ISIS » Topics » Liquidity and Capital Resources

These excerpts taken from the ISIS 10-K filed Mar 13, 2008.

Liquidity and Capital Resources

        We have financed our operations with revenue primarily from research and development under collaborative agreements. Additionally, we have earned licensing and royalty revenue from the sale or licensing of our intellectual property. We have also financed our operations through the sale of our equity securities and the issuance of long-term debt. From our inception through December 31, 2007, we have earned approximately $577.3 million in revenue from contract research and development and

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the sale and licensing of our intellectual property. From the time we were founded through December 31, 2007, we have raised net proceeds of approximately $740.2 million from the sale of our equity securities and we have borrowed approximately $543.8 million under long-term debt arrangements to finance a portion of our operations.

        At December 31, 2007, we had cash, cash equivalents and short-term investments of $193.7 million, which included $10.1 million of cash and cash equivalents held by Regulus, and stockholders' equity of $872,000. In comparison, we had cash, cash equivalents and short-term investments of $193.3 million and stockholders' equity of $68.6 million as of December 31, 2006. Even with the $80.4 million cash payment that we made in the third quarter of 2007 for the acquisition of Symphony GenIsis, our cash position at December 31, 2007 was virtually unchanged from the end of 2006, due to significant cash inflows including the:

    $30 million net cash received from the issuance of the 25/8% notes after repayment of the 51/2% notes,

    $15 million upfront licensing fee received from BMS,

    $26.5 million sublicensing fee received from Alnylam,

    $10 million invested in Regulus,

    $50 million upfront licensing fee and milestone payment received from OMI,

    $18 million of research and development funding from our partnerships, and

    $10.3 million from stock options exercised in 2007.

        Not included in our cash balance at December 31, 2007 are the cash payments totaling $170 million that we received in early 2008 from our strategic partnerships with Genzyme and Abbott. In addition, upon the completion of the license agreement for mipomersen, Genzyme will pay us an additional $175 million. We also have the potential to receive up to $210 million from Abbott in exchange for the remainder of Ibis' stock.

        At December 31, 2007, we had consolidated working capital of $145.1 million, compared to $181.1 million at December 31, 2006. In connection with our collaborations with BMS and OMI, we received large upfront payments, initially classified as liabilities, that we are amortizing into revenue over the collaboration terms, three and two years, respectively. A significant amount of the unamortized portion of these liabilities is included in current liabilities at December 31, 2007 and, as a result, our working capital at the end of 2007 is less than it was at the end of 2006.

        As of December 31, 2007, our debt and other obligations totaled $170.1 million, compared to $140.3 million at December 31, 2006. The increase in our debt and other obligations was primarily due to the issuance of our 25/8% convertible subordinated notes, offset by the repayment of the 51/2% notes and the declining balance on our Silicon Valley Bank term loan. The significantly lower interest rate of the 25/8% convertible subordinated notes from that of our repaid 51/2% convertible subordinated notes reduces our cash interest payments by approximately $2.6 million per year. We will continue to use equipment lease financing as long as the terms remain commercially attractive.

        Based on our existing cash and committed cash, including the $175 million mipomersen licensing fee from Genzyme, but not including the up to $210 million we could receive from Abbott, we expect that our 2008 year end cash balance will be greater than $450 million and will last for at least five years.

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        The following table summarizes our contractual obligations as of December 31, 2007. The table provides a breakdown of when obligations become due. A more detailed description of the major components of our debt is provided in the paragraphs following the table:

 
  Payments Due by Period (in millions)
Contractual Obligations
(selected balances described below)

  Total
  Less than
1 year

  1-3 years
  3-5 years
  After
5 years

25/8% Convertible Subordinated
    Notes
  $ 162.5   $   $   $   $ 162.5
Silicon Valley Bank Term Loan   $ 7.2   $ 7.2   $   $   $
Other Obligations   $ 0.4   $   $   $   $ 0.4
Operating Leases   $ 20.4   $ 2.9   $ 5.2   $ 3.4   $ 8.9

        Our contractual obligations consist primarily of our publicly traded convertible debt. In addition, we also have a term loan from Silicon Valley Bank and other obligations.

