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Progenics Pharmaceuticals 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
form10_qjune302010.htm




 
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 June 30, 2010
 
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 No. 000-23143

_____________


PROGENICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
13-3379479
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification Number)

_____________

777 Old Saw Mill River Road
Tarrytown, NY 10591
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (914) 789-2800
 

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 o

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

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

Large accelerated filer  ¨                                                                                                                Accelerated filer   x
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 in Rule 12b-2 of the Exchange Act).    Yes o  No x
 
As of August 4, 2010 there were 32,808,856 shares of common stock, par value $.0013 per share, of the registrant outstanding.
 

 


 
 




PROGENICS PHARMACEUTICALS, INC.
 
 
   
Page No.
Part I
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
 
3
 
4
 
5
 
6
 
7
Item 2.
13
Item 3.
24
Item 4.
25
     
PART II
OTHER INFORMATION
 
Item 1A.
25
Item 6.
28
 
29

 

 

 

 
2


PART I — FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
 
(amounts in thousands, except for par value and share amounts)
(Unaudited)

   
June 30,
2010
   
December 31,
2009
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 69,968     $ 90,903  
Marketable securities
    -       1,501  
Accounts receivable
    6,085       7,522  
Other current assets
    1,726       1,468  
Total current assets
    77,779       101,394  
Marketable securities
    3,608       3,792  
Fixed assets, at cost, net of accumulated depreciation and amortization
    6,093       6,560  
Other assets
    200       1,867  
Total assets
  $ 87,680     $ 113,613  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable and accrued expenses
  $ 5,478     $ 5,836  
Other current liabilities
    91       170  
Total current liabilities
    5,569       6,006  
Other liabilities
    1,392       -  
Total liabilities
    6,961       6,006  
Commitments and contingencies (Note 7)
               
Stockholders’ equity:
               
Preferred stock, $.001 par value; 20,000,000 shares authorized; issued and outstanding - none
    -       -  
Common stock, $.0013 par value; 40,000,000 shares authorized; issued – 32,682,590 in 2010 and 32,142,062 in 2009
    42       42  
Additional paid-in capital
    446,864       439,943  
Accumulated deficit
    (363,154 )     (329,330 )
Accumulated other comprehensive loss
    (292 )     (307 )
Treasury stock, at cost (200,000 shares in 2010 and 2009)
    (2,741 )     (2,741 )
Total stockholders’ equity
    80,719       107,607  
Total liabilities and stockholders’ equity
  $ 87,680     $ 113,613  



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

 
3


PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(amounts in thousands, except net loss per share)
(Unaudited)

   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues:
                       
Research and development
  $ 880     $ 4,631     $ 1,093     $ 24,775  
Royalty income
    581       292       1,206       467  
Research grants
    789       510       1,433       1,017  
Other revenues
    55       36       96       114  
Total revenues
    2,305       5,469       3,828       26,373  
                                 
Expenses:
                               
Research and development
    10,659       12,861       22,551       27,691  
License fees – research and development
    291       195       1,107       825  
General and administrative
    5,680       7,113       12,154       13,914  
Royalty expense
    58       29       120       47  
Depreciation and amortization
    874       1,223       1,751       2,426  
Total expenses
    17,562       21,421       37,683       44,903  
                                 
Operating loss
    (15,257 )     (15,952 )     (33,855 )     (18,530 )
                                 
Other income:
                               
Interest income
    16       544       31       1,334  
Gain on sale of marketable securities
    -       237       -       237  
Total other income
    16       781       31       1,571  
                                 
Net loss
  $ (15,241 )   $ (15,171 )   $ (33,824 )   $ (16,959 )
                                 
Net loss per share - basic and diluted
  $ (0.47 )   $ (0.49 )   $ (1.05 )   $ (0.55 )
Weighted-average shares - basic and diluted
    32,396       31,032       32,251       30,871  



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

 
4



PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
 
(amounts in thousands)
(Unaudited)
 

   
Common Stock
   
Additional
         
Accumulated Other
   
Treasury Stock
       
   
Shares
   
Amount
   
Paid-In Capital
   
Accumulated Deficit
   
Comprehensive (Loss) Income
   
Shares
   
Amount
   
Total
 
Balance at December 31,  2009
    32,142     $ 42     $ 439,943     $ (329,330 )   $ (307 )     (200 )   $ (2,741 )   $ 107,607  
 
Comprehensive loss:
                                                               
Net loss
    -       -       -       (33,824 )     -       -       -       (33,824 )
Net change in unrealized loss on marketable securities
    -       -       -       -       15       -       -       15  
Total comprehensive loss
                                                            (33,809 )
Compensation expenses for share-based payment arrangements
    -       -       4,817       -       -       -       -       4,817  
Issuance of restricted stock, net of forfeitures
    12       -       -       -       -       -       -       -  
Sale of common stock under employee stock purchase plans and exercise of stock options
    529       -       2,104       -       -       -       -       2,104  
 
Balance at June 30, 2010
    32,683     $ 42     $ 446,864     $ (363,154 )   $ (292 )     (200 )   $ (2,741 )   $ 80,719  

   
Common Stock
   
Additional
         
Accumulated Other
   
Treasury Stock
       
   
Shares
   
Amount
   
Paid-In Capital
   
Accumulated Deficit
   
Comprehensive (Loss) Income
   
Shares
   
Amount
   
Total
 
Balance at December 31,  2008
    30,807     $ 40     $ 422,085     $ (298,718 )   $ (1,297 )     (200 )   $ (2,741 )   $ 119,369  
 
Comprehensive loss:
                                                               
Net loss
    -       -       -       (16,959 )     -       -       -       (16,959 )
Net change in unrealized loss on marketable securities
    -       -       -       -       994       -       -       994  
Total comprehensive loss
                                                            (15,965 )
Compensation expenses for share-based payment arrangements
    -       -       7,281       -       -       -       -       7,281  
Issuance of restricted stock, net of forfeitures
    30       -       -       -       -       -       -       -  
Sale of common stock under employee stock purchase plans and exercise of stock options
    502       1       2,651       -       -       -       -       2,652  
 
Balance at June 30, 2009
    31,339     $ 41     $ 432,017     $ (315,677 )   $ (303 )     (200 )   $ (2,741 )   $ 113,337  


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

 
5




PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(amounts in thousands)
(Unaudited)

