SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 2001
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: 000-31135
INSPIRE PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-3209022
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4222 Emperor Boulevard, Suite 470
Durham, North Carolina 27703-8466
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(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, Including Area Code: (919) 941-9777
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-- --
Indicate the number of shares outstanding of common stock, as of the latest
practical date: 25,746,152 as of October 31, 2001.
Inspire Pharmaceuticals
(a development stage company)
PART I: FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
---------------------
Condensed Balance Sheets
(in thousands except share and per share amounts)
(Unaudited)
September 30, December 31,
2001 2000
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $50,141 $35,109
Short-term investments 14,975 44,026
Other receivables 216 209
Interest receivable 217 364
Prepaid expenses 421 415
----------------- -----------------
Total current assets 65,970 80,123
Property and equipment, net 1,336 1,214
Other assets 976 1,656
----------------- -----------------
Total assets $68,282 $82,993
================= =================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $709 $430
Accrued expenses 857 852
Notes payable 27 26
Capital leases, current portion 393 289
Deferred revenue, current portion 5,488 5,618
----------------- -----------------
Total current liabilities 7,474 7,215
Capital leases, excluding current portion 602 523
Deferred revenue, excluding current portion 833 750
----------------- -----------------
Total liabilities 8,909 8,488
Stockholders' equity:
Common stock, $0.001 par value, 56,000,000 shares authorized;
25,746,152 and 25,515,087 shares issued and outstanding
at September 30, 2001 and December 31, 2000, respectively 26 26
Additional paid-in capital 125,091 126,081
Other comprehensive income 17 51
Deferred compensation (1,829) (3,782)
Deficit accumulated during the development stage (63,932) (47,871)
----------------- -----------------
Total stockholders' equity 59,373 74,505
----------------- -----------------
Total liabilities and stockholders' equity $68,282 $82,993
================= =================
The accompanying notes are an integral part of these condensed financial
statements.
2
Inspire Pharmaceuticals
(a development stage company)
Condensed Statements of Operations
(in thousands except per share amounts)
(Unaudited)
Cumulative
From
Inception
THREE MONTHS ENDED NINE MONTHS ENDED (October 28,
------------------ ----------------- 1993) to
September 30, September 30, September 30, September 30, September 30,
2001 2000 2001 2000 2001
------------- ------------- ------------ ------------- -------------
Revenues:
Collaborative research agreements $2,238 $1,155 $5,047 $3,463 $11,879
---------- ---------- ---------- --------- ---------
Operating expenses:
Research and development (includes $124, $235,
$394, $697 and $1,815, respectively, of
stock-based compensation) 6,557 4,534 20,190 10,236 62,144
General and administrative (includes $169, $170,
$508, $509 and $1,751, respectively, of
stock-based compensation) 1,320 1,003 4,093 2,690 16,570
---------- ---------- ---------- --------- ---------
Total operating expenses 7,877 5,537 24,283 12,926 78,714
---------- ---------- ---------- --------- ---------
Operating loss (5,639) (4,382) (19,236) (9,463) (66,835)
---------- ---------- ---------- --------- ---------
Other income (expense), net:
Interest income 772 630 3,305 1,212 6,534
Interest expense (49) (190) (130) (555) (1,789)
Loss on disposal of property and equipment - - - - (366)
---------- ---------- ---------- --------- ---------
Other income (expense), net 723 440 3,175 657 4,379
---------- ---------- ---------- --------- ---------
Loss before provision for income taxes (4,916) (3,942) (16,061) (8,806) (62,456)
Provision for income taxes - 200 - 350 820
---------- ---------- ---------- --------- ---------
Net loss (4,916) (4,142) (16,061) (9,156) (63,276)
Preferred stock dividends - (95) - (594) (656)
---------- ---------- ---------- --------- ---------
Net loss available to common stockholders ($4,916) ($4,237) ($16,061) ($9,750) ($63,932)
========== ========== ========== ========= =========
Net loss per common share-basic and diluted ($0.19) ($0.25) ($0.62) ($1.34)
========== ========== ========== =========
Weighted average common shares outstanding-basic and diluted 25,733,911 16,690,193 25,687,959 7,298,014
========== ========== ========== =========
The accompanying notes are an integral part of these condensed financial
statements.
3
Inspire Pharmaceuticals
(a development stage company)
Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
Cumulative
From
Inception
NINE MONTHS ENDED (October 28,
----------------- 1993) to
September 30, September 30, September 30,
2001 2000 2001
------------ ------------- -------------
Cash flows from operating activities:
Net loss ($16,061) ($9,156) ($63,276)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock issued for exclusive licenses - - 144
Stock issued for consulting services - - 72
Depreciation and amortization 469 410 4,042
Amortization of stock-based compensation 902 1,206 3,595
Amortization of debt issuance costs 1,182 480 1,182
Loss on disposal of property and equipment - - 366
Deferred revenue (47) 37 6,321
Changes in operating assets and liabilities:
Other receivables (7) (2,122) (216)
Interest receivable 147 (369) (217)
Prepaid expenses (6) (157) (421)
Other assets (2) 1 (84)
Accounts payable 279 (467) 709
Accrued expenses 6 264 859
-------------- -------------- -------------
Net cash used in operating activities (13,138) (9,873) (46,924)
-------------- -------------- -------------
Cash flows from investing activities:
Purchase of investments (93,774) (37,220) (148,795)
Proceeds from sale of investments 122,291 982 133,337
Proceeds from sale of property and equipment - - 127
Sale of certificate of deposit - - (78)
Purchases of property and equipment (591) (665) (2,546)
-------------- -------------- -------------
Net cash provided by (used in) investing activities 27,926 (36,903) (17,955)
-------------- -------------- -------------
Cash flows from financing activities:
Proceeds from bridge loans - - 780
Proceeds from issuance of notes payable and capital lease
obligations 401 430 809
Payments on notes payable - - (400)
Issuance of common stock 61 69,256 70,408
Issuance of convertible preferred stock - - 45,061
Payments on capital lease obligations (218) (225) (1,638)
-------------- -------------- -------------
Net cash provided by financing activities 244 69,461 115,020
-------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 15,032 22,685 50,141
Cash and cash equivalents, beginning of period 35,109 22,728 -
-------------- -------------- -------------
Cash and cash equivalents, end of period $50,141 $45,413 $50,141
============== ============== =============
The accompanying notes are an integral part of these condensed financial
statements.