        In December 2003, we secured a $32.0 million term loan from Silicon Valley Bank to retire debt from two partners. We are amortizing the term loan over sixty months. The term loan requires monthly payments of principal plus accrued interest, and bears interest at the prime interest rate less applicable discounts based on the balances in the cash and investment accounts that we maintain at Silicon Valley Bank, which was 6.50% at December 31, 2007. The loan is secured by substantially all of our operating assets, excluding intellectual property, real estate, and certain equity investments. The loan is subject to certain liquidity requirements, including a requirement that we maintain a minimum balance in an account at Silicon Valley Bank at all times equal to the outstanding balance of the loan. The loan is convertible to a fixed interest rate at our option at any time at the then-applicable prime rate plus 1.25%. The carrying value of the term loan at December 31, 2007 was $7.2 million, which we expect to fully repay by December 31, 2008 according to the loan's terms.

        In January 2007, we completed a $162.5 million convertible debt offering, which raised proceeds of approximately $157.1 million, net of $5.4 million in issuance costs. The $162.5 million convertible subordinated notes bear interest at 25/8%, which is payable semi-annually, and mature in 2027. The 25/8% notes are convertible, at the option of the note holders, into approximately 11.1 million shares of common stock at a conversion price of $14.63 per share. We will be able to redeem these notes at a redemption price equal to 100.75% of the principal amount between February 15, 2012 and February 14, 2013; 100.375% of the principal amount between February 15, 2013 and February 14, 2014; and 100% of the principal amount thereafter. Holders of the 25/8% notes are also able to require us to repurchase the 25/8% notes on February 15, 2014, February 15, 2017 and February 15, 2022, and upon the occurrence of certain defined conditions, at 100% of the principal amount of the 25/8% notes being repurchased plus accrued interest and unpaid interest. Using the net proceeds from the issuance of our 25/8% notes, we repaid the entire $125 million of our 51/2% convertible subordinated notes due 2009.

        In addition to contractual obligations, we had outstanding purchase orders as of December 31, 2007 for the purchase of services, capital equipment and materials as part of our normal course of business.

        We plan to continue to enter into collaborations with partners to provide for additional revenue to us and we may be required to incur additional cash expenditures related to our obligations under any of the new agreements we may enter into. We currently intend to use our cash and short-term equivalents to finance our activities. However, we may also pursue other financing alternatives, like issuing additional shares of our common stock, issuing debt instruments, refinancing our existing debt, or securing lines of credit. Whether we use our existing capital resources or choose to obtain financing will depend on various factors, including the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.

79



Liquidity and Capital Resources



        We have financed our operations with revenue primarily from research and development under collaborative agreements. Additionally, we have earned licensing and
royalty revenue from the sale or licensing of our intellectual property. We have also financed our operations through the sale of our equity securities and the issuance of long-term debt.
From our inception through December 31, 2007, we have earned approximately $577.3 million in revenue from contract research and development and



77











the
sale and licensing of our intellectual property. From the time we were founded through December 31, 2007, we have raised net proceeds of approximately $740.2 million from the sale of
our equity securities and we have borrowed approximately $543.8 million under long-term debt arrangements to finance a portion of our operations.



        At
December 31, 2007, we had cash, cash equivalents and short-term investments of $193.7 million, which included $10.1 million of cash and cash
equivalents held by Regulus, and stockholders' equity of $872,000. In comparison, we had cash, cash equivalents and short-term investments of $193.3 million and stockholders' equity
of $68.6 million as of December 31, 2006. Even with the $80.4 million cash payment that we made in the third quarter of 2007 for the acquisition of Symphony GenIsis, our cash
position at December 31, 2007 was virtually unchanged from the end of 2006, due to significant cash inflows including the:





    $30 million
    net cash received from the issuance of the 25/8% notes after repayment of the 51/2% notes,


    $15 million
    upfront licensing fee received from BMS,


    $26.5 million
    sublicensing fee received from Alnylam,


    $10 million
    invested in Regulus,


    $50 million
    upfront licensing fee and milestone payment received from OMI,


    $18 million
    of research and development funding from our partnerships, and


    $10.3 million
    from stock options exercised in 2007.



