UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2011
or
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File Number: 000-30039
ADOLOR
CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware
|
|
31-1429198
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification Number)
|
700 Pennsylvania Drive
Exton, Pennsylvania 19341
(Address of Principal Executive Offices and
Zip Code)
484-595-1500
(Registrants Telephone Number, Including Area Code)
Not
Applicable
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
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.
x
Yes
¨
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
x
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated
filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
¨
Yes
x
No
Indicate the number of shares outstanding of each class of the registrants common stock, as of the latest practicable date
|
|
|
Class
|
|
Outstanding as of October 14, 2011
|
Common Stock, par value $0.0001 per share
|
|
46,601,704 shares
|
ADOLOR CORPORATION AND SUBSIDIARY
FORM 10-Q
September 30, 2011
INDEX
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical facts or statements of current condition, this report and the documents into which this report
is and will be incorporated contain 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. Forward-looking statements
contained in this report or incorporated herein by reference constitute our expectations or forecasts of future events as of the date this report was filed with the Securities and Exchange Commission and are not statements of historical fact. You
can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as anticipate, will, estimate, expect,
project, intend, should, plan, believe, hope and other words and terms of similar meaning in connection with any discussion of, among other things, sales, future operating or
financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development. In particular, these forward-looking statements include, among others, statements about:
|
|
|
the proposed acquisition of us by Cubist Pharmaceuticals;
|
|
|
|
our dependence on sales of ENTEREG
®
(alvimopan) in the United States and the commercial prospects and future marketing efforts for this product;
|
|
|
|
our ability to attract future partners to finance development and commercialization of our product candidates;
|
|
|
|
our anticipated progress in our research and development of potential pharmaceutical products, including our ongoing or planned clinical trials, the
status, timing, costs and results of such trials, the ability to secure regulatory approval for our product candidates and the likelihood or timing of revenues from these products, if any;
|
|
|
|
the scope and duration of our intellectual property protection for our products and product candidates, our ability to adequately protect our
technologies and enforce our intellectual property rights and the future expiration of patent and/or regulatory exclusivity on alvimopan;
|
|
|
|
our anticipated operating losses and cash requirements, projections regarding the levels of our cash, cash equivalents and investments and our ability
to raise additional funds in light of our current and projected level of operations; and
|
|
|
|
other statements regarding matters that are not historical facts or statements of current condition.
|
Any or all of our forward-looking statements in this report and in the documents that we have referred you to may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Therefore, you should not place undue reliance on any such forward-looking statements. The factors that could cause actual results to differ
from those expressed or implied by our forward-looking statements include, among others:
|
|
|
any delays or unexpected events related to the proposed acquisition of us by Cubist Pharmaceuticals;
|
|
|
|
the acceptance of ENTEREG by hospital formularies and pharmacies, physicians and patients in the marketplace;
|
|
|
|
our ability to successfully market and sell ENTEREG following our reacquisition of Glaxo Group Limiteds rights to ENTEREG;
|
|
|
|
delays or setbacks with respect to research programs, clinical trials or manufacturing or commercial activities;
|
|
|
|
the timing and unpredictability of regulatory actions;
|
|
|
|
our ability to develop and commercialize new products effectively;
|
|
|
|
unanticipated cash requirements to support current operations, to expand our business or for capital expenditures;
|
|
|
|
the inability to adequately protect our key intellectual property rights;
|
|
|
|
the loss of key management or scientific personnel;
|
|
|
|
the activities of our competitors;
|
|
|
|
regulatory, legal or other setbacks with respect to our operations or business;
|
|
|
|
market conditions in the capital markets and the biopharmaceutical industry that make raising capital or consummating acquisitions difficult, expensive
or both; and
|
ii
|
|
|
enactment of new government laws, regulations, court decisions, regulatory interpretations or other initiatives that are adverse to us or our
interests.
|
We do not intend to update publicly any forward-looking statement, whether as a result of new
information, future events or otherwise, except as required by law. We discuss in more detail the risks that we anticipate in Part II, Item 1A of this report. This discussion is permitted by the Private Securities Litigation Reform Act of 1995.
iii
ADOLOR CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,164,767
|
|
|
$
|
4,603,327
|
|
Short-term investments
|
|
|
9,999,800
|
|
|
|
41,983,210
|
|
Accounts receivable, net
|
|
|
3,060,124
|
|
|
|
3,105,493
|
|
Inventory
|
|
|
1,125,570
|
|
|
|
933,857
|
|
Prepaid expenses and other current assets
|
|
|
942,771
|
|
|
|
1,560,725
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
28,293,032
|
|
|
|
52,186,612
|
|
Equipment and leasehold improvements, net
|
|
|
330,424
|
|
|
|
464,052
|
|
Other assets
|
|
|
107,000
|
|
|
|
107,000
|
|
Intangible asset, net (Note 3)
|
|
|
19,188,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
47,919,209
|
|
|
$
|
52,757,664
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,016,690
|
|
|
$
|
272,607
|
|
Accrued expenses
|
|
|
8,575,959
|
|
|
|
8,923,508
|
|
Payable to Glaxocurrent (Note 3)
|
|
|
2,796,297
|
|
|
|
|
|
Deferred revenue and rentcurrent
|
|
|
171,727
|
|
|
|
4,645,674
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,560,673
|
|
|
|
13,841,789
|
|
Deferred revenue and rentnon-current
|
|
|
114,485
|
|
|
|
19,257,551
|
|
Payable to Glaxonon-current (Note 3)
|
|
|
14,179,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
26,854,478
|
|
|
|
33,099,340
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series A Junior Participating preferred stock, $0.01 par value; 35,000 shares authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 99,000,000 shares authorized; 46,627,425 and 46,433,663 shares issued; 46,601,704 and 46,414,759
shares outstanding at September 30, 2011 and December 31, 2010, respectively
|
|
|
4,663
|
|
|
|
4,643
|
|
Additional paid-in capital
|
|
|
551,513,290
|
|
|
|
549,929,447
|
|
Treasury stock, at cost, 25,721 and 18,904 shares at September 30, 2011 and December 31, 2010,
respectively
|
|
|
(36,608
|
)
|
|
|
(26,301
|
)
|
Unrealized gains on available for sale securities
|
|
|
1,124
|
|
|
|
5,660
|
|
Accumulated deficit
|
|
|
(530,417,738
|
)
|
|
|
(530,255,125
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
21,064,731
|
|
|
|
19,658,324
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
47,919,209
|
|
|
$
|
52,757,664
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
1
ADOLOR CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
$
|
7,816,082
|
|
|
$
|
6,528,496
|
|
|
$
|
23,489,797
|
|
|
$
|
18,077,998
|
|
Contract revenues
|
|
|
17,097,130
|
|
|
|
4,145,113
|
|
|
|
24,644,280
|
|
|
|
14,209,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net
|
|
|
24,913,212
|
|
|
|
10,673,609
|
|
|
|
48,134,077
|
|
|
|
32,287,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
917,773
|
|
|
|
730,337
|
|
|
|
2,735,928
|
|
|
|
1,997,572
|
|
Research and development
|
|
|
6,011,827
|
|
|
|
6,425,667
|
|
|
|
19,501,251
|
|
|
|
26,539,299
|
|
Selling, general and administrative
|
|
|
9,107,593
|
|
|
|
7,750,777
|
|
|
|
26,360,087
|
|
|
|
25,980,032
|
|
Restructuring charge
|
|
|
|
|
|
|
1,918,701
|
|
|
|
|
|
|
|
1,918,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
16,037,193
|
|
|
|
16,825,482
|
|
|
|
48,597,266
|
|
|
|
56,435,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8,876,019
|
|
|
|
(6,151,873
|
)
|
|
|
(463,189
|
)
|
|
|
(24,147,615
|
)
|
Interest income
|
|
|
6,142
|
|
|
|
38,505
|
|
|
|
37,142
|
|
|
|
157,658
|
|
Interest expense
|
|
|
(112,421
|
)
|
|
|
|
|
|
|
(112,421
|
)
|
|
|
|
|
Other income, net
|
|
|
160,395
|
|
|
|
51,517
|
|
|
|
375,855
|
|
|
|
51,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,930,135
|
|
|
$
|
(6,061,851
|
)
|
|
$
|
(162,613
|
)
|
|
$
|
(23,938,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.19
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.19
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
46,506,036
|
|
|
|
46,351,148
|
|
|
|
46,434,971
|
|
|
|
46,332,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
47,926,541
|
|
|
|
46,351,148
|
|
|
|
46,434,971
|
|
|
|
46,332,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
2
ADOLOR CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net income (loss)
|
|
$
|
8,930,135
|
|
|
$
|
(6,061,851
|
)
|
|
$
|
(162,613
|
)
|
|
$
|
(23,938,440
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on available for sale securities, net
|
|
|
(3,320
|
)
|
|
|
(6,163
|
)
|
|
|
(4,536
|
)
|
|
|
(18,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
8,926,815
|
|
|
$
|
(6,068,014
|
)
|
|
$
|
(167,149
|
)
|
|
$
|
(23,957,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
ADOLOR CORPORATION AND SUBSIDIARY
Consolidated Statement of Stockholders Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Treasury Stock
|
|
|
Unrealized
Gains
on Available
for Sale
Securities
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
|
|
Balance, January 1, 2011
|
|
|
46,433,663
|
|
|
$
|
4,643
|
|
|
$
|
549,929,447
|
|
|
|
18,904
|
|
|
$
|
(26,301
|
)
|
|
$
|
5,660
|
|
|
$
|
(530,255,125
|
)
|
|
$
|
19,658,324
|
|
Vesting of deferred stock
|
|
|
193,762
|
|
|
|
20
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,583,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,583,863
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,817
|
|
|
|
(10,307
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,307
|
)
|
Unrealized losses on available for sale securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,536
|
)
|
|
|
|
|
|
|
(4,536
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162,613
|
)
|
|
|
(162,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
|
46,627,425
|
|
|
$
|
4,663
|
|
|
$
|
551,513,290
|
|
|
|
25,721
|
|
|
$
|
(36,608
|
)
|
|
$
|
1,124
|
|
|
$
|
(530,417,738
|
)
|
|
$
|
21,064,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
ADOLOR CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(162,613
|
)
|
|
$
|
(23,938,440
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,591,882
|
|
|
|
2,219,460
|
|
Amortization of premiums and discounts on short-term investments
|
|
|
(30,475
|
)
|
|
|
(79,493
|
)
|
Amortization of deferred revenue and rent
|
|
|
(23,617,013
|
)
|
|
|
(10,003,803
|
)
|
Depreciation and amortization expense
|
|
|
391,033
|
|
|
|
276,125
|
|
Non-cash interest expense
|
|
|
112,421
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
45,369
|
|
|
|
811,603
|
|
Inventory
|
|
|
(199,732
|
)
|
|
|
(38,806
|
)
|
Prepaid expenses and other current assets
|
|
|
617,954
|
|
|
|
1,518,037
|
|
Accounts payable
|
|
|
744,083
|
|
|
|
(1,161,867
|
)
|
Accrued expenses
|
|
|
(347,549
|
)
|
|
|
714,121
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(20,854,640
|
)
|
|
|
(29,683,063
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of equipment and leasehold improvements
|
|
|
(83,321
|
)
|
|
|
(37,521
|
)
|
Proceeds from disposal of equipment
|
|
|
359
|
|
|
|
63,458
|
|
Purchases of short-term investments
|
|
|
(16,990,651
|
)
|
|
|
(38,926,813
|
)
|
Maturities of short-term investments
|
|
|
49,000,000
|
|
|
|
68,000,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
31,926,387
|
|
|
|
29,099,124
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payment of withholding taxes related to deferred stock units
|
|
|
(10,307
|
)
|
|
|
(17,931
|
)
|
Payment of Glaxo obligation under Termination Agreement
|
|
|
(2,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,510,307
|
)
|
|
|
(17,931
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
8,561,440
|
|
|
|
(601,870
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
4,603,327
|
|
|
|
7,213,666
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
13,164,767
|
|
|
$
|
6,611,796
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Change in unrealized losses on available for sale securities, net
|
|
$
|
(4,536
|
)
|
|
$
|
(18,916
|
)
|
Intangible asset related to Termination Agreement (Note 3)
|
|
|
19,363,196
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
ADOLOR CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
1. ORGANIZATION AND BUSINESS ACTIVITIES
Adolor Corporation (the Company) is a biopharmaceutical company focused on the discovery,
development and commercialization of novel prescription pain and pain-management products. The Companys commercial product, ENTEREG
®
(alvimopan), is indicated to accelerate upper and lower gastrointestinal (GI) recovery following partial large or small bowel resection surgery with primary
anastomosis. Delayed GI recovery following bowel resection surgery can postpone hospital discharge until its resolution, resulting in an increased cost burden on healthcare providers. From the launch of ENTEREG in the United States in mid-2008
through August 2011, the Company co-promoted ENTEREG in collaboration with Glaxo Group Limited (Glaxo). On August 31, 2011, the Company and Glaxo completed a transaction whereby the Company reacquired Glaxos rights to ENTEREG and assumed
all responsibilities related to commercial activities (see Note 3).