4
Inspire Pharmaceuticals
(a development stage company)
(amounts in thousands except share and per share amounts)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
- -------------------------------------------------
1. Organization
Inspire Pharmaceuticals, Inc. (the "Company") was founded on October
28, 1993 to discover and develop novel pharmaceutical products to treat diseases
characterized by deficiencies in the body's innate defense mechanisms of mucosal
hydration and mucociliary clearance, as well as other non-mucosal disorders. The
Company's technologies are based in part on exclusive license agreements with
The University of North Carolina at Chapel Hill for rights to certain
developments from the founder's laboratories. The company's lead products target
respiratory and ophthalmic diseases with inadequate current treatments.
The Company is considered a development stage enterprise. Since
inception, the Company has devoted substantially all of its efforts towards
establishing its business and research and development programs.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements are unaudited and, in the opinion of
management, include all adjustments necessary to present fairly the balance
sheets, statements of operations, and statements of cash flows for the periods
presented in accordance with generally accepted accounting principles. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. Operating results for interim periods are not necessarily
indicative of the results that may be expected for a full year. These financial
statements and notes should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 2000 included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 20, 2001.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized under collaborative research agreements when
services are performed or when contractual obligations are met. Nonrefundable
fees received at the initiation of the collaborative agreements for which the
Company has an ongoing research and development commitment are deferred and
recognized ratably over the period of the related research and development
commitment. Milestone payments under collaboration agreements and research
agreements are recognized as revenues ratably over the remaining period of the
Company's research and development commitment beginning on the date the Company
achieves the indicated milestone and such achievement is acknowledged by the
collaborative partner, which generally coincides with the receipt of the
milestone payment.
Net Income (Loss) Per Share
Basic net income (loss) per common share ("basic EPS") is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss) per
common share ("diluted EPS") is computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares and
dilutive potential common share equivalents then outstanding. Potential common
shares consist of shares issuable upon the exercise of stock options and
warrants and conversion of
5
Inspire Pharmaceuticals
(a development stage company)
(amounts in thousands except share and per share amounts)
convertible preferred stock. The calculation of diluted EPS for the nine months
ended September 30, 2001 and 2000 does not include 1,481,787 and 1,315,452,
respectively, of potential shares of common stock equivalents, as their impact
would be antidilutive.
Segment Reporting
The Company has determined that it did not have any separately
reportable operating segments as of September 30, 2001.
Other Comprehensive Income (Loss)
At September 30, 2001 and December 31, 2000, the Company had $17 and
$51, respectively, of unrealized gain on investments that is classified as other
comprehensive income and is disclosed as a component of stockholders' equity.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
FASB Statements Nos. 141 ("SFAS 141"), "Business Combinations" and 142 ("SFAS
142"), "Goodwill and Other Intangible Assets." SFAS 141 eliminates
pooling-of-interests accounting prospectively and provides guidance on purchase
accounting related to the recognition of intangible assets and accounting for
negative goodwill. SFAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. SFAS 141 and SFAS 142 are
effective for all business combinations completed after June 30, 2001. The
adoption of SFAS 141 and partial adoption of SFAS 142 have not had any impact on
the Company's financial statements or results of operations. The Company does
not expect that the complete adoption of SFAS 142 on January 1, 2002 will have
any impact on its financial statements or results of operation.
In August 2001, the FASB issued FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"). The objectives of SFAS 143 are to
establish accounting standards for the recognition and measurement of an asset
retirement obligation and its associated asset retirement cost. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
143 is not expected to have any impact on the Company's financial statements or
results of operations.
In October 2001, the FASB issued FASB Statement No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). The Statement
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") and APB 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The provisions of this SFAS 144 are required to be
applied fiscal years beginning after December 15, 2001. The adoption of SFAS 144
is not expected to have any impact on the Company's financial statements or
results of operations.
6
Inspire Pharmaceuticals
(a development stage company)
(amounts in thousands except share and per share amounts)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 2001 and 2000
- ----------------------------------------------
Revenues
Revenues are derived from collaborative research and development
agreements with strategic partners. Revenues were $2,238 for the three months
ended September 30, 2001 compared to $1,155 for the same period in 2000, an
increase of 94%. This increase was due to revenue recognized during the three
months ended September 30, 2001 related to the upfront payment received from
Allergan, Inc. in the second quarter of 2001 and the upfront payment received
from Kirin Brewery Co., Ltd. in the fourth quarter of 2000. We also recognized
revenues related to milestone payments from Kissei Pharmaceuticals Co., Ltd. and
Genentech, Inc., which are recognized over the period of ongoing research and
development commitment under the collaborative research agreements with the
respective companies.
Research and Development
Our research and development expenses are comprised of personnel and
related costs and the costs of external contract research organizations that are
performing research and development activities, including clinical studies, for
us, and the costs of filing and maintaining our patent portfolio.
Research and development expenses for the three months ended September
30, 2001 were $6,557 compared to $4,534 for the same period in 2000, an increase
of 45%. The increase in research and development expenses is due to increased
external costs related to research costs, preclinical testing, toxicology
studies, clinical supplies, clinical development activities, including continual
enrollment in Phase III clinical trials, and increased internal costs necessary
to perform and/or manage these activities. We expect to incur increases in
future periods as later phases of development typically involve an increase in
the scope of studies and the number of patients treated.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel
costs, facilities costs, business development costs and professional expenses,
such as legal and accounting fees. General and administrative expenses were
$1,320 for the three months ended September 30, 2001 compared to $1,003 for the
same period in 2000, an increase of 32%. The increase in general and
administrative expenses is due to increased costs in legal, marketing and
operations, which support the Company's strategic business collaborations and
operations as a publicly traded company.
Other Income (Expense), Net
Other income (expense), net consists of interest income earned on cash
deposits and investments, reduced by interest expense on notes payable and
capital lease obligations, and gains and losses on sales of property and
equipment. Other income (expense), net was $723 for the three months ended
September 30, 2001 compared to $440 for the same period in 2000, an increase of
64%. The increase was due to interest income earned from larger cash balances
partially offset by interest expense related to leased equipment.
Provision for Income Taxes
The provision for income taxes was zero for the three months ended
September 30, 2001, compared to $200 for the same period in 2000. The decrease
in the provision for income taxes is attributable to withholding taxes paid on
milestone payments from Japanese collaborative partners during the three months
ended September 30, 2000. No milestone payments were received from Japanese
collaborative partners during the three months ended September 30, 2001.
