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| MRX > SEC Filings for MRX > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
provisions. As a result of certain amendments made to the contract with our
exclusive distributor of our aesthetics products, including DYSPORTTM, PERLANE®
and RESTYLANE®, beginning in the second quarter of 2009, we began recognizing
revenue on such products upon the shipment from the distributor to physicians.
Consequently, variations in the timing of revenue recognition could cause
significant fluctuations in operating results from period to period and may
result in unanticipated periodic earnings shortfalls or losses. We have
distribution services agreements with our two largest wholesale customers. We
review the supply levels of our significant products sold to major wholesalers
by reviewing periodic inventory reports that are supplied to us by our major
wholesalers in accordance with the distribution services agreements. We rely
wholly upon our wholesale and drug chain customers to effect the distribution
allocation of substantially all of our prescription products. We believe our
estimates of trade inventory levels of our products, based on our review of the
periodic inventory reports supplied by our major wholesalers and the estimated
demand for our products based on prescription and other data, are reasonable. We
further believe that inventories of our products among wholesale customers,
taken as a whole, are similar to those of other specialty pharmaceutical
companies, and that our trade practices, which periodically involve volume
discounts and early payment discounts, are typical of the industry.
We periodically offer promotions to wholesale and chain drugstore customers
to encourage dispensing of our prescription products, consistent with
prescriptions written by licensed health care providers. Because many of our
prescription products compete in multi-source markets, it is important for us to
ensure the licensed health care providers' dispensing instructions are fulfilled
with our branded products and are not substituted with a generic product or
another therapeutic alternative product which may be contrary to the licensed
health care providers' recommended and prescribed Medicis brand. We believe that
a critical component of our brand protection program is maintenance of full
product availability at drugstore and wholesale customers. We believe such
availability reduces the probability of local and regional product
substitutions, shortages and backorders, which could result in lost sales. We
expect to continue providing favorable terms to wholesale and retail drug chain
customers as may be necessary to ensure the fullest possible distribution of our
branded products within the pharmaceutical chain of commerce. From time to time
we may enter into business arrangements (e.g., loans or investments) involving
our customers and those arrangements may be reviewed by federal and state
regulators.
Purchases by any given customer, during any given period, may be above or
below actual prescription volumes of any of our products during the same period,
resulting in fluctuations of product inventory in the distribution channel.
Recent Developments
As described in more detail below, the following significant events and
transactions occurred during the nine months ended September 30, 2009, and
affected our results of operations, our cash flows and our financial condition:
• Settlement Agreement with Sandoz;
• FDA approval of additional strengths of SOLODYN®;
• License and Development Agreement with Revance;
• License and Settlement Agreement and Joint Development Agreement with Perrigo;
• FDA approval of DYSPORTTM;
• Sale of Medicis Pediatrics;
• Teva's launch of a generic to SOLODYN®, our settlement agreement with Teva, and the impact of the launch on our sales reserves;
• Adjustments to Medicaid drug rebate and DoD/TRICARE liabilities;
• Clinical milestone payments related to our collaboration with IMPAX; and
• Reduction in the carrying value of our investment in Revance.
Settlement Agreement with Sandoz
On August 18, 2009, we entered into a settlement agreement with Sandoz Inc.
("Sandoz") whereby we and Sandoz agreed to terminate all legal disputes between
us relating to SOLODYN®. In addition, Sandoz confirmed that our patents relating
to SOLODYN® are valid and enforceable and cover Sandoz's activities relating to
its generic SOLODYN® product under Abbreviated New Drug Application ("ANDA")
No. 90-422, agreed that any prior sales of its generic SOLODYN® product were not
authorized by us and further agreed to be permanently enjoined from any further
distribution of generic SOLODYN®.
FDA approval of additional strengths of SOLODYN®
On July 27, 2009, we announced that the FDA had approved additional strengths
of SOLODYN® in 65mg and 115mg dosages for the treatment of inflammatory lesions
of non-nodular moderate to severe acne vulgaris in patients 12 years of age and
older. With the addition of these newly-approved strengths, SOLODYN® is now
available in five dosages: 45mg, 65mg, 90mg, 115mg, and 135mg. Shipment of the
newly-approved 65mg and 115mg products to wholesalers began during the third
quarter of 2009.