   
For the Six Months Ended
June 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (33,824 )   $ (16,959 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    1,751       2,426  
Write-off of fixed assets
    -       107  
Amortization of discounts, net of premiums, on marketable securities
    -       826  
Expenses for share-based compensation awards
    4,817       7,281  
Gain on sale of marketable securities
    -       (237 )
Changes in assets and liabilities:
               
Decrease in accounts receivable
    1,437       610  
(Increase) decrease in other current assets
    (258 )     1,827  
Decrease in other assets
    1,667       -  
(Decrease) increase in accounts payable and accrued expenses
    (358 )     369  
Decrease in deferred revenue
    -       (22,440 )
Increase (decrease) in other liabilities
    1,313       (52 )
Net cash used in operating activities
    (23,455 )     (26,242 )
Cash flows from investing activities:
               
Capital expenditures
    (1,284 )     (724 )
Sales/maturities of marketable securities
    1,700       62,757  
Net cash provided by investing activities
    416       62,033  
Cash flows from financing activities:
               
Proceeds from the exercise of stock options and sale of common stock under the Employee Stock Purchase Plan
    2,104       2,652  
Net cash provided by financing activities
    2,104       2,652  
Net (decrease) increase in cash and cash equivalents
    (20,935 )     38,443  
Cash and cash equivalents at beginning of period
    90,903       56,186  
Cash and cash equivalents at end of period
  $ 69,968     $ 94,629  
 


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

 
6

PROGENICS PHARMACEUTICALS, INC>.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (unaudited)
(amounts in thousands, except per share amounts and unless otherwise noted)

1.  Interim Financial Statements

Progenics Pharmaceuticals, Inc. is a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. Our principal programs are directed toward supportive care, oncology and virology.

Progenics commenced principal operations in 1988, became publicly traded in 1997 and throughout has been engaged primarily in research and development efforts, establishing corporate collaborations and related activities. All of our operations are conducted at our facilities in Tarrytown, New York.

Supportive Care. Our first commercial product is RELISTOR® (methylnaltrexone bromide) subcutaneous injection, a first-in-class therapy for opioid-induced constipation approved for sale in over 50 countries worldwide, including the United States, European Union member states, Canada, Australia and Brazil. Marketing applications are pending elsewhere throughout the world.

In October 2009, we and Wyeth Pharmaceuticals terminated our 2005 RELISTOR collaboration, as a result of which we regained all worldwide rights to RELISTOR. Under our Transition Agreement, Wyeth, now a Pfizer Inc. subsidiary, is continuing to market and sell RELISTOR for a U.S. Sales Period ending September 30, 2010 and an ex-U.S. Sales Period ending December 31, 2010, subject to certain extension and early transition options available to us. After this transition period, we will assume full control of and responsibility for future development and commercialization of RELISTOR.

Principal responsibility for regulatory submissions and interactions for all other formulations and presentations of RELISTOR is being transferred as part of the transition, and we have undertaken full responsibility for development of the oral formulation of the drug. We are pursuing a range of strategic alternatives for RELISTOR, including licensing, collaboration and/or strategic alliances with world-wide or regional partners, U.S. commercialization of the currently-approved product on our own or with pharmaceutical detailing and sales organizations and/or co-promotion of the franchise with a partner using our own sales force.

Under the Transition Agreement, Wyeth is paying to us $10.0 million in six quarterly installments through January 2011, and is continuing to pay royalties on worldwide sales as provided in the 2005 collaboration agreement except that no royalties will be payable in respect of ex-U.S. sales during (i) the fourth quarter of 2010 to the extent certain financial targets are not met or (ii) any extended ex-U.S. Sales Period in the subject country. Wyeth is also providing financial resources, aggregating up to approximately $14.5 million, for development of a multi-dose pen for subcutaneous RELISTOR and required clinical studies in the pediatric setting, and is providing other assistance with respect to agreed-upon clinical, regulatory, manufacturing and supply matters. This support is ongoing and continues beyond the U.S. and ex-U.S. Sales Periods of Wyeth’s commercialization obligations; revenue from such financial support is reported for the current period as reimbursement revenue from Wyeth under the Transition Agreement. We have agreed to purchase Wyeth’s remaining inventory of subcutaneous RELISTOR at the end of the Sales Periods on agreed-upon terms and conditions. We have no further obligations to Wyeth under the 2005 collaboration agreement.

Prior to the Transition Agreement (including the 2009 period covered by this report), we received upfront, milestone and royalty payments from Wyeth, and were reimbursed for expenses we incurred in connection with the development of RELISTOR; manufacturing and commercialization expenses for RELISTOR were funded by Wyeth.





Our oncology, virology and other product candidates are not as advanced in development as RELISTOR, and we do not expect any recurring revenues from sales or otherwise with respect to these product candidates in the near term.

Funding and Financial Matters>. We will require additional funding to continue our current programs to completion, which may involve collaboration agreements, licenses or sale transactions or royalty sales or financings with respect to our products and product candidates. We may also seek to raise additional capital through sales of common stock or other securities, and expect to continue funding some programs in part through government awards.

Progenics has had annual losses since inception. Pending use in our business, our revenues and proceeds of financing activities are held in cash, cash equivalents and auction rate marketable securities all of which totaled $73.6 million at June 30, 2010, a decrease of $11.1 million from $84.7 million at March 31, 2010 and $22.6 million from $96.2 million at December 31, 2009. We expect that amount will be sufficient to fund current operations beyond one year. During the three and six months ended June 30, 2010, we had net losses of $15.2 million and $33.8 million, respectively, and at June 30, 2010, we had an accumulated deficit of $363.2 million.

In April 2008, our Board of Directors approved a share repurchase program to acquire up to $15.0 million of our outstanding common shares, under which we have $12.3 million remaining available. Purchases may be discontinued at any time. We did not repurchase any common shares during the six months ended June 30, 2010.

Our interim Consolidated Financial Statements included in this report have been prepared in accordance with applicable presentation requirements, and accordingly do not include all information and disclosures necessary for a presentation of our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, these financial statements reflect all adjustments, consisting primarily of normal recurring accruals necessary for a fair statement of results for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year. Our interim financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The year-end consolidated balance sheet data in these financial statements were derived from audited financial statements, but do not include all disclosures required by GAAP.

2.  Revenue Recognition

We recognize revenue from all sources based on the provisions of the U.S. SEC’s Staff Accounting Bulletin No. 104 and ASC 605 Revenue Recognition. There have been no material changes to our revenue recognition accounting policies as of and for the six months ended June 30, 2010, which policies are disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.
 
