0001193125-13-418786.txt : 20131030 0001193125-13-418786.hdr.sgml : 20131030 20131030165917 ACCESSION NUMBER: 0001193125-13-418786 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20130930 FILED AS OF DATE: 20131030 DATE AS OF CHANGE: 20131030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDENIX PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001093649 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 450478605 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-49839 FILM NUMBER: 131179961 BUSINESS ADDRESS: STREET 1: 320 BENT STREET CITY: CAMBRIDGE STATE: MA ZIP: 02141 BUSINESS PHONE: 617-995-9800 MAIL ADDRESS: STREET 1: 320 BENT STREET CITY: CAMBRIDGE STATE: MA ZIP: 02141 FORMER COMPANY: FORMER CONFORMED NAME: NOVIRIO PHARMACEUTICALS LTD DATE OF NAME CHANGE: 19990820 10-Q 1 d599827d10q.htm FORM 10-Q Form 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2013

Or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 000-49839

 

 

Idenix Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   45-0478605

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

320 Bent Street  
Cambridge, MA   02141
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (617) 995-9800

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer:   x    Accelerated filer:   ¨
Non-accelerated filer:   ¨  (Do not check if a smaller reporting company)    Smaller reporting company:   ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 18, 2013, the number of shares of the registrant’s common stock, par value $0.001 per share, outstanding was 134,000,750 shares.

 

 

 


Table of Contents
     Page  

Part I-Financial Information

  

Item 1. Financial Statements

  

Unaudited Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012

     3  

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2013 and 2012

     4  

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September  30, 2013 and 2012

     6  

Notes to the Unaudited Condensed Consolidated Financial Statements

     7  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     27  

Item 4. Controls and Procedures

     27  

Part II-Other Information

  

Item 1. Legal Proceedings

     27  

Item 1A. Risk Factors

     28  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     46  

Item 3. Defaults Upon Senior Securities

     46  

Item 4. Mine Safety Disclosures

     46   

Item 5. Other Information

     46  

Item 6. Exhibits

     47  

Signatures

     48  

Exhibit Index

     49  

Exhibit 10.1 Second Amendment to Lease, dated September 3, 2013, by and between the Registrant and BMR Street LLC

  

Exhibit 31.1

  

Exhibit 31.2

  

Exhibit 32.1

  

Exhibit 32.2

  

EX-101 INSTANCE DOCUMENT

  

EX-101 SCHEMA DOCUMENT

  

EX-101 CALCULATION LINKBASE DOCUMENT

  

EX-101 LABELS LINKBASE DOCUMENT

  

EX-101 PRESENTATION LINKBASE DOCUMENT

  

 

2


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IDENIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

 

     September 30,
2013
    December 31,
2012
 
ASSETS   

Current assets:

    

Cash and cash equivalents

   $ 148,832      $ 230,826   

Restricted cash

     1,402        2,103   

Receivables from related party

     1,657        1,195   

Other current assets

     4,476        3,668   
  

 

 

   

 

 

 

Total current assets

     156,367        237,792   

Property and equipment, net

     2,920        3,274   

Receivables from related party, net of current portion

     5,354        6,210   

Other assets

     3,593        3,589   
  

 

 

   

 

 

 

Total assets

   $ 168,234      $ 250,865   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities:

    

Accounts payable

   $ 3,720      $ 5,771   

Accrued expenses

     15,892        9,293   

Deferred revenue, related party

     714        714   

Other current liabilities

     698        154   
  

 

 

   

 

 

 

Total current liabilities

     21,024        15,932   

Other long-term liabilities

     7,188        7,513   

Deferred revenue

     4,272        4,272   

Deferred revenue, related party, net of current portion

     3,452        3,988   
  

 

 

   

 

 

 

Total liabilities

     35,936        31,705   

Commitments and contingencies (Note 8)

    

Stockholders’ equity:

    

Common stock, $0.001 par value; 200,000,000 shares authorized at September 30, 2013 and December 31, 2012; 134,000,750 and 133,957,689 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively

     134        134   

Additional paid-in capital

     933,162        926,671   

Accumulated other comprehensive income

     744        470   

Accumulated deficit

     (801,742     (708,115
  

 

 

   

 

 

 

Total stockholders’ equity

     132,298        219,160   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 168,234      $ 250,865   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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IDENIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended September 30,  
     2013     2012  

Revenues:

    

Collaboration revenue - related party

   $ 19      $ 32,253   
  

 

 

   

 

 

 

Total revenues

     19        32,253   

Operating expenses:

    

Cost of revenues

     15        509   

Research and development

     21,673        13,469   

General and administrative

     8,630        6,164   

Restructuring charges

     3,900        —     

Intangible asset impairment

     —          8,045   
  

 

 

   

 

 

 

Total operating expenses

     34,218        28,187   
  

 

 

   

 

 

 

Income (loss) from operations

     (34,199     4,066   

Other income, net

     244        205   
  

 

 

   

 

 

 

Income (loss) before income taxes

     (33,955     4,271   

Income tax expense

     —          —     
  

 

 

   

 

 

 

Net income (loss)

   $ (33,955   $ 4,271   
  

 

 

   

 

 

 

Earnings (loss) per common share:

    

Basic

   $ (0.25   $ 0.03   
  

 

 

   

 

 

 

Diluted

   $ (0.25   $ 0.03   
  

 

 

   

 

 

 

Weighted average number of common shares outstanding:

    

Basic

     133,969        124,770   
  

 

 

   

 

 

 

Diluted

     133,969        126,847   
  

 

 

   

 

 

 

Comprehensive income (loss):

    

Net income (loss)

   $ (33,955   $ 4,271   

Changes in other comprehensive income:

    

Foreign currency translation adjustment

     472        163   
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ (33,483   $ 4,434   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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IDENIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Nine Months Ended September 30,  
     2013     2012  

Revenues:

    

Collaboration revenue - related party

   $ 983      $ 33,268   

Other revenue

     —          36,068   
  

 

 

   

 

 

 

Total revenues

     983        69,336   

Operating expenses:

    

Cost of revenues

     715        2,302   

Research and development

     65,460        52,604   

General and administrative

     25,306        16,798   

Restructuring charges

     3,900        —     

Intangible asset impairment

     —          8,045   
  

 

 

   

 

 

 

Total operating expenses

     95,381        79,749   
  

 

 

   

 

 

 

Loss from operations

     (94,398     (10,413

Other income, net

     772        740   
  

 

 

   

 

 

 

Loss before income taxes

     (93,626     (9,673

Income tax expense

     (1     (1
  

 

 

   

 

 

 

Net loss

   $ (93,627   $ (9,674
  

 

 

   

 

 

 

Basic and diluted net loss per common share

   $ (0.70   $ (0.09

Shares used in computing basic and diluted net loss per common share

     133,962        113,671   

Comprehensive loss:

    

Net loss

   $ (93,627   $ (9,674

Changes in other comprehensive income:

    

Foreign currency translation adjustment

     274        (89
  

 

 

   

 

 

 

Comprehensive loss

   $ (93,353   $ (9,763
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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IDENIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

     Nine Months Ended September 30,  
     2013     2012  

Cash flows from operating activities:

    

Net loss

   $ (93,627   $ (9,674

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     1,434        2,234   

Share-based compensation expense

     3,857        3,154   

Share-based compensation expense related to restructuring

     1,662        —     

Revenue adjustment for contingently issuable shares

     839        (1,331

Intangible asset impairment

     —          8,045   

Other

     14        (1

Changes in operating assets and liabilities:

    

Receivables from related party

     (462     (6,679

Other assets

     271        (141

Accounts payable

     (2,052     (205

Accrued expenses and other current liabilities

     6,983        2,749   

Deferred revenue

     —          (36,068

Deferred revenue, related party

     (536     (21,587

Other liabilities

     (335     (998
  

 

 

   

 

 

 

Net cash used in operating activities

     (81,952     (60,502
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (1,074     (834

Changes in restricted cash

     701        (942
  

 

 

   

 

 

 

Net cash used in investing activities

     (373     (1,776
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from exercise of common stock options

     134        5,148   

Proceeds from issuance of common stock to related party

     —          291   

Proceeds from issuance of common stock, net of offering costs

     —          190,505   
  

 

 

   

 

 

 

Net cash provided by financing activities

     134        195,944   

Effect of changes in exchange rates on cash and cash equivalents

     197        (63
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (81,994     133,603   

Cash and cash equivalents at beginning of period

     230,826        118,271   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 148,832      $ 251,874   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Change in value of shares of common stock contingently issuable or issued to related party

   $ 839      $ (520

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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IDENIX PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BUSINESS OVERVIEW

Overview

Idenix Pharmaceuticals, Inc., which we refer to together with our wholly owned subsidiaries as Idenix, we, us or our, is a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the United States and France. Currently, our primary research and development focus is on the treatment of patients with hepatitis C virus, or HCV, using nucleotide polymerase inhibitors and NS5A inhibitors.

In October 2013, we received approval to enter clinical trials for IDX21437, our uridine based nucleotide prodrug candidate, in Canada and Belgium and we have initiated enrollment for the healthy volunteer portion of a phase I/II clinical trial. Extensive preclinical testing for IDX21437 demonstrated favorable antiviral activity across genotypes 1-6 and a safety profile which supported advancement into clinical trials.

In the second quarter of 2013, we submitted an investigational new drug, or IND, application to the U.S. Food and Drug Administration, or FDA, for IDX20963, our uridine based nucleotide prodrug candidate. In June 2013, the FDA requested additional preclinical safety information for IDX20963 which we are currently conducting.

As part of our ongoing extensive nucleotide discovery effort, we continue to explore and develop a diverse spectrum of nucleotides with novel bases, prodrugs and sugar moieties.

In January 2013, we entered into a non-exclusive collaboration agreement with Janssen Pharmaceuticals, Inc., or Janssen, for the clinical evaluation of samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir AB, or Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.

In May 2013, we initiated a 12-week phase II HELIX-1 clinical trial under the Janssen collaboration evaluating samatasvir, simeprevir and ribavirin in treatment-naïve genotype 1b or 4 HCV-infected patients. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate SVR4 data for these patients to be available in the fourth quarter of 2013. We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three direct-acting antiviral, or DAA, combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-naïve or have relapsed after treatment with pegylated interferon and ribavirin.

Our drug development programs and the potential commercialization of our drug candidates will require substantial cash to fund costs that we incur in connection with preclinical studies and clinical trials, regulatory review, manufacturing and sales and marketing efforts. We have incurred losses in each year since our inception and at September 30, 2013, we had an accumulated deficit of $801.7 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result of continuing losses, we may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates.

We are subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the successful development of products, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaboration partners, competition, technological and medical risks and management of growth.

Basis of Presentation

The condensed consolidated financial statements reflect the operations of Idenix Pharmaceuticals, Inc. and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements are unaudited and have been prepared by us in accordance with generally accepted accounting principles in the United States of America, or GAAP, for interim reporting. Accordingly, these interim financial statements do not include all the information and footnotes required by GAAP for

 

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IDENIX PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

complete financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 25, 2013. These interim financial statements are unaudited, but in the opinion of management, reflect all adjustments (including normal recurring accruals) necessary for a fair statement of the financial position and results of operations for the interim periods presented. The year ended condensed consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP.

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, judgments and methodologies, including those related to revenue recognition, accrued expenses, clinical trial expenses, impairment and amortization of long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the fiscal year ending December 31, 2013.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU No. 2013-02, as an update to Comprehensive Income (Topic 220). The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No. 2013-02 became effective on February 1, 2013 and did not have a material impact on our financial statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and for revenue arrangements entered into after June 30, 2003, in accordance with the revenue recognition guidance of the FASB. For multiple-element revenue arrangements entered into or materially modified after January 1, 2011, we recognize revenue under Accounting Standards Codification Topic 605, Revenue Recognition.

We record revenue provided that there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Collaboration Revenue — Related Party

In May 2003, we entered into a collaboration with Novartis Pharma AG, or Novartis, relating to the worldwide development and commercialization of our drug candidates, which we refer to as the development and commercialization agreement. In May 2003, we also entered into a stockholders’ agreement with Novartis, which we refer to as the stockholders’ agreement. On July 31, 2012, we and Novartis materially modified our collaboration by executing a termination and revised relationship agreement, which we refer to as the termination agreement, and by amending the stockholders’ agreement, which we refer to as the second amended and restated stockholders’ agreement. Subsequent to August 2012, we recognize revenue related to the termination agreement with Novartis under ASC Topic 605.

 

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IDENIX PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

We evaluated our modified arrangement with Novartis and determined that the agreements should continue to be treated as a single unit of accounting. Under the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis’ HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. The details of the termination agreement are described more fully in Note 7. The non-exclusive license is the only revenue-generating deliverable remaining under the modified arrangement and since neither vendor-specific objective evidence, or VSOE, nor third-party evidence, or TPE, for the non-exclusive license deliverable was available, the selling price for the non-exclusive license was established using the best estimate of selling price, or BESP. We determined that the BESP of Novartis’ non-exclusive license at July 31, 2012 was $5.0 million which is recognized as collaboration revenue from related party on a straight-line basis over the seven-year term of the non-exclusive license. As of September 30, 2013, the remaining balance of $4.2 million was included in deferred revenue from related party in our condensed consolidated balance sheet. In establishing BESP for the non-exclusive license, we used a discounted cash flow model and considered the likelihood of our and Novartis’ drugs being commercialized, the development and commercialization timeline, discount rate, and probable treatment combination and associated peak sales figures which generate royalty amounts.

Also under the collaboration with Novartis, if we issue any shares of capital stock, other than in certain situations, Novartis has the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis’ stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period. This stock subscription right is described more fully in Note 7.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with a maturity date of 90 days or less at the date of purchase to be cash equivalents.

In connection with certain of our operating lease commitments, we issued letters of credit collateralized by cash deposits that were classified as restricted cash on the condensed consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the expected release date of the restrictions.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash and cash equivalents and receivables from related party. We invest our excess cash and cash equivalents in interest bearing accounts at major United States financial institutions. Management mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality.

At September 30, 2013 and December 31, 2012, all of our receivables from related party were due from Novartis related to its obligation under the termination agreement to reimburse us for contractual payments due by us to third-parties (Note 8).

Fair Value Measurements

Our financial statements include assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

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IDENIX PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

At September 30, 2013 and December 31, 2012, we had $121.0 million and $184.0 million, respectively, invested in money market funds. Our money market investments have calculated net asset values and are therefore classified as Level 2. There were no Level 3 assets held at fair value at September 30, 2013 or at December 31, 2012. There were no gross unrealized gains or losses for the three and nine months ended September 30, 2013 or 2012.

Accrued Expenses

We accrue expenses we have incurred but have not been invoiced. This process involves estimating the level of service performed by third-parties on our behalf and the associated cost incurred for these services as of each balance sheet date in our financial statements. Examples of estimated accrued expenses in which subjective judgments may be required include services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. Accruals for amounts due to clinical research organizations are among our most significant estimates. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual level of services incurred by the service providers. The date on which certain services commence, the level of services performed on or before a given date and the cost of services is often subject to our judgment. We make these judgments based upon the facts and circumstances known to us. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment is made.

Share-Based Compensation

We recognize share-based compensation for employees and directors using a fair value based method that results in expense being recognized in our condensed consolidated financial statements.

Intangible Asset and Impairment of Long-Lived Assets

We evaluate the recoverability of our property and equipment and other long-lived assets when circumstances indicate that an event of impairment may have occurred in accordance with FASB guidance. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka®/Sebivo®) technology for the treatment of hepatitis B virus, or HBV, described more fully in Note 8. Pursuant to the settlement agreement, we paid the University of Alabama at Birmingham Research Foundation, or UABRF, a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Prior to the execution of the termination agreement in July 2012, we were amortizing the $15.0 million related to this settlement payment over the life of the settlement agreement. Under the termination agreement with Novartis, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there are no future cash flows associated with its use and the intangible asset has no alternate use. As a result, we recorded an impairment charge of $8.0 million during the three and nine months ended September 30, 2012. No impairment charges were recognized for the three and nine months ended September 30, 2013.

3. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares and other potential common shares then outstanding. Potential common shares consist of common shares issuable upon the assumed exercise of outstanding stock options (using the treasury stock method) and the issuance of contingently issuable shares subject to Novartis’ stock subscription rights (Note 7) and restricted stock awards.

 

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Basic and diluted net loss per share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 were as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2013     2012  
     (In Thousands, Except per Share Data)  

Basic and diluted net loss per common share:

      

Net loss

   $ (33,955   $ (93,627   $ (9,674

Basic and diluted weighted average number of common shares outstanding

     133,969        133,962        113,671   

Basic and diluted net loss per common share

   $ (0.25   $ (0.70   $ (0.09

The following potential common shares were excluded from the calculation of diluted net loss per common share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 because their effect was anti-dilutive:

 

     Three and Nine Months
Ended
September 30,
     Nine Months
Ended
September 30,
 
     2013      2012  
     (In Thousands)  

Options

     7,536         7,666   

Contingently issuable shares to related party

     1,396         709   
  

 

 

    

 

 

 
     8,932         8,375   
  

 

 

    

 

 

 

In addition to the contingently issuable shares to related party listed in the table above, Novartis could be entitled to additional shares under its stock subscription rights which would be anti-dilutive in future periods based on our current stock price.

Basic and diluted net income per share for the three months ended September 30, 2012 was as follows:

 

     Three Months Ended September 30, 2012  
     Income
(Numerator)
     Shares
(Denominator)
     Amount
per Share
 
     In Thousands, Except per Share Data  

Basic EPS:

        

Income (loss) available to common stockholders

   $ 4,271         124,770       $ 0.03   
        

 

 

 

Effect of Dilutive Securities:

        

Options

     —           1,676      

Contingently issuable shares to related party

     —           401      
  

 

 

    

 

 

    

Diluted EPS:

        

Income (loss) available to common stockholders

   $ 4,271         126,847       $ 0.03   
  

 

 

    

 

 

    

 

 

 

There were no common shares excluded from the calculation of diluted net income per common share as of the three months ended September 30, 2012.

 

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4. ACCRUED EXPENSES

Accrued expenses consisted of the following:

 

     September 30,
2013
     December 31,
2012
 
     (In Thousands)  

Research and development contract costs

   $ 5,810       $ 2,686   

Payroll and benefits

     2,161         2,946   

Professional fees

     3,948         1,204   

Short-term portion of accrued settlement payment

     1,036         976   

Restructuring costs

     2,090         —     

Other

     847         1,481   
  

 

 

    

 

 

 
   $ 15,892       $ 9,293   
  

 

 

    

 

 

 

5. RESTRUCTURING CHARGES

In September 2013, we implemented a restructuring of our operations at our headquarters in Cambridge, Massachusetts and at our facility in Montpellier, France to reduce our workforce by approximately 20 positions in connection with our strategic initiatives to create a more flexible business structure and outsource certain research and development functions. We recorded $2.3 million in employee severance charges related to this restructuring. Of this amount, $0.2 million was paid during the third quarter ended September 30, 2013 and the remaining balance of $2.1 million continues to be accrued as of September 30, 2013. We also recorded $1.7 million in non-cash share-based compensation expense related to the acceleration of unvested options for certain employees.

6. SHARE-BASED COMPENSATION

The following table shows share-based compensation expense as included in our condensed consolidated statements of operations and comprehensive income (loss):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2013      2012      2013      2012  
     (In Thousands)      (In Thousands)  

Research and development

   $ 387       $ 495       $ 1,382       $ 1,277   

General and administrative

     835         741         2,475         1,877   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based compensation expense

   $ 1,222       $ 1,236       $ 3,857       $ 3,154   
  

 

 

    

 

 

    

 

 

    

 

 

 

As part of the restructuring in September 2013, we recorded $1.7 million of share-based compensation expense related to the acceleration of unvested options for certain employees. The expense was classified as restructuring charges in our condensed consolidated statements of operations and comprehensive income (loss).

There were no options granted in the three months ended September 30, 2013 or 2012. The table below illustrates the fair value per share and Black-Scholes option pricing model with the following assumptions used for grants issued for the nine months ended September 30, 2013 and 2012:

 

     Nine Months Ended September 30,  
     2013     2012  

Weighted average fair value of options

   $ 3.04      $ 7.54   

Risk-free interest rate

     0.88     0.87

Expected dividend yield

     —          —     

Expected option term (in years)

     5.27        5.32   

Expected volatility

     80.3     79.3

 

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The expected option term and expected volatility were determined by examining the expected option term and expected volatilities of similarly sized biotechnology companies as well as expected term and expected volatility of our own stock.

The following table summarizes option activity under the equity incentive plans:

 

     Number of
Shares
    Weighted
Average Exercise
Price per Share
 

Options outstanding at December 31, 2012

     7,555,598      $ 7.60   

Granted

     1,644,800      $ 4.66   

Cancelled

     (1,620,842   $ 9.17   

Exercised

     (43,061   $ 3.10   
  

 

 

   

Options outstanding at September 30, 2013

     7,536,495      $ 6.65   
  

 

 

   

Options exercisable at September 30, 2013

     5,127,290      $ 6.68   

We had an aggregate of $10.3 million of share-based compensation expense as of September 30, 2013 remaining to be amortized over a weighted average expected term of 2.45 years.

7. COLLABORATIONS

Janssen Pharmaceuticals, Inc. Collaboration

In January 2013, we entered into a non-exclusive collaboration agreement with Janssen for the clinical evaluation of all oral DAA HCV combination therapies. The combination therapies involve samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.

Under the terms of this collaboration agreement, we will conduct the clinical trials. Clinical development plans include drug-drug interaction studies, followed by phase II studies as agreed between the companies, pending approval from regulatory authorities.

In May 2013, we initiated a 12-week phase II HELIX-1 clinical trial evaluating samatasvir, simeprevir and ribavirin in treatment-naïve genotype 1b or 4 HCV-infected patients. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate SVR4 data for these patients to be available in the fourth quarter of 2013. We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three-DAA combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-naïve or have relapsed after treatment with pegylated interferon and ribavirin.

The clinical trials will be conducted under an arrangement whereby Janssen provides us with clinical supply of simeprevir and TMC647055 at no cost. Neither party will receive any milestone or royalty payments from the other party under this agreement. Both companies retain all rights to their respective compounds under this agreement. The parties have no obligation to conduct additional clinical trials beyond those described here. Neither party has licensed any commercial rights to the other party.

This collaboration agreement may be terminated by either party in certain circumstances. Janssen may terminate the collaboration agreement, in its sole discretion, by providing us with 30 days written notice. If Janssen terminates the collaboration agreement in such instance, it shall reimburse us for certain of our costs associated with the collaboration.

If either us or Janssen materially breaches the collaboration agreement and does not cure such breach within a specified time period, the non-breaching party may terminate the collaboration agreement in its entirety. Either party may also terminate the collaboration agreement, effective immediately, if the other party files for bankruptcy, is dissolved or has a receiver appointed for substantially all of its property. Either party may also terminate the collaboration agreement to protect the safety, health or welfare of subjects in the trials. We may terminate the collaboration agreement prior to the commencement of certain activities if Janssen’s research development and license agreement with Medivir is terminated.

 

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Novartis Collaboration

In May 2003, we entered into the development and commercialization agreement with Novartis related to the worldwide development and commercialization of our drug candidates. In May 2003, we also entered into the stockholders’ agreement with Novartis. In July 2012, we and Novartis materially modified our collaboration by executing the termination agreement and the second amended and restated stockholders’ agreement. As of October 18, 2013, Novartis owned approximately 25% of our outstanding common stock.

Termination Agreement

Termination of Novartis’ Option to License our Development Stage Drug Candidates

Pursuant to the termination agreement entered into in July 2012, Novartis’ option right to license our current and future development-stage drug candidates in any therapeutic area was terminated. In exchange, we agreed to pay Novartis a royalty based on worldwide product sales of our HCV drug products, unless such drug products are prescribed in combination with Novartis’ HCV drug products. The royalty percentage will vary based on our commercialized HCV drug product, but range from the high single digits to the low double digit percentages. Royalties are payable until the later to occur of: a) expiration of the last-to-expire of specified patent rights in a country; or b) ten years after the first commercial sale of a product in such country, provided that if royalties are payable on a product after the expiration of the patent rights in a country, each of the respective royalty rates for such product in such country would be reduced by one-half.

Novartis’ Non-Exclusive License to Conduct Combination Trials

Pursuant to the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis’ HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. Under certain circumstances Novartis may conduct a dose-ranging study with respect to our HCV drug candidates. We have agreed to supply Novartis with our HCV drug candidates for use in such combination trials. We and Novartis have agreed to use commercially reasonable efforts to, in good faith, enter into a supply agreement and other relevant agreements in connection with any such combination trial. Novartis’ ability to initiate combination trials expires on the seven year anniversary of the execution of the termination agreement, or July 2019, although any then existing combination study commenced prior to such expiration date may continue after the expiration date.

Since neither VSOE nor TPE for the non-exclusive license deliverable was available, the selling price for this non-exclusive license was established using the BESP. We determined the BESP of the non-exclusive license at July 31, 2012 to be $5.0 million which is recognized as revenue on a straight-line basis over the seven-year term of the non-exclusive license. We recognized $0.1 million and $0.5 million of collaboration revenue related to the non-exclusive license during the three and nine months ended September 30, 2013, respectively. These revenue amounts are impacted by Novartis’ stock subscription rights described below. As of September 30, 2013 and December 31, 2012, we had a balance of $4.2 million and $4.7 million, respectively, of deferred revenue from related party in our condensed consolidated balance sheets.

Treatment of Product Sales of Tyzeka®/Sebivo® for the Treatment of the Hepatitis B Virus

Under the termination agreement executed in July 2012, we will no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis is required to reimburse us for contractual payments to third-parties in connection with intellectual property related to Tyzeka®/Sebivo®. We are otherwise responsible for any payments to third-parties in connection with intellectual property necessary to sell Tyzeka®/Sebivo®. Contractual payments to third-parties are described more fully in Note 8.

Termination or Breach by Either Party

If either we or Novartis materially breaches the termination agreement and does not cure such breach within 30 days, the non-breaching party may terminate this agreement in its entirety. Either party may also terminate this agreement, effective immediately, if the other party files for bankruptcy, is dissolved, or has a receiver appointed for substantially all of its property. Novartis may also terminate this agreement for convenience. If Novartis terminates this agreement either because of a material breach by us that has not been cured or because we have filed for bankruptcy, Novartis may, at its election, retain the licenses granted to it by us under the termination agreement to conduct clinical trials evaluating a

 

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combination of any of our HCV drug candidates and any of Novartis’ HCV drug candidates and we would remain obligated to make royalty payments to Novartis based on sales of our HCV drug products. If we terminate this agreement either because of a material breach by Novartis that has not been cured or because Novartis has filed for bankruptcy, or if Novartis terminates this agreement for convenience, the licenses granted to Novartis to conduct combination trials terminate and we would remain obligated to make royalty payments to Novartis based on sales of our HCV drug products.

Indemnification

We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of our development, manufacture and commercialization of our HCV products. We have also agreed to indemnify Novartis and its affiliates against losses suffered as a result of any breach of representations and warranties in the termination agreement, the development and commercialization agreement and a stock purchase agreement entered into in 2003. Under these agreements with Novartis, we made numerous representations and warranties to Novartis regarding our drug candidates for the treatment of HBV and HCV, including representations regarding ownership of related inventions and discoveries. In the event of a breach of any such representation or warranty by us, Novartis has the right to seek indemnification from us and, under certain circumstances, our stockholders who sold shares to Novartis in 2003, which includes some of our current and former directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we and our stockholders could be liable to Novartis could be substantial.

Future Agreements and Possible Competition with Novartis

Under the termination agreement, following the receipt of certain data related to a combination trial and upon Novartis’ request, we and Novartis are obligated to use, in good faith, commercially reasonable efforts to negotiate a future agreement for the development, manufacture and commercialization of such combination therapy for the treatment of HCV. Neither party is obligated to negotiate for a period longer than 180 days. Also under the termination agreement, Novartis has a non-exclusive license to conduct clinical trials evaluating a combination of any of our HCV drug candidates and any of Novartis’ HCV drug candidates after certain criteria have been met. If Novartis obtains regulatory approval to co-label a Novartis HCV drug product with one or more of our HCV drug products, Novartis could market and sell a combination that may compete with our drug candidates and/or combination products that we market and sell in the future.

Second Amended and Restated Stockholders’ Agreement

In May 2003, we entered into the stockholders’ agreement with Novartis and in July 2012, we amended this agreement by executing the second amended and restated stockholders’ agreement which includes the terms as described below.

Novartis’ Registration Rights

Under the second amended and restated stockholders’ agreement, Novartis maintains its rights to cause us to register for resale, under the Securities Act of 1933, as amended, shares held by Novartis and/or its affiliates.

Corporate Governance Rights

Under the second amended and restated stockholders’ agreement executed in July 2012, we have agreed to use our reasonable best efforts to nominate for election one designee of Novartis for so long as Novartis and its affiliates own at least 15% of our voting stock. Novartis has the rights to appoint a non-voting observer to any committee of our board of directors. Novartis has no other corporate governance rights under the second amended and restated stockholders’ agreement.

Novartis’ Stock Subscription Rights

Under the stockholders’ agreement, if we issued any shares of capital stock, other than in certain situations, Novartis had the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. Under the second amended and restated stockholders’ agreement, Novartis continues to have the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for either the same consideration per share paid by others acquiring our stock or, in specified situations, for a 10% premium to the consideration per share paid by others acquiring our stock.

 

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This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis’ stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period.

The impact of Novartis’ stock subscription rights for the three months ended September 30, 2013 was $1.4 million, which increased additional paid-in capital and reduced license fee revenue. The impact of Novartis’ stock subscription rights for the nine months ended September 30, 2013 was $0.8 million, which increased additional paid-in capital and reduced license fee revenue.

8. COMMITMENTS AND CONTINGENCIES

Product and Drug Candidates

In connection with the resolution of matters relating to certain of our HCV drug candidates, in May 2004, we entered into a settlement agreement with the University of Alabama, or UAB, which provides for a milestone payment of $1.0 million to UAB upon receipt of regulatory approval in the United States to market and sell certain HCV products invented or discovered by our former chief executive officer during the period from November 1, 1999 to November 1, 2000. This settlement agreement also provides that we will pay UAB an amount equal to 0.5% of worldwide net sales of such HCV products with a minimum sales-based payment equal to $12.0 million. Currently, there are no such HCV products approved and therefore there was no related liability recorded as of September 30, 2013.