License and Development Agreement with Revance
On July 28, 2009, we and Revance Therapeutics, Inc. ("Revance"), a
privately-held, venture-backed development-stage company, entered into a license
agreement granting us worldwide aesthetic and dermatological rights to Revance's
novel, investigational, injectable botulinum toxin type A product, referred to
as "RT002", currently in pre-clinical studies. The objective of the RT002
program is the development of a next-generation neurotoxin with favorable
duration of effect and safety profiles.
Under the terms of the agreement, we paid Revance $10.0 million upon closing
of the agreement, and will pay additional potential milestone payments totaling
approximately $94 million upon successful completion of certain clinical,
regulatory and commercial milestones, and a royalty based on sales and supply
price, the total of which is equivalent to a double-digit percentage of net
sales. The initial $10.0 million payment was recognized as research and
development expense during the three months ended September 30, 2009.
License and Settlement Agreement and Joint Development Agreement with Perrigo
On April 8, 2009, we entered into a License and Settlement Agreement (the
"License and Settlement Agreement") and a Joint Development Agreement (the
"Joint Development Agreement") with Perrigo Israel Pharmaceuticals Ltd. Perrigo
Company was also a party to the License and Settlement Agreement. Perrigo Israel
Pharmaceuticals Ltd. and Perrigo Company are collectively referred to as
"Perrigo."
In connection with the License and Settlement Agreement, we and Perrigo
agreed to terminate all legal disputes between them relating to our VANOS®
(fluocinonide) Cream 0.1%. On April 17, 2009, the Court entered a consent
judgment dismissing all claims and counterclaims between us and Perrigo, and
enjoining Perrigo from marketing a generic version of VANOS®other than under the
terms of the settlement agreement. In addition, Perrigo confirmed that certain
of our patents relating to VANOS® are valid and enforceable, and cover Perrigo's
activities relating to its generic product under ANDA No. 090256. Further,
subject to the terms and conditions contained in the License and Settlement
Agreement:
• we granted Perrigo, effective December 15, 2013, or earlier upon the
occurrence of certain events, a license to make and sell generic versions of
the existing VANOS® products; and
• when Perrigo does commercialize generic versions of VANOS® products, Perrigo will pay us a royalty based on sales of such generic products.
Pursuant to the Joint Development Agreement, subject to the terms and conditions contained therein:
• we and Perrigo will collaborate to develop a novel proprietary product;
• we have the sole right to commercialize the novel proprietary product;
• if and when an NDA for a novel proprietary product is submitted to the FDA, we and Perrigo shall enter into a commercial supply agreement pursuant to which, among other terms, for a period of three years following approval of the NDA, Perrigo would exclusively supply to us all of our novel proprietary product requirements in the U.S.;
• we made an up-front $3.0 million payment to Perrigo, and will make additional payments to Perrigo of up to $5.0 million upon the achievement of certain development, regulatory and commercialization milestones; and
• we will pay to Perrigo royalty payments on sales of the novel proprietary product.
During the three months ended September 30, 2009, a development milestone was
achieved, and we made a $2.0 million payment to Perrigo pursuant to the Joint
Development Agreement. The $3.0 million up-front payment and the $2.0 million
development milestone payment was recognized as research and development expense
during the three months ended June 30, 2009 and September 30, 2009,
respectively.
FDA approval of DYSPORTTM
On April 29, 2009, the FDA approved the Biologics License Application for
DYSPORTTM, an acetylcholine release inhibitor and a neuromuscular blocking
agent. The approval includes two separate indications, the treatment of cervical
dystonia in adults to reduce the severity of abnormal head position and neck
pain, and the temporary improvement in the appearance of moderate to severe
glabellar lines in adults younger than 65 years of age. RELOXIN®, which was the
proposed U.S. name for Ipsen's botulinum toxin product for aesthetic use, is now
marketed under the name of DYSPORTTM. Ipsen will market DYSPORTTM in the U.S.
for the therapeutic indication (cervical dystonia), while Medicis markets
DYSPORTTM in the U.S. for the aesthetic indication (glabellar lines).
