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MAPP > SEC Filings for MAPP > Form 10-Q on 6-Nov-2012All Recent SEC Filings

Show all filings for MAP PHARMACEUTICALS, INC.

Form 10-Q for MAP PHARMACEUTICALS, INC.


6-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to them. In some cases you can identify forward-looking statements by words such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to, statements regarding: our belief that we addressed in our resubmission all issues and observations raised by the FDA, including those cited during an inspection of our third party manufacturer, the implications of interim or final results of our clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates, the potential of such product candidates to lead to the development of commercial products, our anticipated timing for initiation or completion of our clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development, and the sufficiency of our cash resources. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this quarterly report on Form 10-Q and our other filings with the SEC. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q. You should read this quarterly report on Form 10-Q completely and with the understanding that our actual future results may be materially different from those we expect. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form 10-Q and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2011.

Overview

Our goal is to enhance the therapeutic benefits and commercial attractiveness of proven drugs in the field of neurology, while minimizing risk by capitalizing on their known safety, efficacy and commercialization history, by applying our proprietary formulation and inhalation technologies. We are developing proprietary product candidates that address large market opportunities in the field of neurology.

Our strategy is to commercialize and develop differentiated neurology product candidates that can address significant unmet medical needs and overcome limitations of existing products. Key elements of our strategy include:

• Obtain regulatory approval for our most advanced product candidate, LEVADEX® orally inhaled migraine drug, for the potential acute treatment of migraine in adults;

• Build a specialized sales force to commercialize LEVADEX to neurologists and pain specialists in the United States (U.S.);

• Expand the market opportunity for LEVADEX; and

• Advance and expand our neurology product pipeline by leveraging our technologies and our extensive scientific expertise in aerosol science and pharmaceutical technology to develop additional potential product candidates offering unique features and benefits.

Our current focus is to advance our lead product candidate, LEVADEX, formerly known as MAP0004, a proprietary orally inhaled version of dihydroergotamine mesylate, or DHE, for the potential acute treatment of migraine. We are in the development stage and since our inception we have devoted substantially all of our efforts to research and development, raising capital and recruiting personnel. We completed clinical development for LEVADEX in 2010 and in May 2011 we submitted our New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA. The FDA reviewed our NDA and on March 26, 2012, we received a Complete Response letter in which the FDA requested that we address issues relating to the chemistry, manufacturing and controls, or CMC, of LEVADEX. The FDA also stated that manufacturing deficiencies identified during a recent facility inspection of one of our third party manufacturers need to be resolved to the FDA's satisfaction. The FDA indicated in the Complete Response letter that it has not been able to complete its review of inhaler usability information requested late in the review cycle by the FDA. We have had an End-of-Review meeting with the FDA to discuss our proposed plan for responding to the Complete Response letter and we have worked to address the issues identified in the Complete Response letter. We resubmitted the NDA for LEVADEX in October 2012. The FDA will determine the type of resubmission (Class 1 or Class 2) and the resulting review timeline only after the resubmission has been accepted for filing.


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If LEVADEX is approved by the FDA for the first indication (acute treatment of migraine in adults), we plan to commercialize LEVADEX in collaboration with Allergan, Inc. directly to neurologists and pain specialists in the U.S. and Canada. We are also evaluating options to commercialize LEVADEX to additional physicians in the U.S. and Canada and to physicians in markets outside the U.S. and Canada.

Our Lead Product Candidate - LEVADEX

Migraine is a chronic and debilitating neurological disorder characterized by episodic attacks. Migraine attacks typically manifest themselves as moderate to severe headache pain, with associated symptoms that often include nausea and vomiting, photophobia, phonophobia, and visual disturbances or aura. Migraines usually involve "pounding" or "throbbing" pain on one side of the head, although pain may occur on both sides. Migraines limit the normal functioning of patients, who often seek dark, quiet surroundings until the episode has passed. Most migraines last between four and 24 hours, but some last as long as three days. According to published studies, the median frequency of attack is 1.5 times per month, although approximately 25% of migraine sufferers experience one or more attacks every week.