        Not
included in our cash balance at December 31, 2007 are the cash payments totaling $170 million that we received in early 2008 from our strategic partnerships with
Genzyme and Abbott. In addition, upon the completion of the license agreement for mipomersen, Genzyme will pay us an additional $175 million. We also have the potential to receive up to
$210 million from Abbott in exchange for the remainder of Ibis' stock.



        At
December 31, 2007, we had consolidated working capital of $145.1 million, compared to $181.1 million at December 31, 2006. In connection with our
collaborations with BMS and OMI, we received large upfront payments, initially classified as liabilities, that we are amortizing into revenue over the collaboration terms, three and two years,
respectively. A significant amount of the unamortized portion of these liabilities is included in current liabilities at December 31, 2007 and, as a result, our working capital at the end of
2007 is less than it was at the end of 2006.



        As
of December 31, 2007, our debt and other obligations totaled $170.1 million, compared to $140.3 million at December 31, 2006. The increase in our debt and
other obligations was primarily due to the issuance of our 25/8% convertible subordinated notes, offset by the repayment of the 51/2% notes and the declining balance on
our Silicon Valley Bank term loan. The significantly lower interest rate of the 25/8% convertible subordinated notes from that of our repaid 51/2% convertible
subordinated notes reduces our cash interest payments by approximately $2.6 million per year. We will continue to use equipment lease financing as long as the terms remain commercially
attractive.



        Based
on our existing cash and committed cash, including the $175 million mipomersen licensing fee from Genzyme, but not including the up to $210 million we could receive
from Abbott, we expect that our 2008 year end cash balance will be greater than $450 million and will last for at least five years.



78









        The
following table summarizes our contractual obligations as of December 31, 2007. The table provides a breakdown of when obligations become due. A more detailed description of
the major components of our debt is provided in the paragraphs following the table:































































































 
 Payments Due by Period (in millions)
Contractual Obligations

(selected balances described below)

 Total
 Less than

1 year

 1-3 years
 3-5 years
 After

5 years

25/8% Convertible Subordinated

    Notes
 $162.5 $ $ $ $162.5
Silicon Valley Bank Term Loan $7.2 $7.2 $ $ $
Other Obligations $0.4 $ $ $ $0.4
Operating Leases $20.4 $2.9 $5.2 $3.4 $8.9




        Our
contractual obligations consist primarily of our publicly traded convertible debt. In addition, we also have a term loan from Silicon Valley Bank and other obligations.



        In
December 2003, we secured a $32.0 million term loan from Silicon Valley Bank to retire debt from two partners. We are amortizing the term loan over sixty months. The term loan
requires monthly payments of principal plus accrued interest, and bears interest at the prime interest rate less applicable discounts based on the balances in the cash and investment accounts that we
maintain at Silicon Valley Bank, which was 6.50% at December 31, 2007. The loan is secured by substantially all of our operating assets, excluding intellectual property, real estate, and
certain equity investments. The loan is subject to certain liquidity requirements, including a requirement that we maintain a minimum balance in an account at Silicon Valley Bank at all times equal to
the outstanding balance of the loan. The loan is convertible to a fixed interest rate at our option at any time at the then-applicable prime rate plus 1.25%. The carrying value of the term
loan at December 31, 2007 was $7.2 million, which we expect to fully repay by December 31, 2008 according to the loan's terms.



        In
January 2007, we completed a $162.5 million convertible debt offering, which raised proceeds of approximately $157.1 million, net of $5.4 million in issuance
costs. The $162.5 million convertible subordinated notes bear interest at 25/8%, which is payable semi-annually, and mature in 2027. The 25/8% notes
are convertible, at the option of the note holders, into approximately 11.1 million shares of common stock at a conversion price of $14.63 per share. We will be able to redeem these notes at a
redemption price equal to 100.75% of the principal amount between February 15, 2012 and February 14, 2013; 100.375% of the principal amount between February 15, 2013 and
February 14, 2014; and 100% of the principal amount thereafter. Holders of the 25/8% notes are also able to require us to repurchase the 25/8% notes on
February 15, 2014, February 15, 2017 and February 15, 2022, and upon the occurrence of certain defined conditions, at 100% of the principal amount of the 25/8%
notes being repurchased plus accrued interest and unpaid interest. Using the net proceeds from the issuance of our 25/8% notes, we repaid the entire $125 million of our
51/2% convertible subordinated notes due 2009.