7
Inspire Pharmaceuticals
(a development stage company)
(amounts in thousands except share and per share amounts)
Nine Months Ended September 30, 2001 and 2000
- ---------------------------------------------
Revenues
Revenues are derived from collaborative research and development
agreements with strategic partners. Revenues were $5,047 for the nine months
ended September 30, 2001 compared to $3,463 for the same period in 2000, an
increase of 46%. This increase was due to revenue recognized during the nine
months ended September 30, 2001 related to an upfront payment received from
Allergan, Inc. in the second quarter of 2001 and the upfront payment received
from Kirin Brewery Co., Ltd. in the fourth quarter of 2000. We also recognized
revenues related to milestone payments from Kissei Pharmaceuticals Co., Ltd. and
Genentech, Inc., which are recognized over the period of ongoing research and
development commitment under the collaborative research agreements with the
respective companies.
Research and Development
Our research and development expenses are comprised of personnel and
related costs and the costs of external contract research organizations that are
performing research and development activities, including clinical studies, for
us, and the costs of filing and maintaining our patent portfolio.
Research and development expenses for the nine months ended September
30, 2001 were $20,190 compared to $10,236 for the same period in 2000, an
increase of 97%. The increase in research and development expenses is due to
increased external costs related to research costs, preclinical testing,
toxicology studies, clinical supplies, clinical development activities,
including continual enrollment in Phase III clinical trials, and increased
internal costs necessary to perform and/or manage these activities. We expect to
incur increases in future periods as later phases of development typically
involve an increase in the scope of studies and the number of patients treated.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel
costs, facilities costs, business development costs and professional expenses,
such as legal and accounting fees. General and administrative expenses were
$4,093 for the nine months ended September 30, 2001 compared to $2,690 for the
same period in 2000, an increase of 52%. The increase in general and
administrative expenses is due to increased costs in legal, marketing and
operations, which support the Company's strategic business collaborations and
operations as a publicly traded company.
Other Income (Expense), Net
Other income (expense), net consists of interest income earned on cash
deposits and investments, reduced by interest expense on notes payable and
capital lease obligations, and gains and losses on sales of property and
equipment. Other income (expense), net was $3,175 for the nine months ended
September 30, 2001 compared to $657 for the same period in 2000, an increase of
383%. The was due to interest income earned from larger cash balances partially
offset by interest expense related to leased equipment.
Provision for Income Taxes
The provision for income taxes was zero for the nine months ended
September 30, 2001, compared to $350 for the same period in 2000. The decrease
in the provision for income taxes is attributable to withholding taxes paid on
milestone payments from Japanese collaborative partners during the nine months
ended September 30, 2000. No milestone payments were received from Japanese
collaborative partners during the nine months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company historically has financed its operations through the sale of
equity securities, including private sales
8
Inspire Pharmaceuticals
(a development stage company)
(amounts in thousands except share and per share amounts)
of preferred stock and the sale of common stock in our initial public offering.
The Company will not generate revenues, other than license and
milestone payments, from the sale of its products unless or until it or its
licensees receive marketing clearance from the FDA and appropriate governmental
agencies in other countries. The Company cannot predict the timing of any
potential marketing clearance nor can assurances be given that the FDA or such
agencies will approve any of the Company's products.
As of September 30, 2001, cash and cash equivalents totaled $50,141
compared to $35,109 as of December 31, 2000, an increase of 43%. The increase in
cash and cash equivalents is due to a net decrease in investments of $28,517,
proceeds from notes payable of $401, issuance of common stock of $61 offset by
cash used by operations for the nine months ended September 30, 2001 of $13,139,
purchase of property and equipment of $591, and the payment of capital lease
obligations of $218.
Cash used by operations of $13,139 in the nine months ended September
30, 2001, represented a net loss of $16,061, an increase in prepaid expenses of
$6, an increase in other receivables and other assets that totals $9, partially
offset by a net increase in non-cash charges, including deferred revenue, of
$2,506, an increase in accrued expenses of $6, a decrease in interest receivable
of $147 and an increase in accounts payable of $279.
Cash used by investing activities for the nine months ended September
30, 2001 consisted of net proceeds of $28,517 from the purchase and sale of
investment grade securities reduced by the purchase of property and equipment of
$591.
Cash provided by financing activities for the nine months ended
September 30, 2001 consisted of the issuance of common stock of $61, the
proceeds of a note payable of $401 offset by the payment of capital lease
obligations of $218.
IMPACT OF INFLATION
- -------------------
Although it is difficult to predict the impact of inflation on costs
and revenues of our Company in connection with our products, we do not
anticipate that inflation will materially impact our cost of operation or the
profitability of our products when marketed.
CAUTIONARY STATEMENT
- --------------------
The Company operates in a highly competitive environment that involves
a number of risks, some of which are beyond the our control. Statements
contained in Management's Discussion and Analysis of Financial Conditions and
Results of Operations which are not historical facts are, or may constitute,
forward looking statements. Forward looking statements involve known and unknown
risks that could cause the Company's actual results to differ materially from
expected results. These risks are discussed in Part II, Item 5 of this report,
titled "Other Information - Risk Factors" and in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000. Although we believe the
expectations reflected in the forward looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
-----------------------------------------------------------
The Company's exposure to market risk for changes in interest rates
relates to the increase or decrease in the amount of interest income the Company
can earn on its investment portfolio and on the increase or decrease in the
amount of interest expense it must pay with respect to various outstanding debt
instruments. The Company's risk associated with fluctuating interest expense is
limited, however, to capital lease obligations. The interest rates are closely
tied to market rates and the Company's investments in interest rate sensitive
financial instruments. Under the Company's current policies, it does not use
interest rate derivative instruments to manage exposure to interest rate
changes. The Company ensures the safety and preservation of invested principal
funds by limiting default risk, market risk and reinvestment risk. The Company
reduces default risk by investing in investment grade securities. A hypothetical
100 basis point drop in interest rates along the entire interest rate yield
curve would not significantly
9
Inspire Pharmaceuticals
(a development stage company)
affect the fair value of the Company's interest sensitive financial instruments
at September 30, 2001 or September 30, 2000. Declines in interest rates over
time will, however, reduce the Company's interest income while increases in
interest rates over time will increase interest expense.
