*
|
Employment
Agreement, dated as of September 25, 2004, by and between Dale R.
Pfost and Acuity Pharmaceuticals, Inc.
|
|
|
10.7(1)*
|
Employment
Letter, dated April 9, 2007, between Dale R. Pfost and eXegenics,
Inc.
|
|
|
10.8(1)
|
Credit
Agreement, dated as of March 27, 2007, by and among eXegenics, Inc.,
The Frost Group, LLC, and Acuity Pharmaceuticals, LLC.
|
|
|
10.9
(1)
|
Amended
and Restated Venture Loan and Security Agreement, dated as March 27,
2007, by and among Horizon Technology Funding Company LLC, Acuity
Pharmaceuticals, LLC and eXegenics, Inc.
|
|
|
10.10(1)
|
Amended
and Restated Subordination Agreement, dated as of March 27, 2007, by
and among The Frost Group, LLC, Horizon Technology Funding Company
LLC,
Acuity Pharmaceuticals, LLC, and eXegenics,
Inc.
|
76
|
10.11
|
Share
Purchase Agreement, dated April 11, 2007, by and between Ophthalmic
Technologies, Inc. and eXegenics, Inc.
|
|
|
10.12(3)
|
Lease
Agreement dated November 13, 2007, by and between Frost Real Estate
Holdings, LLC and the Company.
|
|
|
10.13
|
Share
Purchase Agreement, dated as of November 28, 2007, by and among Ophthalmic
Technologies, Inc., OTI Holdings Limited, and the Shareholders named
therein.
|
|
|
10.14
|
Exchange
and Support Agreement, dated as of November 28, 2007, by and among
OPKO
Health, Inc. and OTI Holdings Limited and the holders of exchangeable
shares named therein.
|
|
|
10.15
|
Securities
Purchase Agreement, dated December 4, 2007, by and between members
of The
Frost Group, LLC and the Company.
|
|
|
10.16
|
OPKO
Health, Inc. 2007 Equity Incentive Plan.
|
|
|
21
|
Subsidiaries
of the Company.
|
|
|
23.1
|
Consent
of Ernst & Young LLP.
|
|
|
31.1
|
Certification
by Phillip Frost, Chief Executive Officer, pursuant to Exchange Act
Rules
13a-14 and 15d-14.
|
|
|
31.2
|
Certification
by Rao Uppaluri, Chief Financial Officer, pursuant to Exchange Act
Rules 13a-14 and 15d-14.
|
|
|
32.1
|
Certification
by Phillip Frost, Chief Executive Officer, pursuant to 18 U.S.C.
Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
|
|
32.2
|
Certification
by Rao Uppaluri, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
|
*
|
Denotes
management contract or compensatory plan or
arrangement.
|
||
|
(1)
|
Filed
with the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 2, 2007, and incorporated herein
by
reference.
|
||
|
(2)
|
Filed
with the Company’s Current Report on Form 8-A filed with the Securities
and Exchange Commission on June 11, 2007, and incorporated herein
by
reference.
|
||
|
(3)
|
Filed
with the Company’s Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on November 14, 2007 for the Company’s three-month
period ended September 30, 2007, and incorporated herein by
reference.
|
||
77
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, OPKO Health, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
OPKO
HEALTH, INC.
|
||
| |
|
|
| By: | /s/ Dr. Phillip Frost | |
|
Dr. Phillip Frost, |
||
|
Chairman
of the Board and
Chief
Executive Officer
|
||
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of OPKO
Health, Inc. in the capacities indicated below.
|
Signature
|
Title
|
Date
|
||
| /s/ Dr. Phillip Frost, M.D. | ||||
|
Dr. Phillip
Frost, M.D.
|
Chairman
of the Board and Chief Executive Officer
(Principal
Executive Officer)
|
March 31, 2008
|
||
| /s/ Dr. Jane H. Hsiao | ||||
|
Dr. Jane
H. Hsiao
|
Vice
Chairman and Chief Technical Officer
|
March 31, 2008
|
||
| /s/ Steven D. Rubin | ||||
|
Steven
D. Rubin
|
Director
and Executive Vice President - Administration
|
March 31, 2008
|
||
| /s/ Rao Uppaluri | ||||
|
Rao
Uppaluri
|
Senior
Vice President and Chief Financial Officer
(Principal
Financial Officer)
|
March 31, 2008
|
||
| /s/ Adam Logal | ||||
|
Adam
Logal
|
Executive
Director of Finance, Chief Accounting Officer and Treasurer
(Principal
Accounting Officer)
|
March 31, 2008
|
||
| /s/ Robert Baron | ||||
|
Robert
Baron
|
Director
|
March 31, 2008
|
||
| /s/ Thomas E. Beier | ||||
|
Thomas
E. Beier
|
Director
|
March 31, 2008
|
||
| /s/ Pascal J. Goldschmidt, M.D. | ||||
|
Pascal
J. Goldschmidt, M.D.
|
Director
|
March 31, 2008
|
||
| /s/ Richard A. Lerner, M.D. | ||||
|
Richard
A. Lerner, M.D.
|
Director
|
March 31, 2008
|
||
| /s/ John A. Paganelli | ||||
|
John
A. Paganelli
|
Director
|
March 31, 2008
|
||
| /s/ Richard C. Pfenniger, Jr. | ||||
|
Richard
C. Pfenniger, Jr.
|
Director
|
March 31, 2008
|
||
|
/s/
Michael Reich
|
||||
|
Michael
Reich
|
Director
|
March 31, 2008
|
78
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
|
2.1
|
Amended
and Restated Bylaws
|
|
|
10.11
|
Share
Purchase Agreement, dated April 11, 2007, by and between Ophthalmic
Technologies, Inc. and eXegenics, Inc.
|
|
|
10.13
|
Share
Purchase Agreement, dated as of November 28, 2007, by and among Ophthalmic
Technologies, Inc., OTI Holdings Limited, and the Shareholders named
therein.
|
|
|
10.14
|
Exchange
and Support Agreement, dated as of November 28, 2007, by and among
OPKO
Health, Inc. and OTI Holdings Limited and the holders of exchangeable
shares named therein.
|
|
|
10.15
|
Securities
Purchase Agreement, dated December 4, 2007, by and between members
of The
Frost Group, LLC and the Company.
|
|
|
10.16
|
OPKO
Health, Inc. 2007 Equity Incentive Plan.
|
|
|
21
|
Subsidiaries
of the Company.
|
|
|
23.1
|
Consent
of Ernst & Young LLP.
|
|
|
31.1
|
Certification
by Phillip Frost, Chief Executive Officer, pursuant to Exchange Act
Rules
13a-14 and 15d-14.
|
|
|
31.2
|
Certification
by Rao Uppaluri, Chief Financial Officer, pursuant to Exchange Act
Rules 13a-14 and 15d-14.
|
|
|
32.1
|
Certification
by Phillip Frost, Chief Executive Officer, pursuant to 18 U.S.C.
Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
|
|
32.2
|
Certification
by Rao Uppaluri, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
79