Under the Transition Agreement, Wyeth’s license of Progenics technology is terminated except as necessary for performance of Wyeth’s obligations during the transition period, and Wyeth has returned the rights to RELISTOR that we had previously granted it under the 2005 collaboration agreement. During the transition, Wyeth is obligated to pay all costs of commercialization of subcutaneous RELISTOR, including manufacturing costs, and retains all proceeds from its sale of the products, subject to royalties due to us. Decisions with respect to commercialization of the product during the transition period are to be made solely by Wyeth.

During the three and six months ended June 30, 2010, we recognized $880 and $1,090, respectively, from Wyeth for expenses eligible for reimbursement under the Transition Agreement as discussed in Note 1 above.


        During the three months ended June 30, 2010 and 2009, we earned royalties of $581 and $487, respectively, based on net sales of subcutaneous RELISTOR, and we recognized $581 and $292, respectively, of royalty income. During the six months ended June 30, 2010 and 2009, we earned royalties of $1,206 and $767, respectively, based on net sales of subcutaneous RELISTOR, and we recognized $1,206 and $467, respectively, of royalty income. As of June 30, 2009, we had recorded a cumulative total of $819 as deferred revenue – current. We incurred $58 and $49, respectively, of royalty costs and recognized $58 and $29, respectively, of royalty expenses during the three months ended June 30, 2010 and 2009, and we incurred $120 and $77, respectively, of royalty costs and recognized $120 and $47, respectively, of royalty expense during the six months ended June 30, 2010 and 2009. As of June 30, 2009, we had recorded a cumulative total of $82 of deferred royalty charges from the royalty costs incurred since we began earning royalties in the second quarter of 2008. The deferred revenue and charges at June 30, 2009 and all remaining deferred royalty revenue and charges recorded in 2009 were recognized as royalty income and expense during the fourth quarter 2009, the period in which our development obligations under the Wyeth collaboration agreement terminated.


Our basic net loss per share amounts have been computed by dividing net loss by the weighted-average number of common shares outstanding during the period. For the three and six months ended June 30, 2010 and 2009, we reported net losses and, therefore, potential common shares were not included since inclusion would have been anti-dilutive. The calculations of net loss per share, basic and diluted, are as follows:

   
Net Loss
(Numerator)
   
Weighted Average
Common Shares
(Denominator)
   
Per Share
Amount
 
Three months ended June 30, 2010
                 
Basic and diluted
  $ (15,241 )     32,396     $ (0.47 )
Six months ended June 30, 2010
                       
Basic and diluted
  $ (33,824 )     32,251     $ (1.05 )
Three months ended June 30, 2009
                       
Basic and diluted
  $ (15,171 )     31,032     $ (0.49 )
Six months ended June 30, 2009
                       
Basic and diluted
  $ (16,959 )     30,871     $ (0.55 )

For the three and six months ended June 30, 2010 and 2009, anti-dilutive common shares excluded from diluted per share amounts consist of the following:

   
Three Months Ended June 30,
 
   
2010
   
2009
 
   
Weighted
Average
Number
   
Weighted
Average
Exercise Price
   
Weighted
Average
Number
   
Weighted
Average
Exercise Price
 
Stock options
    4,698     $ 16.08       4,355     $ 18.64  
Restricted stock
    24               28          
Total
    4,722               4,383          

   
Six Months Ended June 30,
 
   
2010
   
2009
 
   
Weighted
Average
Number
   
Weighted
Average
Exercise Price
   
Weighted
Average
Number
   
Weighted
Average
Exercise Price
 
Stock options
    4,732     $ 16.20       4,412     $ 18.59  
Restricted stock
    34               30          
Total
    4,766               4,442          



4.  Fair Value Measurements and Marketable Securities

Our available-for-sale investment portfolio consists of marketable securities, including auction rate securities and corporate debt securities in the 2009 period covered by this report, summarized below, and are recorded at fair value in the accompanying Consolidated Balance Sheets in accordance with ASC 320 Investments – Debt and Equity Securities. The change in the fair value of these marketable securities is recorded as a component of other comprehensive loss (see Note 2. Summary of Significant Accounting Policies - Fair Value Measurements in the notes to consolidated financial statements included in our 2009 Annual Report on Form 10-K).

   
June 30,
2010
   
December 31,
2009
 
Short-term
           
Corporate debt securities
  $ -     $ 1,501  
Total short-term marketable securities
    -       1,501  
                 
Long-term
               
Auction rate securities
    3,608       3,792  
Total long-term marketable securities
    3,608       3,792  
                 
Total marketable securities
  $ 3,608     $ 5,293  

Available-for-sale investments measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, are summarized by valuation hierarchy as follows:

         
Fair Value Measurements at June 30, 2010
 
   
Balance at
June 30, 2010
   
Quoted Prices in Active Markets for Identical Assets
 (Level 1)
   
Significant Other Observable Inputs
 (Level 2)
   
Significant Unobservable Inputs
 (Level 3)
 
                         
Money market funds
  $ 64,924     $ 64,924     $ -     $ -  
Auction rate securities
    3,608       -       -       3,608  
Total
  $ 68,532     $ 64,924     $ -     $ 3,608  

         
Fair Value Measurements at December 31, 2009
 
   
Balance at
December 31, 2009
   
Quoted Prices in Active Markets for Identical Assets
 (Level 1)
   
Significant Other Observable Inputs
 (Level 2)
   
Significant Unobservable Inputs
 (Level 3)
 
                         
Money market funds
  $ 84,169     $ 84,169     $ -     $ -  
Corporate debt securities
    1,501       -       1,501       -  
Auction rate securities
    3,792       -       -       3,792  
Total
  $ 89,462     $ 84,169     $ 1,501     $ 3,792  

At June 30, 2010, Level 3 securities, consisting of auction rate securities, were $3.6 million and represented 5.3% of total assets measured at fair value. The fair value of these securities includes $2.7 million of U.S. government subsidized securities collateralized by student loan obligations and $0.9 million of investment company perpetual preferred stock. We will not realize cash in respect of the principal amount of these securities until a successful auction occurs, the issuer calls or restructures the security, the security reaches any scheduled maturity and is paid, or a buyer outside the auction process emerges. As of June 30, 2010, we had received all scheduled interest payments on these securities, which, in the event of auction failure, are reset according to contractual terms in the governing instruments.