10
Inspire Pharmaceuticals
(a development stage company)
PART II: OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds
------------------------------------------
(in thousands)
(d) On August 2, 2000, the Securities and Exchange Commission declared
a Registration Statement on Form S-1, as amended (Registration No. 333-31174)
effective, registering 6,325,000 shares of our common stock. The aggregate net
proceeds after deduction of expenses were approximately $69,300. Through
September 30, 2001, we have used approximately $15,716 of the net proceeds of
the offering as follows:
Discovery and research programs $12,885
General and administrative expenses 2,424
Purchase of equipment 190
Payment of debt 217
-------------
Total $15,716
=============
Item 5. Other Information
------------------
Risk Factors
------------
An investment in the shares of our common stock involves a substantial
risk of loss. You should carefully read this entire report and should give
particular attention to the following risk factors. You should recognize that
other significant risks may arise in the future, which we cannot foresee at this
time. Also, the risks that we now foresee might affect us to a greater or
different degree than expected. There are a number of important factors that
could cause our actual results to differ materially from those indicated by any
forward-looking statements in this document. These factors include, without
limitation, the risk factors listed below and other factors presented throughout
this document and any other documents filed by us with the Securities and
Exchange Commission. Financial figures are represented in thousands except share
and per share amounts.
IF OUR PRODUCTS FAIL IN CLINICAL STUDIES, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL AND WILL NOT BE ABLE TO SELL THOSE PRODUCTS.
To achieve profitable operations, we must, alone or with others,
successfully identify, develop, introduce and market proprietary products. Even
if we identify potential products, we will have to conduct significant
additional development activities and preclinical and clinical tests, and obtain
regulatory approval before our products can be commercialized. Product
candidates that may appear to be promising at early stages of development may
not successfully reach the market for a number of reasons. We have not submitted
any products for marketing approval by the United States Food and Drug
Administration (FDA) or any other regulatory body.
Generally, all of our product candidates are in research or preclinical
development, with only six, INS365 Respiratory, INS365 Ophthalmic, INS316
Diagnostic, INS37217 Respiratory, INS37217 Respiratory Nasal Spray and INS37217
Ophthalmic currently in clinical development. We halted enrollment early in the
initial Phase II clinical trial of INS365 Respiratory for chronic bronchitis in
the second quarter of this year due to trial design issues. We are in the
process of redesigning the Phase II protocol and intend to initiate another
Phase II trial for this potential product in the first half of 2002. The results
of preclinical and initial clinical testing of our products under development
may not necessarily indicate the results that will be obtained from later or
more extensive testing. Companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in advanced clinical trials, even
after obtaining promising results in earlier trials. Our ongoing clinical
studies might be delayed or halted for various reasons, including:
11
Inspire Pharmaceuticals
(a development stage company)
o the drug is not effective, or physicians think that the drug is not
effective;
o patients experience severe side effects during treatment;
o patients die during the clinical study because their disease is too
advanced or because they experience medical problems that may or may
not relate to the drug being studied;
o patients do not enroll in the studies at the rate we expect or
discontinue enrollment;
o drug supplies are not sufficient to treat the patients in the
studies; or
o we decide to modify the drug during testing.
BECAUSE OUR PRODUCT CANDIDATES UTILIZE A NEW MECHANISM OF ACTION, OBTAINING
REGULATORY APPROVAL MAY BE DIFFICULT, EXPENSIVE AND PROLONGED, WHICH WOULD DELAY
ANY MARKETING OF OUR PRODUCTS.
We cannot apply for regulatory approval to market a product candidate
until we successfully complete pivotal clinical trials for the product. To
complete successful clinical trials, the products must meet the criteria for
clinical approval, or endpoints, which we establish for the product in the
clinical study.
Generally, we will establish these endpoints in consultation with the
regulatory authorities, following design guidelines on the efficacy, safety and
tolerability measures required for approval of products.
Because our existing product candidates utilize a new approach to the
treatment of respiratory and eye diseases, we may have trouble establishing
endpoints that the regulatory authorities agree sufficiently evaluate the
effectiveness of each product candidate. For this and other reasons, we could
encounter delays and increased expenses in our clinical trials if the regulatory
authorities determine that the endpoints established for a clinical trial do not
predict a clinical benefit, and the authorities will not approve the product for
marketing without further clinical trials. The regulatory authorities could
change their view on clinical trial design and establishment of appropriate
standards for efficacy, safety and tolerability and require a change in study
design, additional data or even further clinical trials before approval of a
product candidate.
After initial regulatory approval, regulatory authorities continue to
review a marketed product and its manufacturer. They may require us to conduct
long-term safety studies after approval. Discovery of previously unknown
problems through adverse event reporting may result in restrictions on the
product, including withdrawal from the market. Additionally, we and our officers
and directors could be subject to civil and criminal penalties.
IF PHYSICIANS AND PATIENTS DO NOT ACCEPT OUR PRODUCT CANDIDATES, THEY MAY NOT BE
COMMERCIALLY SUCCESSFUL.
Even if regulatory authorities approve our product candidates, those
products may not be commercially successful. Acceptance of and demand for our
products will depend largely on the following:
o acceptance by physicians and patients of our products as safe and
effective therapies;
o reimbursement of drug and treatment costs by third-party payors;
o safety, effectiveness and pricing of alternative products; and
o prevalence and severity of side effects associated with our
products.
In addition, to achieve broad market acceptance of our product
candidates, in many cases we will need to develop, alone or with others,
convenient methods for administering product candidates. Physicians have
administered our current product candidates, INS365 Respiratory, INS316
Diagnostic and INS37217 Respiratory, for the treatment or diagnosis of
respiratory disorders using a jet nebulizer, a device that generates and
delivers a fine mist derived from a liquid, which is inhaled into the lungs, in
their respective clinical studies. Although the use of a jet nebulizer is an
effective and well accepted means for administering products for inhalation with
respect to acute use and, to a lesser
12
Inspire Pharmaceuticals
(a development stage company)
degree, chronic use, we believe more convenient methods of delivery and
administration, such as a hand-held inhalation device, may be necessary in the
case of INS365 Respiratory and INS37217 Respiratory, to more fully address
chronic use. Our testing of prototype hand-held inhalation devices is at an
early stage and we may not be able to develop or find a convenient hand-held
device that works in patients with chronic bronchitis. Our current product
candidate for the treatment of dry eye disease, INS365 Ophthalmic, is applied
from a vial containing a single dose of medication. Patients may prefer to
purchase the medication in a bottle containing a sufficient quantity of
medication for multiple doses. We have not yet established a plan to develop a
multi-dose formulation. Similar challenges exist in identifying and perfecting
convenient methods of administration for many of our other product candidates.
WE INTEND TO RELY ON THIRD PARTIES TO DEVELOP, MARKET, DISTRIBUTE AND SELL OUR
PRODUCT CANDIDATES AND THOSE THIRD PARTIES MAY NOT PERFORM.
We do not yet have the ability to independently market, distribute or
sell our products and intend to rely on experienced third parties to perform, or
assist us in the performance of, all of those functions. We may not identify
acceptable partners or enter into favorable agreements with them. If third
parties do not successfully carry out their contractual duties or meet expected
deadlines, we will be unable to obtain required governmental marketing approvals
and will be unable to sell our products.