The Company is developing ADL5945, a peripherally-acting
mu
opioid receptor antagonist intended to block the adverse effects of opioid analgesics on the GI tract without affecting analgesia, to treat chronic non-cancer pain patients with opioid-induced constipation (OIC). In August 2011, the
Company announced positive results for its Phase 2 trials of ADL5945 in patients suffering from OIC, a condition that often results from long-term use of opioid analgesics in the management of chronic pain conditions.
The Company has other product candidates in various stages of clinical and preclinical development. The Company has completed Phase 1
clinical evaluation of ADL7445, a potential backup compound to ADL5945 for OIC, and ADL6906 (beloxepin), a compound with a novel and potentially differentiating pharmacological profile for treating chronic pain. Adolors preclinical pipeline
includes novel, selective centrally-acting
mu
opioid receptor antagonists (CAMORs) currently in development for the treatment of l-DOPA-induced dyskinesia associated with Parkinsons disease.
On October 24, 2011, Cubist Pharmaceuticals, Inc. (Cubist) and the Company announced the signing of a definitive merger agreement
under which Cubist will acquire all of the outstanding shares of the Company. The transaction is expected to be completed in the fourth quarter of 2011 (see Note 9).
Interim Financial Information
The accompanying unaudited consolidated
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnote disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair
presentation have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K, filed with the
Securities and Exchange Commission (SEC), which includes audited financial statements as of December 31, 2010 and 2009 and for each of the years in the three-year period ended December 31, 2010. The results of the Companys operations
for any interim period are not necessarily indicative of the results of operations for any other interim period or full year.
Basis of
Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of Adolor and its
wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of assets and liabilities. The estimates made are principally in the areas of revenue recognition, research and development accruals
and stock option expense. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates.
6
Product Sales Recognition
ENTEREG was approved by the FDA in May 2008 and product shipments to hospitals began in June 2008. Hospital orders are
processed through wholesalers; however, ENTEREG is drop-shipped directly to an ordering hospital registered under the ENTEREG Access Support and Education (E.A.S.E.
®
) Program. The Company recognizes revenue from product sales when the following four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred, the selling price is fixed or determinable and collectability is reasonably assured.
The
Company records product sales net of prompt payment discounts, returns, group purchasing organization fees, chargebacks and other discounts. Calculating these allowances requires significant estimates and judgments and actual results may differ from
these estimates. Prior to the Companys reacquisition of Glaxos ENTEREG rights on August 31, 2011, Glaxo was involved in the distribution of ENTEREG and the recording of allowances on gross sales.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05,
Comprehensive Income (Topic 220):
Presentation of Comprehensive Income
(ASU 2011-05), which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive
income as part of the statement of shareholders equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive
income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The adoption of ASU 2011-05 during
the first quarter of 2011 did not have an impact on the Companys consolidated financial statements as it only required a change in the format of the current presentation.
In December 2010, the FASB ratified a consensus of the Emerging Issues Task Force related to an annual fee to be paid to the federal
government by pharmaceutical manufacturers that meet certain sales levels as mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act. This consensus requires the liability related to
the annual fee to be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that is amortized to expense generally using a straight-line method of allocation over the calendar year that it is payable. This
guidance is effective for calendar years beginning after December 31, 2010, when the fee initially became effective. The adoption of this guidance during the first quarter of 2011 did not impact the Companys consolidated financial
statements.
In September 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue
Arrangements
(ASU 2009-13), which requires companies to allocate revenue in arrangements involving multiple deliverables based on the estimated selling price of each deliverable when such deliverables are not sold separately either by the
company or other vendors. ASU 2009-13 eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to
items that already have been delivered. As a result, the new guidance may allow some companies to recognize revenue on transactions that involve multiple deliverables earlier than under previous requirements. ASU 2009-13 is effective for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 during the first quarter of 2011 did not impact the Companys consolidated financial statements.
3. REACQUISITION OF GLAXOS RIGHTS TO ENTEREG
On June 14, 2011, the Company and Glaxo entered into a Termination Agreement (the Termination Agreement) whereby
the Company and Glaxo agreed to terminate the Collaboration Agreement dated April 14, 2002, as amended (the Collaboration Agreement), the Distribution Services Agreement dated as of June 29, 2004, as amended, and certain other agreements
between the parties related to ENTEREG. Pursuant to the terms of the Termination Agreement, the Company agreed to reacquire Glaxos rights to ENTEREG and pay Glaxo: $25.0 million cash, payable in seven installments over a six-year period,
$2.5 million of which was paid on August 31, 2011, the effective date of the transaction; tiered, mid-single digit royalties on annual net sales of ENTEREG and a one-time, sales-related milestone of $15.0 million. Effective September 1,
2011, the Company assumed all responsibilities related to the commercialization of ENTEREG.
As a result of the Termination
Agreement, the Company recorded an intangible asset and a corresponding payment obligation of $19.4 million based on the present value of the $25.0 million of payments due to Glaxo. The present value was calculated using a discount rate of 8.0%,
which the Company estimated to be its incremental
7
borrowing rate as of June 2011. The payment obligation has been allocated between current and non-current liabilities based on the contractual payment dates and the Company imputes interest on
the payable to Glaxo. The intangible asset is being amortized on a straight-line basis over its estimated useful life of approximately 9 years. For the three and nine months ended September 30, 2011, the Company recorded amortization expense of
$0.2 million within selling, general and administrative expense on its consolidated statement of operations. Also as a result of the Termination Agreement, the Company revised its performance period under the Collaboration Agreement on a prospective
basis to August 31, 2011, which resulted in additional amortization of deferred revenue for the three and nine months ended September 30, 2011 (see Note 7).
4. SHORT-TERM INVESTMENTS
Short-term investments consist of investment-grade, fixed-income securities with original maturities of greater than
three months. All investments are classified as available for sale and are considered current assets as the contractual maturities of the Companys short-term investments are all less than one year.
The following summarizes the short-term investments at September 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Government obligations at September 30, 2011
|
|
$
|
9,998,676
|
|
|
$
|
1,124
|
|
|
$
|
|
|
|
$
|
9,999,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations at December 31, 2010
|
|
$
|
41,977,550
|
|
|
$
|
7,301
|
|
|
$
|
(1,641
|
)
|
|
$
|
41,983,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting Standards Codification (ASC) 820,
Fair Value Measurements and Disclosures,
establishes
a valuation hierarchy for disclosure of the inputs to valuations techniques used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities. Level 2 inputs include quoted prices for identical or similar assets and liabilities that are not active, quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on managements own assumptions used to measure assets and
liabilities at fair value. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the Companys assets and liabilities carried at fair value measured on a recurring basis as of
September 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Carrying
Value
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Quoted Prices
in
Active Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
U.S. Government obligations at September 30, 2011
|
|
$
|
9,999,800
|
|
|
$
|
9,999,800
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government obligations at December 31, 2010
|
|
$
|
41,983,210
|
|
|
$
|
41,983,210
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
5. INVENTORY
As of September 30, 2011 and December 31, 2010, inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Raw materials
|
|
$
|
698,022
|
|
|
$
|
67,648
|
|
Work-in-process
|
|
|
301,375
|
|
|
|
157,536
|
|
Finished goods
|
|
|
126,173
|
|
|
|
708,673
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
1,125,570
|
|
|
$
|
933,857
|
|
|
|
|
|
|
|
|
|
|
Inventories are stated at the lower of cost or market, as determined on a first-in, first-out, or FIFO,
basis. The above inventory was manufactured subsequent to the approval of ENTEREG by the FDA. As of December 31, 2010, $0.6 million of ENTEREG finished goods inventory held at Glaxo warehouses was classified as inventory consigned to
others. There was no inventory consigned as of September 30, 2011 as a result of the Termination Agreement.
Costs
associated with the manufacture of alvimopan prior to the FDA approval of ENTEREG were expensed to research and development when incurred. As a result, at September 30, 2011 and December 31, 2010, the Company has inventory related to
alvimopan, including raw material, which carries a zero-cost and is not reflected on the consolidated balance sheets at September 30, 2011 and December 31, 2010.
6. STOCKHOLDERS EQUITY
During the nine months ended September 30, 2011, the Company granted options to purchase 663,500 shares of common
stock to employees and non-employee directors. The employee stock options vest annually over a four-year period beginning from the date of grant and the non-employee director stock options vest annually over either a one- or two-year period
beginning from the date of grant. All stock options were granted with an exercise price equal to the fair market value of the Companys common stock on the date of grant. The weighted-average exercise price of options granted during the nine
months ended September 30, 2011 was $1.65. The grant-date fair value of the options granted during the nine months ended September 30, 2011 was $0.6 million and such amount will be recognized over the vesting periods of the options.
During the nine months ended September 30, 2011, 55,012 deferred stock awards vested under the terms of employee and
non-employee director grant agreements. In addition, 138,750 performance stock awards vested upon the successful completion of the Companys Phase 2 OIC trials of ADL5945 during the third quarter of 2011 and the Company recorded $0.1 million of
compensation expense related to these vested performance shares. In connection with the vesting of the deferred and performance stock awards, 186,945 shares of the Companys common stock were issued to employees and non-employee directors and
6,817 employee shares were surrendered to the Company in satisfaction of minimum tax withholding obligations. The surrendered shares were recorded as treasury stock on the Companys consolidated balance sheet.
For the nine months ended September 30, 2011, compensation expense recognized related to outstanding stock options, deferred and
restricted stock awards and performance stock awards was $1.6 million.