        The valuation of auction rate securities held “available-for-sale” is estimated using a discounted cash flow calculation based on Level 3 unobservable inputs, which consist of our internal analysis of (i) timing of expected future successful auctions, (ii) collateralization of underlying assets of the security and (iii) credit quality of the security. As a result of re-evaluating these securities as of June 30, 2010 the temporary impairment amount decreased $16.0 from $308.0 at December 31, 2009, to $292.0, which decrease is reflected as a part of other comprehensive loss. Due to the uncertainty related to the liquidity in the auction rate security market, we have classified them as long-term assets. Because we do not intend to sell these securities, and believe it is not likely that we would be required to sell these securities before recovery of principal, we do not consider these securities to be other-than-temporarily impaired at June 30, 2010 and December 31, 2009.

For those of our financial instruments with significant Level 3 inputs (all of which are auction rate securities), the following table summarizes the activities for the three and six months ended June 30, 2010 and 2009:

     
Fair Value Measurements Using Significant
Unobservable Inputs
(Level 3)
For the Three Months Ended June 30,
 
Description
   
2010
     
2009
 
                 
Balance at beginning of period
 
$
                             3,608
   
$
                            4,059
 
Transfers into Level 3
   
                                    -
     
                                    -
 
Total realized/unrealized gains (losses)
               
Included in net loss
   
                                    -
     
                                    -
 
Included in comprehensive loss (1)
   
                                    -
     
                                    -
 
Settlements
   
                                    -
     
                                    -
 
Balance at end of period
 
$
                             3,608
   
$
                            4,059
 
(1) Total amount of unrealized gains (losses) for the period included in other comprehensive loss attributable to the change in fair market value of related assets still held at the reporting date
 
$
-
   
$
-
 

     
Fair Value Measurements Using Significant
Unobservable Inputs
(Level 3)
For the Six Months Ended June 30,
 
Description
   
2010
     
2009
 
                 
Balance at beginning of period
 
$
                             3,792
   
$
                            4,059
 
Transfers into Level 3
   
                                    -
     
                                   -
 
Total realized/unrealized gains (losses)
               
Included in net loss
   
                                    -
     
                                   -
 
Included in comprehensive loss (1)
   
                                 16
     
                                   -
 
Settlements
   
                               (200
)
   
                                   -
 
Balance at end of period
 
$
                             3,608
   
$
                            4,059
 
(1) Total amount of unrealized gains (losses) for the period included in other comprehensive loss attributable to the change in fair market value of related assets still held at the reporting date
 
$
                                    -
   
$
                                   -
 



5.  Accounts Receivable

   
June 30,
2010
   
December 31,
2009
 
Research and development from collaborator
  $ 5,274     $ 6,667  
Royalties
    594       589  
National Institutes of Health
    198       210  
Other
    19       56  
Total
  $ 6,085     $ 7,522  

6.  Accounts Payable and Accrued Expenses

   
June 30,
2010
   
December 31,
2009
 
Accounts payable
  $ 660     $ 596  
Accrued consulting and clinical trial costs
    2,231       2,663  
Accrued payroll and related costs
    1,541       1,321  
Legal and professional fees
    987       1,070  
Other
    59       186  
Total
  $ 5,478     $ 5,836  

7.  Commitments and Contingencies

In the ordinary course of our business we enter into agreements with third parties, such as business partners, clinical sites and suppliers, that include indemnification provisions which in our judgment are normal and customary for companies in our industry sector. We generally agree to indemnify, hold harmless and reimburse the indemnified parties for losses suffered or incurred by them with respect to our products or product candidates, use of such products or other actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is not limited. We have not incurred material costs to defend lawsuits or settle claims related to these provisions. As a result, the estimated fair value of liabilities relating to indemnification provisions is minimal. We have no liabilities recorded for these provisions as of June 30, 2010.




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

Note Regarding Forward-Looking Statements

This document contains statements that do not relate strictly to historical fact, any of which may be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. When we use the words “anticipates,” “plans,” “expects” and similar expressions, we are identifying forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. While it is impossible to identify or predict all such matters, these differences may result from, among other things, the inherent uncertainty of the timing and success of, and expense associated with, research, development, regulatory approval and commercialization of our products and product candidates, including the risks that clinical trials will not commence or proceed as planned; products appearing promising in early trials will not demonstrate efficacy or safety in larger-scale trials; clinical trial data on our products and product candidates will be unfavorable; our products will not receive marketing approval from regulators or, if approved, do not gain sufficient market acceptance to justify development and commercialization costs; competing products currently on the market or in development might reduce the commercial potential of our products; we, our collaborators or others might identify side effects after the product is on the market; or efficacy or safety concerns regarding marketed products, whether or not originating from subsequent testing or other activities by us, governmental regulators, other entities or organizations or otherwise, and whether or not scientifically justified, may lead to product recalls, withdrawals of marketing approval, reformulation of the product, additional pre-clinical testing or clinical trials, changes in labeling of the product, the need for additional marketing applications, declining sales or other adverse events.

We are also subject to risks and uncertainties associated with the actions of our corporate, academic and other collaborators and government regulatory agencies, including risks from market forces and trends; potential product liability; intellectual property, litigation, environmental and other risks; the risk that we may not be able to enter into favorable collaboration or other relationships or that existing or future relationships may not proceed as planned; the risk that current and pending patent protection for our products may be invalid, unenforceable or challenged, or fail to provide adequate market exclusivity, or that our rights to in-licensed intellectual property may be terminated for our failure to satisfy performance milestones; the risk of difficulties in, and regulatory compliance relating to, manufacturing products; and the uncertainty of our future profitability.

Risks and uncertainties also include general economic conditions, including interest and currency exchange-rate fluctuations and the availability of capital; changes in generally accepted accounting principles; the impact of legislation and regulatory compliance; the highly regulated nature of our business, including government cost-containment initiatives and restrictions on third-party payments for our products; trade buying patterns; the competitive climate of our industry; and other factors set forth in this document and other reports filed with the SEC. In particular, we cannot assure you that RELISTOR® will be commercially successful or be approved in the future in other formulations, indications or jurisdictions, or that any of our other programs will result in a commercial product.

We do not have a policy of updating or revising forward-looking statements and we assume no obligation to update any statements as a result of new information or future events or developments. It should not be assumed that our silence over time means that actual events are bearing out as expressed or implied in forward-looking statements.

Overview

We are a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. Our principal programs are directed toward supportive care, oncology and virology. We commenced principal operations in 1988, became publicly traded in 1997 and throughout have been engaged primarily in research and development efforts, establishing corporate collaborations and related activities.