        In
addition to contractual obligations, we had outstanding purchase orders as of December 31, 2007 for the purchase of services, capital equipment and materials as part of our
normal course of business.



        We
plan to continue to enter into collaborations with partners to provide for additional revenue to us and we may be required to incur additional cash expenditures related to our
obligations under any of the new agreements we may enter into. We currently intend to use our cash and short-term equivalents to finance our activities. However, we may also pursue other
financing alternatives, like issuing additional shares of our common stock, issuing debt instruments, refinancing our existing debt, or securing lines of credit. Whether we use our existing capital
resources or choose to obtain financing will depend on various factors, including the future success of our business, the prevailing interest rate environment and the condition of financial markets
generally.



79











This excerpt taken from the ISIS 10-K filed Mar 16, 2005.

Liquidity and Capital Resources

        We have financed our operations with revenue from research and development under collaborative agreements and from affiliates. Additionally, we have earned licensing and royalty revenue from the sale or licensing of our intellectual property. We have also financed our operations through the sale of our equity securities and the issuance of long-term debt. From our inception through December 31, 2004, we have earned approximately $443.1 million in revenue from contract research and development and the sale and licensing of our intellectual property. Since we were founded, we have raised net proceeds of approximately $593.2 million from the sale of equity securities. We have borrowed approximately $382.1 million under long-term debt arrangements to finance a portion of our operations.

        At December 31, 2004, we had cash, cash equivalents and short-term investments of $103.9 million, working capital of $82.2 million and a stockholders' deficit of $72.1 million. In comparison, we had cash, cash equivalents and short-term investments of $215.5 million, working capital of $194.0 million and stockholders' equity of $67.2 million as of December 31, 2003. Our $100.0 million Lilly research collaboration loan, of which $95.0 million was outstanding as of December 31, 2004, is due in August 2005. We can repay this loan at our option in either cash or our common stock at a fixed conversion price of $40 per share. If we draw down the remaining amount available under the loan, we could repay the loan for 2.5 million shares of our common stock. Accordingly, the outstanding balance on this loan has been classified as a long-term obligation in the current quarter. The decreases in our cash, cash equivalents and short-term investments and working capital were due primarily to cash used to fund our operations, to purchase property, plant, and equipment, pursue patents, and to pay our debt and capital lease obligations. In addition, we made a $10.0 million cash investment in Alnylam as part of our strategic alliance with them.

        As of December 31, 2004, our debt and other obligations totaled $258.9 million, compared to $250.6 million at December 31, 2003. Our debt and other obligations at December 31, 2004 included current and long-term deferred contract revenue of approximately $11.8 million and other contractual obligations. The increase in our debt and other obligations was primarily due to additional draw downs from the $100.0 million interest-free loan from Lilly, which we discounted to their present value by imputing interest on the amounts at 20% and accreting to their face value over their term by recording interest expense. The increase in debt was partially offset by the repayment in January of convertible partner debt from Boehringer Ingleheim International BmbH, or BI, of approximately $6.4 million, the payment of principal and interest related to our standard operating debt, and payments related to our capital leases. We also financed $3.2 million in capital additions under our existing capital lease financing arrangement. We expect that capital lease obligations will increase over time to fund capital equipment acquisitions required to support our business.

        We will continue to use lease financing as long as the terms remain commercially attractive. Based on our current operating plan with reasonable assumptions for new sources of revenue and cash, we believe our resources will be sufficient to meet our anticipated requirements through at least mid 2007. The following table summarizes our contractual obligations as of December 31, 2004. The table

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provides a breakdown of when obligations become due. A more detailed description of the major components of our debt is provided in the paragraphs following the table:

 
  Payments Due by Period (in millions)
Contractual Obligations
(selected balances described below)