7. CONTRACT REVENUES
Contract revenues consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Amortization of deferred revenue
|
|
$
|
16,843,999
|
|
|
$
|
3,291,670
|
|
|
$
|
23,488,218
|
|
|
$
|
9,875,008
|
|
Cost reimbursement under collaboration agreements
|
|
|
253,131
|
|
|
|
853,443
|
|
|
|
1,156,062
|
|
|
|
4,334,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract revenues
|
|
$
|
17,097,130
|
|
|
$
|
4,145,113
|
|
|
$
|
24,644,280
|
|
|
$
|
14,209,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2002, the Company entered into the Collaboration Agreement with Glaxo for the exclusive
worldwide development and commercialization of ENTEREG for certain indications. Under the terms of the agreement, Glaxo paid the Company a non-refundable and non-creditable signing fee of $50.0 million. The $50.0 million signing fee was recorded as
deferred revenue and was recognized as revenue on a straight-line basis over the estimated performance period under the Collaboration Agreement. Prior to the execution of the Termination Agreement (see Note 3), the estimated performance period
extended through March 2016. As a result of the Termination Agreement, the remaining deferred revenue was recognized through August 31, 2011,
9
the closing date of the Termination Agreement. Revenue related to the Glaxo Collaboration Agreement of $12.4 million and $0.8 million was recognized in the three months ended September 30,
2011 and 2010, respectively, and $17.2 million and $2.5 million was recognized in the nine months ended September 30, 2011 and 2010, respectively.
During the first quarter of 2009, the Company and Glaxo entered into Amendment No. 4 to the Collaboration Agreement, under which Glaxo paid the Company $8.4 million. The $8.4 million was recorded as
deferred revenue and was recognized as revenue on a straight-line basis over the estimated remaining performance period under the Collaboration Agreement. Revenue related thereto of $4.5 million and $0.3 million was recognized in the three months
ended September 30, 2011 and 2010, respectively, and $6.2 million and $0.9 million was recognized in the nine months ended September 30, 2011 and 2010, respectively.
The effect of the change in the performance period under the Collaboration Agreement was an increase to net income of $15.7 million, or $0.34 and $0.33 per basic and diluted share, respectively, for the
three months ended September 30, 2011 and a decrease to net loss of $20.1 million, or $0.43 per share, for the nine months ended September 30, 2011.
Certain external expenses incurred in the United States by each party were reimbursed pursuant to contractually agreed percentages. Reimbursement amounts owed to the Company by Glaxo were recorded gross
in the consolidated statements of operations as contract revenues. The Company recorded Collaboration Agreement reimbursements from Glaxo of $0.3 million and $0.7 million during the three months ended September 30, 2011 and 2010, respectively,
and $1.0 million and $1.2 million during the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, $0.4 million was receivable from Glaxo for reimbursement of expenses incurred by the Company pursuant to
the Collaboration Agreement. Effective upon the closing of the Termination Agreement, all expenses are being incurred by the Company and none of those expenses will be reimbursed by Glaxo.
In December 2007, the Company entered into a collaboration agreement with Pfizer for the exclusive worldwide development and
commercialization of ADL5859 and ADL5747. Under the terms of the agreement, Pfizer paid the Company an up-front payment of $30.0 million and reimbursed $1.9 million of Phase 2a development costs incurred by the Company prior to entering into the
collaboration agreement. The $31.9 million up-front fee was recorded as deferred revenue and was recognized as revenue on a straight-line basis over the estimated performance period under the collaboration agreement, which ended in December 2010.
The Company recorded revenue related to the deferred license fees under the collaboration agreement with Pfizer of $2.2 million for the three months ended September 30, 2010 and $6.5 million for the nine months ended September 30, 2010. In
December 2010, Pfizer and the Company announced that they were discontinuing further development of ADL5859 and ADL5747 and terminating their collaboration agreement, effective as of March 16, 2011. Based on the clinical evaluation of ADL5859
and ADL5747 in multiple indications, the companies concluded that there was not compelling evidence to continue the development program. As the Company had completed substantially all performance under the collaboration agreement as of
December 31, 2010, the performance period was not extended beyond December 2010.
The Company recorded no collaboration
cost reimbursement from Pfizer for the three months ended September 30, 2011 and $0.1 million of collaboration cost reimbursement for the three months ended September 30, 2010. Cost reimbursements were $0.1 million and $3.1 million for the
nine months ended September 30, 2011 and 2010, respectively. There was no receivable from Pfizer as of September 30, 2011 for reimbursement of expenses incurred by the Company pursuant to the collaboration agreement. The Company does not
expect to incur any significant additional expenses associated with the termination.
8. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of
common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common share
equivalents consist of shares issuable upon the exercise of stock options and unvested deferred, restricted and performance stock awards calculated using the treasury stock method. Because the inclusion of potential common share equivalents would be
anti-dilutive for the three months ended September 30, 2010 as well as the nine months ended September 30, 2011 and 2010 as a result of the net losses, diluted net loss per share is the same as basic net loss per share for those periods.
The calculations of net income (loss) per share, basic and diluted, for the three and nine months ended September 30, 2011 and 2010 are as follows:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Basic Net Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,930,135
|
|
|
$
|
(6,061,851
|
)
|
|
$
|
(162,613
|
)
|
|
$
|
(23,938,440
|
)
|
Weighted average common shares outstanding
|
|
|
46,506,036
|
|
|
|
46,351,148
|
|
|
|
46,434,971
|
|
|
|
46,332,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.19
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Diluted Net Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,930,135
|
|
|
$
|
(6,061,851
|
)
|
|
$
|
(162,613
|
)
|
|
$
|
(23,938,440
|
)
|
Weighted average common shares outstanding
|
|
|
46,506,036
|
|
|
|
46,351,148
|
|
|
|
46,434,971
|
|
|
|
46,332,662
|
|
Dilutive effect of stock options and deferred stock units
|
|
|
1,420,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
47,926,541
|
|
|
|
46,351,148
|
|
|
|
46,434,971
|
|
|
|
46,332,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.19
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the potential common stock excluded from the calculation of diluted net
income (loss) per share because its inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Options to purchase common stock
|
|
|
3,270,022
|
|
|
|
5,689,997
|
|
|
|
5,697,525
|
|
|
|
5,689,997
|
|
Unvested performance, deferred and restricted stock units
|
|
|
176,250
|
|
|
|
1,963,158
|
|
|
|
1,668,042
|
|
|
|
1,963,158
|
|
9. SUBSEQUENT EVENTS
On October 24, 2011, the Company announced jointly with Cubist that the companies respective Boards of
Directors unanimously approved an Agreement and Plan of Merger under which Cubist will acquire all of the outstanding shares of the Company for $4.25 per share in cash. In addition to the upfront cash payment, each Adolor stockholder will
receive one Contingent Payment Right (CPR) entitling the holder to receive additional cash payments of up to $4.50 for each share they own if certain regulatory approvals and/or commercialization milestones for ADL5945 are achieved. The CPR will
entitle each Adolor stockholder to receive up to $3.00 per share if ADL5945 receives regulatory approval in the United States and up to $1.50 per share if ADL5945 receives regulatory approval in the European Union, in both instances prior to July 1,
2019. In each case, the size of the payment would depend on the parameters of the approval. The CPR will not be publicly traded. The transaction is subject to the satisfaction of customary closing conditions, including expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act, as well as the requirement that shares representing over fifty percent of the Companys outstanding common stock are tendered to Cubist in connection with the tender offer that
commenced on November 7, 2011. The transaction is expected to be completed in the fourth quarter of 2011.
Since the
announcement of the proposed transaction with Cubist, the Company has received notice of six purported class action lawsuits that have been filed against the Company, its Board of Directors, Cubist and its wholly-owned subsidiary, FRD Acquisition
Corporation, alleging breach of duties in connection with Cubists tender offer and the proposed merger and seeking injunctive relief. The Company expects additional complaints to be filed relating to the proposed transaction. The Company
intends to vigorously defend these current and any future actions.
11
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide
information to assist you in better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our consolidated financial statements, included in Part I, Item 1 of
this Quarterly Report on Form 10-Q, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
EXECUTIVE
SUMMARY
We are a biopharmaceutical company focused on the discovery, development and commercialization
of novel prescription pain and pain-management products. Our commercial product, ENTEREG
®
(alvimopan), is
indicated to accelerate upper and lower gastrointestinal (GI) recovery following partial large or small bowel resection surgery with primary anastomosis. Delayed GI recovery following bowel resection surgery can postpone hospital discharge until its
resolution, resulting in an increased cost burden on healthcare providers.
We are developing ADL5945, a peripherally-acting
mu
opioid receptor antagonist intended to block the adverse effects of opioid analgesics on the GI tract without affecting analgesia, to treat chronic non-cancer pain patients with opioid-induced constipation (OIC). In August 2011, we
announced positive results for our Phase 2 trials of ADL5945 in patients suffering from OIC, a condition that often results from long-term use of opioid analgesics in the management of chronic pain conditions.
We have other product candidates in various stages of clinical and preclinical development. We have completed Phase 1 clinical evaluation
of ADL7445, a potential backup compound to ADL5945 for OIC, and ADL6906 (beloxepin), a compound with a novel and potentially differentiating pharmacological profile for treating chronic pain. Our preclinical pipeline includes novel, selective
centrally-acting
mu
opioid receptor antagonists (CAMORs) currently in development for the treatment of l-DOPA-induced dyskinesia associated with Parkinsons disease.
On June 14, 2011, Glaxo Group Limited (Glaxo) and we entered into a Termination Agreement (the Termination Agreement) whereby we
agreed to reacquire Glaxos rights to ENTEREG in exchange for our agreement to pay Glaxo: $25.0 million cash, payable in seven installments over a six-year period, $2.5 million of which was paid on August 31, 2011, the effective date of
the transaction; tiered, mid-single digit royalties on annual net sales of ENTEREG; and a one-time, sales-related milestone of $15.0 million. Effective September 1, 2011, we assumed all responsibilities related to the commercialization of
ENTEREG. Upon the closing of the Termination Agreement, the existing Collaboration Agreement dated April 14, 2002, as amended (the Collaboration Agreement), the Distribution Services Agreement dated as of June 29, 2004, as amended, and
certain other ENTEREG-related agreements were terminated.
On October 24, 2011, we announced jointly with Cubist
Pharmaceuticals, Inc. (Cubist) that our respective Boards of Directors unanimously approved an Agreement and Plan of Merger under which Cubist will acquire all of the outstanding shares of Adolor for $4.25 per share in cash. In addition to the
upfront cash payment, each Adolor stockholder will receive one Contingent Payment Right (CPR) entitling the holder to receive additional cash payments of up to $4.50 for each share they own if certain regulatory approvals and/or commercialization
milestones for ADL5945 are achieved. The transaction is subject to the satisfaction of customary closing conditions, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, as well as the requirement that
shares representing over fifty percent of our outstanding common stock are tendered to Cubist in connection with the tender offer that commenced on November 7, 2011. The transaction is expected to be completed in the fourth quarter of
2011.
For the nine months ended September 30, 2011, our total revenues and net loss were $48.1 million and $0.2
million, respectively. Net loss was favorably impacted by $20.1 million of additional amortization of deferred revenue resulting from the Termination Agreement with Glaxo. Net sales of ENTEREG for the nine months ended September 30, 2011 were
$23.5 million. We will need net sales of ENTEREG to increase significantly beyond current levels before we will be able to achieve profitability and positive cash flow from operations. Ultimately, we may never generate sufficient revenues from
ENTEREG for us to reach profitability, generate positive cash flow or sustain, on an ongoing basis, our current or projected levels of operations. In addition, our long-term success is highly dependent on the successful development of ADL5945, our
most advanced development candidate. Although our Phase 2 clinical trials of ADL5945 demonstrated statistically significant and clinically relevant efficacy, our currently available resources are insufficient to fund a Phase 3 clinical program for
ADL5945 without securing a collaboration partner or raising proceeds in the capital markets.
12
ENTEREG
Prior to September 1, 2011, ENTEREG was detailed primarily by Glaxos national hospital-based sales organization and we co-promoted ENTEREG in certain hospitals. Effective September 1,
2011, we assumed all responsibilities related to the commercialization of ENTEREG. ENTEREG was approved by the FDA subject to a Risk Evaluation and Mitigation Strategy under which the product is available only to hospitals that perform bowel
resections and are enrolled in the ENTEREG Access Support and Education (E.A.S.E.