We have potential payment obligations under the license agreement with the Universita degli Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide right to make, use and sell certain HCV and human immunodeficiency virus type-1, or HIV, technologies. We are liable for certain payments to the University of Cagliari if we receive license fees or milestone payments with respect to such technology from a collaborator or other third-party.

Pursuant to the license agreement between us and UAB, we were granted an exclusive license to the rights that the UABRF, an affiliate of UAB, Emory University and Le Centre National de la Recherche Scientifique, or CNRS, have to a 1995 U.S. patent application and progeny thereof and counterpart patent applications in Europe, Canada, Japan and Australia that cover the use of certain synthetic nucleosides for the treatment of HBV. In July 2008, we entered into a settlement agreement with UAB, UABRF and Emory University relating to our telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS and the Universite Montpellier II, or the University of Montpellier, and which cover the use of Tyzeka®/Sebivo® have been resolved. UAB also agreed to abandon certain continuation patent applications it filed in July 2005. Under the terms of the settlement agreement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis from worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Our payment obligations under the settlement agreement expire in August 2019. The settlement agreement was effective on June 1, 2008 and included mutual releases of all claims and covenants not to sue among the parties. It also included a release from a third-party scientist who had claimed to have inventorship rights in certain Idenix/CNRS/University of Montpellier patents. Included in the condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012 was a liability of $6.4 million and $7.2 million, respectively, related to this settlement agreement. Under the termination agreement executed in July 2012, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis is required to reimburse us for our contractual payments to UABRF in connection with our intellectual property related to Tyzeka®/Sebivo®. Included in receivables from related party at September 30, 2013 and December 31, 2012 was $6.7 million and $7.2 million, respectively, for the reimbursement from Novartis for these contractual payments to UABRF.

 

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In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and the University of Montpellier pursuant to which we worked in collaboration with scientists from CNRS and the University of Montpellier to discover and develop technologies relating to antiviral substances, including telbivudine. This cooperative agreement expired in December 2006, but we retain rights to exploit the patents derived from the collaboration. Under the cooperative agreement, we are obligated to make royalty payments for products derived from such patents, including products for HBV, HCV and HIV. Such payments would be due even in the instance where we licensed such patents to a third-party. Under the termination agreement, we will no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis was required to reimburse us for our contractual payments to CNRS and the University of Montpellier, subject to our assignment to Novartis of our patent rights under the amended and restated agreement with CNRS and the University of Montpellier within 12 months of the execution of the termination agreement, in connection with our intellectual property related to Tyzeka®/Sebivo. These payments were recorded as receivables from related party on our condensed consolidated balance sheets. Prior to the assignment of such patent rights to Novartis, payments from Novartis to reimburse us for our contractual payments to CNRS and the University of Montpellier were recorded as a deferred payment obligation on our condensed consolidated balance sheets and we charged payments we made to CNRS to cost of revenues on our condensed consolidated statements of operations and comprehensive income (loss). As of July 31, 2013, the patent rights have been assigned to Novartis. As a result, in the third quarter of 2013, we recognized $1.3 million of deferred payments as revenue and we will no longer record our contractual payments to CNRS as cost of revenues.

Legal Contingency

In February 2012, an interference was declared by the United States Patent and Trademark Office, or the USPTO, concerning a patent application co-owned by us and a patent owned by Gilead Pharmasset LLC, or Gilead. Both the application and patent claim certain nucleoside compounds useful in treating HCV. An interference is an adversarial proceeding declared by the USPTO when a party has a U.S. patent application that covers the same invention as another patent application or issued patent to determine priority of invention in the United States. An interference proceeding is divided into two stages. The first phase determines the application filing dates each party will have benefit of for the interfering subject matter. The party with the benefit of the earliest application filing date is deemed the ‘senior party’ and the party with the later date is deemed the ‘junior party’.

In March 2013, the USPTO issued a decision where we were determined to have a later application filing date than Gilead. Therefore we were determined to be the ‘junior party’ and Gilead the ‘senior party’ in the interference. The second phase of the interference commenced in the second quarter of 2013 and will determine which party was first to invent. The party who is deemed first to invent prevails in the interference proceeding. While we cannot predict whether we will prevail in the interference, we intend to vigorously defend this action and any others like it brought by any third-party. We do not believe our co-owned application at issue in the interference is relevant to any compounds we currently have under development. An interference is based upon complex specialized U.S. patent law and the interference proceeding is likely to be expensive and time consuming. In the event we do not prevail in the interference, certain or all claims in our application may not be issued. In the event we do not prevail, we do not believe we will be required to make any payments to any third-parties and therefore we have not recorded a liability associated with this potential contingent matter.

In June 2012, Gilead Sciences, Inc. filed suit against us in Canadian Federal Court seeking to invalidate one of our issued Canadian patents. Our patent, which is the subject of the Canadian litigation, covers similar subject matter to that patent application at issue in the U.S. interference. In September 2012, Gilead Sciences, Ltd. filed suit against us in the Norway District Court of Oslo seeking to invalidate one of our issued Norwegian patents. Our patent at issue in the potential Norwegian litigation covers similar subject matter to that patent application at issue in the U.S. interference. In January 2013, Gilead Sciences Australia Pty Ltd. commenced proceedings in the Federal Court of Australia seeking a declaration that certain claims of one of our issued Australian patents, covering similar subject matter to that patent application at issue in the U.S. interference, are invalid and an order that such claims be revoked. We do not believe the respective patents at issue in these cases are relevant to any compounds we currently have under development. Gilead Sciences, Inc. may make similar claims or bring additional legal proceedings in the U.S. or other jurisdictions where we have granted patents. While we cannot predict whether we will prevail, we intend to vigorously defend these actions and any others like it brought by any third-party. In the event we do not prevail, we do not believe we will be required to make any payments to any third-parties and therefore we have not recorded a liability associated with this potential contingent matter.

 

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Operating Leases

In April 2013, our lease of 46,418 square feet of office and laboratory space located at 320 Bent Street in Cambridge, Massachusetts commenced. In February 2014, our lease payments will include an additional 5,596 square feet of office space located on the premise. The term of the lease is seven years and we have an option to extend the term of this lease agreement for an additional five years beyond the original lease term. In connection with this operating lease for office and laboratory space, we have a letter of credit with a commercial bank for $1.4 million which will expire in September 2014. In April 2013, we terminated our lease for laboratory and office space at 60 Hampshire Street in Cambridge, Massachusetts.

Indemnification

We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of the development, manufacture and commercialization of our HCV products. We have also agreed to indemnify Novartis and its affiliates against losses suffered as a result of any breach of representations and warranties in the termination agreement, development and commercialization agreement and a stock purchase agreement entered into in 2003. Under these agreements with Novartis, we made numerous representations and warranties to Novartis regarding our HBV and HCV drug candidates, including representations regarding our ownership of the inventions and discoveries. In the event of a breach of any such representation or warranty by us, Novartis has the right to seek indemnification from us and, under certain circumstances, us and our stockholders who sold shares to Novartis in 2003, which includes some of our current and former directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we and our stockholders could be liable to Novartis could be substantial. While it is possible that we may be required to make payments pursuant to the indemnification obligations we have under these agreements, we cannot reasonably estimate the amount of such payments or the likelihood that such payments would be required.

Under the license agreement with ViiV Healthcare Company, or ViiV, and the stock purchase agreement with GlaxoSmithKline, or GSK, we have agreed to indemnify ViiV as sublicensee, GSK and their affiliates against losses suffered as a result of our breach of representations and warranties in these agreements. We made numerous representations and warranties regarding our non-nucleoside reverse transcriptase inhibitor program regarding our ownership of inventions and discoveries. If one or more of these representations or warranties were not true at the time we made them, we would be in breach of these agreements. In the event of a breach, the parties have the right to seek indemnification from us for damages suffered as a result of such breach. The amounts for which we may be liable could be substantial. While it is possible that we may be required to make payments pursuant to the indemnification obligations we have under these agreements, we cannot reasonably estimate the amount of such payments or the likelihood that such payments would be required.

Under the Janssen collaboration agreement, we agreed to indemnify Janssen against losses suffered as a result of our breach of representations and warranties in the agreement and/or any injury to a subject in a clinical trial under the collaboration agreement caused by the use or manufacture of samatasvir. We made numerous representations and warranties to Janssen. If one or more of these representations or warranties were not true at the time they were made, we would be in breach of the agreement. In the event of a breach by us or in the event of injury to a subject in a clinical trial under the collaboration agreement caused by the use or manufacture of samatasvir, Janssen has the right to seek indemnification from us for damages suffered as a result of such breach or subject injury. The amounts for which we could be liable to Janssen under these circumstances may be substantial. In the instance where a subject in a clinical trial suffers injury or death and it is not determinable which compound caused the injury or death, each party shall be responsible for defending any third-party claims alleged against the party after the application of our clinical trial insurance, to the extent applicable.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenues, projected costs and expenses, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking statements. The words “anticipate”, “believe”, “estimate”, “intend”, “may”, “plan”, “will”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements reflect our current views with respect to future events. Because these forward-looking statements involve known and unknown risks and uncertainties, actual results, performance or achievements could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Critical Accounting Policies and Estimates”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. We cannot guarantee any future results, levels of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so.

Overview

Idenix Pharmaceuticals, Inc., which we refer to together with our wholly owned subsidiaries as Idenix, we, us or our, is a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the United States and France. Currently, our primary research and development focus is on the treatment of patients with hepatitis C virus, or HCV. Our HCV discovery program is focused on nucleotide polymerase inhibitors and NS5A inhibitors. Our strategic goal is to develop all oral combinations of direct-acting antiviral, or DAA, drug candidates that should eliminate the need for interferon and/or ribavirin with the current treatment for HCV. Our objective is to develop low dose, once- or twice-daily agents with broad genotypic activity that have low potential for drug-drug interaction, high tolerability and are designed for use in multiple combination regimens. We may seek to build a combination development strategy, both internally and with partners, to advance the future of HCV treatments. We believe that nucleotides will have a significant role in a combination DAA strategy for the treatment of HCV and therefore we are currently concentrating a substantial amount of our discovery efforts on this class of drugs. We believe we have strong nucleotide scientific expertise within our organization and should be able to leverage our intellectual patent portfolio to develop additional novel nucleotide drug candidates.

The following table summarizes key information regarding our pipeline of HCV drug candidates/programs:

 

Indication

  

Drug Candidates/Programs

  

Description

HCV    IDX21437 - Uridine Based Nucleotide Prodrug    In October 2013, we received approval to enter clinical trials for IDX21437 in Canada and Belgium and we have initiated enrollment for the healthy volunteer portion of a phase I/II clinical trial. Extensive preclinical testing for IDX21437 demonstrated favorable antiviral activity across genotypes 1-6 and a safety profile which supported advancement into clinical trials.
   IDX20963 - Uridine Based Nucleotide Prodrug    In the second quarter of 2013, we submitted an investigational new drug, or IND, application to the U.S. Food and Drug Administration, or FDA, for IDX20963. In June 2013, the FDA requested additional preclinical safety information for IDX20963 which we are currently conducting.
   Nucleotide Polymerase Inhibitor Discovery Program    As part of our ongoing extensive nucleotide discovery effort, we continue to explore and develop a diverse spectrum of nucleotides with novel bases, prodrugs and sugar moieties.
   Samatasvir (IDX719) - NS5A Inhibitor    In June 2012, we completed a three-day proof-of-concept study of samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, which evaluated 64 treatment-naïve HCV genotype 1, 2, 3 or 4-infected patients. Data from this clinical trial demonstrated that samatasvir monotherapy was well-tolerated at daily doses up to 100 mg and showed potent antiviral activity across HCV genotypes 1-4, with mean maximal viral load reductions up to approximately 4.0 log10 IU/mL.

 

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      In January 2013, we entered into a non-exclusive collaboration agreement with Janssen Pharmaceuticals, Inc., or Janssen, for the clinical evaluation of all oral DAA combinations including samatasvir, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir AB, or Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.
      In May 2013, we initiated a 12-week, randomized, double-blind, parallel-group phase II HELIX-1 clinical trial evaluating the safety and tolerability of samatasvir and simeprevir in addition to antiviral activity endpoints, in treatment-naïve, non-cirrhotic genotype 1b or 4 HCV-infected patients. Patients will be randomized equally across three treatment arms, receiving either 50, 100 or 150 mg of samatasvir once-daily for 12 weeks in combination with 150 mg of simeprevir plus ribavirin. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate sustained viral response, or SVR4, data after four weeks of stopping treatment for these patients to be available in the fourth quarter of 2013. Part B of the ongoing HELIX-1 clinical trial includes exploratory cohorts which have been added to evaluate the safety and antiviral activity of a 25 mg dose of samatasvir in genotype 1b HCV-infected patients and of a 100 mg dose of samatasvir in genotype 6 HCV-infected patients.
      We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three-DAA combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-naïve or have relapsed after treatment with pegylated interferon and ribavirin.

All of our drug candidates are currently in preclinical or clinical development. Our drug development programs and the potential commercialization of our drug candidates will require substantial cash to fund costs that we incur in connection with preclinical studies and clinical trials, regulatory review, manufacturing and sales and marketing efforts. We have incurred losses in each year since our inception and at September 30, 2013, we had an accumulated deficit of $801.7 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result of continuing losses, we may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates.

We are subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the successful development of products, clinical trial uncertainty, unexpected regulatory actions, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaboration partners, competition, technological and medical risks and management of growth.

Results of Operations

Comparison of Three Months Ended September 30, 2013 and 2012

Revenues

Revenues for the three months ended September 30, 2013 and 2012 were as follows:

 

     Three Months Ended September 30,  
     2013     2012  
     (In Thousands)  

Collaboration revenue - related party:

    

License fee revenue

   $ (1,267   $ 24,417   

Royalty revenue

     —          409   

Reimbursement of royalties

     1,286        7,427   
  

 

 

   

 

 

 
     19        32,253   
  

 

 

   

 

 

 

 

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Collaboration revenue from related party consisted of revenues associated with our collaboration with Novartis Pharma AG, or Novartis, for the worldwide development and commercialization of our drug candidates. Collaboration revenue from related party was comprised of the following:

 

    subsequent to July 31, 2012, the best estimate of selling price, or BESP, of the non-exclusive license that we granted to Novartis for combination trials pursuant to the termination and revised relationship agreement entered into with Novartis in July 2012, or the termination agreement, which is recognized over the seven-year term of the non-exclusive license, net of changes for Novartis’ stock subscription rights; through July 31, 2012, license and other fees received from Novartis for the license of our hepatitis B virus, or HBV, and HCV drug candidates which were recognized over the development period of our licensed drug candidates, net of changes for Novartis’ stock subscription rights;

 

    through July 31, 2012, royalty payments associated with product sales of telbivudine (Tyzeka®/Sebivo®) made by Novartis; and

 

    subsequent to July 31, 2012, reimbursement of royalties pursuant to Novartis’ obligation to reimburse us for our contractual payments to third-parties in connection with intellectual property related to Tyzeka®/Sebivo® for the treatment of HBV.

Collaboration revenue from related party was less than $0.1 million in the three months ended September 30, 2013 as compared to $32.3 million in the same period in 2012. The decrease of $32.3 million was primarily due to the recognition of additional license fee revenue in 2012 due to the termination agreement with Novartis. In 2012, we recognized $19.7 million which represented the excess of the deferred revenue over the BESP of the non-exclusive license that we granted to Novartis. In addition, $6.0 million of the decrease was primarily due to lower license fee revenue recognized related to the impact of Novartis’ stock subscription right. The stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. The fair value of the common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. For the quarter ended September 30, 2013, we recorded $0.1 million of revenue related to the Novartis collaboration and a charge against revenue of $1.4 million due to this stock subscription right resulting in net-contra revenue of $1.3 million. This charge against revenue is primarily due to a $1.58 increase in our stock price from June 30, 2013 to September 30, 2013. The stock subscription right is described in the footnotes to the condensed consolidated financial statements to this Quarterly Report on Form 10-Q.

Reimbursement of royalties was $1.3 million in the three months ended September 30, 2013 as compared to $7.4 million in the same period in 2012. The $6.1 million decrease was primarily due to the recognition of additional revenue related to the termination agreement with Novartis in July 2012. Under the termination agreement, Novartis is required to reimburse us for our contractual payments to third-parties in connection with intellectual property related to Tyzeka®/Sebivo®. In 2012, we recorded $7.4 million for the reimbursement from Novartis for these contractual payments to the University of Alabama at Birmingham Research Foundation, or UABRF.

Cost of Revenues

Cost of revenues were less than $0.1 million in the three months ended September 30, 2013 which was substantially unchanged as compared to the same period in 2012.

Research and Development Expenses

Research and development expenses were $21.7 million in the three months ended September 30, 2013 as compared to $13.5 million in the same period in 2012. The increase of $8.2 million was primarily due to $5.5 million of clinical trial costs for our samatasvir program, $5.3 million in preclinical costs for our nucleotide polymerase inhibitor program and $1.5 million related to IDX20963. These costs were partially offset by a decrease of $4.5 million in preclinical and clinical trial expenses related to IDX184 and IDX19368 which were discontinued earlier this year.

 

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General and Administrative Expenses

General and administrative expenses were $8.6 million in the three months ended September 30, 2013 as compared to $6.2 million in the same period in 2012. The increase of $2.4 million was primarily due to additional patent interference and litigation costs.

Restructuring Charges

In September 2013, we implemented a restructuring of our operations at our headquarters in Cambridge, Massachusetts and at our facility in Montpellier, France to reduce our workforce by approximately 20 positions in connection with our strategic initiatives to create a more flexible business structure and outsource certain research and development functions. We recorded $2.3 million in employee severance charges related to this restructuring. Of this amount, $0.2 million was paid during the third quarter ended September 30, 2013. The remaining balance of $2.1 million continues to be accrued as of September 30, 2013 and we expect this amount to be paid in the first half of 2014. We also recorded $1.7 million in non-cash share-based compensation expense related to the acceleration of unvested options for certain employees.

Intangible Asset Impairment

In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka®/Sebivo®) technology for the treatment of HBV, described below under the Contractual Obligations and Commitments heading. As a result of this settlement agreement, we recorded an intangible asset of $15.0 million and amortized it over the life of the agreement. Under the termination agreement in July 2012, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there were no future cash flows associated with its use and the intangible asset has no alternate future use. As a result, the carrying value of the related intangible asset was not recoverable and we recorded an impairment charge of $8.0 million in our condensed consolidated statement of operations and comprehensive income (loss) in the three months ended September 30, 2012.

Other Income, Net

Other income, net was $0.2 million in the three months ended September 30, 2013 and was primarily comprised of research and development credits. This amount was substantially unchanged as compared to the same period in 2012.

Comparison of Nine Months Ended September 30, 2013 and 2012

Revenues

Revenues for the nine months ended September 30, 2013 and 2012 were as follows:

 

     Nine Months Ended September 30,  
     2013     2012  
     (In Thousands)  

Collaboration revenue - related party:

    

License fee revenue

   $ (303   $ 22,919   

Royalty revenue

     —          2,922   

Reimbursement of royalties

     1,286        7,427   
  

 

 

   

 

 

 
     983        33,268   

Other revenue:

    

Collaboration revenue

     —          36,068   
  

 

 

   

 

 

 

Total revenues

   $ 983      $ 69,336   
  

 

 

   

 

 

 

Collaboration revenue from related party was $1.0 million in the nine months ended September 30, 2013 as compared to $33.3 million in the same period in 2012. The decrease of $32.3 million was primarily due to the recognition of additional license fee revenue in 2012 due to the termination agreement with Novartis. In 2012, we recognized $19.7 million which represented the excess of the deferred revenue over the BESP of the non-exclusive license that we granted to Novartis in 2012. In addition, $3.6 million of the decrease was primarily due to lower license fee revenue recognized related to the impact of Novartis’ stock subscription right. The stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. The fair value of the common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with

 

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Novartis and additional paid-in capital. For the nine months ended September 30, 2013, we recorded $0.5 million of revenue related to the Novartis collaboration and a charge against revenue of $0.8 million due to this stock subscription right resulting in net-contra revenue of $0.3 million. This charge against revenue is primarily due to a $0.34 increase in our stock price from December 31, 2012 to September 30, 2013. The stock subscription right is described in the footnotes to the condensed consolidated financial statements to this Quarterly Report on Form 10-Q.

There was no royalty revenue in the nine months ended September 30, 2013 as compared to $2.9 million in the same period in 2012. The decreased of $2.9 million was due to no longer receiving royalty payments related to Tyzeka®/Sebivo® from Novartis under the termination agreement.

Reimbursement of royalties was $1.3 million in the nine months ended September 30, 2013 as compared to $7.4 million in the same period in 2012. The $6.1 million decrease was primarily due to the recognition of additional revenue related to the termination agreement with Novartis in July 2012. Under the termination agreement, Novartis is required to reimburse us for our contractual payments to third-parties in connection with intellectual property related to Tyzeka®/Sebivo®. In 2012, we recorded $7.4 million for the reimbursement from Novartis for these contractual payments to UABRF.

There was no collaboration revenue recognized under the license agreement with ViiV Healthcare Company, or ViiV, which we refer to as the ViiV license agreement, in the nine months ended September 30, 2013 as compared to $36.1 million in the same period in 2012. The ViiV license agreement was terminated in March 2012.

Cost of Revenues

Cost of revenues were $0.7 million in the nine months ended September 30, 2013 as compared to $2.3 million in the same period in 2012. The decrease of $1.6 million was primarily due to the amortization of the intangible asset, described above, through the impairment date of July 2012 as well as the recognition of deferred expenses related to the termination of the ViiV license agreement in March 2012.

Research and Development Expenses

Research and development expenses were $65.5 million in the nine months ended September 30, 2013 as compared to $52.6 million in the same period in 2012. The increase of $12.9 million was primarily due to $11.0 million of preclinical costs for our nucleotide polymerase inhibitor program, $8.4 million of clinical trial costs for our samatasvir program and $7.9 million of preclinical costs related to IDX20963. These costs were partially offset by a decrease of $16.1 million of preclinical and clinical trial expenses related to IDX184 and IDX19368 which were discontinued earlier this year.

We expect our research and development expenses in 2013 to be higher than the amount incurred in 2012 mainly due to the advancement of samatasvir into phase II clinical trials as well as the development of our research pipeline.

We will continue to devote substantial resources to our research and development activities, expand our research pipeline and engage in future development activities as we continue to advance our drug candidates and explore collaborations with other entities that we believe will create shareholder value.

General and Administrative Expenses

General and administrative expenses were $25.3 million in the nine months ended September 30, 2013 as compared to $16.8 million in the same period in 2012. The increase of $8.5 million was primarily due to additional patent interference and litigation costs as well as professional fees.

We expect our general and administrative expenses in 2013 to be significantly higher than those incurred in 2012 primarily due to expected higher legal costs associated with patent litigation in various jurisdictions.

Restructuring Charges

In September 2013, we implemented a restructuring of our operations at our headquarters in Cambridge, Massachusetts and at our facility in Montpellier, France to reduce our workforce by approximately 20 positions in connection with our strategic initiatives to create a more flexible business structure and outsource certain research and development functions. We recorded $2.3 million in employee severance charges related to this restructuring. Of this amount, $0.2 million was paid during the third quarter ended September 30, 2013. The remaining balance of $2.1 million continues to be accrued as of September 30, 2013 and we expect this amount to be paid in the first half of 2014. We also recorded $1.7 million in non-cash share-based compensation expense related to the acceleration of unvested options for certain employees.

 

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We expect the restructuring to result in annualized savings of approximately $2.0 million to $3.0 million. We continue to explore additional cost saving initiatives.

Intangible Asset Impairment

In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka®/Sebivo®) technology for the treatment of HBV, described below under the Contractual Obligations and Commitment heading. As a result of this settlement agreement, we recorded an intangible asset of $15.0 million and amortized it over the life of the agreement. Under the termination agreement in July 2012, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there were no future cash flows associated with its use and the intangible asset has no alternate future use. As a result, the carrying value of the related intangible asset was not recoverable and we recorded an impairment charge of $8.0 million in our condensed consolidated statement of operations and comprehensive income (loss) in the nine months ended September 30, 2012.

Other Income, Net

Other income, net was $0.8 million in the nine months ended September 30, 2013 and was primarily comprised of research and development credits. This amount was substantially unchanged as compared to the same period in 2012.

Income Tax Expense

Income tax expense was less than $0.1 million in the nine months ended September 30, 2013 which was substantially unchanged as compared to the same period in 2012.

Liquidity and Capital Resources

Since our inception in 1998, we have financed our operations with proceeds obtained in connection with license and development arrangements and equity financings. The proceeds include:

 

    license, milestone, royalty and other payments from Novartis through July 31, 2012;

 

    license, milestone and stock purchase payments from ViiV and GlaxoSmithKline, or GSK, through March 15, 2012;

 

    reimbursements from Novartis for costs we have incurred subsequent to May 8, 2003 in connection with the development of Tyzeka®/Sebivo® and compounds Novartis previously licensed from us;

 

    sales of Tyzeka® in the United States through September 30, 2007;

 

    net proceeds from Sumitomo Pharmaceuticals Co., Ltd., or Sumitomo, for reimbursement of development costs;

 

    net proceeds from private placements of our convertible preferred stock in 1998, 1999 and 2001;

 

    net proceeds from public or underwritten offerings in July 2004, October 2005, August 2009, April 2010, April 2011, November 2011 and August 2012;

 

    net proceeds from private placements of our common stock concurrent with our public offerings in 2004, 2005 and April 2011; and

 

    proceeds from the exercise of stock options granted pursuant to our equity compensation plans.

We had total cash and cash equivalents of $148.8 million and $230.8 million as of September 30, 2013 and December 31, 2012, respectively. We believe that our current cash and cash equivalents will be sufficient to sustain operations through December 2014. Our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity. As of September 30, 2013, all of our investments were in money market funds.

We have incurred losses in each year since our inception and at September 30, 2013, we had an accumulated deficit of $801.7 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result, we may seek additional funding through a combination of public or private financing,

 

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collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates. In August 2012, we issued 25.3 million shares of our common stock under a shelf registration and received $190.5 million in net proceeds. Additional funding may not be available to us or, if available, may not be on terms favorable to us. Further, any additional equity financing may be dilutive to stockholders, other than Novartis, which has the right to maintain its current ownership level. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, reduce or eliminate one or more of our drug development programs, enter into new collaborative, strategic alliances or licensing arrangements that may not be favorable to us and reduce the number of our employees.

Net cash used in operating activities was $82.0 million and $60.5 million in the nine months ended September 30, 2013 and 2012, respectively. The $21.5 million net change was primarily due to higher operating expenses.

Net cash used in investing activities was $0.4 million and $1.8 million in the nine months ended September 30, 2013 and 2012, respectively. The $1.4 million decrease was primarily due to changes in restricted cash in connection with our operating leases.

Net cash provided by financing activities was $0.1 million and $195.9 million in the nine months ended September 30, 2013 and 2012, respectively. The decrease of $195.8 million was primarily due to the receipt of proceeds of $190.5 million related to an underwritten offering in August 2012.

Contractual Obligations and Commitments

Set forth below is a description of our contractual obligations as of September 30, 2013:

 

     Payments Due by Period  

Contractual Obligations

   Total      Less Than
1 Year
     1-3 Years      4-5 Years      After 5
Years
 
     (In Thousands)  

Operating leases

   $ 21,121       $ 3,279       $ 6,943       $ 6,248       $ 4,651   

Settlement payments and other agreements

     1,760         1,444         316         —           —     

Long-term obligations

     5,814         —           358         5,000         456   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 28,695       $ 4,723       $ 7,617       $ 11,248       $ 5,107   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the table above is $6.4 million related to a settlement agreement we entered into in July 2008 with the University of Alabama at Birmingham, or UAB, UABRF, an affiliate of UAB, and Emory University relating to our telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, Le Centre National de la Recherche Scientifique, or CNRS, and the Universite Montpellier II, or the University of Montpellier, and which cover the use of Tyzeka®/Sebivo® have been resolved. Under the terms of the settlement agreement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront payment and will make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Our payment obligations under the settlement agreement will expire in August 2019. The settlement agreement was effective on June 1, 2008 and included mutual releases of all claims and covenants not to sue among the parties. It also included a release from a third-party scientist who had claimed to have inventorship rights in certain Idenix/CNRS/University of Montpellier patents. Under the termination agreement executed in July 2012, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis is required to reimburse us for our contractual payments to UABRF in connection with our intellectual property related to Tyzeka®/Sebivo®. Included in receivables from related party at September 30, 2013 and December 31, 2012 was $6.7 million and $7.2 million, respectively, for the reimbursement from Novartis for these contractual payments to UABRF.

In April 2013, our lease of 46,418 square feet of office and laboratory space located at 320 Bent Street in Cambridge, Massachusetts commenced. In February 2014, our lease payments will include an additional 5,596 square feet of office space located on the premise. The term of the lease is seven years and we have an option to extend the term of this lease agreement for an additional five years beyond the original lease term. The future expected rental payments under this lease are included in the table above. In April 2013, we terminated our lease for laboratory and office space at 60 Hampshire Street in Cambridge, Massachusetts.

 

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In connection with the operating lease for office and laboratory space described above, we have a letter of credit with a commercial bank for $1.4 million which will expire in September 2014.

As of September 30, 2013, we had $0.9 million of long-term liabilities recorded. These liabilities and certain potential payment obligations relating to our HBV and HCV product and drug candidates that are described below are excluded from the contractual obligations table above as we cannot make a reliable estimate of the period in which the cash payments may be made.

In May 2004, we entered into a settlement agreement with UAB which provides for a milestone payment of $1.0 million to UAB upon receipt of regulatory approval in the United States to market and sell certain HCV products invented or discovered by our former chief executive officer during the period from November 1, 1999 to November 1, 2000. This settlement agreement also provides that if such HCV products were approved and commercialized, we will pay UAB an amount equal to 0.5% of worldwide net sales of such HCV products with a minimum sales-based payment equal to $12.0 million. Such payments would be due even in the instance where we licensed such technology to a third-party. Currently, there are no such HCV products approved and therefore there was no related liability recorded as of September 30, 2013.

We have potential payment obligations under the license agreement with the Universita degli Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide right to make, use and sell certain HCV and other technologies. We are liable for certain payments to the University of Cagliari if we receive license fees or milestone payments with respect to such technology from a collaborator or other third-party.