OUR DEPENDENCE ON COLLABORATIVE RELATIONSHIPS MAY LEAD TO DELAYS IN PRODUCT
DEVELOPMENT AND DISPUTES OVER RIGHTS TO TECHNOLOGY.
Our business strategy depends in part upon the formation of research
collaborations, licensing and/or marketing arrangements. We currently have
development collaborations with five collaborators, Genentech, Allergan, Kissei,
Santen and Kirin. The termination of any collaboration may lead to delays in
product development and disputes over technology rights and may reduce our
ability to enter into collaborations with other potential partners. Kirin has
the right to terminate our license agreement by giving us 180 days prior notice.
Genentech has given us notice, as of June 15, 2001, that they will terminate the
agreement on November 12, 2001. If we do not maintain the Allergan, Kissei,
Santen or Kirin collaborations or establish additional research and development
collaborations or licensing arrangements it may be difficult to develop and
commercialize therapeutic or diagnostic products using our technology. Any
future collaborations or licensing arrangements may not be on terms favorable to
us. Our current or any future collaborations or licensing arrangements
ultimately may not be successful. We continue to depend in part on collaborators
and contractors for the preclinical study and clinical development of
therapeutic products and for regulatory approval, manufacturing and marketing of
therapeutic and diagnostic products which result from our technology. The
agreements with collaborators typically will allow them some discretion in
electing whether to pursue such activities. If any collaborator were to breach
or terminate its agreement with us or otherwise fail to conduct collaborative
activities in a timely and successful manner, the preclinical or clinical
development or commercialization of product candidates or research programs
would be delayed or terminated. Any delay or termination in clinical development
or commercialization would delay or eliminate potential product revenues
relating to our research programs.
We intend to rely on Allergan, Kissei, Santen, Kirin and any future
collaborators for significant funding in support of our development efforts. If
Allergan, Kissei, Santen or Kirin reduces or terminates its funding, we will
need to devote additional internal resources to product development, scale back
or terminate certain research and development programs or seek alternative
collaborators.
Disputes may arise in the future over the ownership of rights to any
technology developed with collaborators. These and other possible disagreements
between us and our collaborators could lead to delays in the collaborative
development or commercialization of therapeutic or diagnostic products. Such
disagreement could also result in litigation or require arbitration to resolve.
IF WE ARE UNABLE TO CONTRACT WITH THIRD PARTIES FOR SYNTHESIS AND MANUFACTURING
OF PRODUCT CANDIDATES FOR PRECLINICAL TESTING AND CLINICAL TRIALS AND FOR LARGE
SCALE MANUFACTURING OF ANY OF OUR DRUG CANDIDATES, WE MAY BE UNABLE TO DEVELOP
OR COMMERCIALIZE PRODUCTS.
13
Inspire Pharmaceuticals
(a development stage company)
We have no experience or capabilities in large scale commercial
manufacturing of any of our product candidates or any experience or capabilities
in the manufacturing of pharmaceutical products generally. We do not generally
expect to engage directly in the manufacturing of products, but instead intend
to contract with others for these services. We have relied upon supply
agreements with third parties for the manufacture and supply or our product
candidates for purposes of preclinical testing and clinical trials. Although we
have previously received preclinical and clinical supplies of our product
candidates from several suppliers, we presently depend upon Yamasa Corporation
as the sole supplier of our supply of the active ingredients of our product
candidates. If we are unable to retain third party manufacturing on commercially
acceptable terms, we may not be able to commercialize products as planned. Our
manufacturing strategy presents the following risks:
o the manufacturing processes for most of our product candidates have
not been tested in quantities needed for commercial sales;
o delays in scale-up to commercial quantities and any change to a
manufacturer other than Yamasa Corporation could delay clinical
studies, regulatory submissions and commercialization of our products;
o manufacturers of our products are subject to the FDA's good
manufacturing practices regulations and similar foreign standards, and
we do not have complete control over compliance with these regulations
by third-party manufacturers;
o if we need to change to manufacturers other than Yamasa Corporation,
FDA and comparable foreign regulators would require new testing and
compliance inspections and the new manufacturers would have to be
educated in the processes necessary for the production of our product
candidates;
o without satisfactory long-term agreements with manufacturers, we will
not be able to develop or commercialize our product candidates as
planned or at all; and
o we may not have intellectual property rights, or may have to share
intellectual property rights, to any improvements in the manufacturing
processes or new manufacturing processes for our product candidates.
IF WE ARE UNABLE TO SUPPLY KISSEI AND SANTEN WITH SUFFICIENT QUANTITIES OF
MATERIALS WE MAY BREACH OUR AGREEMENTS WITH SUCH PARTIES.
We are currently a party to a development, license and supply agreement
with each of Kissei and Santen, under which we granted each a license to develop
and market INS365 Respiratory and INS365 Ophthalmic, respectively. Generally,
the agreements with Kissei and Santen will require us to supply such partners
with either sufficient quantities of materials or finished products, as
applicable, for the purpose of commercial distribution. We will need to
establish, alone or with third parties, a manufacturing process in relation to
each product. Our dependence upon third parties for the manufacture of products
may adversely affect our ability to develop and deliver products on a timely and
competitive basis.
Our inability to successfully manufacture commercial products could
result in our breach of the terms of our agreements with Kissei and Santen. Any
of these factors could delay our preclinical studies, clinical trials or
commercialization of our product candidates, entail higher costs and result in
our inability to effectively sell our product candidates.
IF OUR PATENT PROTECTION IS INADEQUATE, THE DEVELOPMENT AND ANY POSSIBLE SALES
OF OUR PRODUCT CANDIDATES COULD SUFFER OR COMPETITORS COULD FORCE OUR PRODUCTS
COMPLETELY OUT OF THE MARKET.
Our business and competitive position depends on our ability to
continue to develop and protect our products and processes, proprietary methods
and technology. Except for one patent covering new chemical compounds, most
of our patents are use patents containing claims covering methods of treating
disorders and diseases by administering therapeutic chemical compounds. Use
patents, while providing adequate protection for commercial efforts in the
United States, may afford a lesser degree of protection in European and possibly
other countries due to their particular patent laws. Besides our use patents, we
have patents covering pharmaceutical formulations of these chemical
14
Inspire Pharmaceuticals
(a development stage company)
compounds. We also have patent applications covering processes for large-scale
manufacturing of these chemical compounds. Many of the chemical compounds
included in the claims of our use patents, formulation patents and process
applications were known in the scientific community prior to our formation. None
of our patents cover these previously known chemical compounds themselves, which
are in the public domain. As a result, competitors may be able to commercialize
products that use the same chemical compounds used by us for the treatment of
disorders and diseases not covered by our use patents. In such a case,
physicians, pharmacies and wholesalers could possibly substitute these products
for our products. Such substitution would reduce any revenues received from the
sale of our products.