  Total
  Less than
1 year

  1-3 years
  3-5 years
  After
5 years

Lilly Research Collaboration Loan   $ 95.0   $ 95.0   $   $   $
51/2% Convertible Subordinated Notes   $ 125.0   $   $   $ 125.0   $
Standard Operating Debt   $ 32.2   $ 6.4   $ 18.8   $ 7.0   $
Capital Lease and Other Obligations   $ 6.7   $ 4.2   $ 2.3   $ 0.2   $
Operating Leases   $ 9.6   $ 2.8   $ 4.5   $ 1.9   $ 0.4

        Our contractual obligations consist primarily of our publicly traded convertible debt and Lilly research collaboration loan. We can repay our Lilly research collaboration loan at our option in either cash or our common stock at a fixed conversion price of $40 per share. If we draw down the remaining amount available under the loan, we could repay the loan for 2.5 million shares of our common stock. In addition, we also have standard operating debt, capital leases and other obligations. Our standard operating debt includes a term loan from Silicon Valley Bank, and our mortgage loan payable to another bank.

        In December 2003, we secured a $32.0 million term loan from Silicon Valley Bank to retire our existing debt to BI and Elan. We amortize the term loan over sixty months. The term loan requires equal monthly payments of principal plus accrued interest, and bears interest at the prime interest rate, which was 5.25% at December 31, 2004. The loan is secured by substantially all of our operating assets, excluding intellectual property, real estate, and certain equity investments. The loan is subject to certain liquidity requirements, including a requirement that we maintain a minimum balance in an account at Silicon Valley Bank at all times equal to the outstanding balance of the loan. The loan is convertible to a fixed interest rate at our option at any time at the then-applicable prime rate plus 1.25%. We used the proceeds from the loan to pay off existing debt to Elan of $5.1 million plus accrued interest and to BI of $22.6 million plus accrued interest, of which $6.4 million plus accrued interest we paid in January 2004. The carrying value of the term loan at December 31, 2004 and 2003 was $26.1 million and $32.0 million, respectively.

        In May 2002, we completed a $125.0 million convertible debt offering, which raised proceeds of approximately $120.9 million, net of $4.1 million in issuance costs. The subordinated notes bear interest at 5.5%, which is payable semi-annually, and mature in May 2009. Holders of the subordinated notes can, at any time, convert the notes into shares of common stock at a conversion price of $16.625 per share. At December 31, 2004 and 2003, the principal outstanding on the notes was $125.0 million.

        In August 2001, Lilly made available to us a $100.0 million interest-free loan to fund the joint research collaboration between the two companies. The loan is interest-free and is repayable, at our option, in cash or common stock at $40 per share at the end of four years. The term of the loan provides for quarterly draw downs by us. As of December 31, 2004, we had drawn down $95.0 million of the $100.0 million available. We discounted the $95.0 million loan to its present value by imputing interest on the amount at 20%, which represented market conditions in place at the time we entered into the loan. We are accreting the loan up to its face value over its term by recording interest expense. The difference between the cash received and the present value of the loan represents value given to us by Lilly to help fund the research collaboration. We account for this difference as deferred revenue and recognize it as revenue over the period of contractual performance. As of December 31, 2004, the balance in long-term obligations was $83.2 million and the balance in deferred revenue was $11.8 million.

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        In addition to contractual obligations, we had outstanding purchase orders as of December 31, 2004 for the purchase of services, capital equipment and materials as part of our normal course of business.

        As part of our strategic decision to reorganize and refocus our resources to advance our most promising second-generation drugs and to continue the development of antisense technology, we decided to close our research and development laboratory in Singapore during the first quarter of 2005 and terminate our agreement with the Singapore Economic Development Board, or EDB. To date, we have received $1.5 million in cash payments under our $8.0 million grant from the EDB and do not anticipate receiving any additional payments under the agreement.

        We plan to continue to enter into more collaborations with partners to provide for additional revenue to us and we may be required to incur additional cash expenditures related to our obligations under any of the new agreements we may enter into. We currently intend to use our cash and short-term equivalents to finance our activities. However, we may also pursue other financing alternatives, like issuing additional shares of our common stock, issuing debt instruments, refinancing our existing debt, or securing lines of credit. Whether we use our existing capital resources or choose to obtain financing will depend on various factors, including the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.

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