In June 2008, we began recognizing royalty income from net sales by Wyeth of subcutaneous RELISTOR (methylnaltrexone bromide). With the reacquisition of our rights to RELISTOR in October 2009, we will be required, to the extent such tasks are not undertaken by one or more partners, to address new technological, clinical and commercial challenges, including, if we choose to sell and support or co-promote RELISTOR, hiring a sales force, developing a commercial regulatory compliance program and otherwise building a commercial infrastructure. We continue to monitor our program expenditures, including headcount levels, in conjunction with program and program candidates that we choose or are obligated to undertake. We expect to continue to incur operating losses during the near term.

 
13

 
Our sources of revenues for the three and six months ended June 30, 2010 and 2009 have been payments under our collaboration agreements and funds from research grants from the NIH related to our oncology and virology programs. From January 2006 to October 2009, we recognized revenues from Wyeth (i) for reimbursement of our development expenses for RELISTOR as incurred, (ii) in respect of amortization of the $60.0 million upfront payment we received over the period of our development obligations, and (iii) for milestones achieved during the collaboration and for royalties earned based on net sales of RELISTOR. To date, our product sales have consisted solely of limited revenues from the sale of research reagents and we expect that those sales will not significantly increase over current levels in the near future.

A majority of our expenditures to date have been for research and development activities. Expenses for our Cancer and HIV research programs during the three months ended June 30, 2010, decreased to $3.6 million and $1.3 million, respectively, compared to $5.1 million and $3.0 million, respectively for the same period in 2009, and during the six months ended June 30, 2010, decreased to $8.2 million and $3.3 million, respectively, compared to $10.7 million and $7.4 million, respectively, for the same period in 2009. Expenses for our RELISTOR research program for the three months ended June 30, 2010, increased to $3.9 million, compared to $1.9 million for the same period in 2009, and for the six months ended June 30, 2010, increased to $7.7 million, compared to $4.3 million for the same period in 2009.

Our cash, cash equivalents and marketable securities at June 30, 2010, decreased $22.6 million from $96.2 million at December 31, 2009, to $73.6 million, and we expect that amount will be sufficient to fund operations at current levels beyond one year. During the three and six months ended June 30, 2010, we had net losses of $15.2 million and $33.8 million, respectively. Other than potential revenues from the RELISTOR franchise, we do not anticipate generating significant recurring revenues from royalties, product sales or otherwise in the near term. Consequently, we may require significant additional external funding to continue our operations at their current levels in the future. Funding may be derived from additional collaboration or licensing agreements with pharmaceutical or other companies, from the sale of our common stock or other securities to investors or from government funding, but may also not be available to us on acceptable terms or at all.


In October 2009, we and Wyeth Pharmaceuticals terminated our 2005 RELISTOR collaboration, as a result of which we regained all worldwide rights to RELISTOR. Under our Transition Agreement, Wyeth, now a Pfizer Inc. subsidiary, is continuing to market and sell RELISTOR for a U.S. Sales Period ending September 30, 2010 and an ex-U.S. Sales Period ending December 31, 2010, subject to certain extension and early transition options available to us. After this transition period, we will assume full control of and responsibility for future development and commercialization of RELISTOR.

Principal responsibility for regulatory submissions and interactions for all other formulations and presentations of RELISTOR is being transferred as part of the transition, and we have undertaken full responsibility for development of the oral formulation of the drug. We are pursuing a range of strategic alternatives for RELISTOR, including licensing, collaboration and/or strategic alliances with world-wide or regional partners, U.S. commercialization of the currently-approved product on our own or with pharmaceutical detailing and sales organizations and/or co-promotion of the franchise with a partner using our own sales force.

Under the Transition Agreement, Wyeth is paying us $10.0 million in six quarterly installments through January 2011. Wyeth will continue to pay royalties on worldwide sales as provided in the 2005 collaboration agreement except that no royalties will be payable in respect of ex-U.S. sales during (i) the fourth quarter of 2010 to the extent certain financial targets are not met or (ii) any extended ex-U.S. Sales Period in the subject country. Wyeth is also providing financial resources, aggregating up to approximately $14.5 million, for development of a multi-dose pen for subcutaneous RELISTOR and required clinical studies in the pediatric setting, and is providing other assistance with respect to agreed-upon clinical, regulatory, manufacturing and supply matters. This support is ongoing and continues beyond the U.S. and ex-U.S. Sales Periods of Wyeth’s commercialization obligations; revenue from such financial support is reported for the current period as reimbursement revenue from Wyeth under the Transition Agreement. We have agreed to purchase Wyeth’s remaining inventory of subcutaneous RELISTOR at the end of the Sales Periods on agreed-upon terms and conditions. We have no further obligations to Wyeth under the 2005 collaboration agreement.

Our October 2008 out-license to Ono Pharmaceutical of the rights to subcutaneous RELISTOR in Japan is unaffected by termination of the Wyeth collaboration. Ono is engaged in clinical testing in Japan of RELISTOR subcutaneous injection.

 
We received a positive opinion from E.U. regulators on our request for approval to market RELISTOR in pre-filled syringes, which are designed to ease preparation and administration for patients and caregivers and plan to coordinate the launch of that product with a new commercialization partner during the second quarter of 2011. We are awaiting U.S. regulatory action for RELISTOR in pre-filled syringes.

We are also developing subcutaneous RELISTOR for treatment of OIC outside the advanced-illness setting, in individuals with pain not related to cancer. We and Wyeth recently completed enrollment in a one-year, open-label safety study, results from which, together with results from a previous phase 3 efficacy trial will support planned regulatory filings in early 2011 in the U.S., Europe and elsewhere for approval of RELISTOR to treat OIC in the non-cancer pain setting.

As part of our reacquisition of RELISTOR, we have taken over development responsibilities for an oral formulation of RELISTOR for the treatment of OIC in patients with non-cancer pain. In March 2010, we announced that we plan to advance oral methylnaltrexone for the treatment of OIC into late stage clinical development and will commence a phase 2b/3 clinical trial of a methylnaltrexone tablet in non-cancer pain patients in the second half of 2010.

Our 2005 collaboration agreement with Wyeth was terminated by the October 2009 Transition Agreement, but the 2005 agreement remained in effect for the time periods prior to termination covered by this report. Prior to the Transition Agreement, we received upfront, milestone and royalty payments from Wyeth, and were reimbursed for expenses we incurred in connection with the development of RELISTOR; manufacturing and commercialization expenses for RELISTOR were funded by Wyeth. Wyeth’s royalty obligations continue during the transition period as provided in the Transition Agreement.