In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and the University of Montpellier pursuant to which we worked in collaboration with scientists from CNRS and the University of Montpellier to discover and develop technologies relating to antiviral substances, including telbivudine. This cooperative agreement expired in December 2006, but we retain rights to exploit the patents derived from the collaboration. Under the cooperative agreement, we are obligated to make royalty payments for products derived from such patents, including products for HBV, HCV and human immunodeficiency virus type-1, or HIV. Such payments would be due even in the instance where we licensed such patents to a third-party. Novartis was required to reimburse us for our contractual payments to CNRS and the University of Montpellier, subject to our assignment to Novartis of our patent rights under the amended and restated agreement with CNRS and the University of Montpellier within 12 months of the execution of the termination agreement, in connection with our intellectual property related to Tyzeka®/Sebivo®. These payments were recorded as receivables from related party on our condensed consolidated balance sheets. Prior to the assignment of such patent rights to Novartis, payments from Novartis to reimburse us for our contractual payments to CNRS and the University of Montpellier were recorded as a deferred payment obligation on our condensed consolidated balance sheets and we charged payments we made to CNRS to cost of revenues on our condensed consolidated statements of operations and comprehensive income (loss). As of July 31, 2013, the patent rights have been assigned to Novartis. As a result, in the third quarter of 2013, we recognized $1.3 million of deferred payments as revenue and we will no longer record our contractual payments to CNRS as cost of revenues.

In March 2003, we entered into a final settlement agreement with Sumitomo, under which the rights to develop and commercialize telbivudine in Japan, China, South Korea and Taiwan previously granted to Sumitomo were returned to us. This agreement with Sumitomo became effective upon consummation of our collaboration with Novartis in May 2003. The settlement agreement we entered into with Sumitomo provides for a $5.0 million milestone payment to Sumitomo if and when the first commercial sale of telbivudine occurs in Japan. As part of the termination agreement, Novartis remains obligated to reimburse us for any such payment made to Sumitomo.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP, in the United States of America. The preparation of the condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued expenses and share-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU No. 2013-02, as an update to Comprehensive Income (Topic 220). The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No. 2013-02 became effective on February 1, 2013 and did not have a material impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Changes in interest rates may impact our financial position, operating results or cash flows. The primary objective of our investment activities is to preserve capital while maintaining liquidity until it is required to fund operations. To minimize risk, we maintain our operating cash in commercial bank accounts. We invest our cash in high quality financial instruments, primarily money market funds. Due to the nature of these instruments, we do not believe that we have a material exposure to interest rate risk.

Foreign Currency Exchange Rate Risk

Our foreign currency transactions include a subsidiary in France that is denominated in euros. As a result of these foreign currency transactions, our financial position, results of operations and cash flows can be affected by market fluctuations in foreign currency exchange rates. We have not entered into any derivative financial instruments to reduce the risk of fluctuations in currency exchange rates.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We have conducted an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (our principal executive officer and principal financial officer, respectively), regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2013, our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2012 and Note 8 of this quarterly report for discussions of our legal proceedings.

 

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Item 1A. Risk Factors

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks we do not yet know of or which we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer and the trading price of our common stock could decline. The following risks should be considered, together with all of the other information in our Annual Report on Form 10-K for the year ended December 31, 2012 before deciding to invest in our securities.

Factors Related to Our Business

Our failure to successfully acquire or develop and market drug candidates or have drug candidates approved by regulatory agencies would impair our ability to grow.

We intend to establish a franchise in the HCV market by developing multiple drug candidates for this therapeutic indication. The success of this strategy depends upon the development and commercialization of drug candidates that we successfully discover, license or otherwise acquire.

Proposing, negotiating and implementing the acquisition or in-license of drug candidates may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the acquisition of drug candidates. We may not be able to acquire the rights to additional drug candidates on terms that we find acceptable.

Drug candidates we discover, license or acquire will require additional and likely substantial development, including formulation optimization, extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities.

All drug candidates are prone to the risks of failure which are inherent in pharmaceutical drug development, including the possibility that the drug candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. We have experienced many regulatory delays and setbacks in the clinical development of several of our drug candidates.

For example, in August 2012, the FDA placed IDX184, an HCV nucleotide inhibitor, on partial clinical hold, and IDX19368, an HCV nucleotide inhibitor, on clinical hold. Both of these holds were due to serious cardiac-related adverse events observed with a competitor’s nucleotide polymerase inhibitor, BMS-986094. In previous clinical trials as well as our phase II clinical trial of IDX184 in combination with pegylated interferon and ribavirin, or Peg-IFN/RBV, we have observed no evidence of severe cardiac findings to date. In February 2013, the FDA communicated to us that both of these programs would remain on clinical hold due to unresolved concerns regarding the potential for cardiac toxicity. As a result, we elected not to continue the development of these two programs. In June 2013, the FDA requested additional preclinical safety information for IDX20963. Initiation of clinical trials for IDX20963 is on hold and we must provide a satisfactory response to the FDA before clinical trials can begin in the United States.

Regulatory agencies have expressed safety concerns following cardiac-related adverse events observed in nucleotide compounds previously in development for the treatment of patients with HCV. Our business may be adversely affected if such regulatory concerns lead to more burdensome preclinical or clinical studies that cause significant delays in developing our future nucleotide drug candidates.

Our primary research and development focus is the treatment of patients with HCV. In August 2012, the FDA placed IDX184 and IDX19368 on clinical hold. Both of these holds were due to serious cardiac-related adverse events observed with a competitor’s nucleotide polymerase inhibitor, BMS-986094. These three compounds are guanosine-based nucleotide polymerase inhibitors. In February 2013, the FDA communicated to us that IDX184 and IDX19368 would remain on clinical hold due to unresolved concerns regarding the potential for cardiac toxicity. As a result, we elected not to continue the development of these two programs. If the FDA or other regulatory agencies continue to express safety concerns regarding the possibility of cardiac-related adverse events with respect to nucleotide drug candidates, future preclinical and clinical studies involving such compounds may be more burdensome or include additional preclinical or clinical endpoints that are difficult to meet. In such instance, our progress in the development of these drug candidates may be significantly slowed. If our development timelines are significantly slowed, our business may be adversely affected.

 

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Our product candidates may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical products or investigational agents, which may delay or preclude their further development or regulatory approval, or limit their use if approved.

Throughout the drug development process, we must continually demonstrate the safety and tolerability of our product candidates in order to obtain regulatory approval to advance their clinical development or to market them. Even if our product candidates demonstrate biologic activity and clinical efficacy, any unacceptable adverse side effects or toxicities, when administered alone or in the presence of other pharmaceutical products or investigational agents, which can arise at any stage of development, may outweigh their potential benefit. For instance, in September 2010, two of our drug candidates for the treatment of HCV, IDX184 and IDX320, were placed on clinical hold by the FDA following a 14-day drug-drug interaction study of a combination of IDX184 and IDX320 in healthy volunteers. We discontinued the clinical development of IDX320. In February 2011, the IDX184 program was placed on partial clinical hold, which allowed us to initiate a phase II 12-week clinical trial of IDX184 in HCV-infected patients in July 2011. In February 2012, the FDA removed the partial clinical hold on IDX184. In August 2012, the FDA placed IDX184 on partial clinical hold and IDX19368 on clinical hold due to serious cardiac-related adverse events observed with a competitor’s nucleotide polymerase inhibitor, BMS-986094. In February 2013, the FDA communicated to us that both of these programs would remain on clinical hold. As a result, we elected not to continue the development of these two programs. In future preclinical studies and clinical trials our product candidates may demonstrate unacceptable safety profiles or unacceptable drug-drug interactions, which could result in the delay or termination of their development, prevent regulatory approval or limit their market acceptance if they are ultimately approved.

We have a limited operating history and have incurred a cumulative loss since inception. If we do not generate significant revenues, we will not be profitable.

We have incurred significant losses each year since our inception in May 1998. We expect to report a net loss for the next several years as we continue to expand our drug discovery and development efforts. Tyzeka®/Sebivo®, our only product to reach commercialization, is marketed by Novartis and we received royalty payments associated with sales of this product through July 2012. Subsequent to July 2012, under the termination agreement entered into with Novartis, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. We will not be able to generate revenues from other product sales until we successfully complete clinical development and receive regulatory approval for one of our drug candidates, and we or a collaboration partner successfully introduce such product commercially. We expect to incur annual operating losses and expect that the net loss we will incur will fluctuate from quarter to quarter and such fluctuations may be substantial. To generate product revenue, regulatory approval for products we successfully develop must be obtained and we and/or one of our existing or future collaboration partners must effectively manufacture, market and sell such products. Even if we successfully commercialize drug candidates that receive regulatory approval, we may not be able to realize revenues at a level that would allow us to achieve or sustain profitability. Accordingly, we may never generate significant revenue and, even if we do generate significant revenue, we may never achieve profitability.

We will need additional capital to fund our operations, including the development, manufacture and potential commercialization of our drug candidates. If we do not have or cannot raise additional capital when needed, we will be unable to develop and ultimately commercialize our drug candidates successfully.

We believe our cash and cash equivalents balance at September 30, 2013 will be sufficient to sustain operations through December 2014. Our drug development programs and the potential commercialization of our drug candidates will require substantial cash to fund expenses that we will incur in connection with preclinical studies and clinical trials, regulatory review and future manufacturing and sales and marketing efforts.

Our need for additional funding will depend in part on whether we enter into development and commercialization agreements with third-parties and receive related license fees, milestone payments and development expense reimbursement payments thereunder with respect to our drug candidates.

Our future capital needs will also depend generally on many other factors, including:

 

    the amount of revenue that we may be able to realize from commercialization and sale of drug candidates, if any, which are approved by regulatory authorities;

 

    the scope and results of our preclinical studies and clinical trials;

 

    the progress of our current preclinical and clinical development programs for HCV;

 

    the cost of obtaining, maintaining and defending patents on our drug candidates and our processes;

 

    the cost, timing and outcome of regulatory reviews;

 

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    any costs associated with changes in rules and regulations promulgated by the FDA related to the drug development process and/or clinical trials, including but not limited to increased costs associated with the evolving standard of care treatment regimens;

 

    the commercial potential of our drug candidates;

 

    the rate of technological advances in our markets;

 

    the cost of acquiring or in-licensing new discovery compounds, technologies, drug candidates or other business assets;

 

    the magnitude of our general and administrative expenses;

 

    any costs related to litigation in which we may be involved or related to any claims made against us;

 

    any costs we may incur under current and future licensing arrangements; and

 

    the costs of commercializing and launching other products, if any, which are successfully developed and approved for commercial sale by regulatory authorities.

We expect that we will incur significant costs to complete the clinical trials and other studies required to enable us to submit regulatory applications with the FDA and/or the European Medicines Agency, or EMA, for our drug candidates as we continue development of each of our drug candidates. The time and cost to complete clinical development of our drug candidates may vary as a result of a number of factors.

We may seek additional capital through a combination of public and private equity offerings, debt financings and collaborative, strategic alliance and licensing arrangements. Such additional financing may not be available when we need it or may not be available on terms that are favorable to us.

If we raise additional capital through the sale of our common stock, existing stockholders, other than Novartis, which has the right to maintain a certain level of ownership, will experience dilution of their current level of ownership of our common stock and the terms of the financing may adversely affect the holdings or rights of our stockholders. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, reduce or eliminate one or more of our drug development programs or to enter into new collaborative, strategic alliances or licensing arrangements that may not be favorable to us. More generally, if we are unable to obtain adequate funding, we may be required to scale back, suspend or terminate our business operations.

Our research and development efforts may not result in additional drug candidates being discovered on anticipated timelines, which could limit our ability to generate revenues.

Some of our research and development programs are at preclinical stages. Additional drug candidates that we may develop or acquire will require significant research, development, preclinical studies and clinical trials, regulatory approval and commitment of resources before any commercialization may occur. We cannot predict whether our research will lead to the discovery of any additional drug candidates that could generate revenues for us.

Our investments are subject to general credit, liquidity, market and interest rate risks.

As of September 30, 2013, all of our cash and cash equivalents were invested in money market funds. Our investment policy seeks to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity. Should our investments cease paying or reduce the amount of interest paid to us, our interest income would suffer. In addition, general credit, liquidity, market and interest risks associated with our investment portfolio may have an adverse effect on our financial condition.

The commercial markets which we intend to enter are subject to intense competition. If we are unable to compete effectively, our drug candidates may be rendered noncompetitive or obsolete.

We are engaged in segments of the pharmaceutical industry that are highly competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products that target viral diseases, including the same diseases we are targeting.

 

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We face intense competition from existing products and we expect to face increasing competition as new products enter the market and advanced technologies become available. For the treatment of HCV, Peg-IFN/RBV, Incivek (telaprevir) and Victrelis (boceprevir) are approved by the FDA for commercial sale. Other drug candidates, currently in phase III development, may be approved by the FDA and the EMA for commercial sale in the near future. Increased costs associated with the evolving standard of care treatment regimens and the cure rates of patients using one of these approved drugs and future approved combinations of DAAs, may be such that our development and discovery efforts in the area of HCV may be rendered noncompetitive.

We believe that a significant number of drug candidates that are currently under development may become available in the future for the treatment of HCV. Our competitors’ products may be more effective, have fewer side effects, have lower costs or be better marketed and sold than any of our products. Additionally, products that our competitors successfully develop for the treatment of HCV may be marketed prior to any HCV product we or our collaboration partners successfully develop. Many of our competitors have:

 

    significantly greater financial, technical and human resources than we have and may be better equipped to discover, develop, manufacture and commercialize products;

 

    more extensive experience in conducting preclinical studies and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products;

 

    products that have been approved or drug candidates that are in late-stage development; and

 

    collaborative arrangements in our target markets with leading companies and research institutions.

Under the termination agreement, Novartis has a non-exclusive license for a period of seven years from July 2012 to conduct clinical trials evaluating a combination of any of our HCV drug candidates and any of Novartis’ HCV drug candidates after each drug candidate has completed a dose-ranging study. If Novartis obtains regulatory approval to co-label a Novartis HCV drug with one or more of our HCV drugs, Novartis could market and sell a combination that may compete with our drug candidates and/or combination products that we market and sell in the future. In addition, Novartis may market, sell, promote or license other competitive products. Novartis has significantly greater financial, technical and human resources than we have, is better equipped to discover, develop, manufacture and commercialize products, and has more extensive experience in preclinical studies and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. In the event that Novartis competes with us, our business could be materially and adversely affected.

Competitive products may render our products obsolete or noncompetitive before we can recover the expenses of developing and commercializing our drug candidates. Furthermore, the development of new treatment methods and/or the widespread adoption or increased utilization of vaccines for the diseases we are targeting could render our drug candidates noncompetitive, obsolete or uneconomical.

With respect to drug candidates, if any, that we may successfully develop and obtain approval to commercialize, we will face competition based on the safety and effectiveness of our products, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent position and other factors. Our competitors may develop or commercialize more effective or more affordable products or obtain more effective patent protection than we do. Accordingly, our competitors may commercialize products more rapidly or effectively than we do, which could adversely affect our competitive position and business.

Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies.

If biopharmaceutical companies involved in HCV drug development continue to consolidate, competition may increase and our business may be harmed.

In late 2011 and early 2012, several acquisitions of smaller biopharmaceutical companies by larger biopharmaceutical companies took place at substantial premiums over the market capitalizations of the target companies, including the acquisitions of Anadys Pharmaceuticals and Pharmasset, Inc., by F. Hoffman-LaRoche & Co. and Gilead Sciences, Inc., respectively. If such consolidation continues to take place, we may face competitive pressures to a far greater degree than had those consolidations not occurred, resulting from the greater resources the larger pharmaceutical companies can invest in their HCV development pipelines.

 

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If we are not able to attract and retain key management and scientific personnel and advisors, we may not successfully develop our drug candidates or achieve our other business objectives.

The growth of our business and our success depends in large part on our ability to attract and retain key management and research and development personnel. Our key personnel include our senior officers, many of whom have very specialized scientific, medical or operational knowledge. The loss of the service of any of the key members of our senior management team may significantly delay or prevent our discovery of additional drug candidates, the development of our drug candidates and achievement of our other business objectives. Our ability to attract and retain qualified personnel, consultants and advisors is critical to our success.

We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, academic institutions, governmental entities and other research institutions. We may be unable to attract and retain these individuals and our failure to do so would have an adverse effect on our business.

Our business has a substantial risk of product liability claims. If we are unable to obtain or maintain appropriate levels of insurance, a product liability claim against us could adversely affect our business.

Our business exposes us to significant potential product liability risks that are inherent in the development, manufacturing and marketing of human therapeutic products. Product liability claims could result in a recall of products or a change in the therapeutic indications for which such products may be used. In addition, product liability claims may distract our management and key personnel from our core business, require us to spend significant time and money in litigation or require us to pay significant damages, which could prevent or interfere with commercialization efforts and could adversely affect our business. Claims of this nature would also adversely affect our reputation, which could damage our position in the marketplace.

For Tyzeka®/Sebivo®, product liability claims could be made against us based on the use of our product prior to October 1, 2007, at which time we transferred to Novartis our worldwide development, commercialization and manufacturing rights and obligations related to Tyzeka®/Sebivo®. For Tyzeka®/Sebivo®, product liability claims could be made against us based on the use of our drug candidates in clinical trials we conducted prior to 2007. We have obtained product liability insurance for Tyzeka®/Sebivo® and maintain clinical trial insurance for our drug candidates in development. Such insurance may not provide adequate coverage against potential liabilities. In addition, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to maintain or increase current amounts of product liability and clinical trial insurance coverage, obtain product liability insurance for other products, if any, that we seek to commercialize, obtain additional clinical trial insurance or obtain sufficient insurance at a reasonable cost. If we are unable to obtain or maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our products or conduct the clinical trials necessary to develop our drug candidates. A successful product liability claim brought against us in excess of our insurance coverage may require us to pay substantial amounts in damages. This could adversely affect our cash position and results of operations.

Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant, uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. We currently maintain general liability, property, workers’ compensation, products liability, directors’ and officers’ and employment practices insurance policies. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

If the estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary from those reflected in our projections and accruals.

Our financial statements have been prepared in accordance with GAAP in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There can be no assurance, however, that our estimates, or the assumptions underlying them, will not change. Different assumptions could yield materially different financial results.

 

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If we fail to design and maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission adopted rules requiring public companies to include a report in Annual Reports on Form 10-K that contains an assessment by management of the effectiveness of the company’s internal controls over financial reporting. In addition, the company’s independent registered public accounting firm must attest to the effectiveness of our internal controls over financial reporting.

We have completed an assessment and will continue to review in the future our internal controls over financial reporting in an effort to ensure compliance with the Section 404 requirements. The manner by which companies implement, maintain and enhance these requirements including internal control reforms, if any, to comply with Section 404, and how registered independent public accounting firms apply these requirements and test companies’ internal controls, is subject to change and will evolve over time. As a result, notwithstanding our efforts, it is possible that either our management or our independent registered public accounting firm may in the future determine that our internal controls over financial reporting are not effective.

A determination that our internal controls over financial reporting are ineffective could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact the market price of our stock, increase the volatility of our stock price and adversely affect our ability to raise additional funding.

Our business is subject to international economic, political and other risks that could negatively affect our results of operations or financial position.

Our business is subject to risks associated with doing business internationally, including:

 

    changes in a specific country’s or region’s political or economic conditions, including Western Europe, in particular;

 

    potential negative consequences from changes in tax laws affecting our ability to repatriate profits;

 

    difficulty in staffing and managing operations overseas;

 

    unfavorable labor regulations applicable to our operations in France;

 

    changes in foreign currency exchange rates; and

 

    the need to ensure compliance with the numerous regulatory and legal requirements applicable to our business in each of these jurisdictions and to maintain an effective compliance program to ensure compliance.

Our operating results may be impacted by the health of the North American and European economies. Our business and financial performance may be adversely affected by current and future economic conditions that cause a decline in business and consumer spending, including a reduction in the availability of credit, rising interest rates, financial market volatility and recession.

Factors Related to Development, Clinical Testing and Regulatory Approval of Our Drug Candidates

All of our drug candidates are in development. Our drug candidates remain subject to clinical testing and regulatory approval. If we are unable to develop our drug candidates, we will not be successful.

To date, we have limited experience marketing, distributing and selling any products. The success of our business depends primarily upon our ability, or that of any future collaboration partner, to successfully commercialize other products we may successfully develop.

Our drug candidates are in various stages of development. All of our drug candidates require regulatory review and approval prior to commercialization. Approval by regulatory authorities requires, among other things, that our drug candidates satisfy rigorous standards of safety, including efficacy and assessments of the toxicity and carcinogenicity of the drug candidates we are developing. To satisfy these standards, we must engage in expensive and lengthy testing. Notwithstanding the efforts to satisfy these regulatory standards, our drug candidates may not:

 

    offer therapeutic or other improvements over existing drugs;

 

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    be proven safe and effective in clinical trials;

 

    meet applicable regulatory standards;

 

    be capable of being produced in commercial quantities at acceptable costs; or

 

    be successfully commercialized.

In June 2013, the FDA requested additional preclinical safety information for IDX20963. Initiation of clinical trials for IDX20963 is on hold and we must provide a satisfactory response to the FDA before clinical trials can begin in the United States.

Commercial availability of our drug candidates is dependent upon successful clinical development and receipt of requisite regulatory approvals. Clinical data often are susceptible to varying interpretations. Many companies that have believed that their drug candidates performed satisfactorily in clinical trials in terms of both safety and efficacy have nonetheless failed to obtain regulatory approval for commercial sale. Furthermore, the FDA and other regulatory authorities may request additional information including data from additional clinical trials, which may significantly delay any approval and these regulatory agencies ultimately may not grant marketing approval for any of our drug candidates. For example, in August 2012, the FDA placed IDX184 and IDX19368 on clinical hold. Both of these holds were due to serious cardiac-related adverse events observed with a competitor’s nucleotide polymerase inhibitor, BMS-986094. In February 2013, the FDA communicated to us that both of these programs would remain on clinical hold. As a result, we elected not to continue the development of these two programs.

If our preclinical or clinical trials are not successful, we will not obtain regulatory approval for the commercial sale of our drug candidates.

To obtain regulatory approval for the commercial sale of our drug candidates, we will be required to demonstrate through preclinical studies and clinical trials that our drug candidates are safe and effective. Preclinical studies and clinical trials are lengthy and expensive and the historical rate of failure for drug candidates is high, including those drug candidates that are classified as nucleoside/nucleotide polymerase inhibitors. The results from preclinical studies of a drug candidate may not predict the results that will be obtained in human clinical trials.

We, the FDA or other applicable regulatory authorities may prohibit the initiation or suspend clinical trials of a drug candidate at any time if we or they believe the persons participating in such clinical trials are being exposed to unacceptable health risks or for other reasons. The observation of adverse side effects in a clinical trial may result in the FDA or foreign regulatory authorities refusing to approve a particular drug candidate for any or all indications of use. In August 2012, the FDA placed IDX184 on partial clinical hold and IDX19368 on clinical hold. Both of these holds were due to serious cardiac-related adverse events observed with a competitor’s nucleotide polymerase inhibitor, BMS-986094. In February 2013, the FDA communicated to us that both of these programs would remain on clinical hold. As a result, we elected not to continue the development of these two programs. Additionally, adverse or inconclusive preclinical or clinical trial results concerning any of our drug candidates could require us to conduct additional preclinical or clinical trials, result in increased costs, significantly delay the submission of applications seeking marketing approval for such drug candidates, result in a narrower indication than was originally sought or result in a decision to discontinue development of such drug candidates. For example, in June 2013, the FDA requested additional preclinical safety information for IDX20963. Initiation of clinical trials for IDX20963 is on hold and we must provide a satisfactory response to the FDA before clinical trials can begin in the United States.

Clinical trials require sufficient patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, the eligibility criteria for the clinical trial and other clinical trials evaluating other investigational agents for the same or similar uses, which may compete with us for patient enrollment. Delays in patient enrollment can result in increased costs and longer development times.

We cannot predict whether we will encounter additional problems with any of our completed, ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend our clinical trials, delay or suspend patient enrollment into our clinical trials or delay the analysis of data from our completed or ongoing clinical trials. Delays in the development of our drug candidates would delay our ability to seek and potentially obtain regulatory approvals, increase expenses associated with clinical development and likely increase the volatility of the price of our common stock. Any of the following could suspend, terminate or delay the completion of our ongoing, or the initiation of our planned, clinical trials:

 

    discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

 

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    delays in obtaining, or the inability to obtain, required approvals from, or suspensions or terminations by, institutional review boards or other governing entities at clinical sites selected for participation in our clinical trials;

 

    delays in enrolling participants into clinical trials;

 

    lower than anticipated retention of participants in clinical trials;

 

    insufficient supply or deficient quality of drug candidate materials or other materials necessary to conduct our clinical trials;

 

    serious or unexpected drug-related side effects experienced by participants in our clinical trials; or

 

    negative results of clinical trials.

If the results of our own or any future partner’s ongoing or planned clinical trials for our drug candidates are not available when we expect or if we encounter any delay in the analysis of data from our preclinical studies and clinical trials we may be unable to commence human clinical trials of any drug candidates or we may not have the financial resources to continue the research and development of our drug candidates.

If our drug candidates fail to obtain United States and/or foreign regulatory approval, we and any future partners will be unable to commercialize our drug candidates.

Each of our drug candidates is subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical studies and clinical trials and an extensive regulatory approval process are required in the United States and in many foreign jurisdictions prior to the commercial sale of any drug candidates. Before any drug candidate can be approved for sale, we, or any collaboration partners must demonstrate that it can be manufactured in accordance with the FDA’s current good manufacturing practices, or cGMP, requirements. In addition, facilities where the principal commercial supply of a product is to be manufactured must pass FDA inspection prior to approval. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the drug candidates we are currently developing will obtain the appropriate regulatory approvals necessary to permit commercial distribution.

The time required for FDA review and other approvals is uncertain and typically takes a number of years, depending upon the complexity of the drug candidate. Analysis of data obtained from preclinical studies and clinical trials is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We or one of our future partners may also encounter unanticipated delays or increased costs due to government regulation from future legislation or administrative action, changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any partner to generate revenues from a particular drug candidate. In June 2013, the FDA requested additional preclinical safety information for IDX20963. Initiation of clinical trials for IDX20963 is on hold and we must provide a satisfactory response to the FDA before clinical trials can begin in the United States. In August 2012, the FDA placed IDX184 on partial clinical hold and IDX19368 on clinical hold. In February 2013, the FDA communicated to us that both of these programs would remain on clinical hold. As a result, we elected not to continue the development of these two programs. In February 2011, ViiV informed us that the FDA placed ‘761, our product candidate for the treatment of HIV which we licensed to ViiV in 2009, on clinical hold and subsequently, the ViiV license agreement was terminated in March 2012. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we or any partner may market the product. These restrictions may limit the size of the market for the product. Additionally, drug candidates we or any future partners successfully develop could be subject to post market surveillance and testing.

We are also subject to numerous foreign regulatory requirements governing the conduct of clinical trials, and we, with any partners, are subject to numerous foreign regulatory requirements relating to manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval processes include all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by any one regulatory authority does not assure approval by regulatory authorities in other

 

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jurisdictions. Many foreign regulatory authorities, including those in the European Union and in China, have different approval procedures than those required by the FDA and may impose additional testing requirements for our drug candidates. Any failure or delay in obtaining such marketing authorizations for our drug candidates would have a material adverse effect on our business.

Our products will be subject to ongoing regulatory review even after approval to market such products is obtained. If we or any future partners fail to comply with applicable United States and foreign regulations, we or such partners could lose approvals that we or our partners have been granted and our business would be seriously harmed.

Even after approval, any drug product that we or any collaboration partners successfully develop will remain subject to continuing regulatory review, including the review of clinical results, which are reported after our product becomes commercially available. The marketing claims we or any collaboration partners are permitted to make in labeling or advertising regarding our marketed drugs in the United States will be limited to those specified in any FDA approval, and in other markets such as the European Union, to the corresponding regulatory approvals. Any manufacturer we or any collaboration partners use to make approved products will be subject to periodic review and inspection by the FDA or other similar regulatory authorities in the European Union and other jurisdictions. We and any collaboration partners are required to report any serious and unexpected adverse experiences and certain quality problems with our products and make other periodic reports to the FDA or other similar regulatory authorities in the European Union and other jurisdictions. The subsequent discovery of previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug manufacturer or facility, including withdrawal of the drug from the market. We do not have, and currently do not intend to develop, the ability to manufacture material at commercial scale or for our clinical trials. Our reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on such manufacturers for regulatory compliance. Certain changes to an approved product, including the way it is manufactured or promoted, often require prior approval from regulatory authorities before the modified product may be marketed.

If we or any collaboration partners fail to comply with applicable continuing regulatory requirements, we or such collaboration partners may be subject to civil penalties, suspension or withdrawal of any regulatory approval obtained, product recalls and seizures, injunctions, operating restrictions and criminal prosecutions and penalties.

If we or any future partners fail to comply with ongoing regulatory requirements after receipt of approval to commercialize a product, we or such partners may be subject to significant sanctions imposed by the FDA, EMA or other United States and foreign regulatory authorities.

The research, testing, manufacturing and marketing of drug candidates and products are subject to extensive regulation by numerous regulatory authorities in the United States and other countries. Failure to comply with these requirements may subject a company to administrative or judicially imposed sanctions. These enforcement actions may include, without limitation:

 

    warning letters and other regulatory authority communications objecting to matters such as promotional materials and requiring corrective action such as revised communications to healthcare practitioners;

 

    civil penalties;

 

    criminal penalties;

 

    injunctions;

 

    product seizure or detention;

 

    product recalls;

 

    total or partial suspension of manufacturing; and

 

    FDA refusal to review or approve pending new drug applications or supplements to new drug applications for previously approved products and/or similar rejections of marketing applications or supplements by foreign regulatory authorities.

The imposition of one or more of these sanctions on us or one of our future partners could have a material adverse effect on our business.

 

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If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to bloodborne pathogens and the handling of biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs we may incur due to injuries to our employees resulting from the use of these materials and environmental liability insurance to cover us for costs associated with environmental or toxic tort claims that may be asserted against us, this insurance may not provide adequate coverage against all potential liabilities. Additional federal, state, foreign and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with these laws or regulations. Additionally, we may incur substantial fines or penalties if we violate any of these laws or regulations.

Growing availability of specialty pharmaceuticals may lead to increased focus of cost containment.