Migraine is a major public health problem that affects approximately 12% of the population in the U.S. and approximately 15% in Europe. According to the National Headache Foundation, approximately 30 million people in the U.S. suffer from migraine. Migraine is more common in women, with about 18% of women affected and 6% of men. Migraine prevalence is highest during the peak productive ages of 25 to 55, which results in high costs to employers and managed care organizations.

Migraine is listed in the top 20 causes of disabling conditions and in the top four neurologic disabling conditions by the World Health Organization, or WHO. Related disability from migraine is substantial, with over 90% of sufferers experiencing functional impairment with their migraine that can disrupt every aspect of day to day life, including work, school, family and social relationships. More than half of the sufferers report severe impairment or the need for bed rest as a result of their migraines, according to published surveys. The economic burden of migraine remains substantial despite existing treatments with patients losing four to six work days each year due to migraine. The combination of direct and indirect costs of migraine in the U.S. is estimated at over $20 billion annually.

In 2011, there were approximately 13 million migraine-specific prescriptions written for the acute treatment of migraine, generating approximately $1.7 billion in revenues in the U.S. The majority of the prescriptions written were in the triptan class, and the leading branded agent, Maxalt, generated approximately $450 million in revenues in the U.S. However, in 2008 when the leading migraine-specific agent, Imitrex, became generic, the total market for migraine-specific prescriptions generated approximately $2.5 billion in revenues in the U.S.

LEVADEX is an easy to use, at-home therapy in development that patients self-administer using our proprietary hand-held TEMPO inhaler. We have designed LEVADEX to provide faster onset and longer-lasting migraine relief than triptans, the class of drugs most often prescribed for treating migraine. DHE currently is available as an intravenous, or IV, therapy which has been used in clinical settings for over 50 years for the safe and effective treatment of migraine, particularly forms of migraine that are severe or do not respond to triptans or other therapies. We believe LEVADEX has the potential to be suitable as a first-line therapy for some migraine patients.

The LEVADEX clinical development program was a comprehensive program under
Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, that evaluated the efficacy, safety, pharmacokinetics and pharmacodynamics of LEVADEX in approximately 1,000 patients across nine trials. In our clinical trials conducted for LEVADEX, no drug-related serious adverse events have been reported.

In the efficacy portion of our pivotal Phase 3 FREEDOM-301 clinical trial, LEVADEX met all four primary endpoints, showing statistically significant improvement in pain relief (p<0.0001), freedom from phonophobia (sensitivity to sound) (p<0.0001), freedom from photophobia (sensitivity to light) (p<0.0001) and freedom from nausea (p=0.02) as reported two hours after dosing. Additional endpoints showed that LEVADEX provided rapid pain relief in 30 minutes and sustained pain relief for up to 48 hours after dosing. LEVADEX was well tolerated, with the most common adverse event reported being medication aftertaste at 6%, with 2% of patients receiving placebo also reporting medication aftertaste. The next most common adverse event was nausea at 5%, compared with 2% for placebo. We completed a 12 month open-label safety extension of our FREEDOM-301 trial, which evaluated lung function and cardiovascular parameters, during which approximately 9,500 headaches were treated and over 250 subjects completed 12 months of exposure. There were no mean decreases in lung function, as measured by spirometry, between the LEVADEX and placebo groups. There were no drug-related serious adverse events reported in the trial.


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We also have completed additional clinical pharmacology trials that include a pharmacokinetic (PK) trial in smokers, a pharmacodynamics (PD) trial evaluating pulmonary artery pressure using echocardiogram, a thorough QT trial, a PK trial in asthmatics and a drug-drug interaction trial.

Neurology Pipeline

We are exploring options to advance and expand our neurology product pipeline by leveraging our technologies and our extensive scientific expertise in aerosol science and pharmaceutical technology to develop additional neurological product candidates offering unique features and benefits.