Under our License Agreement with Ono, in October 2008, we out-licensed rights to subcutaneous RELISTOR in Japan in return for an upfront payment of $15.0 million and the right to receive potential development milestones of up to $20.0 million, commercial milestones and royalties on sales by Ono of subcutaneous RELISTOR in Japan. Ono also has the option to acquire from us the rights to develop and commercialize in Japan other formulations of RELISTOR on terms to be negotiated separately. Ono may request us to perform activities related to its development and commercialization responsibilities beyond our participation in joint committees and specified technology transfer related tasks which will be at its expense, and reimbursable at the time we perform these services.

Royalty and milestone payments depend on success in development and commercialization of RELISTOR, which is dependent on many factors, such as the actions of Wyeth during the transition, Ono’s efforts and those of any other business partner(s) with which we may collaborate, decisions by the FDA and other regulatory bodies, the outcome of clinical and other testing of RELISTOR, and our own efforts. Many of these matters are outside our control. In particular, we cannot guarantee that we will be able to successfully partner the RELISTOR franchise. We also cannot guarantee, in light of Wyeth’s limited obligations under the Transition Agreement, its acquisition by Pfizer and its limited ongoing commercial interest in the RELISTOR franchise, that Wyeth’s efforts during the transition will achieve any particular level of success in marketing and sales, regulatory approval or clinical development of subcutaneous RELISTOR.



Other Research Programs.> We recently presented data from preclinical studies of novel multiplex phosphoinositide 3-kinase (PI3K) inhibitors, synthetic, small-molecule compounds identified by us that, in laboratory studies, blocked both PI3K, a key regulator of one molecular signaling pathway, and MNK, an oncogenic kinase in the Ras pathway. We believe simultaneously blocking these interlinked cellular pathways may provide a strategy to combat some of the most aggressive forms of cancer.

Among our virology efforts, we are evaluating second-generation hepatitis C virus entry inhibitors as possible development candidates, and we are engaged in research regarding a prophylactic vaccine against HIV infection.

 
We have also presented preclinical data on novel monoclonal antibodies against toxins produced by the bacterium Clostridium difficile (C. difficile), the leading cause of hospital-acquired diarrhea in the United States and a recognized growing global public health challenge. These monoclonal antibodies effectively neutralized the cell-killing activities of the toxins in vitro and significantly improved survival in a stringent animal model.

Our non-commercialized product candidates in oncology, virology and other areas are not as advanced in development as RELISTOR, and we do not expect any recurring revenues from sales or otherwise with respect to these product candidates in the near term.

Results of Operations (dollars in thousands unless otherwise noted)

Our net losses were $15,241 for the three months ended June 30, 2010, compared to $15,171 for the same period of 2009, and $33,824 for the six months ended June 30, 2010, compared to $16,959 for the same period of 2009. Revenues were $2,305 for the three months ended June 30, 2010, compared to $5,469 for the same period of 2009, and $3,828 for the six months ended June 30, 2010, compared to $26,373 for the same period of 2009. Expenses were $17,562 for the three months ended June 30, 2010, compared to $21,421 for the same period of 2009, and $37,683 for the six months ended June 30, 2010, compared to $44,903 for the same period of 2009. Other income totaled $16 for the three months ended June 30, 2010, compared to $781 for the same period of 2009, and $31 for the six months ended June 30, 2010, compared to $1,571 for the same period of 2009.

Revenues:

Our sources of revenue during the three and six months ended June 30, 2010 and 2009 included our 2005 collaboration with Wyeth (effective from January 2006 to October 2009), the Transition Agreement with Wyeth, our License Agreement with Ono, our research grants from the National Institutes of Health (NIH) and, to a small extent, our sale of research reagents.

   
Three Months Ended
 June 30,
         
Six Months Ended
 June 30,
       
Sources of Revenue
 
       2010
   
2009
   
Percent
Change
   
      2010
   
2009
   
Percent
Change
 
                                     
Research and development
  $ 880     $ 4,631       (81% )     $ 1,093     $ 24,775       (96% )  
Royalty income
    581       292       99%       1,206       467       158%  
Research grants
    789       510       55%       1,433       1,017       41%  
Other revenues
    55       36       53%       96       114       (16% )  
Total
  $ 2,305     $ 5,469       (58% )     $ 3,828     $ 26,373       (85% )  

Research and development revenue:

Wyeth Collaboration. During the three months ended June 30, 2010 and 2009, we recognized $880 and $4,631, respectively, of revenue from Wyeth, consisting of (i) $0 and $2,995, respectively, of the $60,000 upfront payment pursuant to the 2005 collaboration, (ii) $0 and $1,636, respectively, as reimbursement of expenses under the 2005 collaboration, and (iii) $880 and $0, respectively, as reimbursement of expenses under the 2009 Transition Agreement.

During the six months ended June 30, 2010 and 2009, we recognized $1,090 and $9,728, respectively, of revenue from Wyeth, consisting of (i) $0 and $6,177, respectively, of the $60,000 upfront payment pursuant to the 2005 collaboration, (ii) $0 and $3,551, respectively, as reimbursement of expenses under the 2005 collaboration, and (iii) $1,090 and $0, respectively, as reimbursement of expenses under the 2009 Transition Agreement.

From inception of the 2005 collaboration through December 31, 2009, we recognized the entire $60,000 upfront payment, $104,054 as reimbursement for our costs, and $39,000 for non-refundable milestone payments. Under the 2009 Transition Agreement, Wyeth is providing financial support for certain development efforts which we will recognize as additional reimbursement revenue as we become entitled to it.

We recognized the $60.0 million upfront payment in accordance with the proportionate performance method, which is based on the percentage of actual effort performed on our development obligations relative to total effort expected for all of our performance obligations during the reporting periods under the arrangement. The Transition Agreement shortened the obligation period to October 2009.

 
16

 
Ono License Agreement. In October 2008, we entered into a License Agreement with Ono and in November 2008, received an upfront payment of $15,000. We are entitled to receive potential milestones and royalty payments. During the three and six months ended June 30, 2009, we recognized $0 and $15,000 of the upfront payment as revenue, due to satisfying our performance obligations. During the three and six months ended June 30, 2010 we recorded $0 and $3, respectively, and during the three and six months ended June 30, 2009 we recorded $0 and $47, respectively, of reimbursement revenue for activities requested by Ono.