Specialty pharmaceuticals refer to medicines that treat rare or life-threatening conditions that have smaller patient populations, such as certain types of cancer, multiple sclerosis, HBV, HCV and HIV. The growing availability and use of innovative specialty pharmaceuticals, combined with their relative higher cost as compared to other types of pharmaceutical products, is beginning to generate significant payer interest in developing cost containment strategies targeted to this sector. While the impact on our payers’ efforts to control access and pricing of specialty pharmaceuticals has been limited to date, our portfolio of specialty products, combined with the increasing use of health technology assessment in markets around the world and the deteriorating finances of governments, may lead to a more significant adverse business impact in the future.

Factors Related to Our Relationship with Novartis

If we breach any of the numerous representations and warranties we made to Novartis under the development and commercialization agreement, the termination agreement or the stock purchase agreement, Novartis has the right to seek indemnification from us for damages it suffers as a result of such breach. These amounts could be substantial.

We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of our breach of representations and warranties in the development and commercialization agreement, the termination agreement and the stock purchase agreement. Under these agreements, we made numerous representations and warranties to Novartis regarding our HCV and HBV drug candidates, including representations regarding our ownership of and licensed rights to the inventions and discoveries relating to such drug candidates. If one or more of our representations or warranties were subsequently determined not to be true at the time we made them to Novartis, we would be in breach of these agreements. In the event of a breach by us, Novartis has the right to seek indemnification from us and, under certain circumstances, our stockholders who sold shares to Novartis, which include some of our directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we could become liable to Novartis could be substantial.

In May 2004, we entered into a settlement agreement with UAB, relating to our ownership of our former chief executive officer’s inventorship interest in certain of our patents and patent applications, including patent applications covering our HCV drug candidates. Under the terms of the settlement agreement, we agreed to make payments to UAB, including an initial payment made in 2004 in the amount of $2.0 million, as well as regulatory milestone payments and payments relating to net sales of products associated with certain technology. Such payments would be due even in the instance where we licensed such technology to a third-party. Novartis may seek to recover from us and, under certain circumstances, our stockholders who sold shares to Novartis, which include many of our officers and directors, the losses it suffers as a result of any breach of the representations and warranties we made relating to our HCV drug candidates and may assert that such losses include the settlement payments.

In July 2008, we, our former chief executive officer, in his individual capacity, the University of Montpellier and CNRS entered into a settlement agreement with UAB, UABRF, and Emory University. Pursuant to this settlement agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS, and the University of Montpellier and which cover the use of Tyzeka®/Sebivo® have been resolved. Under the terms of the settlement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Novartis may seek to recover from us and, under certain circumstances,

 

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those of our officers, directors and other stockholders who sold shares to Novartis, losses it suffers as a result of any breach of the representations and warranties we made to Novartis relating to our HBV drug candidates and may assert that such losses include the settlement payments. Under the termination agreement we entered into with Novartis in July 2012, Novartis is required to reimburse us for our contractual payments we make to UABRF under the settlement agreement.

If we issue capital stock, in certain situations, Novartis will be able to purchase a pro rata portion of shares that we may issue to maintain its percentage ownership in Idenix.

Novartis has the right, subject to limited exceptions noted below, to purchase a pro rata portion of shares of capital stock that we issue. The price that Novartis pays for these securities would be either the price that we offer such securities to third-parties, including the price paid by persons who acquire shares of our capital stock pursuant to awards granted under stock compensation or equity incentive plans or, in specified situations, for a 10% premium to the consideration per share paid by others acquiring our stock. Novartis’ right to purchase a pro rata portion does not include:

 

    securities issuable in connection with any stock split, reverse stock split, stock dividend or recapitalization that we undertake that affects all holders of our common stock proportionately;

 

    shares of common stock issuable upon exercise of stock options and other awards pursuant to our 1998 equity incentive plan; and

 

    securities issuable in connection with our acquisition of all the capital stock or all or substantially all of the assets of another entity.

Except as noted above, Novartis’ right to purchase shares includes a right to purchase securities that are convertible into, or exchangeable for, our common stock, provided that Novartis’ right to purchase stock in connection with options or other convertible securities issued to any of our directors, officers, employees or consultants pursuant to any stock compensation or equity incentive plan will not be triggered until the underlying equity security has been issued to the director, officer, employee or consultant. Novartis waived its right to purchase additional shares of our common stock as a result of the shares of common stock we issued to GSK in 2009. Additionally, Novartis did not purchase shares of our common stock pursuant to our underwritten offerings in August 2009, April 2010, November 2011 or August 2012. We issued 1.8 million shares of our common stock to Novartis pursuant to a private placement agreement in conjunction with our underwritten offering in April 2011. Novartis’ ownership has been diluted from approximately 53% prior to the August 2009 offering to approximately 25% as of October 18, 2013.

The safety or efficacy profile of any of our HCV clinical candidates may differ in combination with other existing or future drugs used to treat HCV, including those being developed by Novartis, and therefore may preclude the further development or approval of our HCV clinical candidates, which could materially harm our business.

Phase II and phase III clinical trials of other DAAs similar to those being developed by us are now being conducted in combination with the current standard of care and increasingly, with other DAAs in clinical development. Therefore, the clinical development and commercialization pathway for our product candidates we may develop in the future for the treatment of HCV will require that it be evaluated during clinical trials in combination with other existing or future DAAs. When combined with other HCV therapies, our product candidates may demonstrate unexpected side effects even if our product candidates demonstrate meaningful therapeutic benefits equal to or better than our competitors’ compounds, an acceptable safety profile, and a dose amenable to combination therapy in phase I and other early-stage clinical trials. Under limited circumstances, Novartis has rights to combine its HCV clinical candidates, including alisporivir, with our HCV clinical candidates, including samatasvir. Although we elected to discontinue the development of IDX184 in February 2013, Novartis may elect to perform certain combination trials with IDX184 and its clinical candidates, subject to regulatory approval. We believe the optimized treatment of HCV will involve the combination of three or more antiviral compounds. We cannot assure that any of our HCV clinical candidates will be amenable for use in combination with some, or any, existing therapies or those in clinical development, including HCV clinical candidates developed by Novartis now or in the future.

If we enter into a future commercialization agreement with Novartis and Novartis terminates or fails to perform its obligations under such agreement, we may not be able to successfully commercialize our drug candidates licensed to Novartis under such agreement and the development and commercialization of our other drug candidates could be delayed, curtailed or terminated.

Following the receipt of certain data related to a combination trial and upon Novartis’ request, we and Novartis are obligated to use, in good faith, commercially reasonable efforts to negotiate a future agreement for the development, manufacture and commercialization of such combination therapy for the treatment of HCV. Neither party is obligated to

 

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negotiate for a period longer than 180 days. We may not be able to obtain terms that are favorable to us, including obtaining co-promotion and co-marketing rights or a reasonable royalty for future sales of combination therapies including our HCV drug candidates. If we do enter into such an agreement, we will likely depend upon the success of the efforts of Novartis to manufacture, market and sell such combination therapies, if any, that are successfully developed. We will have limited control over the resources that Novartis may devote to such manufacturing and commercialization efforts and, if Novartis does not devote sufficient time and resources to such efforts, we may not realize the commercial or financial benefits we anticipate, and our results of operations may be adversely affected.

If Novartis were to breach or terminate a future commercialization agreement with us, the development or commercialization of the affected drug candidate or product could be delayed, curtailed or terminated because we may not have sufficient resources or capabilities, financial or otherwise, to continue development and commercialization of the drug candidate, and we may not be successful in entering into a collaboration with another third-party.

Factors Related to Our Dependence on Third-Parties Other Than Novartis

If we seek to enter into collaboration agreements for any drug candidates and we are not successful in establishing such collaborations, we may not be able to continue development of those drug candidates.

Our drug development programs and product commercialization efforts will require substantial additional cash to fund expenses to be incurred in connection with these activities. We may seek to enter into collaboration agreements with other pharmaceutical companies to fund all or part of the costs of drug development and commercialization of drug candidates. We may seek a partner who will assist in the future development and commercialization of our drug candidates for the treatment of HCV, as we have with Janssen. The terms and conditions of our termination agreement with Novartis may discourage other third-parties from entering into future collaboration agreements and relationships with us. We may not be able to enter into collaboration agreements and the terms of any such collaboration agreements may not be favorable to us. In August 2012, the FDA placed IDX184 on partial clinical hold and IDX19368 on clinical hold. Both of these holds were due to serious cardiac-related adverse events observed with a competitor’s nucleotide polymerase inhibitor, BMS-986094. In previous clinical trials as well as our phase II clinical trial of IDX184 in combination with Peg-IFN/RBV we have observed no evidence of severe cardiac findings to date. In February 2013, the FDA communicated to us that both of these programs would remain on clinical hold due to unresolved concerns regarding the potential for cardiac toxicity. As a result, we elected not to continue the development of these two programs. In June 2013, the FDA requested additional preclinical safety information for IDX20963. Initiation of clinical trials for IDX20963 is on hold and we must provide a satisfactory response to the FDA before clinical trials can begin in the United States. Even if the FDA permits us to develop future drug candidates, if we are not successful in our efforts to enter into a collaboration arrangement with respect to a drug candidate, we may not have sufficient funds to develop such drug candidate or any other drug candidate internally.

If we do not have sufficient funds to develop our drug candidates, we will not be able to bring these drug candidates to market and generate revenue. As a result, our business will be adversely affected. In addition, the inability to enter into collaboration agreements could delay or preclude the development, manufacture and/or commercialization of a drug candidate and could have a material adverse effect on our financial condition and results of operations because:

 

    we may be required to expend our own funds to advance the drug candidate to commercialization;

 

    revenue from product sales could be delayed; or

 

    we may elect not to develop or commercialize the drug candidate.

Our collaboration agreement with Janssen is important to our business. The development of samatasvir, our NS5A inhibitor, in combination with other DAAs could be significantly delayed if Janssen terminates or fails to perform its obligations under its agreement with us.

In January 2013, we entered into a non-exclusive collaboration agreement with Janssen for the clinical evaluation of all oral DAA HCV combination therapies. The combination therapies involve samatasvir, our once-daily pan-genotypic NS5A inhibitor, simeprevir, a once-daily protease inhibitor jointly developed by Janssen and Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.

If Janssen was to breach or terminate its agreement with us or fail to perform its obligations to us in a timely manner, the development of samatasvir in combination with other DAAs could be significantly delayed. Any delay or termination of this type could have a material adverse effect on our business.

 

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Our collaborations with outside scientists may be subject to restriction and change.

We work with chemists and biologists at academic and other institutions that assist us in our research and development efforts. Many of our drug candidates were discovered with the research and development assistance of these chemists and biologists. Many of the scientists who have contributed to the discovery and development of our drug candidates are not our employees and may have other commitments that would limit their future availability to us. Although our scientific advisors and collaborators generally agree not to do competing work, if a conflict of interest between their work for us and their work for another entity arises, we may lose their services.

We have depended on third-party manufacturers to manufacture products for us. If in the future we manufacture any of our products, we will be required to incur significant costs and devote significant efforts to establish these capabilities.

We have relied upon third-parties to produce material for preclinical and clinical studies and may continue to do so in the future. Although we believe that we will not have any material supply issues, we cannot be certain that we will be able to obtain long-term supply arrangements of those materials on acceptable terms. We also expect to rely on third-parties to produce materials required for clinical trials and for the commercial production of certain of our products if we succeed in obtaining necessary regulatory approvals. If we are unable to arrange for third-party manufacturing, or to do so on commercially reasonable terms, we may not be able to complete development of our products or market them.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third-party for regulatory compliance and quality assurance, the possibility of breach by the third-party of agreements related to supply because of factors beyond our control and the possibility of termination or nonrenewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or damaging to us.

In addition, the FDA and other regulatory authorities require that our products be manufactured according to cGMP regulations. Any failure by us or our third-party manufacturers to comply with cGMPs and/or our failure to scale up our manufacturing processes could lead to a delay in, or failure to obtain, regulatory approval. In addition, such failure could be the basis for action by the FDA to withdraw approvals for drug candidates previously granted to us and for other regulatory action.

Factors Related to Patents and Licenses

If we are unable to adequately protect our patents and licenses related to our drug candidates, or if we infringe the rights of others, it may not be possible to successfully commercialize products that we develop.

Our success will depend in part on our ability to obtain and maintain patent protection both in the United States and in other countries for any products we successfully develop. The patents and patent applications in our patent portfolio are either owned by us, exclusively licensed to us, or co-owned by us and others and exclusively licensed to us. Our ability to protect any products we successfully develop from unauthorized or infringing use by third-parties depends substantially on our ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any issued patents may not provide us with sufficient protection for any products we successfully develop or provide sufficient protection to afford us a commercial advantage against our competitors or their competitive products or processes. In addition, we cannot guarantee that any patents will be issued from any pending or future patent applications owned by or licensed to us. Even if patents have been issued or will be issued, we cannot guarantee that the claims of these patents are, or will be, valid or enforceable, or provide us with any significant protection against competitive products or otherwise be commercially valuable to us. The U.S. Congress passed the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in September 2011. The America Invents Act reforms U.S. patent law in part by changing the standard for patent approval from a “first to invent” standard to a “first inventor to file” standard and developing a post-grant review system. This new legislation affects U.S. patent law in a manner that may impact our ability to obtain or maintain patent protection for current or future inventions in the U.S. or otherwise cause uncertainty as to our patent protection.

We may not have identified all patents, published applications or published literature that may affect our business, either by blocking our ability to commercialize our drug candidates, by preventing the patentability of our drug candidates by us, our licensors or co-owners, or by covering the same or similar technologies that may invalidate our patents, limiting the scope of our future patent claims or adversely affecting our ability to market our drug candidates. For example, patent applications are maintained in confidence for at least 18 months after their filing. In some cases, patent applications remain confidential in the United States Patent and Trademark Office, or USPTO, for the entire time prior to issuance of a U.S. patent. Patent applications filed in countries outside the United States are not typically published until at least 18 months

 

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from their first filing date. Similarly, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we or our licensors or co-owners were the first to invent, or the first inventors to file, patent applications on our product or drug candidates or for their uses. In the event that another party has filed a U.S. patent application covering the same invention as one of our patent applications or patents, we may have to participate in an adversarial proceeding, known as an interference, declared by the USPTO to determine priority of invention in the United States. In February 2012, an interference was declared by the USPTO concerning a patent application co-owned by us and a patent owned by Gilead Pharmasset LLC, or Gilead. Both the application and patent claim certain nucleoside compounds useful in treating HCV. An interference proceeding is divided into two stages. The first phase determines the application filing dates each party will have benefit of for the interfering subject matter. The party with the benefit of the earliest application filing date is deemed the ‘senior party’ and the party with the later date is deemed the ‘junior party’. In March 2013, the USPTO issued a decision where we were determined to have a later application filing date than Gilead. Therefore we were determined to be the ‘junior party’ and Gilead the ‘senior party’ in the interference. The second phase of the interference commenced in the second quarter of 2013 and will determine which party was first to invent. The party who is deemed first to invent prevails in the interference proceeding. While we cannot predict whether we will prevail in the interference, we intend to vigorously defend this action and any others like it brought by any third-party. We do not believe our co-owned application at issue in the interference is relevant to any compounds we currently have under development. An interference is based upon complex specialized U.S. patent law and the interference proceeding is likely to be expensive and time consuming.

It is possible that our efforts could be unsuccessful, potentially resulting in loss of our U.S. patent application at issue in the interference, which as noted above is not relevant to any compounds we currently have under development. The laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting, or are otherwise precluded from effectively protecting, our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed.

Since our HBV product, telbivudine, was a known compound before the filing of our patent applications covering the use of this drug candidate to treat HBV, we cannot obtain patent protection on telbivudine itself. As a result, we have obtained and maintained patents granted on the method of using telbivudine as a medical therapy for the treatment of HBV. In the termination agreement entered into in July 2012, we have agreed to transfer all our rights to patents and patent applications associated with telbivudine to Novartis.

In July 2008, we entered into a settlement agreement with UAB, UABRF and Emory University relating to our telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS and the University of Montpellier and which cover the use of Tyzeka®/Sebivo® have been resolved. UAB also agreed to abandon certain continuation patent applications it filed in July 2005. Under the terms of the settlement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations in the aggregate of $11.0 million. Under the termination agreement, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis is required to reimburse us for our contractual payments we make to UABRF under the settlement agreement.

In accordance with our patent strategy, we are attempting to obtain patent protection for our HCV drug candidates, including samatasvir. We have filed U.S. and foreign patent applications for our drug candidates, and in some jurisdictions have obtained patent protection, related to specific compounds, as well as to methods of treating HCV with such compounds. Further, we are prosecuting U.S. and foreign patent applications, and have been granted U.S. and foreign patents, claiming methods of treating HCV with nucleoside/nucleotide polymerase inhibitors.

We are aware that a number of other companies have filed patent applications attempting to cover broad classes of compounds and their use to treat HCV or infection by any member of the Flaviviridae virus family to which HCV belongs. These classes of compounds might relate to nucleoside polymerase inhibitors and/or our NS5A inhibitor, samatasvir. The companies include Merck & Co., Inc., Isis Pharmaceuticals, Inc., Ribapharm, Inc. (a wholly-owned subsidiary of Valeant Pharmaceuticals International), Genelabs Technologies, Inc., Gilead Sciences, Inc., Bristol-Myers Squibb Company, Enanta Pharmaceuticals, Inc., Presidio Pharmaceuticals, Inc. and Biota, Inc. (a subsidiary of Biota Holdings Ltd.). A foreign country may grant patent rights covering one or more of our drug candidates to one or more other companies. If that occurs, we may need to challenge the third-party patent rights, and if we do not challenge or are not successful with the challenge, we will need to obtain a license that might not be available to us on commercially reasonable terms or at all. The USPTO may grant patent rights covering one or more of our drug candidates to one or more other companies. If that

 

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occurs, we may need to challenge the third-party patent rights, and if we do not challenge or are not successful with the challenge, we will need to obtain a license that might not be available at all or on commercially reasonable terms. Given the breadth of our patent portfolio to HCV nucleosides/nucleotides, we expect many competitors to challenge our patents in, for example, Europe, Canada, Australia or the United States at the appropriate time. We cannot predict whether these challenges will occur, or, if they do, exactly when they will occur. We also cannot predict the outcome of any of these challenges, and they may be expensive and time consuming.

In June 2012, Gilead Sciences, Inc. filed suit against us in Canadian Federal Court seeking to invalidate one of our issued Canadian patents. Our patent, which is the subject of the Canadian litigation, covers similar subject matter to that patent application at issue in the U.S. interference. In September 2012, Gilead Sciences, Ltd. filed suit against us in the Norway District Court of Oslo seeking to invalidate one of our issued Norwegian patents. Our patent at issue in the potential Norwegian litigation covers similar subject matter to that patent application at issue in the U.S. interference. In January 2013, Gilead Sciences Australia Pty Ltd. commenced proceedings in the Federal Court of Australia seeking a declaration that certain claims of one of our issued Australian patents, covering similar subject matter to that patent application at issue in the U.S. interference, are invalid and an order that such claims be revoked. We do not believe the respective patents at issue in these cases are relevant to any compounds we currently have under development. Gilead Sciences, Inc. may make similar claims or bring additional legal proceedings in other jurisdictions where we have granted patents. While we cannot predict whether we will prevail, we intend to vigorously defend these actions and any others like it brought by any third-party. These litigation proceedings are likely to be expensive and time consuming.

A number of companies have filed patent applications and have obtained patents covering certain compositions and methods for the treatment, diagnosis and/or screening of HCV that could materially affect the ability to develop and commercialize current drug candidates and other drug candidates we may develop in the future. For example, we are aware that Apath, LLC has obtained broad patents covering HCV proteins, nucleic acids, diagnostics and drug screens. If we need to use these patented materials or methods to develop any of our HCV drug candidates and the materials or methods fall outside certain safe harbors in the laws governing patent infringement, we will need to buy these products from a licensee of the company authorized to sell such products or we will require a license from one or more companies, which may not be available to us on commercially reasonable terms or at all. This could materially affect or preclude our ability to develop and sell our HCV drug candidates.

If we find that any drug candidates we are developing should be used in combination with a product covered by a patent held by another company or institution, and that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement or inducement of infringement of certain third-party patents claims covering the product recommended for co-administration with our product. In that case, we may be required to obtain a license from the other company or institution to provide the required or desired package labeling, which may not be available on commercially reasonable terms or at all.

Litigation and disputes related to intellectual property matters occur frequently in the biopharmaceutical industry. Litigation regarding patents, patent applications and other proprietary rights may be expensive and time consuming. If we are unsuccessful in litigation concerning patents or patent applications owned or co-owned by us or licensed to us, we may not be able to protect our products from competition or we may be precluded from selling our products. If we are involved in such litigation, it could cause delays in bringing drug candidates to market and harm our ability to operate. Such litigation could take place in the United States in a federal court or in the USPTO. The litigation could also take place in a foreign country, in either the courts or the patent office of that country.

Our success will depend in part on our ability to uphold and enforce patents or patent applications owned or co-owned by us or licensed to us, which cover products we successfully develop. Proceedings involving our patents or patent applications could result in adverse decisions regarding:

 

    ownership of patents and patent applications;

 

    rights concerning our licenses;

 

    the patentability of our inventions relating to our products and drug candidates; and/or

 

    the enforceability, validity or scope of protection offered by our patents relating to our products and drug candidates.

Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us.

 

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In May 2004, we and our former chief executive officer entered into a settlement agreement with UAB resolving a dispute regarding ownership of inventions and discoveries made by our former chief executive officer during the period from November 1999 to November 2002, at which time our former chief executive officer was on sabbatical and then unpaid leave from his position at UAB. The patent applications we filed with respect to such inventions and discoveries include the patent applications covering IDX184 and patents generally related to nucleoside/nucleotide inhibitors.

Under the terms of the settlement agreement with UAB, we agreed to make a $2.0 million initial payment to UAB, as well as other contingent payments based upon the commercial launch of other HCV products discovered or invented by our former chief executive officer during his sabbatical and unpaid leave. In addition, UAB and UABRF have each agreed that neither of them has any right, title or ownership interest in these inventions and discoveries. Under the development and commercialization agreement, termination agreement and stock purchase agreement, we made numerous representations and warranties to Novartis regarding our HCV program, including representations regarding our ownership of the inventions and discoveries. If one or more of our representations or warranties were subsequently determined not to be true at the time we made them to Novartis, we would be in breach of these agreements. In the event of a breach by us, Novartis has the right to seek indemnification from us and, under certain circumstances, our stockholders who sold shares to Novartis, which include many of our directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we could be liable to Novartis could be substantial.

Our success will also depend in part on our ability to avoid infringement of the patent rights of others. If it is determined that we do infringe a patent right of another, we may be required to seek a license (which may not be available on commercially reasonable terms or at all), defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we are not successful in infringement litigation and we do not license or develop non-infringing technology, we may:

 

    incur substantial monetary damages;

 

    encounter significant delays in bringing our drug candidates to market; and/or

 

    be precluded from participating in the manufacture, use or sale of our drug candidates or methods of treatment requiring licenses.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

To protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our corporate collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and confidential information and in such cases we could not assert any trade secret rights against such parties. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

If any of our agreements that grant us the exclusive right to make, use and sell our drug candidates are terminated, we and/or future collaboration partners may be unable to develop or commercialize our drug candidates.

We, together with Novartis, entered into an amended and restated agreement with CNRS and the University of Montpellier, co-owners of the patents and patent applications covering Tyzeka®/Sebivo® and compounds Novartis previously licensed from us. This agreement covers both the cooperative research program and the terms of our exclusive right to exploit the results of the cooperative research, including Tyzeka®/Sebivo® and compounds Novartis previously licensed from us. The cooperative research program with CNRS and the University of Montpellier ended in December 2006 although many of the terms remain in effect for the duration of the patent life of the affected products. We and Novartis have also entered into two agreements with the University of Cagliari, the co-owner of the patents and patent applications covering some of our HCV drug candidates and certain other drug candidates. One agreement with the University of Cagliari covers our cooperative research program and the other agreement is an exclusive license to develop and sell jointly created drug candidates. Our relationship with Cagliari ended in December 2010 although many of the terms remain in effect for the duration of the patent life of the affected products. Under the amended and restated agreement with CNRS and the University of Montpellier and the license agreement, as amended, with the University of Cagliari, we obtained from our co-owners the exclusive right to exploit these drug candidates. Subject to certain rights afforded to Novartis as they relate to the license agreement with the University of Cagliari and CNRS, respectively, these agreements can be terminated by either party in circumstances such as the occurrence of an uncured breach by the non-terminating party. The termination of our

 

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rights, including patent rights, under the agreement with CNRS and the University of Montpellier or the license agreement, as amended, with the University of Cagliari would have a material adverse effect on our business and could prevent us from developing a drug candidate or selling a product. In addition, these agreements provide that we pay certain costs of patent prosecution, maintenance and enforcement. These costs could be substantial. Our inability or failure to pay these costs could result in the termination of the agreements or certain rights under them.

Under our amended and restated agreement with CNRS and the University of Montpellier and our license agreement, as amended, with the University of Cagliari, we and Novartis have the right to exploit and license certain co-owned drug candidates. However, our agreements with CNRS and the University of Montpellier and with the University of Cagliari are currently governed by, and will be interpreted and enforced under, French and Italian law, respectively, which are different in substantial respects from United States law and which may be unfavorable to us in material respects. Under French law, co-owners of intellectual property cannot exploit, assign or license their individual rights without the permission of the co-owners. Similarly, under Italian law, co-owners of intellectual property cannot exploit or license their individual rights without the permission of the co-owners. Accordingly, if our agreements with the University of Cagliari terminate based on a breach, we may not be able to exploit, license or otherwise convey to Novartis or other third-parties our rights in certain products or drug candidates for a desired commercial purpose without the consent of the co-owner, which could materially affect our business and prevent us from developing certain drug candidates and selling our products.

Under United States law, a patent co-owner has the right to prevent another co-owner from suing infringers by refusing to join voluntarily in a suit to enforce a patent. Our amended and restated agreement with CNRS and the University of Montpellier and our license agreement, as amended, with the University of Cagliari provide that such parties will cooperate to enforce our jointly owned patents on our products or drug candidates. If these agreements terminate or the parties’ cooperation is not given or is withdrawn, or they refuse to join in litigation that requires their participation, we may not be able to enforce these patent rights or protect our markets.

Factors Related to Our Common Stock

Our common stock may have a volatile trading price.

The market price of our common stock could be subject to significant fluctuations. Some of the factors that may cause the market price of our common stock to fluctuate include:

 

    the results of ongoing and planned clinical trials of our drug candidates;

 

    developments in the market with respect to competing products or more generally the treatment of HCV;

 

    the results of preclinical studies and planned clinical trials of our other discovery-stage programs;

 

    future sales of, and the trading volume in, our common stock;

 

    the timing and success of the launch of products, if any, we successfully develop;

 

    the decision by Novartis to initiate a combination trial with one of our HCV drug candidates;

 

    the entry into key agreements, including those related to the acquisition or in-licensing of new programs, or the termination of key agreements;

 

    the results and timing of regulatory actions relating to the approval of our drug candidates;

 

    the initiation of, material developments in or conclusion of litigation to enforce or defend any of our intellectual property rights;

 

    the initiation of, material developments in or conclusion of litigation to defend products liability claims;

 

    the failure of any of our drug candidates, if approved, to achieve commercial success;

 

    the results of clinical trials conducted by others on drugs that would compete with our drug candidates;

 

    issues in manufacturing our drug candidates or any approved products;

 

    the loss of key employees;

 

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    adverse publicity related to our company, our products or our product candidates;

 

    changes in estimates or recommendations by securities analysts who cover our common stock;

 

    future financings through the issuance of equity or debt securities or otherwise;

 

    changes in the structure of health care payment systems;

 

    our cash position and period-to-period fluctuations in our financial results; and

 

    general and industry-specific economic conditions.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

We do not anticipate paying cash dividends, so you must rely on stock price appreciation for any return on your investment.

We anticipate retaining any future earnings for reinvestment in our research and development programs. Therefore, we do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.

Sales of additional shares of our common stock could result in dilution to existing stockholders and cause the price of our common stock to decline.

Sales of substantial amounts of our common stock in the public market or the availability of such shares for sale, could adversely affect the price of our common stock. In addition, the issuance of common stock upon exercise of outstanding options could be dilutive and may cause the market price for a share of our common stock to decline. As of October 18, 2013, we had 134,000,750 shares of common stock issued and outstanding, together with outstanding options to purchase 7,535,467 shares of common stock with a weighted average exercise price of $6.65 per share.

Novartis has rights, subject to certain conditions, to require us to file registration statements covering their shares or to include its shares in registration statements that we may file for ourselves.

Novartis’ ownership of our common stock could delay or prevent a change in corporate control.

As of October 18, 2013, Novartis owned approximately 25% of our outstanding common stock. This concentration of ownership may harm the market price of our common stock by:

 

    delaying, deferring or preventing a change in control of our company;

 

    impeding a merger, consolidation, takeover or other business combination involving our company; or

 

    discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

An investment in our common stock may decline in value as a result of announcements of business developments by us or our competitors.

The market price of our common stock is subject to substantial volatility as a result of announcements by us or other companies in our industry. As a result, purchasers of our common stock may not be able to sell their shares of common stock at or above the price at which they purchased such stock. Announcements which may subject the price of our common stock to substantial volatility include but are not limited to:

 

    the results of our clinical trials pertaining to any of our drug candidates, including the results of our collaboration with Janssen;

 

    the results of discovery, preclinical studies and clinical trials by us or our competitors;

 

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    the acquisition of technologies, drug candidates or products by us or our competitors;

 

    the development of new technologies, drug candidates or products by us or our competitors;

 

    regulatory actions with respect to our drug candidates or products or those of our competitors, including those relating to clinical trials, such as clinical holds imposed by regulatory authorities, marketing authorizations, pricing and reimbursement;

 

    the timing and success of launches of any product we successfully develop;

 

    the market acceptance of any products we successfully develop;

 

    significant changes to our existing business model;

 

    the initiation of, material developments in or conclusion of litigation to enforce or defend any of our intellectual property rights; and

 

    significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors.

In addition, if we fail to reach an important research, development or commercialization milestone or result by a publicly expected deadline, even if by only a small margin, there could be a significant impact on the market price of our common stock. Additionally, as we approach the announcement of important clinical data or other significant information and as we announce such results and information, we expect the price of our common stock to be particularly volatile and negative results would have a substantial negative impact on the price of our common stock.

We could be subject to class action litigation due to stock price volatility, which, if such litigation occurs, will distract our management and could result in substantial costs or large judgments against us.