®
) Program.
Under the Collaboration Agreement with Glaxo, we had a profit-sharing arrangement pursuant to which we received 45% and Glaxo received
55% of profits and losses, as defined, through June 2011, after which the split was 50% each. Profits and losses were calculated as net sales of ENTEREG in the United States less certain agreed-upon costs, subject to certain adjustments. As
discussed above, the Collaboration Agreement was terminated on August 31, 2011.
Opioid-induced Constipation (OIC) Program
Peripheral
mu
opioid receptors in the GI tract regulate functions such as motility, secretion and absorption.
Stimulation of these GI
mu
opioid receptors by morphine, or other opioid analgesics, disrupts normal gut motility ultimately delaying transit time of intestinal contents. We are developing ADL5945, a small molecule, potent,
peripherally-acting
mu
opioid receptor antagonists intended to block the adverse effects of opioid analgesics on the GI tract without affecting analgesia, to treat OIC.
In August 2011, we announced the results of our Phase 2 studies of ADL5945 in chronic non-cancer pain patients suffering from OIC. The primary endpoint of both studies was the change from baseline in
the weekly average number of spontaneous bowel movements (SBMs) over four weeks.
Study 242 evaluated two doses of ADL5945
(0.10 mg and 0.25 mg given twice daily) versus placebo over a 4-week, double-blind treatment period, with approximately 120 patients enrolling (n = 40/treatment group). Statistical significance (
p
= 0.0003) was
achieved for the primary endpoint in the 0.25 mg dose group. Response to treatment was dose dependent in Study 242, with an average change from baseline in SBM frequency over the 4-week treatment period of 1.4 SBMs for the placebo group, and 2.0 and
3.4 SBMs for the 0.10 mg and 0.25 mg doses of ADL5945, respectively. Statistical significance was not achieved for the 0.10 mg dose.
Study 243 evaluated ADL5945 (0.25 mg given once daily) in patients suffering from OIC. The study design was similar to Study 242, with approximately 80 patients enrolling (n = 40/treatment group). In
Study 243, statistical significance (
p =
0.01) was achieved for the primary endpoint. The average change from baseline in SBM frequency over the 4-week treatment period was 1.4 SBMs for the placebo group and 2.6 SBMs for the 0.25 mg
ADL5945 treatment group.
We have completed Phase 1 testing of ADL7445 in OIC. ADL7445 currently is not undergoing additional
clinical testing and is considered a backup compound to ADL5945.
Other Development Programs
ADL6906 (beloxepin) for Chronic Pain
We are developing ADL6906 (beloxepin), a dual NE reuptake inhibitor and
5-HT
2
receptor antagonist, which we believe gives ADL6906 a
potentially differentiated pharmacological profile for treating chronic pain. ADL6906 is active in several preclinical models of pain after oral administration. We have completed a Phase 1 multiple ascending dose study of ADL6906 that evaluated the
safety, tolerability and pharmacokinetics of ADL6906 and we currently are evaluating the initiation of Phase 2 testing of ADL6906.
CAMOR Program for Parkinsons Disease
Scientific evidence
suggests that increased opioid peptide transmission in the basal ganglia might underlie dyskinesia after chronic l-DOPA treatment and that opioid antagonists might, therefore, be useful as adjuncts to l-DOPA therapy for Parkinsons disease. We
have discovered a family of novel, selective CAMORs that have been shown to be highly efficacious, after oral administration, in well-validated, non-human primate preclinical models of LID. During the fourth quarter of 2010, the Michael J. Fox
Foundation for Parkinsons Research awarded us a second round of funding to support our development of CAMORs for the treatment of LID associated with Parkinsons disease. The $0.4 million award will be paid over a period of 18 months.
Delta Opioid Receptor Agonist Program
We previously collaborated with Pfizer Inc. (Pfizer) for the development and commercialization of the
delta
opioid receptor agonist compounds ADL5859 and ADL5747 for the treatment of pain.
13
In December 2010, Pfizer and we announced that we were discontinuing further development of
ADL5859 and ADL5747 and terminating our collaboration agreement, effective as of March 16, 2011. Based on the clinical evaluation of ADL5859 and ADL5747 in multiple indications, the companies concluded that there was not compelling evidence to
continue the development program.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $23.2 million at September 30, 2011 and $46.6 million at December 31,
2010, representing 48% and 88% of our total assets, respectively. We invest excess cash in U.S. Treasury obligations. Our working capital, which is calculated as current assets less current liabilities, was $15.7 million at September 30, 2011
compared to $38.3 million at December 31, 2010. The decrease in cash, cash equivalents and short-term investments and working capital was primarily driven by the use of cash to fund our operations during the nine months ended September 30,
2011 as well as the $2.5 million paid to Glaxo in conjunction with the termination of the Collaboration Agreement.
The
following is a summary of selected cash flow information for the nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2011
|
|
2010
|
Net loss
|
|
|
$
|
(162,613
|
)
|
|
|
$
|
(23,938,440
|
)
|
Adjustments for non-cash operating items
|
|
|
|
(21,552,152
|
)
|
|
|
|
(7,587,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,714,765
|
)
|
|
|
|
(31,526,151
|
)
|
Net change in assets and liabilities
|
|
|
|
860,125
|
|
|
|
|
1,843,088
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
$
|
(20,854,640
|
)
|
|
|
$
|
(29,683,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
$
|
31,926,387
|
|
|
|
$
|
29,099,124
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
$
|
(2,510,307
|
)
|
|
|
$
|
(17,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
Net operating cash outflows of $20.9 million and $29.7 million for the nine months ended September 30, 2011 and 2010, respectively, resulted primarily from research and development expenditures
associated with our product candidates and selling, general and administrative expenses.
Net Cash Provided by Investing Activities
Net cash provided by investing activities relates to purchases and maturities of investment securities, expenditures for
property and equipment and proceeds from the sale of equipment. Capital expenditures are primarily for the purchase of furniture and fixtures, office equipment and leasehold improvements associated with our leased facility.
Net cash provided by investing activities was $31.9 million for the nine months ended September 30, 2011 as compared to $29.1
million for the nine months ended September 30, 2010. The increase in net cash provided by investing activities period-over-period was primarily attributable to a decrease in the purchases of short-term investments, partially offset by a
decrease in maturities of short-term investments.
Net Cash Used in Financing Activities
Net cash used in financing activities was $2.5 million for the nine months ended September 30, 2011 as compared to $18,000 for
the nine months ended September 30, 2010. The increase in net cash used in financing activities period-over-period was due to $2.5 million paid to Glaxo in the third quarter of 2011 as a result of the Termination Agreement.
We expect to fund a significant portion of our future operations through the sale or maturities of investments in our portfolio, which
consists of U.S. Treasury obligations.
Outlook
On October 24, 2011, Cubist and we announced the signing of a definitive merger agreement under which Cubist will acquire all of the outstanding shares of Adolor. The transaction is expected to
be completed in the fourth quarter of 2011.
14
If the transaction with Cubist is not completed, we expect to use our cash, cash equivalents
and short-term investments to fund our operations. Since inception, we have experienced significant operating losses and negative operating cash flow and have funded our operations primarily from the proceeds received from the sale of our equity
securities and amounts received under collaboration agreements. Our accumulated deficit at September 30, 2011 was $530.4 million and we expect to continue to incur substantial losses for at least the next several years. In addition, under our
Termination Agreement with Glaxo, we have remaining payment obligations of $22.5 million payable to Glaxo over a six-year period. We recorded an intangible asset and a corresponding payment obligation on our balance sheet as of June 30, 2011
based on the present value of the initial $25.0 million obligation.
We may never generate significant product sales, achieve
profitable operations or generate positive cash flows from operations and, even if profitable operations are achieved, they may not be sustained on a continuing basis or sufficient to support our current or projected levels of investment in our
research and development programs and our other operations. At this time, we cannot accurately assess a number of factors that will influence the levels of future product sales, such as the degree of market acceptance, patent protection and
exclusivity of ENTEREG, the impact of competition, the effectiveness of our sales and marketing efforts for ENTEREG and the outcome of our current efforts to develop, receive approval for and successfully launch other product candidates. However, at
current expenditure levels, we will need ENTEREG sales to increase significantly beyond current levels before we will be able to achieve profitability and positive cash flows from operations.
We expect to continue to incur significant levels of research and development expenditures related to our clinical product candidates.
During 2011, we funded Phase 2 studies of ADL5945 in OIC and our ongoing Phase 4 study of ENTEREG in patients undergoing radical cystectomy. We also expect to continue to conduct research, preclinical studies and process development activities on
our other product candidates, although as a result of our restructurings in 2009 and 2010, the level of such expenditures will be significantly reduced compared to previous years. Should these programs advance to later stages of development, it is
likely that expenses related to these efforts will increase over time. Although our Phase 2 clinical studies of ADL5945 yielded positive results, our currently available resources are insufficient to fund a Phase 3 clinical program for ADL5945
without either securing a collaboration partner or raising proceeds in the capital markets.
We believe that our existing cash,
cash equivalents and short-term investments are adequate to fund our operations through mid-2012 based upon the level of research and development and marketing and administrative activities we believe will be necessary to achieve our strategic
objectives. We anticipate that we will need to obtain funding to support our operational needs in the future, and we cannot be certain that funding will be available on terms acceptable to us, or at all.
RESULTS OF OPERATIONS
This section should be read in conjunction with the discussion above under Liquidity and Capital Resources.
Revenues
The following
table sets forth revenues for the three and nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Product sales, net
|
|
|
$
|
7,816,082
|
|
|
|
$
|
6,528,496
|
|
|
|
$
|
23,489,797
|
|
|
|
$
|
18,077,998
|
|
Contract revenues
|
|
|
|
17,097,130
|
|
|
|
|
4,145,113
|
|
|
|
|
24,644,280
|
|
|
|
|
14,209,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net
|
|
|
$
|
24,913,212
|
|
|
|
$
|
10,673,609
|
|
|
|
$
|
48,134,077
|
|
|
|
$
|
32,287,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales, Net
Net product sales are derived solely from ENTEREG. ENTEREG was approved by the FDA in May 2008 and product shipments to hospitals began in June 2008. Net sales of ENTEREG were $7.8 million and $6.5
million for the three months ended September 30, 2011 and 2010, respectively, and $23.5 million and $18.1 million for the nine months ended September 30, 2011 and 2010, respectively. The increases in net product sales during 2011 as
compared to the same periods in 2010 were driven primarily by an increase in the number of hospitals ordering ENTEREG and increased penetration within existing hospital customers, as well as the impact of pricing changes.
15
Contract Revenues
Contract revenues were derived from our collaboration agreements with Glaxo and Pfizer and included milestone payments, cost
reimbursement, amortization of up-front license fees and other revenue. For the three months ended September 30, 2011 and 2010, contract revenues were $17.1 million and $4.1 million, respectively. This increase, as compared to the same period
in 2010, was due primarily to $15.7 million of additional amortization of deferred revenue resulting from the prospective revision of the estimated performance period of the Collaboration Agreement from March 2016 to August 2011. This increase was
partially offset by decreases resulting from the termination of the Pfizer collaboration agreement in December 2010. As of December 31, 2010, the up-front Pfizer license fees were fully amortized and substantially all development activities
under the collaboration agreement had been completed.
Contract revenues were $24.6 million and $14.2 million for the nine
months ended September 30, 2011 and 2010, respectively. The increase period-over-period primarily resulted from the $20.1 million of additional deferred revenue amortization resulting from the Termination Agreement with Glaxo, offset partially
by the termination of the Pfizer collaboration agreement in December 2010.