Royalty income.> During the three months ended June 30, 2010 and 2009, we earned royalties from net sales by Wyeth of subcutaneous RELISTOR of $581 and $487, respectively, and recognized $581 and $292, respectively, of royalty income. During the six months ended June 30, 2010 and 2009, we earned royalties from such net sales of $1,206 and $767, respectively, and recognized $1,206 and $467, respectively, of royalty income. As of June 30, 2009, we had recorded a cumulative total of $819 as deferred revenue – current. This amount and all remaining deferred royalty revenue recorded in 2009, was recognized as royalty income during the fourth quarter of 2009, when the 2005 collaboration agreement terminated. Royalties from net sales by Wyeth of RELISTOR, as defined, are based on royalty rates under our 2005 collaboration, ranging up to 30% of U.S. and 25% of foreign net sales at the highest sales levels.

Global net sales of RELISTOR were $3.8 million for the three months ended June 30, 2010, comprised of $2.3 million of U.S. and $1.5 million of ex-U.S. net sales. Global net sales were $3.2 million for the three months ended June 30, 2009, with U.S. and ex-U.S. net sales constituting $2.0 million and $1.2 million, respectively. Global net sales of RELISTOR were $8.0 million for the six months ended June 30, 2010, comprised of $4.7 million of U.S. and $3.3 million of ex-U.S. net sales. Global net sales were $5.1 million for the six months ended June 30, 2009, with U.S. and ex-U.S. net sales constituting $3.2 million and $1.9 million, respectively.

Research grants.> Revenues from research grants increased to (i) $789 for the three months ended June 30, 2010 from $510 for the three months ended June 30, 2009, and (ii) $1,433 for the six months ended June 30, 2010 from $1,017 for the six months ended June 30, 2009, in each case as a result of higher reimbursable expenses.


Expenses:

Research and Development Expenses >include scientific labor, clinical trial costs, supplies, product manufacturing costs, consulting, license fees, royalty payments and other operating expenses. Research and development expenses decreased to $11,008 for the three months ended June 30, 2010 from $13,085 for the same period of 2009, and decreased to $23,778 for the six months ended June 30, 2010 from $28,563 for the same period of 2009, and consisted of the following:

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
    2010
   
2009
   
Percent
Change
   
        2010
   
       2009
   
Percent
Change
 
                                     
Salaries and benefits
  $ 4,616     $ 5,781       (20%)     $ 9,848     $ 11,896       (17%)  

Three Months: Salaries and benefits decreased due to a decline in average headcount to 138 from 179 for the three months ended June 30, 2010 and 2009, respectively, in the research and development, manufacturing and clinical departments.

Six Months: Salaries and benefits decreased due to a decline in average headcount to 145 from 183 for the six months ended June 30, 2010 and 2009, respectively, in the research and development, manufacturing and clinical departments.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
    2010
   
2009
   
Percent
Change
   
        2010
   
        2009
   
Percent
Change
 
                                     
Share-based compensation
  $ 1,091     $ 1,738       (37%)     $ 2,650     $ 3,844       (31%)  

Three Months: Share-based compensation decreased for the three months ended June 30, 2010 compared to the three months ended June 30, 2009 due to lower employee stock purchase plan, restricted stock and stock option plan expenses.

Six Months: Share-based compensation decreased for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 due to lower employee stock purchase plan, restricted stock and stock option plan expenses.



   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
    2010
   
2009
   
Percent
Change
   
        2010
   
       2009
   
Percent
Change
 
                                     
Clinical trial costs
  $ 143     $ 555       (74%)     $ 895     $ 1,530       (42%)  

Three Months: Clinical trial costs decreased primarily due to lower expenses for (i) RELISTOR ($200), from reduced clinical trial activities, (ii) HIV ($123), due to decreased PRO 140 clinical trial activities and (iii) Cancer which decreased ($89) on an overall basis and such amount was partially offset by an increase in PSMA ADC clinical activities, all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months: Clinical trial costs decreased primarily due to lower expenses for (i) HIV ($503), due to decreased PRO 140 clinical trial activities, (ii) RELISTOR ($374), from reduced clinical trial activities, and (iii) Other ($1), partially offset by an increase in expenses for Cancer ($243), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
    2010
   
2009
   
Percent
Change
   
        2010
   
       2009
   
Percent
Change
 
                                     
Laboratory supplies
  $ 552     $ 667       (17%)     $ 967     $ 1,556       (38%)  

Three Months: Laboratory supplies decreased due to lower expenses for (i) Cancer ($73), due to a decrease in expenses for PSMA, and (ii) Other projects ($133), partially offset by an increase in RELISTOR ($78) and HIV ($13), resulting from a decline in purchases of drug supplies, all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months: Laboratory supplies decreased due to lower expenses for (i) Cancer ($352), due to a decrease in expenses for PSMA, (ii) Other projects ($273), and (iii) HIV ($64), resulting from a decline in purchases of drug supplies, partially offset by an increase in RELISTOR ($100), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
    2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Contract manufacturing and subcontractors
  $ 1,504     $ 2,002       (25%)     $ 3,076     $ 4,631       (34%)  

Three Months: Contract manufacturing and subcontractors decreased due to lower (i) Cancer ($448), due to lower contract manufacturing expenses for PSMA ADC, (ii) Other ($334), and (iii) HIV expenses ($118), from a decline in manufacturing expenses for PRO 140, partially offset by an increase in RELISTOR expenses ($402), all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. These expenses are related to the conduct of clinical trials, including manufacture by third parties of drug materials, testing, analysis, formulation and toxicology services, and vary as the timing and level of such services are required.

Six Months: Contract manufacturing and subcontractors decreased due to lower (i) HIV expenses ($937), from a decline in contract manufacturing expenses for PRO 140, (ii) Other ($869), and (iii) Cancer ($869), due to lower contract manufacturing expenses for PSMA ADC, partially offset by an increase in RELISTOR expenses ($1,120), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. These expenses are related to the conduct of clinical trials, including manufacture by third parties of drug materials, testing, analysis, formulation and toxicology services, and vary as the timing and level of such services are required.

 
18



   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
    2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Consultants
  $ 567     $ 289       96%     $ 801     $ 607       32%  

Three Months: Consultants expenses increased due to higher expenses for RELISTOR ($335) partially offset by decreases in HIV ($41), Cancer ($12) and Other projects ($4), all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. These expenses are related to the monitoring of clinical trials as well as the analysis of data from completed clinical trials and vary as the timing and level of such services are required.