Our goal is to enhance the therapeutic benefits and commercial attractiveness of proven drugs in the field of neurology, while minimizing risk by capitalizing on their known safety, efficacy and commercialization history, by applying our proprietary formulation and inhalation technologies. Our strategy is to develop differentiated neurology products that address large market opportunities with significant unmet medical needs. We intend to commercialize potential future products through the sales force we intend to build upon the potential commercialization of LEVADEX. We are currently developing two early stage, pre-clinical product candidates, including one in Parkinson's disease and another in epilepsy.

Allergan Collaboration

In January 2011, we entered into a Collaboration Agreement (the "Collaboration Agreement") and a Co-Promotion Agreement (the "Co-Promotion Agreement," and together with the Collaboration Agreement, the "Allergan Agreements") with Allergan, Inc., Allergan USA, Inc. and Allergan Sales, LLC (collectively, "Allergan"). Pursuant to the terms of the Allergan Agreements, we have granted Allergan a co-exclusive license (the "Allergan License") to market and co-promote LEVADEX, our proprietary novel migraine therapy for delivery by inhalation, to neurologists and pain specialists in the United States in collaboration with us.

In July 2011, Allergan exercised its option to expand the Collaboration Agreement to include commercialization to neurologists and pain specialists in Canada. Under the Allergan Agreements, we retain the right to market and promote LEVADEX to other physicians within the United States and Canada and also retain all rights to LEVADEX in all other countries.

Under the Allergan Agreements, we are solely responsible for payment of all remaining costs of obtaining regulatory approval of LEVADEX for the acute treatment of migraine in adults, except that if the FDA notifies us that additional development or manufacturing activities costing in excess of a certain threshold amount will be required for such regulatory approval, the parties will share any such excess costs.

Contingent upon FDA approval of LEVADEX for the initial indication (the acute treatment of migraine), the parties will collaborate in the development of LEVADEX for the treatment of pediatric migraine and for at least one other indication. The parties generally share equally all other costs of developing LEVADEX in such additional indications under the Allergan Agreements, except that neither party shall be obligated for more than a certain threshold amount in a given year, or for more than a certain threshold amount in the aggregate, for development or manufacturing costs or expenses incurred by us for such activities. We may develop LEVADEX for certain other indications independently of the collaboration if Allergan does not agree to develop LEVADEX for such indications pursuant to the Allergan Agreements.

We are responsible for manufacturing and distributing LEVADEX, if approved by the FDA, and anticipate booking product revenues from sales of LEVADEX resulting from the parties' collaboration. The parties will each provide sales representatives and other sales support for marketing and promotional efforts. The Allergan Agreements specify minimum annual sales detail requirements to be provided by each party, and establish maximum annual amounts of detailing costs that each party will be obligated to incur pursuant to a commercialization plan. Shared commercialization costs are those costs and expenses directly related to the commercialization of LEVADEX and are agreed upon periodically by both parties. The parties share profits and losses resulting from the collaboration equally.

The Collaboration Agreement may be terminated (i) by Allergan, at will, after first commercial sale of LEVADEX in the United States, upon 180 days' prior written notice, (ii) by Allergan, upon written notice to us, if we receive a complete response letter or equivalent communication from the FDA, that Allergan determines will extend potential approval beyond a certain date or requires a certain minimum level of additional investment, (iii) by us, upon written notice to Allergan, if Allergan commercializes a competing product in the United States or Canada and (iv) by us, upon written notice to Allergan, if Allergan challenges or opposes patent rights licensed to Allergan pursuant to the Collaboration Agreement. Additionally, either party may terminate the Collaboration Agreement in the event of an uncured material breach. The Co-Promotion Agreement will terminate upon termination of the Collaboration Agreement.