Operating Expenses
The following table sets forth operating expenses for the three and nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Cost of product sales
|
|
|
$
|
917,773
|
|
|
|
$
|
730,337
|
|
|
|
$
|
2,735,928
|
|
|
|
$
|
1,997,572
|
|
Research and development
|
|
|
|
6,011,827
|
|
|
|
|
6,425,667
|
|
|
|
|
19,501,251
|
|
|
|
|
26,539,299
|
|
Selling, general and administrative
|
|
|
|
9,107,593
|
|
|
|
|
7,750,777
|
|
|
|
|
26,360,087
|
|
|
|
|
25,980,032
|
|
Restructuring charge
|
|
|
|
|
|
|
|
|
1,918,701
|
|
|
|
|
|
|
|
|
|
1,918,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
$
|
16,037,193
|
|
|
|
$
|
16,825,482
|
|
|
|
$
|
48,597,266
|
|
|
|
$
|
56,435,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Product Sales
Cost of product sales was $0.9 million and $0.7 million for the three months ended September 30, 2011 and 2010, respectively, and
$2.7 million and $2.0 million for the nine months ended September 30, 2011 and 2010, respectively, and consisted of royalty payments under certain alvimopan license agreements, FDA fees and manufacturing costs. The increases in cost of product
sales were primarily due to increased sales of ENTEREG and higher FDA fees. Cost of product sales as a percentage of net product sales was 12% and 11% for the three and nine months ended September 30, 2011 and 2010, respectively.
Costs associated with the manufacture of alvimopan prior to FDA approval of ENTEREG in May 2008 were expensed to research and
development. As a result, at September 30, 2011, we have inventory related to alvimopan that carries a zero-cost and is not reflected on the consolidated balance sheet. To the extent that this inventory is sold, our cost of product sales will
not reflect all costs associated with such product manufacture, and our gross margins will be favorably impacted. We currently are unable to estimate the timing of the impact to future profitability resulting from the sell-through of any inventory
manufactured after FDA approval of ENTEREG.
Research and Development Expenses
Our research and development expenses can be identified as internal or external expenses. External expenses include expenses incurred with
clinical research organizations, contract manufacturers and other third-party vendors. Internal expenses include expenses such as personnel and overhead expenses.
16
Research and development expenses were $6.0 million and $6.4 million for the three months
ended September 30, 2011 and 2010, respectively, and $19.5 million and $26.5 million for the nine months ended September 30, 2011 and 2010, respectively, and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
External research and development expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIC program
|
|
$
|
2,513,362
|
|
|
$
|
1,605,774
|
|
|
$
|
8,990,675
|
|
|
$
|
5,733,777
|
|
ENTEREG
|
|
|
664,407
|
|
|
|
1,723,999
|
|
|
|
2,408,942
|
|
|
|
2,869,123
|
|
Delta
agonist program
|
|
|
8,791
|
|
|
|
265,864
|
|
|
|
223,165
|
|
|
|
5,547,356
|
|
Other programs
|
|
|
271,621
|
|
|
|
744,479
|
|
|
|
437,650
|
|
|
|
1,885,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total external research and development expenses
|
|
|
3,458,181
|
|
|
|
4,340,116
|
|
|
|
12,060,432
|
|
|
|
16,035,440
|
|
Total internal research and development expenses
|
|
|
2,553,646
|
|
|
|
2,085,551
|
|
|
|
7,440,819
|
|
|
|
10,503,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
6,011,827
|
|
|
$
|
6,425,667
|
|
|
$
|
19,501,251
|
|
|
$
|
26,539,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We report all expenses gross within our consolidated statements of operations and, as such, the ENTEREG
and
delta
agonist program lines in the above table do not reflect any cost reimbursements from Glaxo and Pfizer, respectively.
Total research and development expenses decreased during the three and nine months ended September 30, 2011 as compared to the same periods in 2010 primarily due to lower
delta
agonist program
expenses resulting from the December 2010 decision to terminate our collaboration agreement with Pfizer, decreased ENTEREG expenses due to a lower level of activity in the Phase 4 radical cystectomy trial and lower expenses in other programs. In
addition, internal research and development expenses for the nine months ended September 30, 2011 were lower as a result of our restructuring in July 2010. These decreases were partially offset by higher OIC program costs, which resulted from
our Phase 2 clinical testing for ADL5945 that was initiated during the third quarter of 2010.
There are significant risks and
uncertainties inherent in the preclinical and clinical studies associated with each of our research and development programs. These studies may yield varying results that could delay, limit or prevent the advancement of a program through the various
stages of product development and significantly impact the costs to be incurred, and time involved, in bringing a program to completion. As a result, the cost to complete such programs, as well as the period in which net cash inflows from
significant programs are expected to commence, are not reasonably estimable.
Selling, General and Administrative
Expenses
Our selling, general and administrative expenses were $9.1 million and $7.8 million for the three months
ended September 30, 2011 and 2010, respectively. The increase was primarily due to the expansion of our sales force in conjunction with the Termination Agreement. In addition, as a result of the Termination Agreement, we incurred aggregate
expenses of $0.3 million related to royalties payable to Glaxo and amortization of our intangible asset during the three months ended September 30, 2011. These increases were partially offset by lower profit-sharing expenses of $0.4 million
under the Glaxo collaboration agreement as a result of only two months of activity during the third quarter of 2011 due to the Termination Agreement becoming effective on August 31, 2011.
Our selling, general and administrative expenses were $26.4 million and $26.0 million for the nine months ended September 30, 2011
and 2010, respectively. Included in selling, general and administrative expenses for the nine months ended September 30, 2011 and 2010 were $8.2 million and $5.4 million, respectively, of profit-sharing expenses under the Glaxo collaboration
agreement. The higher profit-sharing expenses were driven by improved profitability resulting primarily from increased sales of ENTEREG. Remaining selling, general and administrative expenses decreased for the nine months ended September 30,
2011 as compared to the same period in 2010 primarily due to a reduction in general and administrative expenses as a result of our July 2010 restructuring and lower marketing expenses.
Restructuring Charge
As a result of our July 2010 restructuring, we recorded a restructuring charge of $1.9 million for the three and nine months ended September 30, 2010, which consisted of employee severance and
benefits-related costs. There were no restructuring charges for the three and nine months ended September 30, 2011.
17
Interest Income, Interest Expense and Other Income, Net
The following table sets forth interest income, interest expense and other income, net, for the three and nine months ended
September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Interest income
|
|
|
$
|
6,142
|
|
|
|
$
|
38,505
|
|
|
|
$
|
37,142
|
|
|
|
$
|
157,658
|
|
Interest expense
|
|
|
|
(112,421
|
)
|
|
|
|
|
|
|
|
|
(112,421
|
)
|
|
|
|
|
|
Other income, net
|
|
|
|
160,395
|
|
|
|
|
51,517
|
|
|
|
|
375,855
|
|
|
|
|
51,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income, interest expense and other income, net
|
|
|
$
|
54,116
|
|
|
|
$
|
90,022
|
|
|
|
$
|
300,576
|
|
|
|
$
|
209,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
Our interest income was $6,000 and $39,000 for the three months ended September 30, 2011 and 2010, respectively, and $37,000 and $0.2 million for the nine months ended September 30, 2011 and
2010, respectively. The decreases period-over-period were due to lower investment balances resulting primarily from the use of cash in operating activities.
Interest Expense
Interest expense was $0.1 million for the three
and nine months ended September 30, 2011 and consisted of interest imputed on the payments due to Glaxo under the terms of the Termination Agreement.
Other Income, Net
Other income, net, was $0.2 million and $0.1
million for the three months ended September 30, 2011 and 2010, respectively, and $0.4 million and $0.1 million for the nine months ended September 30, 2011 and 2010, respectively. The increases period-over-period were due primarily to
increases in sublease income related to certain laboratory and office space at our corporate office.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Managements Discussion and Analysis of Financial Condition and Results of Operations discusses our
consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. In preparing these consolidated financial statements, we must make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We develop and periodically change
these estimates and assumptions based on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A summary of
significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K for the year ended December 31, 2010 in the Critical Accounting Policies and
Estimates section and the Recently Issued Accounting Pronouncements section of Part II, Item 7 and in Note 2 to the consolidated financial statements within Part II, Item 8.
18
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our investment assets consist of U.S. Treasury obligations. The market value of such investments fluctuates with current market interest rates. In general, as rates increase, the market value of a debt
instrument would be expected to decrease. The opposite also is true. To minimize such market risk, we have in the past held, and to the extent possible will continue in the future to hold, such debt instruments to maturity at which time the debt
instrument will be redeemed at its stated, or face, value. Due to the short duration and nature of these instruments, we do not believe that we have a material exposure to interest rate risk related to our investment portfolio. The fair value of our
investment portfolio at September 30, 2011 totaled $10.0 million, and the weighted-average yield-to-maturity was approximately 0.1% with maturities ranging up to 12 months.
ITEM 4.
|
CONTROLS AND PROCEDURES
|
(a)
|
Evaluation of Disclosure Controls and Procedures
|
For the quarterly period ended September 30, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive
Officer and our Senior Vice President, Finance and Chief Financial Officer (the principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.
Our
management, including our President and Chief Executive Officer and our Senior Vice President, Finance and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors or fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met and our disclosure controls and procedures are designed to provide this reasonable assurance. Based upon
the evaluation discussed above, our President and Chief Executive Officer and our Senior Vice President, Finance and Chief Financial Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were effective at
providing such reasonable assurance.
(b)
|
Changes in Internal Control over Financial Reporting
|
There were no changes in our internal control over financial reporting during the three-month period ended September 30, 2011 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
19
PART II. OTHER INFORMATION
ITEM 1.
|
LEGAL PROCEEDINGS
|
The
information required by this Item is incorporated by reference to Note 9 of the Consolidated Financial Statements included in Part I, Item 1 of this Report.
You should carefully
consider the risks described below, in addition to the other information contained in this report, before making an investment decision. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and
uncertainties described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operations.
Our proposed acquisition by Cubist may be disruptive to our business and could create uncertainty that may adversely affect our
operations and results.
On October 24, 2011, we announced jointly with Cubist that our companies
respective Boards of Directors have unanimously approved a definitive merger agreement under which Cubist will acquire all of the outstanding shares of Adolor for $4.25 per share in cash, plus a CPR entitling the holder to receive additional cash
payments of up to $4.50 for each share they own if certain regulatory and/or commercialization milestones for ADL5945 are met.
The consummation of the Cubist transaction is subject to the satisfaction of customary closing conditions, including expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, as well as the requirement that shares representing over fifty percent of our outstanding common stock are tendered to Cubist in connection with the tender offer that commenced
on November 7, 2011. We cannot predict whether these closing conditions for the proposed transaction with Cubist will be satisfied. As a result, we cannot assure you that such transaction will be completed. If the proposed transaction
is not completed, we would need to consider other means to continue the development of our OIC program, including securing a partner or raising proceeds in the capital markets. It is likely that the start of the Phase 3 study of ADL5945 will be
delayed if the Cubist transaction is not consummated. In addition, if the proposed transaction does not occur, we will remain liable for considerable transaction-related expenses that we have incurred.
The proposed transaction with Cubist may create uncertainty for our employees, which may adversely affect our ability to retain key
employees and to hire new talent. These actions also may create uncertainty for current and potential business partners, which may cause them to terminate, or not to renew or enter into, arrangements with us. This process has been, and may
continue to be, a significant distraction for our management and employees and, with respect to this transaction, may continue to require the expenditure of significant time and resources by us, which could harm our business.
Six lawsuits have been filed against us and the members of our Board of Directors, as well as Cubist and its wholly owned subsidiary, FRD Acquisition
Corporation (FRD), and an adverse judgment in any of such lawsuits may delay or prevent the completion of the proposed transaction.