Six Months: Consultants expenses increased due to higher expenses for RELISTOR ($355) and Cancer ($12) partially offset by decreases in HIV ($150) and Other projects ($23), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. These expenses are related to the monitoring of clinical trials as well as the analysis of data from completed clinical trials and vary as the timing and level of such services are required.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
License fees
  $ 291     $ 195       49%     $ 1,107     $ 825       34%  

Three Months: License fees increased primarily due to higher expenses for Cancer ($100) partially offset by lower expenses for HIV ($4), all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months: License fees increased primarily due to higher expenses for HIV ($422) and RELISTOR ($10), partially offset by lower expenses for Cancer ($150), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Royalty expense
  $ 58     $ 29       100%     $ 120     $ 47       155%  

Three Months: We incurred $58 and $49, respectively, of royalty costs and recognized $58 and $29, respectively, of royalty expenses during the three months ended June 30, 2010 and 2009. As of June 30, 2009, we had recorded a cumulative total of $82 of deferred royalty charges from the royalty costs incurred since we began earning royalties in the second quarter of 2008 and all remaining deferred royalty charges were recognized as royalty expense during the fourth quarter of 2009, the period in which our development obligations relating to RELISTOR terminated.

Six Months: We incurred $120 and $77, respectively, of royalty costs and recognized $120 and $47, respectively, of royalty expenses during the six months ended June 30, 2010 and 2009. As of June 30, 2009, we had recorded a cumulative total of $82 of deferred royalty charges from the royalty costs incurred since we began earning royalties in the second quarter of 2008 and all remaining deferred royalty charges were recognized as royalty expense during the fourth quarter of 2009, the period in which our development obligations relating to RELISTOR terminated.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Other operating expenses
  $ 2,186     $ 1,829       20%     $ 4,314     $ 3,627       19%  

Three Months: Other operating expenses increased for the three months ended June 30, 2010 compared to the three months ended June 30, 2009, primarily due to increases in rent ($433), insurance ($33) and travel ($19), partially offset by decreases in facilities ($86) and other operating expenses ($42).

Six Months: Other operating expenses increased for the six months ended June 30, 2010 compared to the six months ended June 30, 2009, primarily due to increases in rent ($841) and insurance ($7), partially offset by decreases in travel ($42), facilities ($26) and other operating expenses ($93).

 
19


 
 

General and Administrative Expenses >include administrative labor, consulting and professional fees and other operating expenses. General and administrative expenses decreased to (i) $5,680 for the three months ended June 30, 2010 from $7,113 for the same period of 2009, and (ii) $12,154 for the six months ended June 30, 2010 from $13,914 for the same period of 2009, as follows:

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Salaries and benefits
  $ 1,958     $ 2,195       (11%)     $ 4,382     $ 4,366       0%  

Three Months: Salaries and benefits decreased for the three months ended June 30, 2010 compared to the same period in 2009, due to a decline in average headcount to 38 from 50, in the general and administrative departments as part of our efforts to reduce costs.

Six Months: Salaries and benefits increased marginally for the six months ended June 30, 2010 compared to the same period in 2009, due to higher severance expenses in the current year and lower bonus expenses in the prior year, partially offset by a decline in average headcount to 41 from 51, in the general and administrative departments as part of our efforts to reduce costs.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Share-based compensation
  $ 1,124     $ 1,400       (20%)     $ 2,167     $ 3,436       (37%)  

Three Months: Share-based compensation decreased due to a decline in stock option, employee stock purchase plans and restricted stock expenses, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months: Share-based compensation decreased due to a decline in stock option, employee stock purchase plans and restricted stock expenses, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Consulting and professional fees
  $ 1,234     $ 2,154       (43%)     $ 2,996     $ 3,607       (17%)  

Three Months: Consulting and professional fees decreased due to lower consultant ($567), legal patent ($156), audit ($139), legal expenses ($55) and other professional fees ($3), all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months: Consulting and professional fees decreased due to lower consultant ($215), legal ($126), audit ($119), legal patent ($118), compliance ($18) and payroll servicing expenses ($17), which were partially offset by an increase in other professional fees ($2), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Other operating expenses
  $ 1,364     $ 1,364       0%     $ 2,609     $ 2,505       4%  

Three Months: Other operating expenses remained unchanged due to higher expenses for rent ($149) and recruiting ($19), which were fully offset by decreases in other operating expenses ($80), investor relations ($45), travel ($28), conferences and seminars ($8) and taxes ($7), all for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months: Other operating expenses increased due to higher expenses for rent ($282) and recruiting ($8), partially offset by decreases in other operating expenses ($111), investor relations ($37), taxes ($16), conferences and seminars ($13) and travel ($9), all for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

 
20



   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
 2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Depreciation and amortization
  $ 874     $ 1,223       (29%)     $ 1,751     $ 2,426       (28%)  

Three Months: Depreciation and amortization expense decreased to $874 for the three months ended June 30, 2010 from $1,223 for the three months ended June 30, 2009, primarily due to lower capital expenditures in 2009.

Six Months: Depreciation and amortization expense decreased to $1,751 for the six months ended June 30, 2010 from $2,426 for the six months ended June 30, 2009, primarily due to lower capital expenditures in 2009.

Other income:

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
     2010
   
2009
   
Percent
Change
   
         2010
   
       2009
   
Percent
Change
 
                                     
Interest income
  $ 16     $ 544       (97%)     $ 31     $ 1,334       (98%)  

Three Months: Interest income decreased to $16 for the three months ended June 30, 2010 from $544 for the three months ended June 30, 2009. For the three months ended June 30, 2010 and 2009, investment income decreased to $16 from $776, respectively, due to lower interest rates for cash equivalents, lower average balance of cash equivalents and marketable securities in 2010 than in 2009. Amortization of premiums, net of discounts, was $0 and ($232) for the three months ended June 30, 2010 and 2009, respectively.

Six Months: Interest income decreased to $31 for the six months ended June 30, 2010 from $1,334 for the six months ended June 30, 2009. For the six months ended June 30, 2010 and 2009, investment income decreased to $32 from $1,864, respectively, due to lower interest rates for cash equivalents, lower average balance of cash equivalents and marketable securities in 2010 than in 2009. Amortization of premiums, net of discounts, was ($1) and ($530) for the six months ended June 30, 2010 and 2009, respectively.

Interest income, as reported, is primarily the result of investment income from our marketable securities, decreased by the amortization of premiums we paid or increased by the amor