In February 2011, Allergan paid us an upfront payment of $60.0 million, out of which we have recognized $0.9 million and $2.8 million, respectively, for the three and nine months ended September 30, 2012, compared to $0.8 million and $2.2 million, respectively, for the same periods in 2011. We have recognized $5.9 million of the $60.0 million for the cumulative period from


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July 3, 2003 (date of inception) to September 30, 2012. As of September 30, 2012, $54.1 million of the initial $60.0 million remained unrecognized and will be amortized as collaboration revenue through the end date of the non-contingent deliverable in the Collaboration Agreement with the longest term. Our participation in joint committees with Allergan has the longest obligation period, requiring our participation throughout the term of the Collaboration Agreement. The term of the Collaboration Agreement is the later of
(a) December 31, 2025, and (b) the date that our last patent right covering LEVADEX in the United States expires. The date that our last patent right covering LEVADEX in the United States expires is 2028. As a result, we will amortize the remaining $54.1 million of the initial $60.0 million through 2028.

During the third quarter ended September 30, 2011, the FDA accepted for filing our LEVADEX NDA. As a result, pursuant to the terms of the Allergan Agreements, Allergan paid us a milestone payment of $20.0 million. We have determined that the achievement of this contingent milestone was substantive and we recorded the $20.0 million as collaboration revenue on our consolidated statements of operations for the year ended December 31, 2011. In addition to the $20.0 million milestone described above, under the terms of the Collaboration Agreement, we may also receive up to an additional $77.0 million in milestone payments, including $50.0 million for the first commercial sale of LEVADEX associated with the initial indication (the acute treatment of migraine), up to $25.0 million for the achievement of certain FDA-approved product labeling in the United States and $2.0 million for regulatory approval of the initial indication for LEVADEX in Canada.

We agreed with Allergan, subsequent to the effective date of the Collaboration Agreement, to begin commercialization activities relating to the initial indication prior to initial approval of LEVADEX, and that those costs would be shared equally between the parties. Any reimbursements from Allergan for shared expenses relating to contingent deliverables are recorded in our financial statements in the quarters in which the cost sharing occurs. Sales, general and administrative expenses for the three and nine months ended September 30, 2012 were net of $0.5 million and $1.1 million, respectively, compared to $0.2 million and $0.7 million, respectively, for the same periods of 2011, of costs reimbursed or reimbursable by Allergan under cost-sharing provisions in the Allergan Agreements. Sales, general and administrative expenses for the cumulative period from July 3, 2003 (date of inception) to September 30, 2012 were net of $2.4 million of costs reimbursed or reimbursable by Allergan under cost-sharing provisions in the Allergan Agreements.

Critical Accounting Policies and Significant Judgments and Estimates

Revenue Recognition

We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. Collaboration revenue, which is earned under license agreements with third parties, may include nonrefundable license fees, cost reimbursements and contingent milestones.

Before January 1, 2011, we evaluated license arrangements with multiple elements in accordance with Accounting Standards Codification, or ASC, 605-25 Revenue Recognition - Multiple-Element Arrangements. In October 2009, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2009-13 Revenue Arrangements with Multiple Deliverables, or ASU 2009-13, which amended the accounting standards for certain multiple element revenue arrangements to:

• provide updated guidance on whether multiple elements exist, how the elements in an arrangement should be separated, and how the arrangement consideration should be allocated to the separate elements;

• require an entity to allocate arrangement consideration to each element based on a selling price hierarchy, also called the relative selling price method, where the selling price for an element is based on vendor-specific objective evidence ("VSOE"), if available; third-party evidence ("TPE"), if available and VSOE is not available; or the best estimate of selling price ("ESP"), if neither VSOE nor TPE is available; and

• eliminate the use of the residual method and require an entity to allocate arrangement consideration using the selling price hierarchy.

The revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for that element.

On January 1, 2011, we adopted ASU 2009-13 on a prospective basis. The new accounting standard for revenue recognition, if applied in the same manner to the year ended December 31, 2010, would not have any impact to total revenue and deferred revenue for that fiscal year as we did not have any collaboration revenue in fiscal 2010 or any deferred revenue as of December 31, 2010. The new accounting guidance for revenue recognition has not had a significant effect on total net revenue in periods after initial adoption, although the impact on the timing of revenue will vary depending on the evaluation of the elements of any new arrangements.