Adolor, our current directors, Cubist and FRD are named as defendants in three lawsuits filed in the Court of Common Pleas of Chester County, Pennsylvania, Civil Division and three lawsuits filed in the
Court of Chancery of the State of Delaware. Each lawsuit is brought by a purported Adolor stockholder on his or her own behalf and seeks certification as a class action on behalf of all of our stockholders. The lawsuits seek, among other things,
injunctive relief enjoining the tender offer and the merger, or, in the event the tender offer or the merger has been consummated prior to the courts entry of final judgment, rescission of the tender offer and the merger. The lawsuits also
seek an accounting for all damages and an award of costs, including a reasonable allowance for attorneys and experts fees and expenses.
One of the conditions to Cubists obligation to purchase shares in the tender offer is that there shall be no order or injunction prohibiting consummation of the tender offer, and the merger
agreement may be terminated by Adolor or Cubist if a court permanently restrains, enjoins or otherwise prohibits the consummation of the tender offer or the merger and the parties have used their reasonable best efforts to prevent such prohibition
on the consummation of the tender offer or the merger. As such, if any of the plaintiffs is successful in obtaining an injunction enjoining the tender offer or the merger, then such injunction may prevent the acceptance of shares pursuant to the
tender offer or the merger from becoming effective or from becoming effective within the expected timeframe.
We and our Board
of Directors believe the allegations in these lawsuits are without merit and we intend to contest the lawsuits vigorously.
Our OIC program
may not lead to successful drug candidates or commercially successful products.
Our future success is highly dependent on
the results of our clinical development efforts, particularly with respect to our OIC program where we are developing ADL5945. While Phase 1 and Phase 2 studies of ADL5945 support the initiation of Phase 3 studies, there is no assurance that
these studies will yield positive results. If the results are not positive, we may need to discontinue development of our OIC program, which currently is our most advanced clinical program. In addition, our currently available resources are
insufficient to fully fund a Phase 3 clinical program in OIC without securing a partner for this program or raising proceeds in the capital markets. We cannot be certain that such a partnership or capital raising transaction will be available
on terms acceptable to us, if at all, particularly in light of current economic and capital market conditions. Even if we are able to successfully develop ADL5945, we still face significant commercial hurdles. There are a number of other
products in various stages of clinical development for OIC that could have a material adverse impact on our ability to successfully market and sell ADL5945.
Ultimately, drug development is a highly uncertain process; our OIC product candidates may not be safe or effective and we may not be successful in our clinical development programs. Development of
our OIC product candidates may not lead to commercially successful products.
We are and will continue to be highly dependent on the
commercial success of ENTEREG, and we may be unable to attain profitability and/or positive cash flow from operations based solely on product sales of ENTEREG.
ENTEREG is indicated for in-hospital use only and is available only to hospitals that have been registered under our
E.A.S.E.
®
Program. The commercial success of ENTEREG depends on several factors, including the following:
|
|
|
the acceptance of ENTEREG in the medical community and the marketplace, particularly with respect to whether healthcare professionals and hospitals
view ENTEREG as safe and effective for its labeled indication, whether the product carries with it an acceptable benefit-to-risk profile and whether the product offers sufficient pharmacoeconomic benefit to hospitals in light of its cost;
|
|
|
|
the number of hospitals that register for the E.A.S.E. Program;
|
|
|
|
the ability to obtain formulary acceptance of ENTEREG at registered hospitals;
|
|
|
|
the effectiveness of our sales and marketing efforts;
|
|
|
|
the occurrence of any side effects, adverse reactions or misuse (or any unfavorable publicity relating thereto) stemming from the use of ENTEREG; and
|
|
|
|
the development of competing products or therapies that accelerate GI recovery following bowel resection surgery.
|
Ultimately, we may never generate sufficient revenues from ENTEREG for us to reach profitability, generate positive cash flow or sustain, on an ongoing
basis, our current or projected levels of operations.
20
Upon our reacquisition of Glaxos rights to ENTEREG, we are solely responsible for all
commercialization activities for the product. We have both limited resources and limited experience with respect to commercial activities and may be unsuccessful in our efforts to increase ENTEREG sales.
Since 2008, we have been highly dependent on the efforts and expertise of Glaxo for the distribution, marketing and selling of ENTEREG.
Glaxos active participation in the promotion of ENTEREG ended August 31, 2011, after which we became solely responsible for all sales, marketing and distribution activities related to the product. While we have co-promoted ENTEREG
alongside Glaxo for the past three years in certain geographic areas, we have never been solely responsible for the selling efforts in these areas. In a number of other regions where Adolor currently does not have a sales presence, we have hired,
trained and deployed new sales personnel to cover accounts previously covered by Glaxo. Even with the combination of our existing force and newly hired force, we have a smaller number of sales representatives promoting ENTEREG than were previously
detailing the product. In addition, there are certain geographic areas where we no longer rely on personal promotion. We need to rapidly integrate newly hired personnel into our existing organization and seamlessly transition Glaxos selling
activities without impacting our customer relationships or sales of ENTEREG. If these future sales efforts are less successful than the previous Adolor-Glaxo efforts, there could be a material adverse effect on the level of ENTEREG sales.
We also were highly dependent on efforts and expertise of Glaxo for all aspects of the distribution of ENTEREG. We have
entered into agreements with third-parties to provide all distribution and logistics services for ENTEREG, including warehousing of finished product, accounts receivable management, billing, collection, recordkeeping and government price reporting
obligations. If our third-party service providers do not provide these services in a timely or professional manner, it could significantly disrupt our commercial operations, damage our relationships with customers and negatively impact sales of
ENTEREG.
We expect to continue to incur significant operating losses over the next several years and without additional funding, we likely
will be unable to continue our operations.
We have generated operating losses in each year since we began operations in
November 1994, and as of September 30, 2011, our accumulated deficit was $530.4 million and our cash, cash equivalents and short-term investments were $23.2 million. Our losses have resulted principally from costs incurred in research and
development, including clinical trials, and from selling, general and administrative expenses associated with our operations. We expect to continue to generate substantial losses and utilize substantial amounts of cash, cash equivalents and
short-term investments for the foreseeable future, driven primarily by expenditures related to research and development and sales and marketing activities. In addition, under our Termination Agreement with Glaxo, we are required to pay Glaxo $25.0
million in seven installments over a six-year period, including $2.5 million that was paid upon the effective date of the transaction in August 2011.
We believe that our existing cash, cash equivalents and short-term investments are adequate to fund our operations through mid-2012 based upon the level of research and development and marketing and
administrative activities we believe will be necessary to achieve our strategic objectives. We cannot be sure that we will ever achieve significant product revenue from ENTEREG or any of our other product candidates sufficient for us to generate
positive cash flows from operations. Sales of ENTEREG will need to increase significantly beyond current levels before we will be able to achieve profitability and/or positive cash flows from operations. Even if we are able to achieve profitability,
we may be unable to maintain profitability on a continuing basis or at a level sufficient to support our current or projected levels of continuing investment. We anticipate that we will need to obtain funding to support our operational needs in the
future, and we cannot be certain that such funding will be available on terms acceptable to us, if at all, particularly in light of current economic and capital market conditions. Any capital raising necessary to continue our operations may be
through one or a combination of approaches, which could include public or private financing, issuances of equity or debt, sale or partnering of one or more of our development programs or other strategic initiatives. Any public or private financings
involving issuances of common stock or other classes of our equity would likely dilute existing stockholders percentage ownership. If we are unable to obtain funding to support operations, we will be forced to curtail our operations and we may
be less likely to develop products successfully.
Restrictions on ENTEREG may have the effect of limiting the commercial prospects for the
product.
In April 2007, Glaxo and we announced the results of Study 014, a Phase 3 long-term safety study of alvimopan in
patients taking opioids for chronic non-cancer pain and experiencing opioid bowel dysfunction. Results from Study 014 showed a higher number of myocardial infarctions reported by patients treated long-term (1 year) with alvimopan compared to
placebo. As a result, ENTEREG was approved in its labeled indication by the
21
FDA subject to a Risk Evaluation and Mitigation Strategy (REMS). The FDA determined that a REMS is necessary to ensure that the benefits of ENTEREG outweigh the risks. The REMS is subject to
modification by the FDA at anytime and it is possible that the FDA could require changes to the REMS or other restrictions that would make it even more difficult to market and sell ENTEREG.
Our ENTEREG product labeling carries a boxed warning that ENTEREG is available only for short-term (15 doses) use in
hospitalized patients. The REMS and the boxed warning may make it more difficult to market and sell ENTEREG. We are not permitted to sell ENTEREG to hospitals that do not register in the E.A.S.E.
®
Program. Hospitals may be unwilling or unable to comply with the requirements for registration in the E.A.S.E.
®
Program. For example, hospitals may not have systems, order sets, protocols or other measures in place to limit the use of ENTEREG to no more than 15 doses per
patient and to ensure in-hospital use only. Hospitals also may not have controls in place to ensure that ENTEREG will neither be dispensed for outpatient use nor be transferred to unregistered hospitals. In such cases, we will be unable to register
these hospitals in the E.A.S.E.
®
Program.
Selling a pharmaceutical product in the hospital setting presents certain challenges. Hospitals differ widely and each hospitals or
hospital groups prescribing is influenced by a list of accepted drugs called a formulary. Most hospitals have a committee, often called a pharmacy and therapeutics (P&T) committee, which meets periodically to determine which pharmaceutical
products to add to the formulary. Many factors are assessed by such committees, including the cost of the drug and its pharmacoeconomic profile. Once a pharmaceutical is on formulary, it is easier for a physician within a hospital or hospital group
to prescribe the drug. Hospital formulary approval is critical if ENTEREG is to become a commercial success and we cannot assure you that a sufficient number of hospitals will include ENTEREG on their formulary.
Notwithstanding success in registering hospitals in the E.A.S.E.
®
Program and having those registered hospitals include ENTEREG on their formulary, there can be no assurance that such hospitals will order ENTEREG in meaningful
amounts, if at all.
Our stock price has been highly volatile, and your investment in our stock could decline significantly in value.
The market price for our common stock has been, and in the future, may continue to be, highly volatile. For example,
during the period January 1, 2008 through September 30, 2011, the price of our common stock reached a low of $1.00 per share on July 7, 2010 and a high of $6.09 per share on May 21, 2008. Following the announcement of our
proposed acquisition by Cubist on October 24, 2011, the closing price of our common stock was $4.67.
The market price
for our common stock is highly dependent on, among other things, the performance of ENTEREG in the market, the success of our product development efforts, the amount of our available cash and investments and our level of cash utilization. Negative
announcements, including, among others:
|
|
|
disappointing sales of ENTEREG;
|
|
|
|
negative clinical trial results or adverse regulatory decisions for our product candidates;
|
|
|
|
disappointing developments concerning potential business partners for our product candidates;
|
|
|
|
capital-raising transactions that are dilutive to existing stockholders or involve the issuance of debt securities;
|
|
|
|
adverse period-to-period fluctuations in our sales or operating results or financial results that fall below the markets expectations; or
|
|
|
|
legal challenges, disputes and/or other adverse developments impacting patents or other proprietary rights that protect our products,
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could trigger a significant decline in the price of our common stock. In addition, external events, such as news concerning
economic or market conditions in the general economy or within our industry, the activities of our competitors or our customers, changes in U.S. or foreign government regulations impacting our industry or the movement of capital into or out of our
industry, also are likely to affect the price of our common stock, regardless of our operating performance. Further declines in our stock price or our failure to meet other conditions required by the NASDAQ Global Market could impact our continued
listing on the NASDAQ Global Market.
