þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 93-0979187 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
2
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 110,293 | $ | 53,557 | ||||
Marketable securities |
38,604 | 42,117 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $430 and $339, respectively |
47,766 | 21,051 | ||||||
Inventories, net |
10,285 | 4,234 | ||||||
Prepaid expenses and other current assets |
571 | 906 | ||||||
Total current assets |
207,519 | 121,865 | ||||||
Investments |
11,880 | 8,569 | ||||||
Property and equipment, net |
2,821 | 3,158 | ||||||
Intangible assets, net |
43,078 | 29,605 | ||||||
Other assets |
576 | 434 | ||||||
TOTAL ASSETS |
$ | 265,874 | $ | 163,631 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable and other accrued obligations |
$ | 50,054 | $ | 38,704 | ||||
Accrued compensation and related expenses |
3,638 | 3,313 | ||||||
Deferred revenue |
12,300 | 12,300 | ||||||
Common stock warrant liability |
| 3,904 | ||||||
Accrued drug development costs |
9,561 | 5,101 | ||||||
Total current liabilities |
75,553 | 63,322 | ||||||
Capital lease obligations |
17 | 40 | ||||||
Deferred revenue and other creditsless current portion |
16,173 | 25,495 | ||||||
Zevalin related contingent obligations |
298 | 298 | ||||||
Total liabilities |
92,041 | 89,155 | ||||||
Commitments and contingencies |
||||||||
Stockholders Equity: |
||||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized: |
||||||||
Series B
Junior participating preferred stock1,500,000 shares authorized; no shares issued
and outstanding |
| | ||||||
Series E convertible voting preferred stock$10,000 par value; 2,000 shares authorized;
20 and 26 shares issued and outstanding at September 30, 2011 and December 31, 2010,
respectively (aggregate liquidation value of $240) |
123 | 160 | ||||||
Common stock, $0.001 par value175,000,000 shares authorized; 57,403,724 and 51,459,284
issued and outstanding at September 30, 2011 and December 31, 2010, respectively |
57 | 51 | ||||||
Additional paid-in capital |
446,804 | 384,757 | ||||||
Accumulated other comprehensive loss |
(147 | ) | (92 | ) | ||||
Accumulated deficit |
(270,164 | ) | (310,400 | ) | ||||
Less: Treasury stock at cost; 353,055 shares at September 30, 2011 |
(2,840 | ) | | |||||
Total stockholders equity |
173,833 | 74,476 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 265,874 | $ | 163,631 | ||||
3
Three Months Ended | Nine months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||||
Revenues: |
|||||||||||||||||
Product sales, net |
$ | 47,949 | $ | 13,660 | $ | 130,759 | $ | 30,050 | |||||||||
License and contract revenue |
3,075 | 3,075 | 9,225 | 10,117 | |||||||||||||
Total revenues |
$ | 51,024 | $ | 16,735 | $ | 139,984 | $ | 40,167 | |||||||||
Operating costs and expenses: |
|||||||||||||||||
Cost of product sales (excludes
amortization of purchased intangible assets) |
8,845 | 3,789 | 23,555 | 10,626 | |||||||||||||
Selling, general and administrative |
15,811 | 11,411 | 47,261 | 36,075 | |||||||||||||
Research and development |
7,388 | 7,485 | 20,904 | 50,314 | |||||||||||||
Amortization of purchased intangibles |
930 | 930 | 2,790 | 2,790 | |||||||||||||
Total operating costs and expenses |
32,974 | 23,615 | 94,510 | 99,805 | |||||||||||||
Income (loss) from operations |
18,050 | (6,880 | ) | 45,474 | (59,638 | ) | |||||||||||
Change in fair value of common stock warrant liability |
2,999 | 1,629 | (3,488 | ) | 6,030 | ||||||||||||
Other income
(loss), net |
(144 | ) | 578 | 550 | 245 | ||||||||||||
Income (loss) before provision for income taxes |
20,905 | (4,673 | ) | 42,536 | (53,363 | ) | |||||||||||
Provision for income taxes |
(650 | ) | 79 | (2,300 | ) | 79 | |||||||||||
Net income (loss) |
$ | 20,255 | $ | (4,594 | ) | $ | 40,236 | $ | (53,284 | ) | |||||||
Net income (loss) per share: |
|||||||||||||||||
Basic |
$ | .38 | $ | (0.09 | ) | $ | .77 | $ | (1.08 | ) | |||||||
Diluted |
$ | .34 | $ | (0.09 | ) | $ | .70 | $ | (1.08 | ) | |||||||
Weighted average shares outstanding: |
|||||||||||||||||
Basic |
53,810,047 | 49,739,072 | 52,477,789 | 49,146,245 | |||||||||||||
Diluted |
59,469,863 | 49,739,072 | 57,326,069 | 49,146,245 | |||||||||||||
4
September 30, | ||||||||
2011 | 2010 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net income (loss) |
$ | 40,236 | $ | (53,284 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
Amortization of deferred revenue |
(9,225 | ) | (10,117 | ) | ||||
Depreciation and amortization |
3,991 | 3,320 | ||||||
Stock-based compensation |
15,216 | 6,267 | ||||||
Change in fair value of common stock warrant liability |
3,488 | (6,030 | ) | |||||