In March 2006, Ipsen granted us the rights to develop, distribute and
commercialize Ipsen's botulinum toxin product for aesthetic use in the U.S.,
Canada and Japan. In accordance with the agreement, we paid Ipsen $75.0 million
during the second quarter of 2009 as a result of the approval by the FDA. The
$75.0 million payment was capitalized into intangible assets in our consolidated
balance sheet. We will pay Ipsen a royalty based on sales and a supply price,
the total of which is equivalent to approximately 30% of net sales as defined
under the agreement.
Sale of Medicis Pediatrics
On June 10, 2009, Medicis, Medicis Pediatrics, Inc. ("Medicis Pediatrics,"
formerly known as Ascent Pediatrics, Inc.), a wholly-owned subsidiary of
Medicis, and BioMarin Pharmaceutical Inc. ("BioMarin") entered into an amendment
(the "Amendment") to the Securities Purchase Agreement (the "Securities Purchase
Agreement"), dated as of May 18, 2004 and amended on January 12, 2005, by and
among Medicis, Medicis Pediatrics, BioMarin and BioMarin Pediatrics Inc., a
wholly-owned subsidiary of BioMarin that previously merged into BioMarin. The
Amendment was effected to accelerate the closing of BioMarin's option under the
Securities Purchase Agreement to purchase from Medicis all of the issued and
outstanding capital stock of Medicis Pediatrics (the "Option"), which was
previously expected to close in August 2009. In accordance with the Amendment,
the parties consummated the closing of the Option on June 10, 2009 (the "Option
Closing"). The aggregate cash consideration paid to Medicis in conjunction with
the Option Closing was approximately $70.3 million and the purchase was
completed substantially in accordance with the previously disclosed terms of the
Securities Purchase Agreement.
As a result of the Option Closing, we recognized a pretax gain of
$2.2 million during the three months ended June 30, 2009, which is included in
other (income) expense, net, in the accompanying condensed consolidated
statements of operations for the nine months ended September 30, 2009. Because
of the difference between our book and tax basis of goodwill in Medicis
Pediatrics, the transaction resulted in a $24.8 million gain for income tax
purposes, and, accordingly, we recorded a $9.0 million income tax provision
during the three months ended June 30, 2009, which is included in income tax
expense in the accompanying condensed consolidated statements of operations for
the nine months ended September 30, 2009.
Teva's launch of a generic to SOLODYN®, our settlement agreement with Teva, and
the impact of the launch on our sales reserves
On March 17, 2009, Teva Pharmaceutical Industries Ltd. ("Teva") was granted
final approval by the FDA for its ANDA No. 065485 to market its generic version
of 45mg, 90mg and 135mg SOLODYN® Tablets. Teva commenced shipment of this
product immediately after the FDA's approval of the ANDA.
On March 18, 2009, we entered into a Settlement Agreement with Teva whereby
all legal disputes between us and Teva relating to SOLODYN® were terminated.
Pursuant to the agreement, Teva confirmed that our patents relating to SOLODYN®
are valid and enforceable, and cover Teva's activities relating to its generic
SOLODYN® product. As part of the settlement, Teva agreed to immediately stop all
further shipments of its generic SOLODYN® product. We agreed to release Teva
from liability arising from any prior sales of its generic SOLODYN® product,
which were not authorized by Medicis. Under terms of the agreement, Teva has the
option to market its generic versions of 45mg, 90mg and 135mg SOLODYN® Tablets
under the SOLODYN® patent rights belonging to us in November 2011, or earlier
under certain conditions.