We believe that there may be significant litigation in the
pharmaceutical and biotechnology industry regarding patent and other
intellectual property rights. A patent does not provide the patent holder with
freedom to operate in a way that infringes the patent rights of others. While we
are not aware of any patent that we are infringing, nor have we been accused of
infringement by any other party, other companies currently have or may acquire
patent rights which we might be accused of infringing. If we must defend a
patent suit, or if we choose to initiate a suit to have a third party patent
declared invalid, we may need to make considerable expenditures of money and
management time in litigation. A judgment against us in a patent infringement
action could cause us to pay monetary damages, require us to obtain licenses, or
prevent us from manufacturing or marketing the affected products. In addition,
we may need to initiate litigation to enforce our proprietary rights against
others, or we may have to participate in interference proceedings in the United
States Patent and Trademark Office (USTPO) to determine the priority of
invention of any of our technologies.
In general, the development of patent rights in pharmaceutical,
biopharmaceutical and biotechnology products to a degree sufficient to support
commercial efforts in these areas is typically uncertain and involves complex
legal and factual questions. For instance, while the USPTO has recently issued
guidelines addressing the requirements for demonstrating utility for
biotechnology inventions, USPTO examiners may not follow these guidelines in
examining patent applications. Such applications may have to be appealed to the
USPTO's Appeals Board for a final determination of patentability.
IF WE FAIL TO REACH MILESTONE OR OTHER OBLIGATIONS, THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL AND OTHER LICENSORS MAY TERMINATE OUR AGREEMENTS WITH
THEM.
Our current technologies, discoveries and our original patents are
based in part on two exclusive licenses and one non-exclusive license from The
University of North Carolina at Chapel Hill (UNC). Generally, if we fail to meet
milestones under the respective UNC licenses, UNC may terminate the applicable
license. In addition, it may be necessary in the future for us to obtain
additional licenses from UNC or other third parties to develop future commercial
opportunities or to avoid infringement of third party patents. We do not know
the terms on which such licenses may be available, if at all.
Failure to license or otherwise acquire necessary technologies may
reduce or eliminate our ability to develop product candidates. Even if we
acquire all necessary licenses, if we breach any license provision, either
intentionally or unintentionally, we may lose our right to continued use of the
licensed technology.
BECAUSE WE RELY UPON TRADE SECRETS AND AGREEMENTS TO PROTECT SOME OF OUR
INTELLECTUAL PROPERTY, THERE IS A RISK THAT UNAUTHORIZED PARTIES MAY OBTAIN AND
USE INFORMATION THAT WE REGARD AS PROPRIETARY.
We rely upon the laws of trade secrets and non-disclosure agreements
and other contractual arrangements to protect our proprietary compounds,
methods, processes, formulations and other information for which we are not
seeking patent protection. We have taken security measures to protect our
proprietary technologies, processes, information systems and data, and we
continue to explore ways to further enhance security. However, despite these
efforts to protect our proprietary rights, unauthorized parties may obtain and
use information that we regard as proprietary. Employees, academic collaborators
and consultants with whom we have entered confidentiality and/or non-disclosure
agreements, may improperly disclose our proprietary information. In addition,
competitors may,
15
Inspire Pharmaceuticals
(a development stage company)
through a variety of proper means, independently develop substantially the
equivalent of our proprietary information and technologies, gain access to our
trade secrets, or properly design around any of our patented technologies.
BECAUSE ALL OF OUR PRODUCT CANDIDATES USE RELATED MECHANISMS OF ACTION, WE MAY
NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS IF THE MECHANISM OF ACTION IS NOT
EFFECTIVE.
Any products resulting from our product development efforts are not
expected to be available for sale for at least two years, if at all. Six of our
product candidates, INS365 Respiratory, INS365 Ophthalmic, INS316 Diagnostic,
INS37217 Respiratory, INS37217 Respiratory Nasal Spray and INS37217 Ophthalmic,
operate in a similar manner. If the clinical results of one of the compounds is
not favorable, the results of the other compound may not be favorable. Moreover,
we have designed all of our product candidates to use related mechanisms of
action. If these mechanisms of action are not effective, we may not be able to
commercialize any of our product candidates. Even if all of our product
candidates prove effective, we may choose not to commercialize all of them.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN ANTICIPATED,
OR IN AN AMOUNT GREATER THAN ANTICIPATED, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
We have experienced significant losses since inception. We incurred net
losses of $16,061 for the nine months ended September 30, 2001, $14,584 for the
year ended December 31, 2000, and $8,996 for the year ended December 31, 1999.
As of September 30, 2000 our accumulated deficit was approximately $63,932. We
expect to incur significant additional operating losses over the next several
years and expect cumulative losses to increase substantially in the near-term
due to expanded research and development efforts, preclinical studies and
clinical trials. We expect that losses will fluctuate from quarter to quarter
and that such fluctuations may be substantial. Such fluctuations will be
affected by the following:
o timing of regulatory approvals and commercial sales of our product
candidates;
o the level of patient demand for our products;
o timing of payments to and from licensors and corporate partners; and
o timing of investments in new technologies.
No regulatory authorities have approved any of our product candidates
for marketing, and therefore, we are not generating any revenues from product
sales. To achieve and sustain profitable operations, we must, alone or with
others, develop successfully, obtain regulatory approval for, manufacture,
introduce, market and sell our products.
The time frame necessary to achieve market success is long and
uncertain. We do not expect to generate product revenues for at least the next
two years. We may not generate sufficient product revenues to become profitable
or to sustain profitability. If the time required to achieve profitability is
longer than we anticipate, we may not be able to continue our business.
IF WE ARE NOT ABLE TO OBTAIN SUFFICIENT ADDITIONAL FUNDING TO MEET OUR EXPANDING
CAPITAL REQUIREMENTS, WE MAY BE FORCED TO REDUCE OR ELIMINATE RESEARCH PROGRAMS
AND PRODUCT DEVELOPMENT.