The stock market frequently experiences extreme price and volume fluctuations. In August 2012, we experienced a significant decline in our stock price based, in part, on the FDA’s decision to place a partial clinical hold on IDX184 and a clinical hold on IDX19368, two of our drug candidates for the treatment of HCV. We experienced a significant decline in our stock price based, in part, in March 2013 on the USPTO decision in the first phase of the patent interference and in June 2013 on the FDA’s decision to put on hold the initiation of clinical trials in the United States for IDX20963. In addition, the market prices of securities of companies in the biotechnology and pharmaceutical industry have been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. These fluctuations could adversely affect the market price of our common stock. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities. Due to the volatility in our stock price, we may be the target of similar litigation in the future.

Securities litigation could result in substantial costs and divert our management’s attention and resources, which could cause serious harm to our business, operating results and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

 

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Item 6. Exhibits

See Exhibit Index on the page immediately preceding the exhibits for a list of the exhibits filed as a part of this Quarterly Report, which Exhibit Index is incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: October 30, 2013   By:  

/s/ RONALD C. RENAUD, JR.

    Ronald C. Renaud, Jr.
   

President and Chief Executive Officer and Director

(Principal Executive Officer)

Date: October 30, 2013   By:  

/s/ DANIELLA BECKMAN

    Daniella Beckman
   

Chief Financial Officer and Treasurer

(Principal Financial Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
No.

  

Description

  10.1    Second Amendment to Lease, dated September 3, 2013, by and between the Registrant and BMR Street LLC
  31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
  31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
  32.1    Certification of 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 of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    INSTANCE DOCUMENT
101    SCHEMA DOCUMENT
101    CALCULATION LINKBASE DOCUMENT
101    DEFINITION LINKBASE DOCUMENT
101    LABELS LINKBASE DOCUMENT
101    PRESENTATION LINKBASE DOCUMENT

 

49

EX-10.1 2 d599827dex101.htm EX-10.1 EX-10.1

Exhibit 10.1

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (this “Second Amendment”) is entered into as of this 3rd day of September, 2013, by and between BMR-ROGERS STREET LLC, a Delaware limited liability company (“Landlord”), and IDENIX PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

RECITALS

A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of September 25, 2012, as amended by that certain First Amendment to Lease dated as of May 1, 2013 (collectively, and as the same may have been heretofore further amended, amended and restated, supplemented or modified from time to time, the “Lease”), whereby Tenant leases certain premises (the “Premises”) from Landlord in the building at 320 Bent Street in Cambridge, Massachusetts (the “Building”);

B. WHEREAS, Landlord and Tenant, among other things, desire to modify the Estimated Phase 3 Commencement Date; and

C. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions. For purposes of this Second Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein. The Lease, as amended by this Second Amendment, is referred to herein as the “Amended Lease.”

2. Estimated Phase 3 Commencement Date. Tenant has requested that Landlord amend the Estimated Phase 3 Commencement Date set forth in Section 2.4(c) of the Lease and, subject to the terms and conditions of this Second Amendment, Landlord has agreed to amend such Estimated Phase 3 Commencement Date set forth in Section 2.4(c) of the Lease. Accordingly, Section 2.4(c) of the Lease is hereby deleted in its entirely and replaced with the following: “(c) Estimated Phase 3 Commencement Date: August 31, 2014”.

3. Rent for Phase 3 Premises. In consideration for Landlord’s agreement to amend the Estimated Phase 3 Commencement Date, and notwithstanding anything in the Amended Lease to the contrary (including, but not limited to, Sections 1.2, 2.2, 2.3, 2.4, 9.4, and 16.1 of the Lease and Section 2 of this Second Amendment), Tenant hereby confirms and agrees that commencing on February 28, 2014 and throughout the Term of the Lease, Tenant shall be responsible for the payment of Base Rent, Operating Expenses, the Property Management Fee


and Additional Rent with respect to the Phase 3 Premises, and the cost of utilities (if any) supplied to the Phase 3 Premises. Accordingly, the chart in Section 2.3 of the Lease is hereby deleted in its entirety and replaced with the following chart:

 

Dates

   Square
Feet of
Rentable
Area
   Base Rent per
Square Foot of
Rentable Area
   Monthly
Base Rent
   Annual Base
Rent

April 1, 2013 – the day immediately prior to the Phase 2 Commencement Date

   40,676    $56.00 annually    $189,821.33    $2,277,856.00*

Phase 2 Commencement Date – February 27, 2014

   40,822    $56.00 annually    $190,502.67    $2,286,032.00*

February 28, 2014 – March 31, 2014

   46,418    $56.00 annually    $216,617.33    $2,599,408.00*

April 1, 2014 – March 31, 2015

   46,418    $57.68 annually    $223,115.85    $2,677,390.24  

April 1, 2015 – March 31, 2016

   46,418    $59.41 annually    $229,807.78    $2,757,693.38  

April 1, 2016 – March 31, 2017

   46,418    $61.19 annually    $236,693.12    $2,840,317.42  

April 1, 2017 – March 31, 2018

   46,418    $63.03 annually    $243,810.55    $2,925,726.54  

April 1, 2018 – March 31, 2019

   46,418    $64.92 annually    $251,121.38    $3,013,456.56  

April 1, 2019 – March 31, 2020

   46,418    $66.87 annually    $258,664.31    $3,103,971.66  

* Note:     Amount is based on twelve (12) months.

4. Use of Phase 3 Premises. Notwithstanding that Tenant shall commence paying Rent with respect to the Phase 3 Premises as of February 28, 2014, Tenant hereby confirms and agrees that Tenant shall not be permitted to use the Phase 3 Premises until Landlord has completed the Phase 3 Tenant Improvements and the Phase 3 Premises Commencement Date has actually occurred. In the event that Tenant desires to use the Phase 3 Premises prior to the Estimated Phase 3 Commencement Date (as amended by this Second Amendment) or Tenant no longer desires for Landlord to perform the Phase 3 Tenant Improvements, or both, Landlord and Tenant shall use commercially reasonable efforts to enter into an express written amendment to the Amended Lease memorializing such change.

 

2


5. Acknowledgement of Phase 3 Commencement Date. Exhibit D-3 to the Lease is hereby deleted in its entirety and replaced with Exhibit D-3 attached hereto.

6. Phase 3 Tenant Improvements. For the avoidance of doubt, and in accordance with Section 4.4(a) of the Lease, Landlord hereby confirms that Tenant shall be entitled to a tenant improvement allowance not to exceed One Hundred and 00/100 Dollars ($100.00) per square foot of Rentable Area of Phase 3 Premises (the “Phase 3 Additional TI Allowance”). Tenant shall request the Phase 3 Additional TI Allowance in accordance with the procedures set forth in Article 4 for the Additional TI Allowance. Landlord shall not be obligated to expend any portion of the Phase 3 Additional TI Allowance until Landlord shall have received from Tenant a letter in the form attached as Exhibit E-1 hereto executed by an authorized officer of Tenant. Base Rent shall be increased to include the amount of the Phase 3 Additional TI Allowance disbursed by Landlord in accordance with the Amended Lease amortized over the initial Term at a rate of eight percent (8%) annually.

7. Broker. Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Second Amendment and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

8. No Default. Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

9. Notices. Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Amended Lease should be sent to:

Idenix Pharmaceuticals, Inc.

320 Bent Street

Cambridge, Massachusetts 02142

Attn: General Counsel

10. Effect of Second Amendment. Except as modified by this Second Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Second Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Second Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Second Amendment.

 

3


11. Miscellaneous. This Second Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Second Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.

12. Counterparts. This Second Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

4


IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as a sealed Massachusetts instrument as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Second Amendment.

LANDLORD:

 

BMR-ROGERS STREET LLC,

a Delaware limited liability company

By:   /s/ William Kane
Name:   William Kane
Title:   Vice President of Leasing and Development

TENANT:

 

IDENIX PHARMACEUTICALS, INC.,

a Delaware corporation

By:   /s/ Maria Stahl
Name:   Maria Stahl
Title:   SVP and General Counsel
EX-31.1 3 d599827dex311.htm EX-31.1 EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald C. Renaud, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Idenix Pharmaceuticals, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2013

 

/s/ RONALD C. RENAUD, JR.

Ronald C. Renaud, Jr.
Chief Executive Officer

 

50

EX-31.2 4 d599827dex312.htm EX-31.2 EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniella Beckman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Idenix Pharmaceuticals, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2013

 

/s/ DANIELLA BECKMAN

Daniella Beckman
Chief Financial Officer

 

51

EX-32.1 5 d599827dex321.htm EX-32.1 EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Idenix Pharmaceuticals, Inc. (the “Company”) for the quarter ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Ronald C. Renaud, Jr., Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 30, 2013

 

/s/ RONALD C. RENAUD, JR.

Ronald C. Renaud, Jr.
Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Idenix Pharmaceuticals, Inc. and will be retained by Idenix Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

52

EX-32.2 6 d599827dex322.htm EX-32.2 EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Idenix Pharmaceuticals, Inc. (the “Company”) for the quarter ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Daniella Beckman, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that, to her knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 30, 2013

 

/s/ DANIELLA BECKMAN

Daniella Beckman
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Idenix Pharmaceuticals, Inc. and will be retained by Idenix Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