We further believe that, as a result of the announcement our proposed acquisition by
Cubist, the future trading price of our common stock may be volatile and could be subject to wide price fluctuations. We cannot predict whether the closing conditions for the proposed transaction with Cubist will be satisfied, and as a result, we
cannot assure you that such transaction will be completed. If a transaction does not occur, or the market perceives a transaction as unlikely to happen, our stock price may decline, including potentially to levels below where our stock traded prior
to the announcement of the proposed acquisition.
Our success is highly dependent on the efforts of our third-party contractors and on our
ability to secure future partnerships.
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Because we have limited resources, we seek to enter into, and in the past we have entered
into, agreements with other pharmaceutical companies and third-party contractors. These agreements may call for these third-parties to control or play a significant role in, among other things:
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the development of a product candidate, including, among other things, toxicology, formulation and clinical research efforts;
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the design and execution of clinical studies;
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the process of obtaining regulatory approval to market the product; and
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the distribution, manufacturing, marketing and selling of any approved product.
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In each of these areas, our partners may not support fully our research and commercial interests since our programs may compete for time,
attention and resources with other programs at these partners. As such, we cannot be sure that our partners will share our perspectives on the relative importance of our program, that they will commit sufficient resources to our program to move it
forward effectively or that the program will advance as rapidly as it might if we had retained complete control of all research, development, regulatory and commercialization decisions.
Any failure by our partners to perform their obligations or any decision by our partners to terminate these agreements could negatively
impact our ability to successfully develop, obtain regulatory approvals for and commercialize our product and product candidates, which would likely materially impact our financial condition, results of operations and outlook. In addition, any
termination of our collaboration agreements will terminate the funding we may receive under the relevant collaboration agreement and may materially and adversely impact our ability to fund further development efforts and our progress in our
development programs. For example, in December 2010, Pfizer and we announced that we were discontinuing further development of our
delta
opioid receptor agonist compounds, ADL5859 and ADL5747, and terminating our collaboration agreement
effective as of March 16, 2011. We had been developing these compounds under an exclusive worldwide license and collaboration agreement; however, clinical evaluation in multiple indications had not yielded compelling evidence for either party
to continue the development program.
In the future, we will likely seek to enter into other collaborative arrangements for the
development, marketing, sale and/or distribution of certain of our product candidates, including in our OIC program, which may require us to share profits or revenues. Despite our efforts, we may be unable to secure additional collaborative
licensing or other arrangements that are necessary for us to further develop and commercialize our product candidates. Moreover, we may not realize the contemplated benefits from such collaborative licensing or other arrangements. These arrangements
may place responsibility on our collaborative partners for preclinical testing, the design and conduct of human clinical trials, the preparation and submission of applications for regulatory approval, or for marketing, sales and distribution support
for product commercialization. These arrangements also may require us to transfer certain material rights or issue our equity securities to corporate partners, licensees or others. Moreover, we may ultimately not derive any revenues or profits from
these arrangements.
If competitors develop and market products that are more effective, have fewer side effects, are less expensive than
our product or product candidates or offer other advantages, our commercial opportunities will be limited.
Other companies
have product candidates in development to treat the conditions we are seeking to treat and they may develop effective and commercially successful products. Our competitors may succeed in developing products that are more effective than those that we
may develop, that have fewer side effects, that are less expensive or that reach the market before any products we may develop.
We are aware of other products in various stages of clinical development for the acceleration of GI recovery following bowel resection
surgery, OIC and other manifestations of opioid bowel dysfunction. For the acceleration of GI recovery following bowel resection surgery, we are aware of molecules in development by Tranzyme Pharma, Helsinn Therapeutics and other companies that
could compete with ENTEREG at some point in the future. For OIC, we are aware of molecules in development by Sucampo Pharmaceuticals, Inc. in collaboration with Takeda Pharmaceutical Company Limited, Salix Pharmaceuticals Inc. in collaboration with
Progenics Pharmaceuticals, Inc., AstraZeneca PLC in collaboration with Nektar Therapeutics, Theravance Inc. and Alkermes, Inc. that could compete with our OIC product candidates. There are additional competitive products being developed that could
have a material adverse effect on our ability to successfully develop, market and sell our product and product candidates.
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Our competitors include fully-integrated pharmaceutical companies and biotechnology
companies, universities and public and private research institutions. Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug
development and in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do. These organizations also compete with us to:
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attract partners for acquisitions, joint ventures or other collaborations;
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license proprietary technology; and
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attract qualified personnel.
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The results and timing of future clinical trials cannot be predicted and future setbacks may materially and adversely affect our business.
We must demonstrate through preclinical testing and clinical trials that a product candidate is safe and efficacious. The results from
preclinical testing and early clinical trials may not be predictive of results obtained in subsequent clinical trials, and we cannot be sure that these clinical trials will demonstrate the safety and efficacy necessary to obtain regulatory approval
for any product candidates.
Many companies in the biotechnology and pharmaceutical industries have suffered significant
setbacks in advanced clinical trials. Product candidates that appear to be promising at earlier stages of development may not reach the market or be marketed successfully for a number of reasons, including, but not limited to, the following:
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researchers may find during later preclinical testing or clinical trials that the product candidate is ineffective or has harmful side effects;
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new information about the mechanisms by which a drug candidate works may adversely affect its development;
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one or more competing products may be approved for the same or a similar condition, raising the hurdles to approval of the product candidate;
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the product candidate may fail to receive necessary regulatory approval or clearance; or
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competitors may market equivalent or superior products.
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The completion of clinical trials of our product candidates may be delayed by many factors, one of which is the rate of enrollment of patients. Neither we nor our collaborators can control the rate at
which patients present themselves for enrollment, and we cannot be sure that the rate of patient enrollment will be consistent with our expectations or be sufficient to enable clinical trials of our product candidates to be completed in a timely
manner. In addition, we contract with third parties to conduct our clinical trials, and are subject to the risk that these third parties fail to perform their obligations properly and in compliance with applicable FDA and other governmental
regulations. Any significant delays in, or termination of, clinical trials of our product candidates may have a material adverse effect on our business and the price of our common stock.
We cannot be sure that we will be permitted by regulatory authorities to undertake additional clinical trials for any of our product
candidates, or that if such trials are conducted, any of our product candidates will prove to be safe and efficacious or will receive regulatory approvals. In addition, we, or a regulatory authority, may suspend ongoing clinical trials at any time
if the subjects participating in the trial are exposed to unacceptable health risks or if the regulatory agency finds deficiencies in the conduct of the trials. Any delays in or termination of these clinical trial efforts could have a material and
adverse effect on our business.
We have no commercial manufacturing capability and infrastructure, and we rely on third parties to
manufacture our product and product candidates in sufficient quantities, at an acceptable cost and in compliance with regulatory requirements.
Our approved suppliers of the active pharmaceutical ingredient in ENTEREG and of finished ENTEREG capsules have been inspected by the FDA but are subject to periodic re-inspection. In the event that
these vendors cannot supply material for any reason, FDA approval is required to change or add new suppliers and manufacturers and obtaining such approval could result in delays that disrupt the supply of the product. While we seek to maintain
inventories of the active pharmaceutical ingredient and finished products to protect against supply disruptions, if they were to occur they could materially and adversely affect the commercial success of ENTEREG.
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Completion of our clinical trials and commercialization of our product candidates require
access to, or development of, facilities to manufacture a sufficient supply of our product candidates. We have depended, and expect to continue to depend, on third parties for the manufacture of our product candidates for preclinical, clinical and
commercial purposes. While we have established relationships with a number of different third-party manufacturing service providers, we may not be able to contract for the manufacture of sufficient quantities of the products we develop, or meet our
needs for preclinical or clinical development. Our products may be in competition with other products for manufacturing capacity of third parties and suitable alternatives may be unavailable. Consequently, our products may be subject to
manufacturing delays if outside contractors give their own or other products greater priority than ours. It is difficult, time consuming and expensive to change contract manufacturers for pharmaceutical products. Our dependence upon others for the
manufacture of our products may adversely affect our future profit margin and our ability to commercialize products, if additional products are approved, on a timely and competitive basis.
To receive regulatory approval for any future product, contract manufacturers will need to be identified that can obtain FDA
approval of their manufacturing facilities used to manufacture that product, and there is a risk that such approval may not be obtained. In a New Drug Application (NDA), we are required to submit information and data regarding chemistry,
manufacturing and controls which satisfy the FDA that our contract manufacturers are able to make that product in accordance with Good Manufacturing Practices (cGMPs). Under cGMPs, our manufacturers and we will be required to manufacture our
products and maintain records in a prescribed manner with respect to manufacturing, testing and quality control activities. We are dependent on our third-party manufacturers to comply with these regulations in the manufacture of our products and
these parties may have difficulties complying with cGMPs. The failure of any third-party manufacturer to comply with applicable government regulations could cause us substantial harm by delaying or preventing regulatory approval and marketing of our
products.
It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights; we
may be sued by others for infringing their intellectual property.
Our commercial success will depend, in part, on
obtaining patent protection for new technologies, products and processes and successfully defending these patents against third-party challenges. To that end, we file applications for patents covering the compositions, uses and proprietary processes
for the manufacture of our product and product candidates. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions. Accordingly, we cannot predict the
breadth of claims allowed in our patents or those of our collaborators. The patents and patent applications relating to our products, product candidates and technologies may be challenged, invalidated or circumvented by third parties and might not
protect us against competitors with similar products or technology. Patent disputes in our industry are frequent and can preclude commercialization of products. If we ultimately engage in and lose any such disputes, we could be subject to
competition and/or significant liabilities, we could be required to enter into third-party licenses or we could be required to cease using the technology or product in dispute. In addition, even if such licenses are available, the terms of any
license requested by a third party could be unacceptable to us.
Others have filed, and in the future are likely to file,
patent applications covering products and technologies that are similar, identical or competitive to ours, or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent
applications filed or in-licensed by us, or that we or our licensors will not be involved in interference proceedings before U.S. or foreign patent offices.
Although no third party has asserted a claim of infringement against us, others may hold proprietary rights that could prevent our product candidates from being marketed unless we can obtain a license to
those proprietary rights. Any patent-related legal action against our collaborators or us claiming damages and seeking to enjoin commercial activities relating to our products and processes could subject us to potential liability for damages and
require our collaborators or us to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether our collaborators or we would prevail in any such actions or that any license required under any
of these patents would be made available on commercially acceptable terms, if at all.
There has been, and we believe that
there will continue to be, significant litigation in the industry regarding patent and other intellectual property rights. The results of patent litigation among third parties has caused, and may continue to cause, changes to the ways patents are
interpreted, enforced and/or challenged. These changes may adversely affect our ability to protect our products. If we become involved in litigation, it could consume substantial managerial and financial resources.
We also rely on trade secrets to protect technology in cases when we believe patent protection is not appropriate or obtainable. However,
trade secrets are difficult to protect. While we require employees, academic
25
collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information. Our
research collaborators and scientific advisors have rights to publish data and information in which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborators
and advisors, our ability to receive patent protection or protect our proprietary information may be imperiled.
We are a
party to various license agreements that give us rights to use specified technologies in our research and development processes. If we are not able to continue to license such technology on commercially reasonable terms, our product development and
research may be delayed. In addition, we generally do not fully control the prosecution of patents relating to in-licensed technology (or technology subject to a collaboration) and, accordingly, are unable to exercise the same degree of control over
this intellectual property as we exercise over our internally developed technology.
Our long-term success depends upon our ability to
discover, license and develop, receive regulatory approval for and commercialize our product candidates.