We have used substantial amounts of cash to fund our research and
development activities. In the nine months ended September 30, 2001 our
operating expenses exceeded $24,000. In the fiscal year ended December 31, 2000
our operating expenses exceeded $20,000. We expect our capital and operating
expenditures to increase over the next several years as we expand our research
and development activities, address possible difficulties with clinical studies
and prepare for commercial sales. Many factors will influence our future capital
needs. These factors include:
o the progress of our research programs;
16
Inspire Pharmaceuticals
(a development stage company)
o the number and breadth of these programs;
o our ability to attract collaborators for our products;
o achievement of milestones under our existing collaborations with
Allergan, Kissei, Santen and Kirin;
o our ability to establish and maintain additional collaborations;
o progress by our collaborators: Allergan, Kissei, Santen and Kirin;
o the level of activities relating to commercialization rights we
retain in our collaborations;
o competing technological and market developments;
o the costs involved in enforcing patent claims and other intellectual
property rights; and
o the costs and timing of regulatory approvals.
We anticipate that our operating expenses will exceed $30,000 for the
fiscal year ending December 31, 2001. We also expect to purchase capital
equipment at a cost of approximately $2,000 in the same period. Following
December 31, 2001, we expect our operating expenses to increase as we continue
to develop our product candidates. We intend to rely on Allergan, Kissei,
Santen, Kirin, and future collaborators and the proceeds of our initial public
offering for significant funding in support of our development efforts. In
addition, we may seek additional funding through public or private equity
offerings and debt financings. Additional financing may not be available when
needed. If available, such financing may not be on terms favorable to us or our
stockholders. Stockholders' ownership will be diluted if we raise additional
capital by issuing equity securities. If we raise funds through collaborations
and licensing arrangements, we may have to give up rights to our technologies or
product candidates which are involved in these future collaborations and
arrangements or grant licenses on unfavorable terms. If adequate funds are not
available, we would have to scale back or terminate research programs and
product development.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE WITH BIOTECHNOLOGY COMPANIES AND
ESTABLISHED PHARMACEUTICAL COMPANIES.
The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological change. Our
competitors in the United States and elsewhere are numerous and include, among
others, major multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. These
competitors include Abbott, Alcon, Astra Zeneca, Boehringer Ingelheim, Chiron,
Genentech, GlaxoSmithKline, Novartis and Pfizer. Many of these competitors
employ greater financial and other resources, including larger research and
development staffs and more effective marketing and manufacturing organizations,
than we or our collaborative partners. Acquisitions of competing companies and
potential competitors by large pharmaceutical companies or others could enhance
financial, marketing and other resources available to such competitors. As a
result of academic and government institutions becoming increasingly aware of
the commercial value of their research findings, such institutions are more
likely to enter into exclusive licensing agreements with commercial enterprises,
including our competitors, to market commercial products. Our competitors may
develop technologies and drugs that are safer, more effective or less costly
than any we are developing or which would render our technology and future drugs
obsolete and non-competitive. The products of our competitors marketed to treat
chronic bronchitis include anti-inflammatory products, such as Azmacort(R) and
Beclovent(R), bronchodilators such as Atrovent(R) and Proventil(R), combination
products such as Advair(TM) and antibiotics such as Biaxin(R) and Zithromax(R).
Pulmozyme(R), a Genentech product, and TOBI(R) from Chiron are examples of
products used to treat cystic fibrosis. The main current treatments for dry eye
disease involve artificial tear replacement drops. In addition, alternative
approaches to treating diseases which we have targeted, such as gene therapy,
may make our product candidates obsolete. Our competitors may also be more
successful in production and marketing.
In addition, some of our competitors have greater experience than we do
in conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA
or other regulatory approvals for drug candidates more rapidly than we do.
Companies that complete clinical trials, obtain required regulatory approvals
and commence commercial sale of their drugs before we do may achieve a
significant competitive advantage, including patent and FDA marketing
exclusivity rights that would delay our ability
17
Inspire Pharmaceuticals
(a development stage company)
to market products. Drugs resulting from our research and development efforts,
or from our joint efforts with our collaborative partners may not compete
successfully with competitors' existing products or products under development.
FAILURE TO HIRE AND RETAIN KEY PERSONNEL MAY HINDER OUR PRODUCT DEVELOPMENT
PROGRAMS AND OUR BUSINESS EFFORTS.
We depend on the principal members of management and scientific staff,
including Christy L. Shaffer, Ph.D., our President, Chief Executive Officer, and
director; and Gregory J. Mossinghoff, our Senior Vice President, Chief Business
Officer, Secretary, Treasurer and director. If either of these people leave us,
we may have difficulty conducting our operations. We have not entered into
agreements with any of the above principal members of our management and
scientific staff that bind any of them to a specific period of employment. Our
future success also will depend in part on our ability to attract, hire and
retain additional personnel skilled or experienced in the pharmaceutical
industry. There is intense competition for such qualified personnel. We may not
be able to continue to attract and retain such personnel.
OUR OPERATIONS INVOLVE A RISK OF INJURY FROM HAZARDOUS MATERIALS, WHICH COULD BE
VERY EXPENSIVE TO US.
Our research and development activities involve the controlled use of
hazardous materials and chemicals. We cannot completely eliminate the risk of
accidental contamination or injury from these materials. If such an accident
were to occur, we could be held liable for any damages that result and any such
liability could exceed our resources. In addition, we are subject to laws and
regulations governing the use, storage, handling and disposal of these materials
and waste products. The costs of compliance with these laws and regulations
could be substantial.
USE OF OUR PRODUCTS MAY RESULT IN PRODUCT LIABILITY CLAIMS FOR WHICH WE MAY NOT
HAVE ADEQUATE INSURANCE COVERAGE.
Clinical trials or manufacturing, marketing and sale of our potential
products by our collaborative partners may expose us to liability claims from
the use of those products. Although we carry clinical trial liability insurance,
we currently do not carry product liability insurance. We or our collaborators
may not be able to obtain or maintain sufficient or even any insurance. If we
can, it may not be at a reasonable cost. If we cannot or are unable otherwise to
protect against potential product liability claims, we may find it difficult or
impossible to commercialize pharmaceutical products we or our collaborators
develop. If claims or losses exceed our liability insurance coverage, we may go
out of business.
IF THIRD PARTY PAYORS WILL NOT PROVIDE COVERAGE OR REIMBURSE PATIENTS FOR ANY
PRODUCTS WE DEVELOP, OUR ABILITY TO DERIVE REVENUES WILL SUFFER.