53

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FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Contingently issuable shares to related party</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,396</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">709</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; 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FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Revenue Recognition</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Revenue is recognized in accordance with SEC Staff Accounting Bulletin No.&#xA0;101, <i>Revenue Recognition in Financial Statements</i>, as amended by SEC Staff Accounting Bulletin No.&#xA0;104, <i>Revenue Recognition</i>, and for revenue arrangements entered into after June&#xA0;30, 2003, in accordance with the revenue recognition guidance of the FASB. For multiple-element revenue arrangements entered into or materially modified after January&#xA0;1, 2011, we recognize revenue under Accounting Standards Codification Topic 605<i>, Revenue Recognition</i>.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We record revenue provided that there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <i>Collaboration Revenue &#x2014; Related Party</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May 2003, we entered into a collaboration with Novartis Pharma AG, or Novartis, relating to the worldwide development and commercialization of our drug candidates, which we refer to as the development and commercialization agreement. In May 2003, we also entered into a stockholders&#x2019; agreement with Novartis, which we refer to as the stockholders&#x2019; agreement. On July&#xA0;31, 2012, we and Novartis materially modified our collaboration by executing a termination and revised relationship agreement, which we refer to as the termination agreement, and by amending the stockholders&#x2019; agreement, which we refer to as the second amended and restated stockholders&#x2019; agreement. Subsequent to August 2012, we recognize revenue related to the termination agreement with Novartis under ASC Topic 605.</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We evaluated our modified arrangement with Novartis and determined that the agreements should continue to be treated as a single unit of accounting. Under the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis&#x2019; HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. The details of the termination agreement are described more fully in Note 7. The non-exclusive license is the only revenue-generating deliverable remaining under the modified arrangement and since neither vendor-specific objective evidence, or VSOE, nor third-party evidence, or TPE, for the non-exclusive license deliverable was available, the selling price for the non-exclusive license was established using the best estimate of selling price, or BESP. We determined that the BESP of Novartis&#x2019; non-exclusive license at July&#xA0;31, 2012 was $5.0 million which is recognized as collaboration revenue from related party on a straight-line basis over the seven-year term of the non-exclusive license. As of September&#xA0;30, 2013, the remaining balance of $4.2 million was included in deferred revenue from related party in our condensed consolidated balance sheet. In establishing BESP for the non-exclusive license, we used a discounted cash flow model and considered the likelihood of our and Novartis&#x2019; drugs being commercialized, the development and commercialization timeline, discount rate, and probable treatment combination and associated peak sales figures which generate royalty amounts.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Also under the collaboration with Novartis, if we issue any shares of capital stock, other than in certain situations, Novartis has the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis&#x2019; stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period. This stock subscription right is described more fully in Note 7.</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>7. COLLABORATIONS</b></p> <!-- xbrl,body --> <p style="MARGIN-TOP: 6pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Janssen Pharmaceuticals, Inc. Collaboration</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In January 2013, we entered into a non-exclusive collaboration agreement with Janssen for the clinical evaluation of all oral DAA HCV combination therapies. The combination therapies involve samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the terms of this collaboration agreement, we will conduct the clinical trials. Clinical development plans include drug-drug interaction studies, followed by phase II studies as agreed between the companies, pending approval from regulatory authorities.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May 2013, we initiated a 12-week phase II HELIX-1 clinical trial evaluating samatasvir, simeprevir and ribavirin in treatment-na&#xEF;ve genotype 1b or 4 HCV-infected patients. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate SVR4 data for these patients to be available in the fourth quarter of 2013. We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three-DAA combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-na&#xEF;ve or have relapsed after treatment with pegylated interferon and ribavirin.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The clinical trials will be conducted under an arrangement whereby Janssen provides us with clinical supply of simeprevir and TMC647055 at no cost. Neither party will receive any milestone or royalty payments from the other party under this agreement. Both companies retain all rights to their respective compounds under this agreement. The parties have no obligation to conduct additional clinical trials beyond those described here. Neither party has licensed any commercial rights to the other party.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> This collaboration agreement may be terminated by either party in certain circumstances. Janssen may terminate the collaboration agreement, in its sole discretion, by providing us with 30 days written notice. If Janssen terminates the collaboration agreement in such instance, it shall reimburse us for certain of our costs associated with the collaboration.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> If either us or Janssen materially breaches the collaboration agreement and does not cure such breach within a specified time period, the non-breaching party may terminate the collaboration agreement in its entirety. Either party may also terminate the collaboration agreement, effective immediately, if the other party files for bankruptcy, is dissolved or has a receiver appointed for substantially all of its property. Either party may also terminate the collaboration agreement to protect the safety, health or welfare of subjects in the trials. We may terminate the collaboration agreement prior to the commencement of certain activities if Janssen&#x2019;s research development and license agreement with Medivir is terminated.</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 18pt"> </p> <p style="MARGIN-TOP: 0pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Novartis Collaboration</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May 2003, we entered into the development and commercialization agreement with Novartis related to the worldwide development and commercialization of our drug candidates. In May 2003, we also entered into the stockholders&#x2019; agreement with Novartis. In July 2012, we and Novartis materially modified our collaboration by executing the termination agreement and the second amended and restated stockholders&#x2019; agreement. As of October 18, 2013, Novartis owned approximately 25% of our outstanding common stock.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b><i>Termination Agreement</i></b></p> <p style="MARGIN-TOP: 6pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Termination of Novartis&#x2019; Option to License our Development Stage Drug Candidates</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Pursuant to the termination agreement entered into in July 2012, Novartis&#x2019; option right to license our current and future development-stage drug candidates in any therapeutic area was terminated. In exchange, we agreed to pay Novartis a royalty based on worldwide product sales of our HCV drug products, unless such drug products are prescribed in combination with Novartis&#x2019; HCV drug products. The royalty percentage will vary based on our commercialized HCV drug product, but range from the high single digits to the low double digit percentages. Royalties are payable until the later to occur of: a) expiration of the last-to-expire of specified patent rights in a country; or b) ten years after the first commercial sale of a product in such country, provided that if royalties are payable on a product after the expiration of the patent rights in a country, each of the respective royalty rates for such product in such country would be reduced by one-half.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Novartis&#x2019; Non-Exclusive License to Conduct Combination Trials</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Pursuant to the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis&#x2019; HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. Under certain circumstances Novartis may conduct a dose-ranging study with respect to our HCV drug candidates. We have agreed to supply Novartis with our HCV drug candidates for use in such combination trials. We and Novartis have agreed to use commercially reasonable efforts to, in good faith, enter into a supply agreement and other relevant agreements in connection with any such combination trial. Novartis&#x2019; ability to initiate combination trials expires on the seven year anniversary of the execution of the termination agreement, or July 2019, although any then existing combination study commenced prior to such expiration date may continue after the expiration date.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Since neither VSOE nor TPE for the non-exclusive license deliverable was available, the selling price for this non-exclusive license was established using the BESP. We determined the BESP of the non-exclusive license at July 31, 2012 to be $5.0 million which is recognized as revenue on a straight-line basis over the seven-year term of the non-exclusive license. We recognized $0.1 million and $0.5 million of collaboration revenue related to the non-exclusive license during the three and nine months ended September 30, 2013, respectively. These revenue amounts are impacted by Novartis&#x2019; stock subscription rights described below. As of September 30, 2013 and December 31, 2012, we had a balance of $4.2 million and $4.7 million, respectively, of deferred revenue from related party in our condensed consolidated balance sheets.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Treatment of Product Sales of Tyzeka&#xAE;/Sebivo&#xAE; for the Treatment of the Hepatitis B Virus</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the termination agreement executed in July 2012, we will no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka&#xAE;/Sebivo&#xAE;. Novartis is required to reimburse us for contractual payments to third-parties in connection with intellectual property related to Tyzeka&#xAE;/Sebivo&#xAE;. We are otherwise responsible for any payments to third-parties in connection with intellectual property necessary to sell Tyzeka&#xAE;/Sebivo&#xAE;. Contractual payments to third-parties are described more fully in Note 8.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Termination or Breach by Either Party</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> If either we or Novartis materially breaches the termination agreement and does not cure such breach within 30 days, the non-breaching party may terminate this agreement in its entirety. Either party may also terminate this agreement, effective immediately, if the other party files for bankruptcy, is dissolved, or has a receiver appointed for substantially all of its property. Novartis may also terminate this agreement for convenience. If Novartis terminates this agreement either because of a material breach by us that has not been cured or because we have filed for bankruptcy, Novartis may, at its election, retain the licenses granted to it by us under the termination agreement to conduct clinical trials evaluating a combination of any of our HCV drug candidates and any of Novartis&#x2019; HCV drug candidates and we would remain obligated to make royalty payments to Novartis based on sales of our HCV drug products. If we terminate this agreement either because of a material breach by Novartis that has not been cured or because Novartis has filed for bankruptcy, or if Novartis terminates this agreement for convenience, the licenses granted to Novartis to conduct combination trials terminate and we would remain obligated to make royalty payments to Novartis based on sales of our HCV drug products.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Indemnification</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of our development, manufacture and commercialization of our HCV products. We have also agreed to indemnify Novartis and its affiliates against losses suffered as a result of any breach of representations and warranties in the termination agreement, the development and commercialization agreement and a stock purchase agreement entered into in 2003. Under these agreements with Novartis, we made numerous representations and warranties to Novartis regarding our drug candidates for the treatment of HBV and HCV, including representations regarding ownership of related inventions and discoveries. In the event of a breach of any such representation or warranty by us, Novartis has the right to seek indemnification from us and, under certain circumstances, our stockholders who sold shares to Novartis in 2003, which includes some of our current and former directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we and our stockholders could be liable to Novartis could be substantial.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Future Agreements and Possible Competition with Novartis</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the termination agreement, following the receipt of certain data related to a combination trial and upon Novartis&#x2019; request, we and Novartis are obligated to use, in good faith, commercially reasonable efforts to negotiate a future agreement for the development, manufacture and commercialization of such combination therapy for the treatment of HCV. Neither party is obligated to negotiate for a period longer than 180 days. Also under the termination agreement, Novartis has a non-exclusive license to conduct clinical trials evaluating a combination of any of our HCV drug candidates and any of Novartis&#x2019; HCV drug candidates after certain criteria have been met. If Novartis obtains regulatory approval to co-label a Novartis HCV drug product with one or more of our HCV drug products, Novartis could market and sell a combination that may compete with our drug candidates and/or combination products that we market and sell in the future.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b><i>Second Amended and Restated Stockholders&#x2019; Agreement</i></b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May 2003, we entered into the stockholders&#x2019; agreement with Novartis and in July 2012, we amended this agreement by executing the second amended and restated stockholders&#x2019; agreement which includes the terms as described below.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Novartis&#x2019; Registration Rights</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the second amended and restated stockholders&#x2019; agreement, Novartis maintains its rights to cause us to register for resale, under the Securities Act of 1933, as amended, shares held by Novartis and/or its affiliates.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Corporate Governance Rights</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the second amended and restated stockholders&#x2019; agreement executed in July 2012, we have agreed to use our reasonable best efforts to nominate for election one designee of Novartis for so long as Novartis and its affiliates own at least 15% of our voting stock. Novartis has the rights to appoint a non-voting observer to any committee of our board of directors. Novartis has no other corporate governance rights under the second amended and restated stockholders&#x2019; agreement.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 4%; FONT-SIZE: 10pt"> <i>Novartis&#x2019; Stock Subscription Rights</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the stockholders&#x2019; agreement, if we issued any shares of capital stock, other than in certain situations, Novartis had the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. Under the second amended and restated stockholders&#x2019; agreement, Novartis continues to have the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for either the same consideration per share paid by others acquiring our stock or, in specified situations, for a 10% premium to the consideration per share paid by others acquiring our stock.</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis&#x2019; stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The impact of Novartis&#x2019; stock subscription rights for the three months ended September 30, 2013 was $1.4 million, which increased additional paid-in capital and reduced license fee revenue. The impact of Novartis&#x2019; stock subscription rights for the nine months ended September 30, 2013 was $0.8 million, which increased additional paid-in capital and reduced license fee revenue.</p> </div> 20 <div> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The following table summarizes option activity under the equity incentive plans:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr> <td width="70%"></td> <td valign="bottom" width="9%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="9%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Number&#xA0;of<br /> Shares</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br /> Average&#xA0;Exercise<br /> Price per Share</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options outstanding at December&#xA0;31, 2012</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">7,555,598</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.60</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Granted</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,644,800</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.66</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Cancelled</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(1,620,842</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">9.17</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Exercised</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(43,061</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.10</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options outstanding at September&#xA0;30, 2013</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">7,536,495</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.65</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options exercisable at September&#xA0;30, 2013</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">5,127,290</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.68</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> </table> </div> 0.803 4.66 <div> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Basic and diluted net income per share for the three months ended September 30, 2012 was as follows:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> </p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"><!-- Begin Table Head --> <tr> <td width="65%"></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="10" align="center"><b>Three Months Ended September 30, 2012</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Income<br /> (Numerator)</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Shares<br /> (Denominator)</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Amount<br /> per Share</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" colspan="10" align="center"><b>In Thousands, Except per Share Data</b></td> <td valign="bottom"></td> </tr> <!-- End Table Head --><!-- Begin Table Body --> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Basic EPS:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Income (loss) available to common stockholders</p> </td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,271</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">124,770</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.03</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Effect of Dilutive Securities:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Options</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">&#x2014;</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">1,676</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Contingently issuable shares to related party</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">&#x2014;</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">401</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Diluted EPS:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Income (loss) available to common stockholders</p> </td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,271</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">126,847</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.03</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> </tr> <!-- End Table Body --></table> </div> P5Y3M7D <div> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Accrued expenses consisted of the following:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr> <td width="73%"></td> <td valign="bottom" width="8%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="8%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>September&#xA0;30,<br /> 2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December&#xA0;31,<br /> 2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Research and development contract costs</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,810</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,686</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Payroll and benefits</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,161</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,946</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Professional fees</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">3,948</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,204</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Short-term portion of accrued settlement payment</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,036</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">976</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Restructuring costs</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,090</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">&#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Other</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">847</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,481</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"></td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,892</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,293</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> </tr> </table> </div> <div> <p style="MARGIN-TOP: 0pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>4. ACCRUED EXPENSES</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Accrued expenses consisted of the following:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr> <td width="73%"></td> <td valign="bottom" width="8%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="8%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>September&#xA0;30,<br /> 2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>December&#xA0;31,<br /> 2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Research and development contract costs</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">5,810</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,686</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Payroll and benefits</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,161</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,946</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Professional fees</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">3,948</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,204</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Short-term portion of accrued settlement payment</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,036</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">976</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Restructuring costs</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,090</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">&#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Other</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">847</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,481</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"></td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,892</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,293</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> </tr> </table> </div> 133962000 <div> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Basic and diluted net loss per share for the three and nine months ended September&#xA0;30, 2013 and the nine months ended September&#xA0;30, 2012 were as follows:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr> <td width="62%"></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three&#xA0;Months&#xA0;Ended<br /> September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Nine&#xA0;Months&#xA0;Ended</b><br /> <b>September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="10" align="center"><b>(In Thousands, Except per Share Data)</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Basic and diluted net loss per common share:</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom">&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Net loss</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">(33,955</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">(93,627</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">(9,674</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Basic and diluted weighted average number of common shares outstanding</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">133,969</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">133,962</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">113,671</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Basic and diluted net loss per common share</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.25</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.70</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.09</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> </tr> </table> </div> 3.04 <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>5. RESTRUCTURING CHARGES</b></p> <!-- xbrl,body --> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In September 2013, we implemented a restructuring of our operations at our headquarters in Cambridge, Massachusetts and at our facility in Montpellier, France to reduce our workforce by approximately 20 positions in connection with our strategic initiatives to create a more flexible business structure and outsource certain research and development functions. We recorded $2.3 million in employee severance charges related to this restructuring. Of this amount, $0.2 million was paid during the third quarter ended September 30, 2013 and the remaining balance of $2.1 million continues to be accrued as of September 30, 2013. We also recorded $1.7 million in non-cash share-based compensation expense related to the acceleration of unvested options for certain employees.</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Cash and Cash Equivalents</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We consider all highly liquid investments purchased with a maturity date of 90&#xA0;days or less at the date of purchase to be cash equivalents.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In connection with certain of our operating lease commitments, we issued letters of credit collateralized by cash deposits that were classified as restricted cash on the condensed consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the expected release date of the restrictions.</p> </div> -81952000 <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>3. NET INCOME (LOSS) PER COMMON SHARE</b></p> <!-- xbrl,body --> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares and other potential common shares then outstanding. Potential common shares consist of common shares issuable upon the assumed exercise of outstanding stock options (using the treasury stock method) and the issuance of contingently issuable shares subject to Novartis&#x2019; stock subscription rights (Note 7) and restricted stock awards.</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> </p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Basic and diluted net loss per share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 were as follows:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> </p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"><!-- Begin Table Head --> <tr> <td width="62%"></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three Months Ended<br /> September 30,</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Nine Months Ended</b><br /> <b>September 30,</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" colspan="10" align="center"><b>(In Thousands, Except per Share Data)</b></td> <td valign="bottom"></td> </tr> <!-- End Table Head --><!-- Begin Table Body --> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Basic and diluted net loss per common share:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Net loss</p> </td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">(33,955</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">(93,627</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">(9,674</td> <td valign="bottom" nowrap="nowrap">)</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Basic and diluted weighted average number of common shares outstanding</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">133,969</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">133,962</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">113,671</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Basic and diluted net loss per common share</p> </td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.25</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.70</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.09</td> <td valign="bottom" nowrap="nowrap">)</td> </tr> <!-- End Table Body --></table> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The following potential common shares were excluded from the calculation of diluted net loss per common share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 because their effect was anti-dilutive:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> </p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"><!-- Begin Table Head --> <tr> <td width="64%"></td> <td valign="bottom" width="13%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="13%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Three and Nine Months</b><br /> <b>Ended</b><br /> <b>September 30,</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Nine Months</b><br /> <b>Ended<br /> September 30,</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom"></td> </tr> <!-- End Table Head --><!-- Begin Table Body --> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">7,536</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">7,666</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Contingently issuable shares to related party</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">1,396</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">709</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">8,932</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">8,375</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> </tr> <!-- End Table Body --></table> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In addition to the contingently issuable shares to related party listed in the table above, Novartis could be entitled to additional shares under its stock subscription rights which would be anti-dilutive in future periods based on our current stock price.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Basic and diluted net income per share for the three months ended September 30, 2012 was as follows:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> </p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"><!-- Begin Table Head --> <tr> <td width="65%"></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="10" align="center"><b>Three Months Ended September 30, 2012</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Income<br /> (Numerator)</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Shares<br /> (Denominator)</b></td> <td valign="bottom"></td> <td valign="bottom"></td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Amount<br /> per Share</b></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" colspan="10" align="center"><b>In Thousands, Except per Share Data</b></td> <td valign="bottom"></td> </tr> <!-- End Table Head --><!-- Begin Table Body --> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Basic EPS:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Income (loss) available to common stockholders</p> </td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,271</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">124,770</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.03</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Effect of Dilutive Securities:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Options</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">&#x2014;</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">1,676</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Contingently issuable shares to related party</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">&#x2014;</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">401</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Diluted EPS:</p> </td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Income (loss) available to common stockholders</p> </td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,271</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom" align="right">126,847</td> <td valign="bottom" nowrap="nowrap"></td> <td valign="bottom"></td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.03</td> <td valign="bottom" nowrap="nowrap"></td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> <td valign="bottom"></td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double"></p> </td> <td></td> </tr> <!-- End Table Body --></table> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> There were no common shares excluded from the calculation of diluted net income per common share as of the three months ended September 30, 2012.</p> </div> 43061 <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Concentration of Credit Risk</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash and cash equivalents and receivables from related party. We invest our excess cash and cash equivalents in interest bearing accounts at major United States financial institutions. Management mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> At September&#xA0;30, 2013 and December&#xA0;31, 2012, all of our receivables from related party were due from Novartis related to its obligation under the termination agreement to reimburse us for contractual payments due by us to third-parties (Note 8).</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b></p> <p style="MARGIN-TOP: 6pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Revenue Recognition</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Revenue is recognized in accordance with SEC Staff Accounting Bulletin No.&#xA0;101, <i>Revenue Recognition in Financial Statements</i>, as amended by SEC Staff Accounting Bulletin No.&#xA0;104, <i>Revenue Recognition</i>, and for revenue arrangements entered into after June&#xA0;30, 2003, in accordance with the revenue recognition guidance of the FASB. For multiple-element revenue arrangements entered into or materially modified after January&#xA0;1, 2011, we recognize revenue under Accounting Standards Codification Topic 605<i>, Revenue Recognition</i>.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We record revenue provided that there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <i>Collaboration Revenue &#x2014; Related Party</i></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May 2003, we entered into a collaboration with Novartis Pharma AG, or Novartis, relating to the worldwide development and commercialization of our drug candidates, which we refer to as the development and commercialization agreement. In May 2003, we also entered into a stockholders&#x2019; agreement with Novartis, which we refer to as the stockholders&#x2019; agreement. On July&#xA0;31, 2012, we and Novartis materially modified our collaboration by executing a termination and revised relationship agreement, which we refer to as the termination agreement, and by amending the stockholders&#x2019; agreement, which we refer to as the second amended and restated stockholders&#x2019; agreement. Subsequent to August 2012, we recognize revenue related to the termination agreement with Novartis under ASC Topic 605.</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We evaluated our modified arrangement with Novartis and determined that the agreements should continue to be treated as a single unit of accounting. Under the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis&#x2019; HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. The details of the termination agreement are described more fully in Note 7. The non-exclusive license is the only revenue-generating deliverable remaining under the modified arrangement and since neither vendor-specific objective evidence, or VSOE, nor third-party evidence, or TPE, for the non-exclusive license deliverable was available, the selling price for the non-exclusive license was established using the best estimate of selling price, or BESP. We determined that the BESP of Novartis&#x2019; non-exclusive license at July&#xA0;31, 2012 was $5.0 million which is recognized as collaboration revenue from related party on a straight-line basis over the seven-year term of the non-exclusive license. As of September&#xA0;30, 2013, the remaining balance of $4.2 million was included in deferred revenue from related party in our condensed consolidated balance sheet. In establishing BESP for the non-exclusive license, we used a discounted cash flow model and considered the likelihood of our and Novartis&#x2019; drugs being commercialized, the development and commercialization timeline, discount rate, and probable treatment combination and associated peak sales figures which generate royalty amounts.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Also under the collaboration with Novartis, if we issue any shares of capital stock, other than in certain situations, Novartis has the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis&#x2019; stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period. This stock subscription right is described more fully in Note 7.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Cash and Cash Equivalents</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We consider all highly liquid investments purchased with a maturity date of 90&#xA0;days or less at the date of purchase to be cash equivalents.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In connection with certain of our operating lease commitments, we issued letters of credit collateralized by cash deposits that were classified as restricted cash on the condensed consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the expected release date of the restrictions.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Concentration of Credit Risk</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash and cash equivalents and receivables from related party. We invest our excess cash and cash equivalents in interest bearing accounts at major United States financial institutions. Management mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> At September&#xA0;30, 2013 and December&#xA0;31, 2012, all of our receivables from related party were due from Novartis related to its obligation under the termination agreement to reimburse us for contractual payments due by us to third-parties (Note 8).</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Fair Value Measurements</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Our financial statements include assets and liabilities that are measured at fair value on a recurring basis as of September&#xA0;30, 2013 and December&#xA0;31, 2012. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> At September&#xA0;30, 2013 and December&#xA0;31, 2012, we had $121.0 million and $184.0 million, respectively, invested in money market funds. Our money market investments have calculated net asset values and are therefore classified as Level 2. There were no Level 3 assets held at fair value at September&#xA0;30, 2013 or at December&#xA0;31, 2012. There were no gross unrealized gains or losses for the three and nine months ended September&#xA0;30, 2013 or 2012.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Accrued Expenses</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We accrue expenses we have incurred but have not been invoiced. This process involves estimating the level of service performed by third-parties on our behalf and the associated cost incurred for these services as of each balance sheet date in our financial statements. Examples of estimated accrued expenses in which subjective judgments may be required include services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. Accruals for amounts due to clinical research organizations are among our most significant estimates. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual level of services incurred by the service providers. The date on which certain services commence, the level of services performed on or before a given date and the cost of services is often subject to our judgment. We make these judgments based upon the facts and circumstances known to us. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment is made.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Share-Based Compensation</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We recognize share-based compensation for employees and directors using a fair value based method that results in expense being recognized in our condensed consolidated financial statements.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Intangible Asset and Impairment of Long-Lived Assets</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We evaluate the recoverability of our property and equipment and other long-lived assets when circumstances indicate that an event of impairment may have occurred in accordance with FASB guidance. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka&#xAE;/Sebivo&#xAE;) technology for the treatment of hepatitis B virus, or HBV, described more fully in Note 8. Pursuant to the settlement agreement, we paid the University of Alabama at Birmingham Research Foundation, or UABRF, a $4.0&#xA0;million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka&#xAE;/Sebivo&#xAE;, subject to minimum payment obligations aggregating $11.0&#xA0;million. Prior to the execution of the termination agreement in July 2012, we were amortizing the $15.0&#xA0;million related to this settlement payment over the life of the settlement agreement. Under the termination agreement with Novartis, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka&#xAE;/Sebivo&#xAE;. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there are no future cash flows associated with its use and the intangible asset has no alternate use. As a result, we recorded an impairment charge of $8.0 million during the three and nine months ended September&#xA0;30, 2012. No impairment charges were recognized for the three and nine months ended September&#xA0;30, 2013.</p> </div> 9.17 8932000 <div> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The following table shows share-based compensation expense as included in our condensed consolidated statements of operations and comprehensive income (loss):</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr> <td width="60%"></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"> <b>Three&#xA0;Months&#xA0;Ended&#xA0;September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"> <b>Nine&#xA0;Months&#xA0;Ended&#xA0;September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Research and development</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">387</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">495</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,382</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,277</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> General and administrative</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">835</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">741</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,475</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,877</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Total share-based compensation expense</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,222</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,236</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,857</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,154</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> </tr> </table> </div> <div> <p style="MARGIN-TOP: 12pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>1. BUSINESS OVERVIEW</b></p> <!-- xbrl,body --> <p style="MARGIN-TOP: 6pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Overview</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Idenix Pharmaceuticals, Inc., which we refer to together with our wholly owned subsidiaries as Idenix, we, us or our, is a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the United States and France. Currently, our primary research and development focus is on the treatment of patients with hepatitis C virus, or HCV, using nucleotide polymerase inhibitors and NS5A inhibitors.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In October 2013, we received approval to enter clinical trials for IDX21437, our uridine based nucleotide prodrug candidate, in Canada and Belgium and we have initiated enrollment for the healthy volunteer portion of a phase I/II clinical trial. Extensive preclinical testing for IDX21437 demonstrated favorable antiviral activity across genotypes 1-6 and a safety profile which supported advancement into clinical trials.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In the second quarter of 2013, we submitted an investigational new drug, or IND, application to the U.S. Food and Drug Administration, or FDA, for IDX20963, our uridine based nucleotide prodrug candidate. In June 2013, the FDA requested additional preclinical safety information for IDX20963 which we are currently conducting.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> As part of our ongoing extensive nucleotide discovery effort, we continue to explore and develop a diverse spectrum of nucleotides with novel bases, prodrugs and sugar moieties.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In January 2013, we entered into a non-exclusive collaboration agreement with Janssen Pharmaceuticals, Inc., or Janssen, for the clinical evaluation of samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir AB, or Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May 2013, we initiated a 12-week phase II HELIX-1 clinical trial under the Janssen collaboration evaluating samatasvir, simeprevir and ribavirin in treatment-na&#xEF;ve genotype 1b or 4 HCV-infected patients. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate SVR4 data for these patients to be available in the fourth quarter of 2013. We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three direct-acting antiviral, or DAA, combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-na&#xEF;ve or have relapsed after treatment with pegylated interferon and ribavirin.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Our drug development programs and the potential commercialization of our drug candidates will require substantial cash to fund costs that we incur in connection with preclinical studies and clinical trials, regulatory review, manufacturing and sales and marketing efforts. We have incurred losses in each year since our inception and at September 30, 2013, we had an accumulated deficit of $801.7 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result of continuing losses, we may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We are subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the successful development of products, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaboration partners, competition, technological and medical risks and management of growth.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Basis of Presentation</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The condensed consolidated financial statements reflect the operations of Idenix Pharmaceuticals, Inc. and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The accompanying condensed consolidated financial statements are unaudited and have been prepared by us in accordance with generally accepted accounting principles in the United States of America, or GAAP, for interim reporting. Accordingly, these interim financial statements do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 25, 2013. These interim financial statements are unaudited, but in the opinion of management, reflect all adjustments (including normal recurring accruals) necessary for a fair statement of the financial position and results of operations for the interim periods presented. The year ended condensed consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, judgments and methodologies, including those related to revenue recognition, accrued expenses, clinical trial expenses, impairment and amortization of long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the fiscal year ending December 31, 2013.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Recent Accounting Pronouncements</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU 2013-02, <i>Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income</i>, or ASU No. 2013-02, as an update to Comprehensive Income (Topic 220). The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No. 2013-02 became effective on February 1, 2013 and did not have a material impact on our financial statements.</p> <!-- xbrl,n --></div> <div> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The table below illustrates the fair value per share and Black-Scholes option pricing model with the following assumptions used for grants issued for the nine months ended September&#xA0;30, 2013 and 2012:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr> <td width="74%"></td> <td valign="bottom" width="11%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="11%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"> <b>Nine&#xA0;Months&#xA0;Ended&#xA0;September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Weighted average fair value of options</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.04</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.54</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Risk-free interest rate</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">0.88</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">0.87</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Expected dividend yield</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">&#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">&#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Expected option term (in years)</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">5.27</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">5.32</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Expected volatility</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">80.3</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">79.3</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> </tr> </table> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Fair Value Measurements</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Our financial statements include assets and liabilities that are measured at fair value on a recurring basis as of September&#xA0;30, 2013 and December&#xA0;31, 2012. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> At September&#xA0;30, 2013 and December&#xA0;31, 2012, we had $121.0 million and $184.0 million, respectively, invested in money market funds. Our money market investments have calculated net asset values and are therefore classified as Level 2. There were no Level 3 assets held at fair value at September&#xA0;30, 2013 or at December&#xA0;31, 2012. There were no gross unrealized gains or losses for the three and nine months ended September&#xA0;30, 2013 or 2012.</p> </div> -0.70 3.10 1620842 <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>6. SHARE-BASED COMPENSATION</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The following table shows share-based compensation expense as included in our condensed consolidated statements of operations and comprehensive income (loss):</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr> <td width="60%"></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="6%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"> <b>Three&#xA0;Months&#xA0;Ended&#xA0;September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"> <b>Nine&#xA0;Months&#xA0;Ended&#xA0;September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom" colspan="6" align="center"><b>(In Thousands)</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Research and development</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">387</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">495</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,382</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,277</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> General and administrative</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">835</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">741</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">2,475</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,877</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Total share-based compensation expense</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,222</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,236</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,857</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,154</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> </tr> </table> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> As part of the restructuring in September 2013, we recorded $1.7 million of share-based compensation expense related to the acceleration of unvested options for certain employees. The expense was classified as restructuring charges in our condensed consolidated statements of operations and comprehensive income (loss).</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> There were no options granted in the three months ended September&#xA0;30, 2013 or 2012. The table below illustrates the fair value per share and Black-Scholes option pricing model with the following assumptions used for grants issued for the nine months ended September&#xA0;30, 2013 and 2012:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr> <td width="74%"></td> <td valign="bottom" width="11%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="11%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"> <b>Nine&#xA0;Months&#xA0;Ended&#xA0;September&#xA0;30,</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2012</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="4"></td> <td height="8" colspan="4"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Weighted average fair value of options</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.04</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.54</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Risk-free interest rate</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">0.88</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">0.87</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Expected dividend yield</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">&#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">&#x2014;&#xA0;&#xA0;</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Expected option term (in years)</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">5.27</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">5.32</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Expected volatility</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">80.3</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">79.3</td> <td valign="bottom" nowrap="nowrap">%&#xA0;</td> </tr> </table> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The expected option term and expected volatility were determined by examining the expected option term and expected volatilities of similarly sized biotechnology companies as well as expected term and expected volatility of our own stock.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> The following table summarizes option activity under the equity incentive plans:</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt"> &#xA0;</p> <table style="BORDER-COLLAPSE: collapse; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr> <td width="70%"></td> <td valign="bottom" width="9%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="9%"></td> <td></td> <td></td> <td></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt"> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Number&#xA0;of<br /> Shares</b></td> <td valign="bottom">&#xA0;</td> <td valign="bottom">&#xA0;</td> <td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br /> Average&#xA0;Exercise<br /> Price per Share</b></td> <td valign="bottom">&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options outstanding at December&#xA0;31, 2012</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">7,555,598</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.60</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Granted</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">1,644,800</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.66</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Cancelled</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(1,620,842</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">9.17</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; FONT-SIZE: 10pt"> Exercised</p> </td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">(43,061</td> <td valign="bottom" nowrap="nowrap">)&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.10</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 1px solid">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt" bgcolor="#CCEEFF"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options outstanding at September&#xA0;30, 2013</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">7,536,495</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.65</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">&#xA0;&#xA0;</td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td valign="bottom"> <p style="BORDER-TOP: #000000 3px double">&#xA0;</p> </td> <td>&#xA0;</td> <td valign="bottom">&#xA0;</td> <td valign="bottom"></td> <td valign="bottom"></td> <td valign="bottom"></td> </tr> <tr style="FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"> <td valign="top"> <p style="TEXT-INDENT: -1em; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; FONT-SIZE: 10pt"> Options exercisable at September&#xA0;30, 2013</p> </td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;&#xA0;</font></td> <td valign="bottom">&#xA0;</td> <td valign="bottom" align="right">5,127,290</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> <td valign="bottom"><font style="FONT-SIZE: 8pt">&#xA0;</font></td> <td valign="bottom">$</td> <td valign="bottom" align="right">6.68</td> <td valign="bottom" nowrap="nowrap">&#xA0;&#xA0;</td> </tr> </table> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We had an aggregate of $10.3 million of share-based compensation expense as of September&#xA0;30, 2013 remaining to be amortized over a weighted average expected term of 2.45&#xA0;years.</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Recent Accounting Pronouncements</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU 2013-02, <i>Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income</i>, or ASU No.&#xA0;2013-02, as an update to Comprehensive Income (Topic 220). The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No.&#xA0;2013-02 became effective on February&#xA0;1, 2013 and did not have a material impact on our financial statements.</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Share-Based Compensation</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We recognize share-based compensation for employees and directors using a fair value based method that results in expense being recognized in our condensed consolidated financial statements.</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>8. COMMITMENTS AND CONTINGENCIES</b></p> <p style="MARGIN-TOP: 6pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Product and Drug Candidates</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In connection with the resolution of matters relating to certain of our HCV drug candidates, in May 2004, we entered into a settlement agreement with the University of Alabama, or UAB, which provides for a milestone payment of $1.0&#xA0;million to UAB upon receipt of regulatory approval in the United States to market and sell certain HCV products invented or discovered by our former chief executive officer during the period from November&#xA0;1, 1999 to November&#xA0;1, 2000. This settlement agreement also provides that we will pay UAB an amount equal to 0.5% of worldwide net sales of such HCV products with a minimum sales-based payment equal to $12.0&#xA0;million. Currently, there are no such HCV products approved and therefore there was no related liability recorded as of September&#xA0;30, 2013.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We have potential payment obligations under the license agreement with the Universita degli Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide right to make, use and sell certain HCV and human immunodeficiency virus type-1, or HIV, technologies. We are liable for certain payments to the University of Cagliari if we receive license fees or milestone payments with respect to such technology from a collaborator or other third-party.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Pursuant to the license agreement between us and UAB, we were granted an exclusive license to the rights that the UABRF, an affiliate of UAB, Emory University and Le Centre National de la Recherche Scientifique, or CNRS, have to a 1995 U.S. patent application and progeny thereof and counterpart patent applications in Europe, Canada, Japan and Australia that cover the use of certain synthetic nucleosides for the treatment of HBV. In July 2008, we entered into a settlement agreement with UAB, UABRF and Emory University relating to our telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of &#xDF;-L-2&#x2019;-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS and the Universite Montpellier II, or the University of Montpellier, and which cover the use of Tyzeka&#xAE;/Sebivo&#xAE; have been resolved. UAB also agreed to abandon certain continuation patent applications it filed in July&#xA0;2005. Under the terms of the settlement agreement, we paid UABRF (on behalf of UAB and Emory University) a $4.0&#xA0;million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis from worldwide sales of Tyzeka&#xAE;/Sebivo&#xAE;, subject to minimum payment obligations aggregating $11.0&#xA0;million. Our payment obligations under the settlement agreement expire in August&#xA0;2019. The settlement agreement was effective on June&#xA0;1, 2008 and included mutual releases of all claims and covenants not to sue among the parties. It also included a release from a third-party scientist who had claimed to have inventorship rights in certain Idenix/CNRS/University of Montpellier patents. Included in the condensed consolidated balance sheets as of September&#xA0;30, 2013 and December&#xA0;31, 2012 was a liability of $6.4 million and $7.2 million, respectively, related to this settlement agreement. Under the termination agreement executed in July 2012, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka&#xAE;/Sebivo&#xAE;. Novartis is required to reimburse us for our contractual payments to UABRF in connection with our intellectual property related to Tyzeka&#xAE;/Sebivo&#xAE;. Included in receivables from related party at September&#xA0;30, 2013 and December&#xA0;31, 2012 was $6.7 million and $7.2 million, respectively, for the reimbursement from Novartis for these contractual payments to UABRF.</p> <p style="MARGIN-TOP: 0pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In May&#xA0;2003, we and Novartis entered into an amended and restated agreement with CNRS and the University of Montpellier pursuant to which we worked in collaboration with scientists from CNRS and the University of Montpellier to discover and develop technologies relating to antiviral substances, including telbivudine. This cooperative agreement expired in December&#xA0;2006, but we retain rights to exploit the patents derived from the collaboration. Under the cooperative agreement, we are obligated to make royalty payments for products derived from such patents, including products for HBV, HCV and HIV. Such payments would be due even in the instance where we licensed such patents to a third-party. Under the termination agreement, we will no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka&#xAE;/Sebivo&#xAE;. Novartis was required to reimburse us for our contractual payments to CNRS and the University of Montpellier, subject to our assignment to Novartis of our patent rights under the amended and restated agreement with CNRS and the University of Montpellier within 12 months of the execution of the termination agreement, in connection with our intellectual property related to Tyzeka&#xAE;/Sebivo. These payments were recorded as receivables from related party on our condensed consolidated balance sheets. Prior to the assignment of such patent rights to Novartis, payments from Novartis to reimburse us for our contractual payments to CNRS and the University of Montpellier were recorded as a deferred payment obligation on our condensed consolidated balance sheets and we charged payments we made to CNRS to cost of revenues on our condensed consolidated statements of operations and comprehensive income (loss). As of July&#xA0;31, 2013, the patent rights have been assigned to Novartis. As a result, in the third quarter of 2013, we recognized $1.3 million of deferred payments as revenue and we will no longer record our contractual payments to CNRS as cost of revenues.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Legal Contingency</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In February 2012, an interference was declared by the United States Patent and Trademark Office, or the USPTO, concerning a patent application co-owned by us and a patent owned by Gilead Pharmasset LLC, or Gilead. Both the application and patent claim certain nucleoside compounds useful in treating HCV. An interference is an adversarial proceeding declared by the USPTO when a party has a U.S. patent application that covers the same invention as another patent application or issued patent to determine priority of invention in the United States. An interference proceeding is divided into two stages. The first phase determines the application filing dates each party will have benefit of for the interfering subject matter. The party with the benefit of the earliest application filing date is deemed the &#x2018;senior party&#x2019; and the party with the later date is deemed the &#x2018;junior party&#x2019;.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In March 2013, the USPTO issued a decision where we were determined to have a later application filing date than Gilead. Therefore we were determined to be the &#x2018;junior party&#x2019; and Gilead the &#x2018;senior party&#x2019; in the interference. The second phase of the interference commenced in the second quarter of 2013 and will determine which party was first to invent. The party who is deemed first to invent prevails in the interference proceeding. While we cannot predict whether we will prevail in the interference, we intend to vigorously defend this action and any others like it brought by any third-party. We do not believe our co-owned application at issue in the interference is relevant to any compounds we currently have under development. An interference is based upon complex specialized U.S. patent law and the interference proceeding is likely to be expensive and time consuming. In the event we do not prevail in the interference, certain or all claims in our application may not be issued. In the event we do not prevail, we do not believe we will be required to make any payments to any third-parties and therefore we have not recorded a liability associated with this potential contingent matter.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In June 2012, Gilead Sciences, Inc. filed suit against us in Canadian Federal Court seeking to invalidate one of our issued Canadian patents. Our patent, which is the subject of the Canadian litigation, covers similar subject matter to that patent application at issue in the U.S. interference. In September 2012, Gilead Sciences, Ltd. filed suit against us in the Norway District Court of Oslo seeking to invalidate one of our issued Norwegian patents. Our patent at issue in the potential Norwegian litigation covers similar subject matter to that patent application at issue in the U.S. interference. In January 2013, Gilead Sciences Australia Pty Ltd. commenced proceedings in the Federal Court of Australia seeking a declaration that certain claims of one of our issued Australian patents, covering similar subject matter to that patent application at issue in the U.S. interference, are invalid and an order that such claims be revoked. We do not believe the respective patents at issue in these cases are relevant to any compounds we currently have under development. Gilead Sciences, Inc. may make similar claims or bring additional legal proceedings in the U.S. or other jurisdictions where we have granted patents. While we cannot predict whether we will prevail, we intend to vigorously defend these actions and any others like it brought by any third-party. In the event we do not prevail, we do not believe we will be required to make any payments to any third-parties and therefore we have not recorded a liability associated with this potential contingent matter.</p> <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; FONT-SIZE: 18pt"> &#xA0;</p> <p style="MARGIN-TOP: 0pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Operating Leases</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In April 2013, our lease of 46,418 square feet of office and laboratory space located at 320 Bent Street in Cambridge, Massachusetts commenced. In February 2014, our lease payments will include an additional 5,596 square feet of office space located on the premise. The term of the lease is seven years and we have an option to extend the term of this lease agreement for an additional five years beyond the original lease term. In connection with this operating lease for office and laboratory space, we have a letter of credit with a commercial bank for $1.4 million which will expire in September 2014. In April 2013, we terminated our lease for laboratory and office space at 60 Hampshire Street in Cambridge, Massachusetts.</p> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Indemnification</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of the development, manufacture and commercialization of our HCV products. We have also agreed to indemnify Novartis and its affiliates against losses suffered as a result of any breach of representations and warranties in the termination agreement, development and commercialization agreement and a stock purchase agreement entered into in 2003. Under these agreements with Novartis, we made numerous representations and warranties to Novartis regarding our HBV and HCV drug candidates, including representations regarding our ownership of the inventions and discoveries. In the event of a breach of any such representation or warranty by us, Novartis has the right to seek indemnification from us and, under certain circumstances, us and our stockholders who sold shares to Novartis in 2003, which includes some of our current and former directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we and our stockholders could be liable to Novartis could be substantial. While it is possible that we may be required to make payments pursuant to the indemnification obligations we have under these agreements, we cannot reasonably estimate the amount of such payments or the likelihood that such payments would be required.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the license agreement with ViiV Healthcare Company, or ViiV, and the stock purchase agreement with GlaxoSmithKline, or GSK, we have agreed to indemnify ViiV as sublicensee, GSK and their affiliates against losses suffered as a result of our breach of representations and warranties in these agreements. We made numerous representations and warranties regarding our non-nucleoside reverse transcriptase inhibitor program regarding our ownership of inventions and discoveries. If one or more of these representations or warranties were not true at the time we made them, we would be in breach of these agreements. In the event of a breach, the parties have the right to seek indemnification from us for damages suffered as a result of such breach. The amounts for which we may be liable could be substantial. While it is possible that we may be required to make payments pursuant to the indemnification obligations we have under these agreements, we cannot reasonably estimate the amount of such payments or the likelihood that such payments would be required.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> Under the Janssen collaboration agreement, we agreed to indemnify Janssen against losses suffered as a result of our breach of representations and warranties in the agreement and/or any injury to a subject in a clinical trial under the collaboration agreement caused by the use or manufacture of samatasvir. We made numerous representations and warranties to Janssen. If one or more of these representations or warranties were not true at the time they were made, we would be in breach of the agreement. In the event of a breach by us or in the event of injury to a subject in a clinical trial under the collaboration agreement caused by the use or manufacture of samatasvir, Janssen has the right to seek indemnification from us for damages suffered as a result of such breach or subject injury. The amounts for which we could be liable to Janssen under these circumstances may be substantial. In the instance where a subject in a clinical trial suffers injury or death and it is not determinable which compound caused the injury or death, each party shall be responsible for defending any third-party claims alleged against the party after the application of our clinical trial insurance, to the extent applicable.</p> </div> 200000 1074000 -701000 -271000 -93626000 983000 -93353000 -94398000 462000 772000 -93627000 274000 14000 95381000 25306000 134000 3857000 1434000 -81994000 -2052000 1000 197000 0 715000 -335000 134000 3900000 -373000 65460000 2300000 6983000 P90D 800000 -839000 0 -839000 536000 983000 <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Accrued Expenses</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We accrue expenses we have incurred but have not been invoiced. This process involves estimating the level of service performed by third-parties on our behalf and the associated cost incurred for these services as of each balance sheet date in our financial statements. Examples of estimated accrued expenses in which subjective judgments may be required include services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. Accruals for amounts due to clinical research organizations are among our most significant estimates. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual level of services incurred by the service providers. The date on which certain services commence, the level of services performed on or before a given date and the cost of services is often subject to our judgment. We make these judgments based upon the facts and circumstances known to us. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment is made.</p> </div> <div> <p style="MARGIN-TOP: 18pt; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> <b>Intangible Asset and Impairment of Long-Lived Assets</b></p> <p style="MARGIN-TOP: 6pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> We evaluate the recoverability of our property and equipment and other long-lived assets when circumstances indicate that an event of impairment may have occurred in accordance with FASB guidance. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.</p> <p style="MARGIN-TOP: 12pt; TEXT-INDENT: 4%; FONT-FAMILY: Times New Roman; MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt"> In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka&#xAE;/Sebivo&#xAE;) technology for the treatment of hepatitis B virus, or HBV, described more fully in Note 8. Pursuant to the settlement agreement, we paid the University of Alabama at Birmingham Research Foundation, or UABRF, a $4.0&#xA0;million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka&#xAE;/Sebivo&#xAE;, subject to minimum payment obligations aggregating $11.0&#xA0;million. Prior to the execution of the termination agreement in July 2012, we were amortizing the $15.0&#xA0;million related to this settlement payment over the life of the settlement agreement. Under the termination agreement with Novartis, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka&#xAE;/Sebivo&#xAE;. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there are no future cash flows associated with its use and the intangible asset has no alternate use. As a result, we recorded an impairment charge of $8.0 million during the three and nine months ended September&#xA0;30, 2012. No impairment charges were recognized for the three and nine months ended September&#xA0;30, 2013.</p> </div> 1396000 1662000 500000 7536000 2475000 1382000 0.0087 0.793 P5Y3M26D 113671000 7.54 -60502000 8375000 -0.09 834000 942000 141000 -9673000 69336000 -9763000 -10413000 36068000 6679000 740000 -9674000 -89000 -1000 79749000 16798000 195944000 3154000 2234000 133603000 -205000 1000 -63000 -36068000 8045000 190505000 2302000 -998000 5148000 8045000 -1776000 52604000 2749000 520000 0 1331000 21587000 33268000 709000 291000 7666000 1877000 1277000 P5Y P7Y 0.20 2012-07 2019-08 P12M One-half P30D Ten years after the first commercial sale of a product P180D P7Y 12000000 0.005 1000000 0.03 0 0.03 126847000 1676000 401000 0 124770000 4271000 32253000 4434000 4066000 205000 4271000 163000 28187000 6164000 1236000 8045000 509000 13469000 0 32253000 741000 495000 -0.25 0 -0.25 133969000 133969000 8932000 -0.25 133969000 -33955000 19000 -33483000 -34199000 244000 -33955000 472000 34218000 8630000 1222000 0 15000 3900000 1300000 21673000 1400000 0 19000 1396000 100000 7536000 835000 387000 0001093649 us-gaap:ResearchAndDevelopmentExpenseMember 2013-07-01 2013-09-30 0001093649 us-gaap:GeneralAndAdministrativeExpenseMember 2013-07-01 2013-09-30 0001093649 us-gaap:StockOptionMember 2013-07-01 2013-09-30 0001093649 idix:NovartisNonExclusiveLicenseToConductCombinationTrialsMemberidix:CollaborationRevenueRelatedToNonExclusiveLicenseMember 2013-07-01 2013-09-30 0001093649 2013-07-01 2013-09-30 0001093649 us-gaap:ResearchAndDevelopmentExpenseMember 2012-07-01 2012-09-30 0001093649 us-gaap:GeneralAndAdministrativeExpenseMember 2012-07-01 2012-09-30 0001093649 2012-07-01 2012-09-30 0001093649 2004-05-01 2004-05-31 0001093649 idix:NovartisNonExclusiveLicenseToConductCombinationTrialsMember 2012-07-01 2012-07-31 0001093649 idix:NovartisMember 2012-07-01 2012-07-31 0001093649 2012-07-01 2012-07-31 0001093649 idix:UniversityOfAlabamaAtBirminghamResearchFoundationMember 2008-07-01 2008-07-31 0001093649 idix:OfficeAndLaboratorySpaceMember 2013-04-01 2013-04-30 0001093649 us-gaap:ResearchAndDevelopmentExpenseMember 2012-01-01 2012-09-30 0001093649 us-gaap:GeneralAndAdministrativeExpenseMember 2012-01-01 2012-09-30 0001093649 us-gaap:StockOptionMember 2012-01-01 2012-09-30 0001093649 2012-01-01 2012-09-30 0001093649 us-gaap:ResearchAndDevelopmentExpenseMember 2013-01-01 2013-09-30 0001093649 us-gaap:GeneralAndAdministrativeExpenseMember 2013-01-01 2013-09-30 0001093649 us-gaap:StockOptionMember 2013-01-01 2013-09-30 0001093649 idix:NovartisNonExclusiveLicenseToConductCombinationTrialsMemberidix:CollaborationRevenueRelatedToNonExclusiveLicenseMember 2013-01-01 2013-09-30 0001093649 2013-01-01 2013-09-30 0001093649 idix:NovartisReimbursementMemberidix:UniversityOfAlabamaAtBirminghamMember 2012-12-31 0001093649 idix:NovartisNonExclusiveLicenseToConductCombinationTrialsMember 2012-12-31 0001093649 2012-12-31 0001093649 2011-12-31 0001093649 idix:NovartisMemberus-gaap:SubsequentEventMember 2013-10-18 0001093649 2013-10-18 0001093649 idix:OfficeAndLaboratorySpaceMember 2013-09-30 0001093649 idix:NovartisReimbursementMemberidix:UniversityOfAlabamaAtBirminghamMember 2013-09-30 0001093649 idix:NovartisNonExclusiveLicenseToConductCombinationTrialsMember 2013-09-30 0001093649 2013-09-30 0001093649 2012-09-30 0001093649 idix:OfficeAndLaboratorySpaceMember 2013-04-30 0001093649 idix:OfficeAndLaboratorySpaceMemberus-gaap:ScenarioForecastMember 2014-02-28 0001093649 idix:NovartisNonExclusiveLicenseToConductCombinationTrialsMember 2012-07-31 0001093649 idix:NovartisMember 2012-07-31 0001093649 idix:UniversityOfAlabamaAtBirminghamResearchFoundationMemberidix:AdditionalPaymentArrangementMember 2008-07-31 0001093649 idix:UniversityOfAlabamaAtBirminghamResearchFoundationMemberidix:UpFrontPaymentMember 2008-07-31 0001093649 idix:UniversityOfAlabamaAtBirminghamResearchFoundationMember 2008-07-31 iso4217:USD pure utr:sqft shares iso4217:USD shares idix:Employee EX-101.SCH 8 idix-20130930.xsd XBRL TAXONOMY EXTENSION SCHEMA 101 - 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Share-Based Compensation (Tables)
9 Months Ended
Sep. 30, 2013
Share-Based Compensation Expense

The following table shows share-based compensation expense as included in our condensed consolidated statements of operations and comprehensive income (loss):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2013      2012      2013      2012  
     (In Thousands)      (In Thousands)  

Research and development

   $ 387       $ 495       $ 1,382       $ 1,277   

General and administrative

     835         741         2,475         1,877   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based compensation expense

   $ 1,222       $ 1,236       $ 3,857       $ 3,154   
  

 

 

    

 

 

    

 

 

    

 

 

 
Fair Value per Share and Black-Scholes Option Pricing Model with Assumptions Used for Grants Issued

The table below illustrates the fair value per share and Black-Scholes option pricing model with the following assumptions used for grants issued for the nine months ended September 30, 2013 and 2012:

 

     Nine Months Ended September 30,  
     2013     2012  

Weighted average fair value of options

   $ 3.04      $ 7.54   

Risk-free interest rate

     0.88     0.87

Expected dividend yield

     —          —     

Expected option term (in years)

     5.27        5.32   

Expected volatility

     80.3     79.3
Summary of Option Activity under Equity Incentive Plans

The following table summarizes option activity under the equity incentive plans:

 

     Number of
Shares
    Weighted
Average Exercise
Price per Share
 

Options outstanding at December 31, 2012

     7,555,598      $ 7.60   

Granted

     1,644,800      $ 4.66   

Cancelled

     (1,620,842   $ 9.17   

Exercised

     (43,061   $ 3.10   
  

 

 

   

Options outstanding at September 30, 2013

     7,536,495      $ 6.65   
  

 

 

   

Options exercisable at September 30, 2013

     5,127,290      $ 6.68   
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Condensed Consolidated Statements Of Operations And Comprehensive Income (Loss) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Revenues:        
Collaboration revenue - related party $ 19 $ 32,253 $ 983 $ 33,268
Other revenue       36,068
Total revenues 19 32,253 983 69,336
Operating expenses:        
Cost of revenues 15 509 715 2,302
Research and development 21,673 13,469 65,460 52,604
General and administrative 8,630 6,164 25,306 16,798
Restructuring charges 3,900   3,900  
Intangible asset impairment 0 8,045 0 8,045
Total operating expenses 34,218 28,187 95,381 79,749
Income (loss) from operations (34,199) 4,066 (94,398) (10,413)
Other income, net 244 205 772 740
Income (loss) before income taxes (33,955) 4,271 (93,626) (9,673)
Income tax expense     (1) (1)
Net income (loss) (33,955) 4,271 (93,627) (9,674)
Earnings (loss) per common share:        
Basic $ (0.25) $ 0.03    
Diluted $ (0.25) $ 0.03    
Basic and diluted net loss per common share $ (0.25)   $ (0.70) $ (0.09)
Weighted average number of common shares outstanding:        
Basic 133,969 124,770    
Diluted 133,969 126,847    
Shares used in computing basic and diluted net loss per common share 133,969   133,962 113,671
Comprehensive income (loss):        
Net income (loss) (33,955) 4,271 (93,627) (9,674)
Changes in other comprehensive income:        
Foreign currency translation adjustment 472 163 274 (89)
Comprehensive income (loss) $ (33,483) $ 4,434 $ (93,353) $ (9,763)
XML 16 R10.htm IDEA: XBRL DOCUMENT v2.4.0.8
Restructuring Charges
9 Months Ended
Sep. 30, 2013
Restructuring Charges

5. RESTRUCTURING CHARGES

In September 2013, we implemented a restructuring of our operations at our headquarters in Cambridge, Massachusetts and at our facility in Montpellier, France to reduce our workforce by approximately 20 positions in connection with our strategic initiatives to create a more flexible business structure and outsource certain research and development functions. We recorded $2.3 million in employee severance charges related to this restructuring. Of this amount, $0.2 million was paid during the third quarter ended September 30, 2013 and the remaining balance of $2.1 million continues to be accrued as of September 30, 2013. We also recorded $1.7 million in non-cash share-based compensation expense related to the acceleration of unvested options for certain employees.