Teva's shipment of its generic SOLODYN® product upon FDA approval, but prior
to the consummation of the Settlement Agreement with us on March 18, 2009,
caused wholesalers to reduce ordering levels for SOLODYN®, and caused us to
increase our reserves for sales returns and consumer rebates. As a result, net
revenues of SOLODYN® during the three months ended March 31, 2009, decreased as
compared to the three months ended March 31, 2008, and as compared to the three
months ended December 31, 2008.
Adjustments to Medicaid drug rebate and Department of Defense/TRICARE
liabilities
In April 2009, we completed a voluntary review of pricing data submitted to
the Medicaid Drug Rebate Program (the "Program") for the period from the first
quarter of 2006 through the fourth quarter of 2007. The review identified
certain corrective actions that were needed in relation to the reviewed data. We
expect that the corrective actions, when implemented, would result in an
increase to our rebate liability under the Program in the amount of
approximately $3.1 million for the eight-quarter period reviewed. We have
disclosed the results of the review and revised rebate liability to the Centers
for Medicare and Medicaid Services ("CMS"), which administers the Program, and
are awaiting CMS's instruction as to whether and when to re-file the revised
pricing data. Our submission to CMS also included a request that CMS approve a
change in drug category for certain of our products. If CMS does not accept our
request for this change, we may owe additional Medicaid rebates which would
result in additional liability under the Program. Upon completion of CMS's
review of our submission, we will evaluate the impact that CMS's conclusions
will have on our liability under related drug rebate agreements with various
states and the Public Health Service Drug Pricing Program. We accrued
$3.1 million for the 2006 and 2007 liability, which was recognized as a
reduction of net revenues during the three months ended March 31, 2009.
In July 2009, we completed the extension of this review to the pricing data
submitted to the Program for the period from the first quarter of 2008 through
the fourth quarter of 2008. The review again identified certain corrective
actions that were needed in relation to the reviewed data. We expect that the
corrective actions, when implemented, would result in an increase to our rebate
liability under the Program in the amount of approximately $0.2 million for the
additional four-quarter period reviewed. If CMS does not accept our request to
approve a change in drug category for certain of our products, we may owe
additional Medicaid rebates which would result in additional liability under the
Program. Upon completion of CMS's review of our submission for this additional
four-quarter period, we will evaluate the impact that CMS's conclusions will
have on our liability under related drug rebate agreements with various states
and the Public Health Service Drug Pricing Program. As of June 30, 2009, we
accrued $0.2 million for the 2008 liability, which was recognized as a reduction
of net revenues during the three months ended June 30, 2009.
On March 17, 2009, the Department of Defense ("DoD") issued a Final Rule (the
"Rule") implementing Section 703 of the National Defense Authorization Act of
2008. The Rule establishes a program under which DoD seeks Federal Ceiling
Price-based refunds, or rebates, from drug manufacturers on TRICARE retail
pharmacy utilization. Under the Rule, effective May 26, 2009, DoD is seeking
rebates on TRICARE Retail Pharmacy Program prescriptions filled from January 28,
2008, forward. The Rule sets forth a program in which DoD asks manufacturers to
enter into agreements with the agency under which the manufacturers commit to
pay such rebates; products that are not listed on such an agreement will not be
able to be included on the DoD Uniform Formulary. Additionally, products not
listed on TRICARE retail agreements will not be available through TRICARE retail
network pharmacies without prior authorization. Among other things, the Rule
further provides that manufacturers may apply for compromise or waivers of
amounts due. As a result of the Final Rule, our rebate liability as of March 31,
2009, for 2008 utilization is approximately $1.6 million, and the estimated
rebate liability for the first quarter of 2009 is approximately $0.8 million. It
is possible that, pursuant to the compromise or waiver process set forth in the
Rule, DoD will agree to accept a lesser sum for the 2008 and first quarter of
2009 periods. We applied timely for a waiver of liability from January 28, 2008
through the date of our TRICARE rebate agreement, which was executed
on June 29, 2009. As of March 31, 2009, we accrued $2.4 million for the 2008 and
first quarter of 2009 liability, which was recognized as a reduction of net
revenues during the three months ended March 31, 2009.