Our success will depend in part on the extent to which government and
health administration authorities, private health insurers and other third party
payors will pay for our products. Reimbursement for newly approved health care
products is uncertain. In the United States and elsewhere, third party payors,
such as Medicare, are increasingly challenging the prices charged for medical
products and services. Government and other third party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new therapeutic products. In the United States, a number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase pressure on
pharmaceutical pricing. While we cannot predict whether legislative or
regulatory proposals will be adopted or what effect those proposals or managed
care efforts, including those relating to Medicare payments, may have on our
business, the announcement and/or adoption of such proposals or efforts could
increase our costs and reduce or eliminate profit margins. Third party insurance
coverage may not be available to patients for any products we discover or
develop. If government and other third party payors do not provide adequate
coverage and reimbursement levels for our products, the market acceptance of
these products may be reduced. In various foreign markets, pricing or
profitability of medical products is subject to government control.
18
Inspire Pharmaceuticals
(a development stage company)
BECAUSE OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF THE PROCEEDS FROM
OUR INITIAL PUBLIC OFFERING, THE PROCEEDS MAY BE USED IN WAYS STOCKHOLDERS DO
NOT DEEM TO BE ADVISABLE.
Our management has broad discretion as to the allocation of the
proceeds for our initial public offering, including the timing and conditions of
the use of the proceeds. Our management may allocate the proceeds to uses that
stockholders do not deem advisable. If management spends the funds unwisely, we
may not have sufficient working capital to become profitable.
OUR EXISTING DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS HOLD A
SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AND MAY BE ABLE TO PREVENT OTHER
STOCKHOLDERS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
Our directors, executive officers and current 5% stockholders and their
affiliates beneficially own approximately 42% of the common stock as of
September 30, 2001. These stockholders, if they act together, may be able to
direct the outcome of matters requiring approval of the stockholders, including
the election of our directors and other corporate actions such as our merger
with or into another company, a sale of substantially all of our assets and
amendments to our amended and restated certificate of incorporation. The
decisions of these stockholders may conflict with our interests or those of our
other stockholders.
ANTI-TAKEOVER PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS, AND OUR RIGHT TO ISSUE PREFERRED STOCK, MAY DISCOURAGE
A THIRD PARTY FROM MAKING A TAKE-OVER OFFER THAT COULD BE BENEFICIAL TO US AND
OUR STOCKHOLDERS.
Our amended and restated certificate of incorporation and bylaws
contain provisions which could delay or prevent a third party from acquiring
shares of our common stock or replacing members of our board of directors.
Our amended and restated certificate of incorporation allows our board
of directors to issue shares of preferred stock. The Board can determine the
price, rights, preferences and privileges of those shares without any further
vote or action by the stockholders. As a result, our board of directors could
make it difficult for a third party to acquire a majority of our outstanding
voting stock.
Our amended and restated certificate of incorporation provides that the
members of the board will be divided into three classes. Each year the terms of
approximately one-third of the directors will expire. Our bylaws will not permit
our stockholders to call a special meeting of stockholders. Under the bylaws,
only our President, Chairman of the Board or a majority of the board of
directors will be able to call special meetings. The bylaws also require that
stockholders give advance notice to our Secretary of any nominations for
director or other business to be brought by stockholders at any stockholders'
meeting. These provisions may delay or prevent changes of control or management.
Further, we are subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law. Under this law, if anyone becomes an
"interested stockholder" in the company, we may not enter a "business
combination" with that person for three years without special approval.
These provisions could discourage a third party from making a take-over
offer and could delay or prevent a change of control.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND YOUR INVESTMENT IN
OUR STOCK MAY DECLINE IN VALUE.
The market price of our common stock is likely to be highly volatile.
Factors that could cause volatility and could result in declines in the market
price of our common stock include among others:
o announcements made by us concerning results of our clinical trials
with INS365 Respiratory, INS365
19
Inspire Pharmaceuticals
(a development stage company)
Ophthalmic, INS316 Diagnostic, INS37217 Respiratory, INS37217
Respiratory Nasal Spray, INS37217 Ophthalmic and any other product
candidates;
o changes in government regulations;
o regulatory actions as a result of their therapeutic approach;
o changes in concerns of our collaborators, in particular our
collaborations with Allergan, Kissei, Santen and Kirin;
o developments concerning proprietary rights including patents by us
or our competitors;
o variations in our operating results; and
o litigation.
Extreme price and volume fluctuations occur in the stock market from
time to time and that can particularly affect the prices of biotechnology
companies. These extreme fluctuations are often unrelated to the actual
performance of the affected companies. These broad market fluctuations could
result in significant declines in the market price of our common stock.
FUTURE SALES BY OUR CURRENT STOCKHOLDERS MAY CAUSE OUR STOCK PRICE TO DECLINE.
Sales of our common stock by our current stockholders in the public
market could cause the market price of our stock to fall. Sales may also make it
more difficult for us to sell equity securities or equity-related securities in
the future at a time and price that our management deems acceptable, or at all.
As of September 30, 2001, there were 25,746,152 shares of common stock
outstanding. Of these outstanding shares of common stock, all of the 6,325,000
shares sold in our initial public offering are freely tradable, without
restriction under the Securities Act of 1933, as amended, unless purchased by
our "affiliates." The remaining shares of common stock may be resold in the
public market only if registered or if there is an exemption from registration,
such as Rule 144 under the Securities Act.
Certain holders of common stock and options and warrants to purchase
shares of common stock are entitled to registration rights. Upon registration,
these shares may be freely sold in the public market.
On February 28, 2001, we filed a registration statement on Form S-8,
which registered shares of common stock under our Amended and Restated 1995
Stock Plan, as amended. The registration statement registered 3,004,220 shares
of our common stock that were issued or sold or may be issued and sold under
such plan.
We may issue additional shares:
o to employees, directors and consultants;
o in connection with corporate alliances;
o in connection with acquisitions; and
o to raise capital.
As a result of these factors, a substantial number of shares of our
common stock could be sold in the public market at any time.
20
Inspire Pharmaceuticals
(a development stage company)
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-31174) which became effective on
August 2, 2000)
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-31174) which became effective on August 2,
2000)
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 2001
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Inspire Pharmaceuticals
(a development stage company)
SIGNATURES
Pursuant to 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.
Inspire Pharmaceuticals, Inc.
Date: November 12, 2001 By: /s/ Christy L. Shaffer
-----------------------
Christy L. Shaffer
President and Chief Executive Officer
Date: November 12, 2001 By: /s/ Gregory J. Mossinghoff
---------------------------
Gregory J. Mossinghoff
Senior Vice President, Chief Business
Officer, Secretary and Treasurer
(principal financial officer)
Inspire Pharmaceuticals
(a development stage company)
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-31174) which became effective on
August 2, 2000)
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-31174) which became effective on August 2,
2000)