XML 17 Show.js IDEA: XBRL DOCUMENT /** * Rivet Software Inc. * * @copyright Copyright (c) 2006-2011 Rivet Software, Inc. All rights reserved. * Version 2.4.0.3 * */ var Show = {}; Show.LastAR = null, Show.hideAR = function(){ Show.LastAR.style.display = 'none'; }; Show.showAR = function ( link, id, win ){ if( Show.LastAR ){ Show.hideAR(); } var ref = link; do { ref = ref.nextSibling; } while (ref && ref.nodeName != 'TABLE'); if (!ref || ref.nodeName != 'TABLE') { var tmp = win ? win.document.getElementById(id) : document.getElementById(id); if( tmp ){ ref = tmp.cloneNode(true); ref.id = ''; link.parentNode.appendChild(ref); } } if( ref ){ ref.style.display = 'block'; Show.LastAR = ref; } }; Show.toggleNext = function( link ){ var ref = link; do{ ref = ref.nextSibling; }while( ref.nodeName != 'DIV' ); if( ref.style && ref.style.display && ref.style.display == 'none' ){ ref.style.display = 'block'; if( link.textContent ){ link.textContent = link.textContent.replace( '+', '-' ); }else{ link.innerText = link.innerText.replace( '+', '-' ); } }else{ ref.style.display = 'none'; if( link.textContent ){ link.textContent = link.textContent.replace( '-', '+' ); }else{ link.innerText = link.innerText.replace( '-', '+' ); } } }; XML 18 R24.htm IDEA: XBRL DOCUMENT v2.4.0.8
Component of Accrued Expenses (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Schedule of Accrued Liabilities [Line Items]    
Research and development contract costs $ 5,810 $ 2,686
Payroll and benefits 2,161 2,946
Professional fees 3,948 1,204
Short-term portion of accrued settlement payment 1,036 976
Restructuring costs 2,090  
Other 847 1,481
Total accrued expenses $ 15,892 $ 9,293
XML 19 R18.htm IDEA: XBRL DOCUMENT v2.4.0.8
Business Overview - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Nature Of Operations [Line Items]    
Accumulated deficit $ (801,742) $ (708,115)
XML 20 R27.htm IDEA: XBRL DOCUMENT v2.4.0.8
Share-Based Compensation - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Share-based compensation expense related to restructuring     $ 1,662,000
Option Granted 0 0 1,644,800
Share-based compensation expense remaining to be amortized $ 10,300,000   $ 10,300,000
Weighted average expected term 2 years 5 months 12 days   2 years 5 months 12 days
XML 21 R26.htm IDEA: XBRL DOCUMENT v2.4.0.8
Share-Based Compensation Expense (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share-based compensation expense $ 1,222 $ 1,236 $ 3,857 $ 3,154
Research and development
       
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share-based compensation expense 387 495 1,382 1,277
General and administrative
       
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share-based compensation expense $ 835 $ 741 $ 2,475 $ 1,877
XML 22 R31.htm IDEA: XBRL DOCUMENT v2.4.0.8
Commitments and Contingencies - Additional Information (Detail) (USD $)
1 Months Ended 3 Months Ended 1 Months Ended 1 Months Ended
Jul. 31, 2012
May 31, 2004
Sep. 30, 2013
Dec. 31, 2012
Apr. 30, 2013
Office and Laboratory Space
sqft
Sep. 30, 2013
Office and Laboratory Space
Feb. 28, 2014
Scenario, Forecast
Office and Laboratory Space
sqft
Jul. 31, 2008
UABRF
Jul. 31, 2008
UABRF
Up Front Payment
Jul. 31, 2008
UABRF
Additional Payment
Sep. 30, 2013
Novartis Reimbursement
University Of Alabama At Birmingham
Dec. 31, 2012
Novartis Reimbursement
University Of Alabama At Birmingham
Commitments and Contingencies Disclosure [Line Items]                        
Potential milestone payment related to a settlement agreement with a third-party   $ 1,000,000                    
Percentage of payments made towards settlement agreement on net sales   0.50%                    
Minimum sales-based payment pursuant to settlement agreement   12,000,000                    
Liability recorded as result of settlement agreement     0                  
Intangible asset, net               15,000,000 4,000,000 11,000,000    
Percentage of payments to third-party based on royalties received from related party               20.00%        
Related party transaction, due from (to) related party                     6,700,000 7,200,000
Settlement agreement related to intangible asset, expiration date               2019-08        
Terms in which the entity must assign patent rights to a related party 12 months                      
Deferred payments recognized as revenue     1,300,000                  
Area of lease         46,418   5,596          
Term of lease         7 years              
Additional option to extend term of this lease agreement         5 years              
Restricted cash     $ 1,402,000 $ 2,103,000   $ 1,400,000            
XML 23 R25.htm IDEA: XBRL DOCUMENT v2.4.0.8
Restructuring Charges - Additional Information (Detail) (USD $)
9 Months Ended
Sep. 30, 2013
Employee
Restructuring Cost and Reserve [Line Items]  
Positions eliminated 20
Severance payments for restructuring $ 2,300,000
Payments for restructuring 200,000
Restructuring reserve 2,100,000
Share-based compensation expense related to restructuring $ 1,662,000
XML 24 R6.htm IDEA: XBRL DOCUMENT v2.4.0.8
Business Overview
9 Months Ended
Sep. 30, 2013
Business Overview

1. BUSINESS OVERVIEW

Overview

Idenix Pharmaceuticals, Inc., which we refer to together with our wholly owned subsidiaries as Idenix, we, us or our, is a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases with operations in the United States and France. Currently, our primary research and development focus is on the treatment of patients with hepatitis C virus, or HCV, using nucleotide polymerase inhibitors and NS5A inhibitors.

In October 2013, we received approval to enter clinical trials for IDX21437, our uridine based nucleotide prodrug candidate, in Canada and Belgium and we have initiated enrollment for the healthy volunteer portion of a phase I/II clinical trial. Extensive preclinical testing for IDX21437 demonstrated favorable antiviral activity across genotypes 1-6 and a safety profile which supported advancement into clinical trials.

In the second quarter of 2013, we submitted an investigational new drug, or IND, application to the U.S. Food and Drug Administration, or FDA, for IDX20963, our uridine based nucleotide prodrug candidate. In June 2013, the FDA requested additional preclinical safety information for IDX20963 which we are currently conducting.

As part of our ongoing extensive nucleotide discovery effort, we continue to explore and develop a diverse spectrum of nucleotides with novel bases, prodrugs and sugar moieties.

In January 2013, we entered into a non-exclusive collaboration agreement with Janssen Pharmaceuticals, Inc., or Janssen, for the clinical evaluation of samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir AB, or Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.

In May 2013, we initiated a 12-week phase II HELIX-1 clinical trial under the Janssen collaboration evaluating samatasvir, simeprevir and ribavirin in treatment-naïve genotype 1b or 4 HCV-infected patients. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate SVR4 data for these patients to be available in the fourth quarter of 2013. We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three direct-acting antiviral, or DAA, combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-naïve or have relapsed after treatment with pegylated interferon and ribavirin.

Our drug development programs and the potential commercialization of our drug candidates will require substantial cash to fund costs that we incur in connection with preclinical studies and clinical trials, regulatory review, manufacturing and sales and marketing efforts. We have incurred losses in each year since our inception and at September 30, 2013, we had an accumulated deficit of $801.7 million. We expect to incur losses over the next several years as we continue to expand our drug discovery and development efforts. As a result of continuing losses, we may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements and we may seek a partner who will assist in the future development and commercialization of our drug candidates.

We are subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the successful development of products, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaboration partners, competition, technological and medical risks and management of growth.

Basis of Presentation

The condensed consolidated financial statements reflect the operations of Idenix Pharmaceuticals, Inc. and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements are unaudited and have been prepared by us in accordance with generally accepted accounting principles in the United States of America, or GAAP, for interim reporting. Accordingly, these interim financial statements do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 25, 2013. These interim financial statements are unaudited, but in the opinion of management, reflect all adjustments (including normal recurring accruals) necessary for a fair statement of the financial position and results of operations for the interim periods presented. The year ended condensed consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP.

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, judgments and methodologies, including those related to revenue recognition, accrued expenses, clinical trial expenses, impairment and amortization of long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the fiscal year ending December 31, 2013.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU No. 2013-02, as an update to Comprehensive Income (Topic 220). The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No. 2013-02 became effective on February 1, 2013 and did not have a material impact on our financial statements.

XML 25 R8.htm IDEA: XBRL DOCUMENT v2.4.0.8
Net Income (Loss) Per Common Share
9 Months Ended
Sep. 30, 2013
Net Income (Loss) Per Common Share

3. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares and other potential common shares then outstanding. Potential common shares consist of common shares issuable upon the assumed exercise of outstanding stock options (using the treasury stock method) and the issuance of contingently issuable shares subject to Novartis’ stock subscription rights (Note 7) and restricted stock awards.

Basic and diluted net loss per share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 were as follows:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2013 2012
(In Thousands, Except per Share Data)

Basic and diluted net loss per common share:

Net loss

$ (33,955 ) $ (93,627 ) $ (9,674 )

Basic and diluted weighted average number of common shares outstanding

133,969 133,962 113,671

Basic and diluted net loss per common share

$ (0.25 ) $ (0.70 ) $ (0.09 )

The following potential common shares were excluded from the calculation of diluted net loss per common share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 because their effect was anti-dilutive:

Three and Nine Months
Ended
September 30,
Nine Months
Ended
September 30,
2013 2012
(In Thousands)

Options

7,536 7,666

Contingently issuable shares to related party

1,396 709

8,932 8,375

In addition to the contingently issuable shares to related party listed in the table above, Novartis could be entitled to additional shares under its stock subscription rights which would be anti-dilutive in future periods based on our current stock price.

Basic and diluted net income per share for the three months ended September 30, 2012 was as follows:

Three Months Ended September 30, 2012
Income
(Numerator)
Shares
(Denominator)
Amount
per Share
In Thousands, Except per Share Data

Basic EPS:

Income (loss) available to common stockholders

$ 4,271 124,770 $ 0.03

Effect of Dilutive Securities:

Options

1,676

Contingently issuable shares to related party

401

Diluted EPS:

Income (loss) available to common stockholders

$ 4,271 126,847 $ 0.03

There were no common shares excluded from the calculation of diluted net income per common share as of the three months ended September 30, 2012.

XML 26 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
Share-Based Compensation
9 Months Ended
Sep. 30, 2013
Share-Based Compensation

6. SHARE-BASED COMPENSATION

The following table shows share-based compensation expense as included in our condensed consolidated statements of operations and comprehensive income (loss):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2013      2012      2013      2012  
     (In Thousands)      (In Thousands)  

Research and development

   $ 387       $ 495       $ 1,382       $ 1,277   

General and administrative

     835         741         2,475         1,877   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based compensation expense

   $ 1,222       $ 1,236       $ 3,857       $ 3,154   
  

 

 

    

 

 

    

 

 

    

 

 

 

As part of the restructuring in September 2013, we recorded $1.7 million of share-based compensation expense related to the acceleration of unvested options for certain employees. The expense was classified as restructuring charges in our condensed consolidated statements of operations and comprehensive income (loss).

There were no options granted in the three months ended September 30, 2013 or 2012. The table below illustrates the fair value per share and Black-Scholes option pricing model with the following assumptions used for grants issued for the nine months ended September 30, 2013 and 2012:

 

     Nine Months Ended September 30,  
     2013     2012  

Weighted average fair value of options

   $ 3.04      $ 7.54   

Risk-free interest rate

     0.88     0.87

Expected dividend yield

     —          —     

Expected option term (in years)

     5.27        5.32   

Expected volatility

     80.3     79.3

 

The expected option term and expected volatility were determined by examining the expected option term and expected volatilities of similarly sized biotechnology companies as well as expected term and expected volatility of our own stock.

The following table summarizes option activity under the equity incentive plans:

 

     Number of
Shares
    Weighted
Average Exercise
Price per Share
 

Options outstanding at December 31, 2012

     7,555,598      $ 7.60   

Granted

     1,644,800      $ 4.66   

Cancelled

     (1,620,842   $ 9.17   

Exercised

     (43,061   $ 3.10   
  

 

 

   

Options outstanding at September 30, 2013

     7,536,495      $ 6.65   
  

 

 

   

Options exercisable at September 30, 2013

     5,127,290      $ 6.68   

We had an aggregate of $10.3 million of share-based compensation expense as of September 30, 2013 remaining to be amortized over a weighted average expected term of 2.45 years.

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M!"4.```$.0$``%!+`0(>`Q0````(`'.'7D/33?((P0T``"BP```5`!@````` M``$```"D@;R5``!I9&EX+3(P,3,P.3,P7V-A;"YX;6Q55`4``SES<5)U>`L` M`00E#@``!#D!``!02P$"'@,4````"`!SAUY#LD5Y3>LF``!SR`(`%0`8```` M```!````I(',HP``:61I>"TR,#$S,#DS,%]D968N>&UL550%``,Y0]&'LDO;4P``8!$$`!4`&``` M`````0```*2!!LL``&ED:7@M,C`Q,S`Y,S!?;&%B+GAM;%54!0`#.7-Q4G5X M"P`!!"4.```$.0$``%!+`0(>`Q0````(`'.'7D,5L*+*`L``00E#@``!#D!``!02P$"'@,4````"`!SAUY#LVZ_VBP/```MC0``$0`8 M```````!````I('Q2`$`:61I>"TR,#$S,#DS,"YX`L` A`00E#@``!#D!``!02P4&``````8`!@`:`@``:%@!```` ` end XML 28 R9.htm IDEA: XBRL DOCUMENT v2.4.0.8
Accrued Expenses
9 Months Ended
Sep. 30, 2013
Accrued Expenses

4. ACCRUED EXPENSES

Accrued expenses consisted of the following:

 

     September 30,
2013
     December 31,
2012
 
     (In Thousands)  

Research and development contract costs

   $ 5,810       $ 2,686   

Payroll and benefits

     2,161         2,946   

Professional fees

     3,948         1,204   

Short-term portion of accrued settlement payment

     1,036         976   

Restructuring costs

     2,090         —     

Other

     847         1,481   
  

 

 

    

 

 

 
   $ 15,892       $ 9,293   
  

 

 

    

 

 

 

XML 29 R28.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value Per Share and Black-Scholes Option Pricing Model with Assumptions used for Grants Issued (Detail) (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Weighted average fair value of options $ 3.04 $ 7.54
Risk-free interest rate 0.88% 0.87%
Expected dividend yield      
Expected option term 5 years 3 months 7 days 5 years 3 months 26 days
Expected volatility 80.30% 79.30%
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Business Overview (Policies)
9 Months Ended
Sep. 30, 2013
Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU No. 2013-02, as an update to Comprehensive Income (Topic 220). The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU No. 2013-02 became effective on February 1, 2013 and did not have a material impact on our financial statements.

Revenue Recognition

Revenue Recognition

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and for revenue arrangements entered into after June 30, 2003, in accordance with the revenue recognition guidance of the FASB. For multiple-element revenue arrangements entered into or materially modified after January 1, 2011, we recognize revenue under Accounting Standards Codification Topic 605, Revenue Recognition.

We record revenue provided that there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Collaboration Revenue — Related Party

In May 2003, we entered into a collaboration with Novartis Pharma AG, or Novartis, relating to the worldwide development and commercialization of our drug candidates, which we refer to as the development and commercialization agreement. In May 2003, we also entered into a stockholders’ agreement with Novartis, which we refer to as the stockholders’ agreement. On July 31, 2012, we and Novartis materially modified our collaboration by executing a termination and revised relationship agreement, which we refer to as the termination agreement, and by amending the stockholders’ agreement, which we refer to as the second amended and restated stockholders’ agreement. Subsequent to August 2012, we recognize revenue related to the termination agreement with Novartis under ASC Topic 605.

We evaluated our modified arrangement with Novartis and determined that the agreements should continue to be treated as a single unit of accounting. Under the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis’ HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. The details of the termination agreement are described more fully in Note 7. The non-exclusive license is the only revenue-generating deliverable remaining under the modified arrangement and since neither vendor-specific objective evidence, or VSOE, nor third-party evidence, or TPE, for the non-exclusive license deliverable was available, the selling price for the non-exclusive license was established using the best estimate of selling price, or BESP. We determined that the BESP of Novartis’ non-exclusive license at July 31, 2012 was $5.0 million which is recognized as collaboration revenue from related party on a straight-line basis over the seven-year term of the non-exclusive license. As of September 30, 2013, the remaining balance of $4.2 million was included in deferred revenue from related party in our condensed consolidated balance sheet. In establishing BESP for the non-exclusive license, we used a discounted cash flow model and considered the likelihood of our and Novartis’ drugs being commercialized, the development and commercialization timeline, discount rate, and probable treatment combination and associated peak sales figures which generate royalty amounts.

Also under the collaboration with Novartis, if we issue any shares of capital stock, other than in certain situations, Novartis has the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis’ stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period. This stock subscription right is described more fully in Note 7.

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all highly liquid investments purchased with a maturity date of 90 days or less at the date of purchase to be cash equivalents.

In connection with certain of our operating lease commitments, we issued letters of credit collateralized by cash deposits that were classified as restricted cash on the condensed consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the expected release date of the restrictions.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash and cash equivalents and receivables from related party. We invest our excess cash and cash equivalents in interest bearing accounts at major United States financial institutions. Management mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality.

At September 30, 2013 and December 31, 2012, all of our receivables from related party were due from Novartis related to its obligation under the termination agreement to reimburse us for contractual payments due by us to third-parties (Note 8).

Fair Value Measurements

Fair Value Measurements

Our financial statements include assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.

At September 30, 2013 and December 31, 2012, we had $121.0 million and $184.0 million, respectively, invested in money market funds. Our money market investments have calculated net asset values and are therefore classified as Level 2. There were no Level 3 assets held at fair value at September 30, 2013 or at December 31, 2012. There were no gross unrealized gains or losses for the three and nine months ended September 30, 2013 or 2012.

Accrued Expenses

Accrued Expenses

We accrue expenses we have incurred but have not been invoiced. This process involves estimating the level of service performed by third-parties on our behalf and the associated cost incurred for these services as of each balance sheet date in our financial statements. Examples of estimated accrued expenses in which subjective judgments may be required include services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. Accruals for amounts due to clinical research organizations are among our most significant estimates. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual level of services incurred by the service providers. The date on which certain services commence, the level of services performed on or before a given date and the cost of services is often subject to our judgment. We make these judgments based upon the facts and circumstances known to us. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment is made.

Share-Based Compensation

Share-Based Compensation

We recognize share-based compensation for employees and directors using a fair value based method that results in expense being recognized in our condensed consolidated financial statements.

Intangible Asset and Impairment of Long-Lived Assets

Intangible Asset and Impairment of Long-Lived Assets

We evaluate the recoverability of our property and equipment and other long-lived assets when circumstances indicate that an event of impairment may have occurred in accordance with FASB guidance. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka®/Sebivo®) technology for the treatment of hepatitis B virus, or HBV, described more fully in Note 8. Pursuant to the settlement agreement, we paid the University of Alabama at Birmingham Research Foundation, or UABRF, a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Prior to the execution of the termination agreement in July 2012, we were amortizing the $15.0 million related to this settlement payment over the life of the settlement agreement. Under the termination agreement with Novartis, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there are no future cash flows associated with its use and the intangible asset has no alternate use. As a result, we recorded an impairment charge of $8.0 million during the three and nine months ended September 30, 2012. No impairment charges were recognized for the three and nine months ended September 30, 2013.

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Condensed Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Cash flows from operating activities:    
Net loss $ (93,627) $ (9,674)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 1,434 2,234
Share-based compensation expense 3,857 3,154
Share-based compensation expense related to restructuring 1,662  
Revenue adjustment for contingently issuable shares 839 (1,331)
Intangible asset impairment   8,045
Other 14 (1)
Changes in operating assets and liabilities:    
Receivables from related party (462) (6,679)
Other assets 271 (141)
Accounts payable (2,052) (205)
Accrued expenses and other current liabilities 6,983 2,749
Deferred revenue   (36,068)
Deferred revenue, related party (536) (21,587)
Other liabilities (335) (998)
Net cash used in operating activities (81,952) (60,502)
Cash flows from investing activities:    
Purchases of property and equipment (1,074) (834)
Changes in restricted cash 701 (942)
Net cash used in investing activities (373) (1,776)
Cash flows from financing activities:    
Proceeds from exercise of common stock options 134 5,148
Proceeds from issuance of common stock to related party   291
Proceeds from issuance of common stock, net of offering costs   190,505
Net cash provided by financing activities 134 195,944
Effect of changes in exchange rates on cash and cash equivalents 197 (63)
Net increase (decrease) in cash and cash equivalents (81,994) 133,603
Cash and cash equivalents at beginning of period 230,826 118,271
Cash and cash equivalents at end of period 148,832 251,874
Supplemental disclosure of cash flow information:    
Change in value of shares of common stock contingently issuable or issued to related party $ 839 $ (520)
XML 35 R2.htm IDEA: XBRL DOCUMENT v2.4.0.8
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Current assets:    
Cash and cash equivalents $ 148,832 $ 230,826
Restricted cash 1,402 2,103
Receivables from related party 1,657 1,195
Other current assets 4,476 3,668
Total current assets 156,367 237,792
Property and equipment, net 2,920 3,274
Receivables from related party, net of current portion 5,354 6,210
Other assets 3,593 3,589
Total assets 168,234 250,865
Current liabilities:    
Accounts payable 3,720 5,771
Accrued expenses 15,892 9,293
Deferred revenue, related party 714 714
Other current liabilities 698 154
Total current liabilities 21,024 15,932
Other long-term liabilities 7,188 7,513
Deferred revenue 4,272 4,272
Deferred revenue, related party, net of current portion 3,452 3,988
Total liabilities 35,936 31,705
Commitments and contingencies (Note 8)      
Stockholders' equity:    
Common stock, $0.001 par value; 200,000,000 shares authorized at September 30, 2013 and December 31, 2012; 134,000,750 and 133,957,689 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 134 134
Additional paid-in capital 933,162 926,671
Accumulated other comprehensive income 744 470
Accumulated deficit (801,742) (708,115)
Total stockholders' equity 132,298 219,160
Total liabilities and stockholders' equity $ 168,234 $ 250,865
XML 36 R29.htm IDEA: XBRL DOCUMENT v2.4.0.8
Summary of Option Activity under Equity Incentive Plans (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Number of Shares      
Option outstanding, Beginning Balance     7,555,598
Granted 0 0 1,644,800
Cancelled     (1,620,842)
Exercised     (43,061)
Options outstanding, Ending Balance 7,536,495   7,536,495
Options exercisable, at end of the period 5,127,290   5,127,290
Weighted Average Exercise Price per Share      
Options outstanding, Beginning Balance     $ 7.60
Granted     $ 4.66
Cancelled     $ 9.17
Exercised     $ 3.10
Options outstanding, Ending Balance $ 6.65   $ 6.65
Exercisable at end of the period $ 6.68   $ 6.68
XML 37 R23.htm IDEA: XBRL DOCUMENT v2.4.0.8
Net Income (Loss) Per Common Share - Additional Information (Detail)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Net Income Loss Per Common Share [Line Items]        
Antidilutive securities excluded from computation of earnings per share amount 8,932 0 8,932 8,375
XML 38 R13.htm IDEA: XBRL DOCUMENT v2.4.0.8
Commitments And Contingencies
9 Months Ended
Sep. 30, 2013
Commitments And Contingencies

8. COMMITMENTS AND CONTINGENCIES

Product and Drug Candidates

In connection with the resolution of matters relating to certain of our HCV drug candidates, in May 2004, we entered into a settlement agreement with the University of Alabama, or UAB, which provides for a milestone payment of $1.0 million to UAB upon receipt of regulatory approval in the United States to market and sell certain HCV products invented or discovered by our former chief executive officer during the period from November 1, 1999 to November 1, 2000. This settlement agreement also provides that we will pay UAB an amount equal to 0.5% of worldwide net sales of such HCV products with a minimum sales-based payment equal to $12.0 million. Currently, there are no such HCV products approved and therefore there was no related liability recorded as of September 30, 2013.

We have potential payment obligations under the license agreement with the Universita degli Studi di Cagliari, or the University of Cagliari, pursuant to which we have the exclusive worldwide right to make, use and sell certain HCV and human immunodeficiency virus type-1, or HIV, technologies. We are liable for certain payments to the University of Cagliari if we receive license fees or milestone payments with respect to such technology from a collaborator or other third-party.

Pursuant to the license agreement between us and UAB, we were granted an exclusive license to the rights that the UABRF, an affiliate of UAB, Emory University and Le Centre National de la Recherche Scientifique, or CNRS, have to a 1995 U.S. patent application and progeny thereof and counterpart patent applications in Europe, Canada, Japan and Australia that cover the use of certain synthetic nucleosides for the treatment of HBV. In July 2008, we entered into a settlement agreement with UAB, UABRF and Emory University relating to our telbivudine technology. Pursuant to this settlement agreement, all contractual disputes relating to patents covering the use of certain synthetic nucleosides for the treatment of HBV and all litigation matters relating to patents and patent applications related to the use of ß-L-2’-deoxy-nucleosides for the treatment of HBV assigned to one or more of Idenix, CNRS and the Universite Montpellier II, or the University of Montpellier, and which cover the use of Tyzeka®/Sebivo® have been resolved. UAB also agreed to abandon certain continuation patent applications it filed in July 2005. Under the terms of the settlement agreement, we paid UABRF (on behalf of UAB and Emory University) a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis from worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Our payment obligations under the settlement agreement expire in August 2019. The settlement agreement was effective on June 1, 2008 and included mutual releases of all claims and covenants not to sue among the parties. It also included a release from a third-party scientist who had claimed to have inventorship rights in certain Idenix/CNRS/University of Montpellier patents. Included in the condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012 was a liability of $6.4 million and $7.2 million, respectively, related to this settlement agreement. Under the termination agreement executed in July 2012, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis is required to reimburse us for our contractual payments to UABRF in connection with our intellectual property related to Tyzeka®/Sebivo®. Included in receivables from related party at September 30, 2013 and December 31, 2012 was $6.7 million and $7.2 million, respectively, for the reimbursement from Novartis for these contractual payments to UABRF.