VSOE is based on the price charged when the element is sold separately and is the price actually charged for that deliverable. We typically are not able to establish VSOE for the elements of a license arrangement because each arrangement is unique, an arrangement typically consists of multiple elements and we have limited history of entering into license arrangements.


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When VSOE cannot be established, we attempt to establish the selling price of the elements of a license arrangement based on TPE. TPE is determined based on a competitor's price for similar deliverables when sold separately. We typically are not able to determine TPE for license arrangements, as they contain a significant level of differentiation such that the comparable pricing of a competitor's license arrangement with similar functionality cannot be obtained, and we are therefore unable to reliably determine what a similar competitor's license arrangement's selling price would be on a standalone basis.

When we are unable to establish the selling price of an element using VSOE or TPE, we use the ESP in our allocation of the upfront payment. The objective of the ESP is to determine the price at which we would transact a sale if the element of the license arrangement were sold on a standalone basis.

Our process for determining ESPs involves management's judgment. Our process considers multiple factors such as discounted cash flows, estimated direct expenses and other costs and available data, which may vary over time, depending upon the circumstances, and relate to each deliverable. If the estimated obligation period of one or more deliverables should change, the future amortization of the revenue would also change. We regularly review ESP and maintain internal controls over the establishment and updates of the estimates.

We entered into a Collaboration Agreement with Allergan, Inc. in January 2011 which requires us to provide multiple deliverables, including: a license to commercialize LEVADEX, clinical and regulatory work necessary for FDA approval of the first indication for LEVADEX (acute treatment of migraine in adults), manufacturing process development for LEVADEX, an option to include Canada in the territory in which Allergan can promote LEVADEX and participation in various committees jointly with Allergan throughout the term of the Collaboration Agreement. These deliverables are non-contingent in nature. We received an upfront cash payment of $60.0 million from Allergan upon execution of the Collaboration Agreement. In accordance with ASU 2009-13, we evaluated whether there is standalone value for each of the various non-contingent deliverables. We have determined that the license delivered by us and other non-contingent deliverables do not have standalone value separate from each other, based on contractual limitations in the Collaboration Agreement that restrict Allergan from using the license for its intended purpose without other non-contingent deliverables from us.

We believe that since the license does not have standalone value, it must be combined with all the remaining non-contingent deliverables because the license would not be fully delivered for its intended purpose unless we continue to perform our obligation to participate in the various committees jointly with Allergan. Accordingly, all of the non-contingent deliverables are treated as a single unit of accounting, and we have combined the delivered license with the remaining non-contingent deliverables for accounting purposes. As a result, revenue relating to the $60.0 million upfront cash payment was deferred and will be recognized on a straight-line basis over the term of the Collaboration Agreement through 2028, which represents the estimated obligation period of the participation in the various joint committees, the non-contingent deliverable with the longest term.

The Collaboration Agreement also contains contingent deliverables that do not relate to the non-contingent deliverables identified above. For example, we will collaborate and share expenses with Allergan to develop LEVADEX for additional indications separate from and in addition to the first indication. Any reimbursements from Allergan to us for shared expenses relating to contingent deliverables are recorded in our financial statements in the quarters in which the cost sharing occurs.

Milestone payments relating to contingent deliverables, such as the acceptance for filing by the FDA of our NDA for LEVADEX, are recognized as revenue in their entirety upon our achievement of a substantive milestone and when the respective revenue recognition criteria are met. A milestone is substantive if the consideration earned from the achievement of the milestone (i) is consistent with performance required to achieve the milestone or the increase in value to the delivered item, (ii) relates solely to past performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement.

There have been no other significant changes in critical accounting policies during the nine months ended September 30, 2012, as compared to the critical accounting policies described in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Financial Overview

Collaboration Revenue

Collaboration revenue, which is earned under agreements with third parties for various activities, may include nonrefundable license fees, cost reimbursements and contingent milestone payments.

Through September 30, 2012, we had recorded approximately $80.0 million in collaboration revenue since our inception in 2003.


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