Our product
candidates require governmental approvals prior to commercialization. Because these product candidates are in development, we face the substantial risks of failure inherent in developing drugs based on new technologies. Our product candidates must
satisfy rigorous standards of safety and efficacy before the FDA and foreign regulatory authorities will approve them for commercial use. There can be no assurance that these standards will remain consistent over time, further complicating our
ability to obtain marketing approvals for our product candidates. To satisfy these standards, we will need to conduct significant additional research, preclinical testing and clinical trials.
Preclinical testing and clinical development are long, expensive and highly uncertain processes. Failure can occur at any stage of
testing. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. Based on results at any stage of clinical trials, we may decide to discontinue development of our product candidates.
Even if we obtain approval and begin marketing a product, ongoing clinical trials, including for other indications, may result in additional information that could affect our ability or decision to continue marketing the product. Even if we receive
regulatory approval for our product candidates, we must comply with applicable FDA post-marketing regulations governing manufacturing, promotion, labeling, risk management and reporting of adverse events and other information, as well as other
regulatory requirements. Failure to comply with applicable regulatory requirements could subject us to criminal penalties, civil penalties, recall or seizure of products, withdrawal of marketing approval, total or partial suspension of production or
injunction, as well as other regulatory actions against our product or us.
During 2011, we funded Phase 2 studies of ADL5945
in OIC and continue to fund our ongoing Phase 4 study of ENTEREG in patients undergoing radical cystectomy. While we also expect to continue to conduct research, preclinical studies and process development activities on our other product candidates,
the level of such expenditures will be significantly reduced compared to previous years, which may limit or delay our ability to discover new products or develop our product candidates and may increase the risk that our long-term business objectives
will not be met.
Despite our limited resources, we intend to explore opportunities to expand our product portfolio by
acquiring or in-licensing product candidates. Although we conduct extensive evaluations of product candidate opportunities as part of our due diligence efforts, there can be no assurance that our product candidate development efforts related thereto
will be successful or that we will not become aware of issues or complications that will cause us to alter, delay or terminate our product candidate development efforts.
If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties.
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare fraud and
abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include false claims statutes and anti-kickback statutes. Because of the breadth of these laws and the narrowness of the
safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false
statement to get a false claim paid. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing,
ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under
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Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and
prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and
practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe
harbor protection from anti-kickback liability.
Over the past several years, numerous pharmaceutical and other healthcare
companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting
to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered, off-label uses; and submitting
inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Most states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services
reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturers products from
reimbursement under government programs, criminal fines and imprisonment.
We are required to submit pricing data to the
federal government as a condition of selling ENTEREG to healthcare facilities of the VA, Department of Defense (DoD), Public Health Service and U.S. Coast Guard (collectively, the VA Network). These price reports are used to determine the amount of
discount that must be provided to the VA Network. Pharmaceutical manufacturers have been prosecuted under false claims laws for knowingly submitting inaccurate pricing information to the government to reduce their liability for providing discounts.
The rules governing the calculation of these reported prices are complex. We currently depend upon a third-party to calculate these prices for ENTEREG and prior to the closing of the Termination Agreement, we were dependent on Glaxo for these
calculations; it is possible that the methodologies used for calculating these prices could be challenged under false claims laws or other laws. If our methodologies are incorrect, we could face substantial liability.
We face product liability risks, which may have a negative effect on our financial performance.
The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims regardless of
whether or not the drugs are actually at fault for causing an injury. The product labeling for ENTEREG includes a boxed warning that ENTEREG is available only for short-term (15 doses) use in hospitalized patients. The product label informs
physicians that there were more reports of myocardial infarctions in patients treated with alvimopan 0.5 milligrams twice daily compared with placebo-treated patients in a 12-month study of patients treated with opioids for chronic pain. ENTEREG
also is marketed and sold under a REMS.
If ENTEREG is used more widely or if physicians prescribe the product for conditions
other than its labeled indication, the likelihood of an adverse drug reaction, unintended side effect or incident of misuse may increase. Product liability claims can be expensive to defend and may result in large judgments or settlements against
us, which could have a negative effect on our financial performance or condition. We maintain product liability insurance and self-insurance retentions in amounts we believe to be commercially reasonable, but which may not cover the potential
liability associated with significant product liability claims. Even if a product liability claim is not successful, the adverse publicity and time and expense of defending such a claim may harm the commercial prospects for the product or otherwise
interfere with our business. Regardless of whether we face product liability lawsuits, we may be required to disclose adverse events associated with ENTEREG. Although ENTEREG may not be the cause of these adverse events, these disclosures could
nevertheless have a material adverse effect on our sales of ENTEREG and our financial condition.
Additionally, we enter into
various agreements where we indemnify third parties such as manufacturers and investigators for certain product liability claims related to our products. These indemnification obligations may require us to pay significant sums of money for claims
that are covered by these indemnifications.
Reductions in the use of opioid analgesics would reduce the potential market for ENTEREG and
any products developed to treat OIC.
ENTEREG and our OIC development candidates are peripherally acting
mu
opioid
receptor antagonists intended to mitigate the gastrointestinal side effects associated with acute postoperative or chronic (long-term) opioid pain management. If the use of drugs or techniques that reduce the requirement for opioid analgesics
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becomes more widespread, the market for ENTEREG and our OIC product candidates would decrease. For example, postoperative use of non-opioid analgesics (e.g. non-steroidal anti-inflammatory drugs,
parenteral acetominophen) may reduce total opioid requirements. Novel analgesics which target other opioid receptor subtypes, non-opioid receptors or pain pathways are under development that may, if approved, compete with
mu
opioid analgesics
for acute or chronic pain management. If these analgesics significantly reduce the use of more traditional opioid analgesics, it would have a negative impact on the potential market for ENTEREG and our OIC product candidates.
Our ability to generate product sales could diminish if we fail to obtain acceptable prices or an adequate level of reimbursement for our products
from third-party payors.
Our ability to successfully commercialize pharmaceutical products, alone or with collaborators,
may depend in part on the extent to which reimbursement is available from government and health administration authorities or private health insurers and third-party payors.
The continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various means may limit our commercial opportunity. Increasing emphasis on managed care in
the United States will continue to put pressure on the pricing of in-patient hospital procedures and pharmaceutical products. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Cost control
initiatives could adversely affect the commercialization of our products, decrease the price received for any products in the future and may impede patients ability to obtain reimbursement under their insurance programs for our products.
In the case of partial large or small bowel resection surgery, a hospital typically will be reimbursed a fixed fee for the
procedure by a private health insurer or Medicare. Pharmaceutical products such as ENTEREG that may be used in connection with the surgery are not separately reimbursed and, therefore, a hospital must assess the cost of ENTEREG relative to its
benefits. Current and future efforts to limit the level of reimbursement for in-patient hospital procedures could cause a hospital to decide to not use ENTEREG or to discontinue use of the product.
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could materially impact our financial condition.
As a public biopharmaceutical company, we are or may become a party to litigation in the ordinary course of our business,
including, among others, matters alleging product liability, patent or other intellectual property rights infringement, patent invalidity, violations of securities laws, employment discrimination or breach of commercial contract. In general,
litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly impact our results of operations and financial condition. As previously discussed, we currently are
vigorously defending ourselves against the matters specifically described in Note 9 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. While we currently do not believe that
the settlement or adverse adjudication of these litigation matters would materially impact our results of operations or financial condition, the final resolution of the matters and the impact, if any, on our results of operations, financial
condition or cash flows is unknown but could be material.
Our business could suffer if we are unable to attract, retain and motivate
skilled personnel and cultivate key academic collaborations.
We are a small company, and our success depends on our
continued ability to attract, retain and motivate highly-qualified management and scientific personnel. Moreover, we may not be successful in attracting qualified individuals to replace employees or to expand our business should the need arise. If
we lose the services of any of our existing personnel or if we fail to appropriately motivate them, it could impede significantly the achievement of our objectives. We do not know if we will be able to attract, retain or motivate personnel or
maintain important academic, scientific and commercial relationships. We do not maintain key man life insurance on any of our employees.
If we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect our business
operations or our stockholders.
From time to time we have considered, and we will continue to consider in the future,
strategic business initiatives intended to further the development of our business. These initiatives may include acquiring businesses, technologies or products or entering into a business combination with another company. If we do pursue such a
strategy, we could, among other things:
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issue equity securities that would dilute our current stockholders percentage ownership;
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incur substantial debt that may place strains on our operations;
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spend substantial operational, financial and management resources in integrating new businesses, technologies and products;
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assume substantial actual or contingent liabilities; or
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merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash or shares of the other
company or a combination of both on terms that our stockholders may not deem desirable.
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We are not in a
position to predict what, if any, collaborations, alliances or other transactions may result or how, when or if these activities would have a material effect on us or the development of our business.
Certain provisions of both our charter documents and Delaware law, our adoption of a stockholder rights plan and certain limitations within our
collaboration agreements may make an acquisition of us, which may be beneficial to our stockholders, more difficult.
Provisions of our amended and restated certificate of incorporation and restated bylaws, as well as provisions of Delaware law, could make
it more difficult for a third party to acquire us, even if doing so would benefit our stockholders.
Authorized shares of our
common stock and preferred stock are available for future issuance without stockholder approval. The existence of unissued common stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management
or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, which would protect the continuity of our management.
In addition, we adopted a stockholder rights plan, the effect of which may be to make an acquisition of us more difficult.
Our amended and restated certificate of incorporation provides for our Board of Directors to be divided into three classes, with the term
of one such class expiring each year, and we have eliminated the ability of our stockholders to consent in writing to the taking of any action pursuant to Section 228 of the Delaware General Corporation Law.
Under our collaboration agreements with Glaxo and Pfizer, there are certain limitations on the ability of Glaxo and Pfizer to acquire our
securities. These limitations make it more difficult for Glaxo or Pfizer to acquire us, even if such an acquisition would benefit our stockholders. The limitations do not prevent Glaxo or Pfizer, among other things, from acquiring our securities in
certain circumstances following initiation by a third party of an unsolicited tender offer to purchase more than a certain percentage of any class of our publicly traded securities. As a result of the termination of our collaboration agreement with
Pfizer effective March 16, 2011, the limitations on Pfizers ability to acquire our securities will terminate effective March 16, 2013. In addition, as a result of the Termination Agreement with Glaxo, the limitations on Glaxos
ability to acquire our securities terminate in the third quarter of 2012.
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Exhibit No.
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Description
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10.1*
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License Agreement between Adolor Corporation and Eli Lilly and Company effective as of September 18, 2009. (1)
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31.1*
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Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1#
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2#
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101##
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The following materials from Adolor Corporations Form 10-Q for the quarter ended September 30, 2011, formatted in eXtensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010, (iii) Consolidated Statements of
Comprehensive Income (Loss) for the three and nine months ended September 30, 2011 and 2010 (iv) Consolidated Statement of Stockholders Equity for the nine months ended September 30, 2011 (v) Consolidated Statements of Cash Flows for the
nine months ended September 30, 2011 and 2010 and (vi) Notes to the Consolidated Financial Statements.
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(1)
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Portions of the Exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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#
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This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference in any document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
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##
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Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference in any document
filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
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ADOLOR CORPORATION
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Date: November 10, 2011
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By:
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/s/ Michael R. Dougherty
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Michael R. Dougherty
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President and Chief Executive Officer
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(Principal executive officer)
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By:
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/s/ Stephen W. Webster
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Stephen W. Webster
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Senior Vice President, Finance and
Chief Financial Officer
(Principal financial and accounting officer)
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31
Adolor Corp. (MM) (NASDAQ:ADLR)
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From Jun 2024 to Jul 2024
Adolor Corp. (MM) (NASDAQ:ADLR)
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From Jul 2023 to Jul 2024