In May 2003, we and Novartis entered into an amended and restated agreement with CNRS and the University of Montpellier pursuant to which we worked in collaboration with scientists from CNRS and the University of Montpellier to discover and develop technologies relating to antiviral substances, including telbivudine. This cooperative agreement expired in December 2006, but we retain rights to exploit the patents derived from the collaboration. Under the cooperative agreement, we are obligated to make royalty payments for products derived from such patents, including products for HBV, HCV and HIV. Such payments would be due even in the instance where we licensed such patents to a third-party. Under the termination agreement, we will no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis was required to reimburse us for our contractual payments to CNRS and the University of Montpellier, subject to our assignment to Novartis of our patent rights under the amended and restated agreement with CNRS and the University of Montpellier within 12 months of the execution of the termination agreement, in connection with our intellectual property related to Tyzeka®/Sebivo. These payments were recorded as receivables from related party on our condensed consolidated balance sheets. Prior to the assignment of such patent rights to Novartis, payments from Novartis to reimburse us for our contractual payments to CNRS and the University of Montpellier were recorded as a deferred payment obligation on our condensed consolidated balance sheets and we charged payments we made to CNRS to cost of revenues on our condensed consolidated statements of operations and comprehensive income (loss). As of July 31, 2013, the patent rights have been assigned to Novartis. As a result, in the third quarter of 2013, we recognized $1.3 million of deferred payments as revenue and we will no longer record our contractual payments to CNRS as cost of revenues.

Legal Contingency

In February 2012, an interference was declared by the United States Patent and Trademark Office, or the USPTO, concerning a patent application co-owned by us and a patent owned by Gilead Pharmasset LLC, or Gilead. Both the application and patent claim certain nucleoside compounds useful in treating HCV. An interference is an adversarial proceeding declared by the USPTO when a party has a U.S. patent application that covers the same invention as another patent application or issued patent to determine priority of invention in the United States. An interference proceeding is divided into two stages. The first phase determines the application filing dates each party will have benefit of for the interfering subject matter. The party with the benefit of the earliest application filing date is deemed the ‘senior party’ and the party with the later date is deemed the ‘junior party’.

In March 2013, the USPTO issued a decision where we were determined to have a later application filing date than Gilead. Therefore we were determined to be the ‘junior party’ and Gilead the ‘senior party’ in the interference. The second phase of the interference commenced in the second quarter of 2013 and will determine which party was first to invent. The party who is deemed first to invent prevails in the interference proceeding. While we cannot predict whether we will prevail in the interference, we intend to vigorously defend this action and any others like it brought by any third-party. We do not believe our co-owned application at issue in the interference is relevant to any compounds we currently have under development. An interference is based upon complex specialized U.S. patent law and the interference proceeding is likely to be expensive and time consuming. In the event we do not prevail in the interference, certain or all claims in our application may not be issued. In the event we do not prevail, we do not believe we will be required to make any payments to any third-parties and therefore we have not recorded a liability associated with this potential contingent matter.

In June 2012, Gilead Sciences, Inc. filed suit against us in Canadian Federal Court seeking to invalidate one of our issued Canadian patents. Our patent, which is the subject of the Canadian litigation, covers similar subject matter to that patent application at issue in the U.S. interference. In September 2012, Gilead Sciences, Ltd. filed suit against us in the Norway District Court of Oslo seeking to invalidate one of our issued Norwegian patents. Our patent at issue in the potential Norwegian litigation covers similar subject matter to that patent application at issue in the U.S. interference. In January 2013, Gilead Sciences Australia Pty Ltd. commenced proceedings in the Federal Court of Australia seeking a declaration that certain claims of one of our issued Australian patents, covering similar subject matter to that patent application at issue in the U.S. interference, are invalid and an order that such claims be revoked. We do not believe the respective patents at issue in these cases are relevant to any compounds we currently have under development. Gilead Sciences, Inc. may make similar claims or bring additional legal proceedings in the U.S. or other jurisdictions where we have granted patents. While we cannot predict whether we will prevail, we intend to vigorously defend these actions and any others like it brought by any third-party. In the event we do not prevail, we do not believe we will be required to make any payments to any third-parties and therefore we have not recorded a liability associated with this potential contingent matter.

 

Operating Leases

In April 2013, our lease of 46,418 square feet of office and laboratory space located at 320 Bent Street in Cambridge, Massachusetts commenced. In February 2014, our lease payments will include an additional 5,596 square feet of office space located on the premise. The term of the lease is seven years and we have an option to extend the term of this lease agreement for an additional five years beyond the original lease term. In connection with this operating lease for office and laboratory space, we have a letter of credit with a commercial bank for $1.4 million which will expire in September 2014. In April 2013, we terminated our lease for laboratory and office space at 60 Hampshire Street in Cambridge, Massachusetts.

Indemnification

We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of the development, manufacture and commercialization of our HCV products. We have also agreed to indemnify Novartis and its affiliates against losses suffered as a result of any breach of representations and warranties in the termination agreement, development and commercialization agreement and a stock purchase agreement entered into in 2003. Under these agreements with Novartis, we made numerous representations and warranties to Novartis regarding our HBV and HCV drug candidates, including representations regarding our ownership of the inventions and discoveries. In the event of a breach of any such representation or warranty by us, Novartis has the right to seek indemnification from us and, under certain circumstances, us and our stockholders who sold shares to Novartis in 2003, which includes some of our current and former directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we and our stockholders could be liable to Novartis could be substantial. While it is possible that we may be required to make payments pursuant to the indemnification obligations we have under these agreements, we cannot reasonably estimate the amount of such payments or the likelihood that such payments would be required.

Under the license agreement with ViiV Healthcare Company, or ViiV, and the stock purchase agreement with GlaxoSmithKline, or GSK, we have agreed to indemnify ViiV as sublicensee, GSK and their affiliates against losses suffered as a result of our breach of representations and warranties in these agreements. We made numerous representations and warranties regarding our non-nucleoside reverse transcriptase inhibitor program regarding our ownership of inventions and discoveries. If one or more of these representations or warranties were not true at the time we made them, we would be in breach of these agreements. In the event of a breach, the parties have the right to seek indemnification from us for damages suffered as a result of such breach. The amounts for which we may be liable could be substantial. While it is possible that we may be required to make payments pursuant to the indemnification obligations we have under these agreements, we cannot reasonably estimate the amount of such payments or the likelihood that such payments would be required.

Under the Janssen collaboration agreement, we agreed to indemnify Janssen against losses suffered as a result of our breach of representations and warranties in the agreement and/or any injury to a subject in a clinical trial under the collaboration agreement caused by the use or manufacture of samatasvir. We made numerous representations and warranties to Janssen. If one or more of these representations or warranties were not true at the time they were made, we would be in breach of the agreement. In the event of a breach by us or in the event of injury to a subject in a clinical trial under the collaboration agreement caused by the use or manufacture of samatasvir, Janssen has the right to seek indemnification from us for damages suffered as a result of such breach or subject injury. The amounts for which we could be liable to Janssen under these circumstances may be substantial. In the instance where a subject in a clinical trial suffers injury or death and it is not determinable which compound caused the injury or death, each party shall be responsible for defending any third-party claims alleged against the party after the application of our clinical trial insurance, to the extent applicable.

XML 39 R30.htm IDEA: XBRL DOCUMENT v2.4.0.8
Collaborations - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 1 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2013
Jul. 31, 2012
Novartis
Oct. 18, 2013
Novartis
Subsequent Event
Jul. 31, 2012
Novartis non-exclusive license to conduct combination trials
Sep. 30, 2013
Novartis non-exclusive license to conduct combination trials
Dec. 31, 2012
Novartis non-exclusive license to conduct combination trials
Sep. 30, 2013
Novartis non-exclusive license to conduct combination trials
Collaboration revenue related to the non-exclusive license
Sep. 30, 2013
Novartis non-exclusive license to conduct combination trials
Collaboration revenue related to the non-exclusive license
Collaboration Agreements [Line Items]                  
Common stock outstanding, ownership percentage       25.00%          
Term, in years, through which royalties are payable to a related party     Ten years after the first commercial sale of a product            
Reduced rate of royalty after the expiration of agreed upon term with related party     One-half            
Terms of the termination and revised relationship agreement with a related party         7 years        
Deferred revenue, related party         $ 5.0 $ 4.2 $ 4.7    
Deferred revenue, related party, recognized               0.1 0.5
Breach of termination agreement, maximum days to cure     30 days            
Negotiation obligation period for parties     180 days            
Minimum percentage of voting stock owned by related party to nominate for election as director at least one related party designee     15.00%            
Percentage premium to the consideration per share paid by others for related party to purchase shares     10.00%            
Impact on additional paid-in capital as a result of related party's stock subscription rights $ 1.4 $ 0.8              
XML 40 R16.htm IDEA: XBRL DOCUMENT v2.4.0.8
Accrued Expenses (Tables)
9 Months Ended
Sep. 30, 2013
Component of Accrued Expenses

Accrued expenses consisted of the following:

 

     September 30,
2013
     December 31,
2012
 
     (In Thousands)  

Research and development contract costs

   $ 5,810       $ 2,686   

Payroll and benefits

     2,161         2,946   

Professional fees

     3,948         1,204   

Short-term portion of accrued settlement payment

     1,036         976   

Restructuring costs

     2,090         —     

Other

     847         1,481   
  

 

 

    

 

 

 
   $ 15,892       $ 9,293   
  

 

 

    

 

 

 
XML 41 R12.htm IDEA: XBRL DOCUMENT v2.4.0.8
Collaborations
9 Months Ended
Sep. 30, 2013
Collaborations

7. COLLABORATIONS

Janssen Pharmaceuticals, Inc. Collaboration

In January 2013, we entered into a non-exclusive collaboration agreement with Janssen for the clinical evaluation of all oral DAA HCV combination therapies. The combination therapies involve samatasvir (IDX719), our once-daily pan-genotypic NS5A inhibitor, simeprevir (TMC435), a once-daily protease inhibitor jointly developed by Janssen and Medivir, and TMC647055, a once-daily non-nucleoside polymerase inhibitor, with low dose ritonavir, being developed by Janssen.

Under the terms of this collaboration agreement, we will conduct the clinical trials. Clinical development plans include drug-drug interaction studies, followed by phase II studies as agreed between the companies, pending approval from regulatory authorities.

In May 2013, we initiated a 12-week phase II HELIX-1 clinical trial evaluating samatasvir, simeprevir and ribavirin in treatment-naïve genotype 1b or 4 HCV-infected patients. Patients in Part A (n=63) of the HELIX-1 clinical trial have completed enrollment and we anticipate SVR4 data for these patients to be available in the fourth quarter of 2013. We are planning to initiate a second 12-week phase II clinical trial, HELIX-2, which will evaluate the three-DAA combination of samatasvir, simeprevir, and TMC647055 with low-dose ritonavir, with and without ribavirin in genotype 1 HCV-infected patients who are either treatment-naïve or have relapsed after treatment with pegylated interferon and ribavirin.

The clinical trials will be conducted under an arrangement whereby Janssen provides us with clinical supply of simeprevir and TMC647055 at no cost. Neither party will receive any milestone or royalty payments from the other party under this agreement. Both companies retain all rights to their respective compounds under this agreement. The parties have no obligation to conduct additional clinical trials beyond those described here. Neither party has licensed any commercial rights to the other party.

This collaboration agreement may be terminated by either party in certain circumstances. Janssen may terminate the collaboration agreement, in its sole discretion, by providing us with 30 days written notice. If Janssen terminates the collaboration agreement in such instance, it shall reimburse us for certain of our costs associated with the collaboration.

If either us or Janssen materially breaches the collaboration agreement and does not cure such breach within a specified time period, the non-breaching party may terminate the collaboration agreement in its entirety. Either party may also terminate the collaboration agreement, effective immediately, if the other party files for bankruptcy, is dissolved or has a receiver appointed for substantially all of its property. Either party may also terminate the collaboration agreement to protect the safety, health or welfare of subjects in the trials. We may terminate the collaboration agreement prior to the commencement of certain activities if Janssen’s research development and license agreement with Medivir is terminated.

Novartis Collaboration

In May 2003, we entered into the development and commercialization agreement with Novartis related to the worldwide development and commercialization of our drug candidates. In May 2003, we also entered into the stockholders’ agreement with Novartis. In July 2012, we and Novartis materially modified our collaboration by executing the termination agreement and the second amended and restated stockholders’ agreement. As of October 18, 2013, Novartis owned approximately 25% of our outstanding common stock.

Termination Agreement

Termination of Novartis’ Option to License our Development Stage Drug Candidates

Pursuant to the termination agreement entered into in July 2012, Novartis’ option right to license our current and future development-stage drug candidates in any therapeutic area was terminated. In exchange, we agreed to pay Novartis a royalty based on worldwide product sales of our HCV drug products, unless such drug products are prescribed in combination with Novartis’ HCV drug products. The royalty percentage will vary based on our commercialized HCV drug product, but range from the high single digits to the low double digit percentages. Royalties are payable until the later to occur of: a) expiration of the last-to-expire of specified patent rights in a country; or b) ten years after the first commercial sale of a product in such country, provided that if royalties are payable on a product after the expiration of the patent rights in a country, each of the respective royalty rates for such product in such country would be reduced by one-half.

Novartis’ Non-Exclusive License to Conduct Combination Trials

Pursuant to the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis’ HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. Under certain circumstances Novartis may conduct a dose-ranging study with respect to our HCV drug candidates. We have agreed to supply Novartis with our HCV drug candidates for use in such combination trials. We and Novartis have agreed to use commercially reasonable efforts to, in good faith, enter into a supply agreement and other relevant agreements in connection with any such combination trial. Novartis’ ability to initiate combination trials expires on the seven year anniversary of the execution of the termination agreement, or July 2019, although any then existing combination study commenced prior to such expiration date may continue after the expiration date.

Since neither VSOE nor TPE for the non-exclusive license deliverable was available, the selling price for this non-exclusive license was established using the BESP. We determined the BESP of the non-exclusive license at July 31, 2012 to be $5.0 million which is recognized as revenue on a straight-line basis over the seven-year term of the non-exclusive license. We recognized $0.1 million and $0.5 million of collaboration revenue related to the non-exclusive license during the three and nine months ended September 30, 2013, respectively. These revenue amounts are impacted by Novartis’ stock subscription rights described below. As of September 30, 2013 and December 31, 2012, we had a balance of $4.2 million and $4.7 million, respectively, of deferred revenue from related party in our condensed consolidated balance sheets.

Treatment of Product Sales of Tyzeka®/Sebivo® for the Treatment of the Hepatitis B Virus

Under the termination agreement executed in July 2012, we will no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. Novartis is required to reimburse us for contractual payments to third-parties in connection with intellectual property related to Tyzeka®/Sebivo®. We are otherwise responsible for any payments to third-parties in connection with intellectual property necessary to sell Tyzeka®/Sebivo®. Contractual payments to third-parties are described more fully in Note 8.

Termination or Breach by Either Party

If either we or Novartis materially breaches the termination agreement and does not cure such breach within 30 days, the non-breaching party may terminate this agreement in its entirety. Either party may also terminate this agreement, effective immediately, if the other party files for bankruptcy, is dissolved, or has a receiver appointed for substantially all of its property. Novartis may also terminate this agreement for convenience. If Novartis terminates this agreement either because of a material breach by us that has not been cured or because we have filed for bankruptcy, Novartis may, at its election, retain the licenses granted to it by us under the termination agreement to conduct clinical trials evaluating a combination of any of our HCV drug candidates and any of Novartis’ HCV drug candidates and we would remain obligated to make royalty payments to Novartis based on sales of our HCV drug products. If we terminate this agreement either because of a material breach by Novartis that has not been cured or because Novartis has filed for bankruptcy, or if Novartis terminates this agreement for convenience, the licenses granted to Novartis to conduct combination trials terminate and we would remain obligated to make royalty payments to Novartis based on sales of our HCV drug products.

Indemnification

We have agreed to indemnify Novartis and its affiliates against losses suffered as a result of our development, manufacture and commercialization of our HCV products. We have also agreed to indemnify Novartis and its affiliates against losses suffered as a result of any breach of representations and warranties in the termination agreement, the development and commercialization agreement and a stock purchase agreement entered into in 2003. Under these agreements with Novartis, we made numerous representations and warranties to Novartis regarding our drug candidates for the treatment of HBV and HCV, including representations regarding ownership of related inventions and discoveries. In the event of a breach of any such representation or warranty by us, Novartis has the right to seek indemnification from us and, under certain circumstances, our stockholders who sold shares to Novartis in 2003, which includes some of our current and former directors and officers, for damages suffered by Novartis as a result of such breach. The amounts for which we and our stockholders could be liable to Novartis could be substantial.

Future Agreements and Possible Competition with Novartis

Under the termination agreement, following the receipt of certain data related to a combination trial and upon Novartis’ request, we and Novartis are obligated to use, in good faith, commercially reasonable efforts to negotiate a future agreement for the development, manufacture and commercialization of such combination therapy for the treatment of HCV. Neither party is obligated to negotiate for a period longer than 180 days. Also under the termination agreement, Novartis has a non-exclusive license to conduct clinical trials evaluating a combination of any of our HCV drug candidates and any of Novartis’ HCV drug candidates after certain criteria have been met. If Novartis obtains regulatory approval to co-label a Novartis HCV drug product with one or more of our HCV drug products, Novartis could market and sell a combination that may compete with our drug candidates and/or combination products that we market and sell in the future.

Second Amended and Restated Stockholders’ Agreement

In May 2003, we entered into the stockholders’ agreement with Novartis and in July 2012, we amended this agreement by executing the second amended and restated stockholders’ agreement which includes the terms as described below.

Novartis’ Registration Rights

Under the second amended and restated stockholders’ agreement, Novartis maintains its rights to cause us to register for resale, under the Securities Act of 1933, as amended, shares held by Novartis and/or its affiliates.

Corporate Governance Rights

Under the second amended and restated stockholders’ agreement executed in July 2012, we have agreed to use our reasonable best efforts to nominate for election one designee of Novartis for so long as Novartis and its affiliates own at least 15% of our voting stock. Novartis has the rights to appoint a non-voting observer to any committee of our board of directors. Novartis has no other corporate governance rights under the second amended and restated stockholders’ agreement.

Novartis’ Stock Subscription Rights

Under the stockholders’ agreement, if we issued any shares of capital stock, other than in certain situations, Novartis had the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. Under the second amended and restated stockholders’ agreement, Novartis continues to have the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for either the same consideration per share paid by others acquiring our stock or, in specified situations, for a 10% premium to the consideration per share paid by others acquiring our stock.

This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis’ stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period.

The impact of Novartis’ stock subscription rights for the three months ended September 30, 2013 was $1.4 million, which increased additional paid-in capital and reduced license fee revenue. The impact of Novartis’ stock subscription rights for the nine months ended September 30, 2013 was $0.8 million, which increased additional paid-in capital and reduced license fee revenue.

XML 42 R7.htm IDEA: XBRL DOCUMENT v2.4.0.8
Summary Of Significant Accounting Policies
9 Months Ended
Sep. 30, 2013
Summary Of Significant Accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and for revenue arrangements entered into after June 30, 2003, in accordance with the revenue recognition guidance of the FASB. For multiple-element revenue arrangements entered into or materially modified after January 1, 2011, we recognize revenue under Accounting Standards Codification Topic 605, Revenue Recognition.

We record revenue provided that there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Collaboration Revenue — Related Party

In May 2003, we entered into a collaboration with Novartis Pharma AG, or Novartis, relating to the worldwide development and commercialization of our drug candidates, which we refer to as the development and commercialization agreement. In May 2003, we also entered into a stockholders’ agreement with Novartis, which we refer to as the stockholders’ agreement. On July 31, 2012, we and Novartis materially modified our collaboration by executing a termination and revised relationship agreement, which we refer to as the termination agreement, and by amending the stockholders’ agreement, which we refer to as the second amended and restated stockholders’ agreement. Subsequent to August 2012, we recognize revenue related to the termination agreement with Novartis under ASC Topic 605.

We evaluated our modified arrangement with Novartis and determined that the agreements should continue to be treated as a single unit of accounting. Under the termination agreement, we granted Novartis a non-exclusive license to conduct clinical trials evaluating a combination of any of our and Novartis’ HCV drug candidates after the HCV drug candidates have completed dose-ranging studies, subject to meeting certain criteria. The details of the termination agreement are described more fully in Note 7. The non-exclusive license is the only revenue-generating deliverable remaining under the modified arrangement and since neither vendor-specific objective evidence, or VSOE, nor third-party evidence, or TPE, for the non-exclusive license deliverable was available, the selling price for the non-exclusive license was established using the best estimate of selling price, or BESP. We determined that the BESP of Novartis’ non-exclusive license at July 31, 2012 was $5.0 million which is recognized as collaboration revenue from related party on a straight-line basis over the seven-year term of the non-exclusive license. As of September 30, 2013, the remaining balance of $4.2 million was included in deferred revenue from related party in our condensed consolidated balance sheet. In establishing BESP for the non-exclusive license, we used a discounted cash flow model and considered the likelihood of our and Novartis’ drugs being commercialized, the development and commercialization timeline, discount rate, and probable treatment combination and associated peak sales figures which generate royalty amounts.

Also under the collaboration with Novartis, if we issue any shares of capital stock, other than in certain situations, Novartis has the right to purchase such number of shares required to maintain its percentage ownership of our voting stock for the same consideration per share paid by others acquiring our stock. This stock subscription right allows Novartis to purchase shares of our common stock when stock options are exercised under certain plans. Commencing in August 2012, the fair value of our common stock that would be issuable to Novartis is recorded as an adjustment to the revenue recognized from the collaboration with Novartis and additional paid-in capital. The fair value of this stock subscription right is estimated on a quarterly basis using a trinomial lattice valuation model which includes inputs of our per share common stock price, exercise prices of outstanding options, expected term of our options and exercise rates as well as assumptions regarding expected volatility and exercise multiples. Our stock price as of the end of each fiscal quarter has a significant impact on the fair value calculation. Typically, if the stock price increases quarter over quarter, the fair value of Novartis’ stock subscription right increases and this increase in the fair value is recorded as a reduction to revenue in the quarter with a corresponding increase to additional paid-in capital. This may result in contra-revenue or negative revenue being recognized in any given fiscal period. This stock subscription right is described more fully in Note 7.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with a maturity date of 90 days or less at the date of purchase to be cash equivalents.

In connection with certain of our operating lease commitments, we issued letters of credit collateralized by cash deposits that were classified as restricted cash on the condensed consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the expected release date of the restrictions.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of cash and cash equivalents and receivables from related party. We invest our excess cash and cash equivalents in interest bearing accounts at major United States financial institutions. Management mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality.

At September 30, 2013 and December 31, 2012, all of our receivables from related party were due from Novartis related to its obligation under the termination agreement to reimburse us for contractual payments due by us to third-parties (Note 8).

Fair Value Measurements

Our financial statements include assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.

At September 30, 2013 and December 31, 2012, we had $121.0 million and $184.0 million, respectively, invested in money market funds. Our money market investments have calculated net asset values and are therefore classified as Level 2. There were no Level 3 assets held at fair value at September 30, 2013 or at December 31, 2012. There were no gross unrealized gains or losses for the three and nine months ended September 30, 2013 or 2012.

Accrued Expenses

We accrue expenses we have incurred but have not been invoiced. This process involves estimating the level of service performed by third-parties on our behalf and the associated cost incurred for these services as of each balance sheet date in our financial statements. Examples of estimated accrued expenses in which subjective judgments may be required include services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. Accruals for amounts due to clinical research organizations are among our most significant estimates. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual level of services incurred by the service providers. The date on which certain services commence, the level of services performed on or before a given date and the cost of services is often subject to our judgment. We make these judgments based upon the facts and circumstances known to us. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment is made.

Share-Based Compensation

We recognize share-based compensation for employees and directors using a fair value based method that results in expense being recognized in our condensed consolidated financial statements.

Intangible Asset and Impairment of Long-Lived Assets

We evaluate the recoverability of our property and equipment and other long-lived assets when circumstances indicate that an event of impairment may have occurred in accordance with FASB guidance. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

In July 2008, we entered into a settlement agreement related to our telbivudine (Tyzeka®/Sebivo®) technology for the treatment of hepatitis B virus, or HBV, described more fully in Note 8. Pursuant to the settlement agreement, we paid the University of Alabama at Birmingham Research Foundation, or UABRF, a $4.0 million upfront payment and agreed to make additional payments to UABRF equal to 20% of all royalty payments received by us from Novartis based on worldwide sales of Tyzeka®/Sebivo®, subject to minimum payment obligations aggregating $11.0 million. Prior to the execution of the termination agreement in July 2012, we were amortizing the $15.0 million related to this settlement payment over the life of the settlement agreement. Under the termination agreement with Novartis, we no longer receive royalty or milestone payments from Novartis based upon worldwide product sales of Tyzeka®/Sebivo®. We concluded that the intangible asset was effectively abandoned on the effective date of the termination agreement since there are no future cash flows associated with its use and the intangible asset has no alternate use. As a result, we recorded an impairment charge of $8.0 million during the three and nine months ended September 30, 2012. No impairment charges were recognized for the three and nine months ended September 30, 2013.

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended 1 Months Ended 1 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Dec. 31, 2012
Jul. 31, 2012
Novartis non-exclusive license to conduct combination trials
Sep. 30, 2013
Novartis non-exclusive license to conduct combination trials
Dec. 31, 2012
Novartis non-exclusive license to conduct combination trials
Jul. 31, 2008
UABRF
Jul. 31, 2008
UABRF
Up Front Payment
Jul. 31, 2008
UABRF
Additional Payment
Schedule Of Significant Accounting Policies [Line Items]                      
Deferred revenue, related party           $ 5,000,000 $ 4,200,000 $ 4,700,000      
Terms of the termination and revised relationship agreement with a related party           7 years          
Maturity period of cash and cash equivalents     90 days                
Fair value of cash and cash equivalents 121,000,000   121,000,000   184,000,000            
Assets held at fair value 0   0   0            
Gross unrealized gains or losses in fair value 0 0 0 0              
Intangible asset, net                 15,000,000 4,000,000 11,000,000
Percentage of payments to third-party based on royalties received from related party                 20.00%    
Execution date of termination and revised relationship agreement with related party                 2012-07    
Asset impairment charges $ 0 $ 8,045,000 $ 0 $ 8,045,000              
XML 45 R15.htm IDEA: XBRL DOCUMENT v2.4.0.8
Net Income (Loss) Per Common Share (Tables)
9 Months Ended
Sep. 30, 2013
Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 were as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2013     2012  
     (In Thousands, Except per Share Data)  

Basic and diluted net loss per common share:

      

Net loss

   $ (33,955   $ (93,627   $ (9,674

Basic and diluted weighted average number of common shares outstanding

     133,969        133,962        113,671   

Basic and diluted net loss per common share

   $ (0.25   $ (0.70   $ (0.09
Common Shares Excluded from Calculation of Diluted Net Loss per Common Share

The following potential common shares were excluded from the calculation of diluted net loss per common share for the three and nine months ended September 30, 2013 and the nine months ended September 30, 2012 because their effect was anti-dilutive:

 

     Three and Nine Months
Ended
September 30,
     Nine Months
Ended
September 30,
 
     2013      2012  
     (In Thousands)  

Options

     7,536         7,666   

Contingently issuable shares to related party

     1,396         709   
  

 

 

    

 

 

 
     8,932         8,375   
  

 

 

    

 

 

 
Computation of Basic and Diluted Net Income per Share

Basic and diluted net income per share for the three months ended September 30, 2012 was as follows:

Three Months Ended September 30, 2012
Income
(Numerator)
Shares
(Denominator)
Amount
per Share
In Thousands, Except per Share Data

Basic EPS:

Income (loss) available to common stockholders

$ 4,271 124,770 $ 0.03

Effect of Dilutive Securities:

Options

1,676

Contingently issuable shares to related party

401

Diluted EPS:

Income (loss) available to common stockholders

$ 4,271 126,847 $ 0.03

XML 46 R22.htm IDEA: XBRL DOCUMENT v2.4.0.8
Computation of Basic and Diluted Net Income Per Share (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Schedule Of Computation Of Basic And Diluted Earnings Per Common Share [Line Items]        
Income (loss) available to stockholders $ (33,955) $ 4,271 $ (93,627) $ (9,674)
Effect of Dilutive Securities: Options, Value         
Effect of Dilutive Securities: Contingently issuable shares to related party, Value         
Income (loss) available to stockholders $ (33,955) $ 4,271 $ (93,627) $ (9,674)
Basic EPS: Number of share outstanding 133,969 124,770    
Effect of Dilutive Securities: Options, Shares   1,676    
Effect of Dilutive Securities: Contingently issuable shares to related party, Shares   401    
Diluted EPS: Number of share outstanding 133,969 126,847    
Basic EPS:        
Basic EPS $ (0.25) $ 0.03    
Diluted EPS:        
Diluted EPS $ (0.25) $ 0.03    
XML 47 R20.htm IDEA: XBRL DOCUMENT v2.4.0.8
Basic and Diluted Net Loss Per Common Share (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Basic and diluted net loss per common share:        
Net loss $ (33,955) $ 4,271 $ (93,627) $ (9,674)
Basic and diluted weighted average number of common shares outstanding 133,969   133,962 113,671
Basic and diluted net loss per common share $ (0.25)   $ (0.70) $ (0.09)
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Document and Entity Information
9 Months Ended
Sep. 30, 2013
Oct. 18, 2013
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2013  
Document Fiscal Year Focus 2013  
Document Fiscal Period Focus Q3  
Trading Symbol IDIX  
Entity Registrant Name IDENIX PHARMACEUTICALS INC  
Entity Central Index Key 0001093649  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   134,000,750
XML 49 R21.htm IDEA: XBRL DOCUMENT v2.4.0.8
Common Shares Excluded from Calculation of Diluted Net Loss Per Common Share (Detail)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Schedule Of Computation Of Basic And Diluted Earnings Per Common Share [Line Items]        
Contingently issuable shares to a related party excluded from calculation of earnings per common share 1,396   1,396 709
Antidilutive securities excluded from computation of earnings per share amount 8,932 0 8,932 8,375
Option
       
Schedule Of Computation Of Basic And Diluted Earnings Per Common Share [Line Items]        
Antidilutive securities excluded from computation of earnings per share amount 7,536   7,536 7,666