Clinical milestone payments related to our collaboration with IMPAX
On November 26, 2008, we entered into a License and Settlement Agreement and
a Joint Development Agreement with IMPAX Laboratories, Inc. ("IMPAX"). In
connection with the License and Settlement Agreement, we and IMPAX agreed to
terminate all legal disputes between us relating to SOLODYN®. Additionally,
under terms of the License and Settlement Agreement, IMPAX confirmed that our
patents relating to SOLODYN® are valid and enforceable, and cover IMPAX's
activities relating to its generic product under ANDA No. 090024. Under the
terms of the License and Settlement Agreement, IMPAX has a license to market its
generic versions of SOLODYN® 45mg, 90mg and 135mg under the SOLODYN® patent
rights belonging to us upon the occurrence of specific events. Upon launch of
its generic formulations of SOLODYN®, IMPAX may be required to pay us a royalty,
based on sales of those generic formulations by IMPAX under terms described in
the License and Settlement Agreement. Under the Joint Development Agreement, we
and IMPAX will collaborate on the development of five strategic dermatology
product opportunities, including an advanced-form SOLODYN® product. Under terms
of the agreement, we made an initial payment of $40.0 million upon execution of
the agreement. During the three months ended March 31, 2009 and September 30,
2009, we paid IMPAX $5.0 million and $5.0 million, respectively, upon the
achievement of two separate clinical milestones, in accordance with terms of the
agreement. In addition, we are required to pay up to $13.0 million upon
successful completion of certain other clinical and commercial milestones. We
will also make royalty payments based on sales of the advanced-form SOLODYN®
product if and when it is commercialized by us upon approval by the FDA. We will
share equally in the gross profit of the other four development products if and
when they are commercialized by IMPAX upon approval by the FDA. The
$40.0 million initial payment was recognized as a charge to research and
development expense during the three months ended December 31, 2008, and the two
$5.0 million clinical milestone achievement payments were recognized as a charge
to research and development expense during the three months ended March 31, 2009
and September 30, 2009, respectively.
Reduction in the carrying value of our investment in Revance
On December 11, 2007, we announced a strategic collaboration with Revance,
whereby we made an equity investment in Revance and purchased an option to
acquire Revance or to license exclusively in North America Revance's novel
topical botulinum toxin type A product currently under clinical development. The
consideration to be paid to Revance upon our exercise of the option will be at
an amount that will approximate the then fair value of Revance or the license of
the product under development, as determined by an independent appraisal. The
option period will extend through the end of Phase 2 testing in the United
States. In consideration for our $20.0 million payment, we received preferred
stock representing an approximate 13.7 percent ownership in Revance, or
approximately 11.7 percent on a fully diluted basis, and the option to acquire
Revance or to license the product under development. The $20.0 million is
expected to be used by Revance primarily for the development of the product.
Approximately $12.0 million of the $20.0 million payment represents the fair
value of the investment in Revance at the time of the investment and was
included in other long-term assets in our condensed consolidated balance sheets
as of December 31, 2007. The remaining $8.0 million, which is non-refundable and
is expected to be utilized in the development of the new product, represents the
residual value of the option to acquire Revance or to license the product under
development and was recognized as research and development expense during the
three months ended December 31, 2007.
We estimate the net realizable value of the Revance investment based on a
hypothetical liquidation at book value approach as of the reporting date, unless
a quantitative valuation metric is available for these purposes (such as the
completion of an equity financing by Revance).
During 2008, we reduced the carrying value of our investment in Revance and
recorded a related charge to earnings of approximately $9.1 million as a result
of a reduction in the estimated net realizable value of the investment using the
hypothetical liquidation at book value approach as of December 31, 2008.
Additionally, during the three months ended March 31, 2009, we reduced the
carrying value of our investment in Revance by approximately $2.9 million as a
result of a reduction in the estimated net realizable value of the investment
using the hypothetical liquidation at book value approach as of March 31, 2009.
. . .
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