Fair value of common stock issued in connection with asset acquisition |
| 1,661 | ||||||
Provision for bad debt |
189 | | ||||||
Loss on disposal of assets |
31 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable, net |
(26,904 | ) | (807 | ) | ||||
Inventories, net |
(6,051 | ) | (565 | ) | ||||
Prepaid expenses and other assets |
316 | (277 | ) | |||||
Accounts payable and other accrued obligations |
6,350 | 9,516 | ||||||
Accrued compensation and related expenses |
325 | (804 | ) | |||||
Accrued drug development costs |
4,460 | 406 | ||||||
Landlord contributions to tenant improvements |
| 995 | ||||||
Deferred revenue and other credits |
(97 | ) | 16,896 | |||||
Net cash provided by (used in) operating activities |
32,325 | (32,823 | ) | |||||
Cash Flows From Investing Activities: |
||||||||
Maturities of marketable securities |
22,156 | | ||||||
Purchases of marketable securities |
(21,968 | ) | (4,097 | ) | ||||
Purchases of property and equipment |
(380 | ) | (1,396 | ) | ||||
Purchases of available for sale securities |
(164 | ) | | |||||
Net cash used in investing activities |
(356 | ) | (5,493 | ) | ||||
Cash Flows From Financing Activities: |
||||||||
Proceeds from issuance of common stock from stock option exercises |
2,388 | 1,082 | ||||||
Proceeds from issuance of common stock from warrant exercises |
24,808 | | ||||||
Proceeds from contributions to ESPP |
434 | 306 | ||||||
Payments to acquire treasury stock |
(2,840 | ) | | |||||
Repayment of capital leases |
(23 | ) | (21 | ) | ||||
Net cash provided by financing activities |
24,767 | 1,367 | ||||||
Net increase (decrease) in cash and cash equivalents |
56,736 | (36,949 | ) | |||||
Cash and cash equivalentsbeginning of period |
53,557 | 82,336 | ||||||
Cash and cash equivalentsend of period |
$ | 110,293 | $ | 45,387 | ||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Conversion of preferred stock to common stock |
$ | 37 | $ | | ||||
Common stock
issued for Targent milestones |
$ | 11,778 | $ | | ||||
Targent milestones included in intangible assets and accrued liabilities |
$ | 5,000 | $ | | ||||
5
6
7
8
Weighted- | ||||||||||||
Average | ||||||||||||
Shares | ||||||||||||
Outstanding | Earnings | |||||||||||
(in thousands, except share and per share data) | Net Income | (Denominator) | Per Share | |||||||||
Three Months Ended September 30, 2011 |
||||||||||||
Basic earnings per share: |
$ | 20,255 | 53,810,047 | $ | 0.38 | |||||||
Diluted earnings per share: |
||||||||||||
Dilutive preferred shares |
40,000 | |||||||||||
Dilutive options |
4,548,411 | |||||||||||
Incremental shares assumed issued on
exercise of in the money warrants |
198,285 | |||||||||||
Unvested restrictive stock |
281,535 | |||||||||||
Targent milestone which may be settled
in cash or stock |
591,585 | |||||||||||
Diluted earnings per share |
$ | 20,255 | 59,469,863 | $ | 0.34 | |||||||
Potentially dilutive securities not
included above since
they were antidilutive: |
||||||||||||
Antidilutive options |
80,000 |
Weighted- | ||||||||||||
Average | ||||||||||||
Shares | ||||||||||||
Outstanding | Earnings | |||||||||||
(in thousands, except share and per share data) | Net Income | (Denominator) | Per Share | |||||||||
Nine months Ended September 30, 2011 |
||||||||||||
Basic earnings per share: |
$ | 40,236 | 52,477,789 | $ | 0.77 | |||||||
Diluted earnings per share: |
||||||||||||
Dilutive preferred shares |
40,000 | |||||||||||
Dilutive options |
3,973,475 | |||||||||||
Incremental shares assumed issued on
exercise of in the money warrants |
174,652 | |||||||||||
Unvested restrictive stock |
258,644 | |||||||||||
Targent milestone which may be settled
in cash or stock |
401,509 | |||||||||||
Diluted earnings per share |
$ | 40,236 | 57,326,069 | $ | 0.70 | |||||||
Potentially dilutive securities
not included above since
they were antidilutive: |
||||||||||||
Antidilutive options |
365,500 |
9
Gross | Gross | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Estimated fair | Marketable Security | ||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cash | Current | Long Term | ||||||||||||||||||||||
September 30, 2011 |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 110,293 | $ | | $ | | $ | 110,293 | $ | 110,293 | $ | | $ | | ||||||||||||||
Bank CDs
(including restricted certificate of deposit of $500) |
27,115 | | | 27,115 | | 15,235 | 11,880 | |||||||||||||||||||||
Money market currency funds |
23,369 | | | 23,369 | | 23,369 | | |||||||||||||||||||||
Other securities (included in other assets) |
190 | 23 | | 213 | | | 213 | |||||||||||||||||||||
Total investments |
$ | 160,967 | $ | 23 | $ | | $ | 160,990 | $ | 110,293 | $ | 38,604 | $ | 12,093 | ||||||||||||||
December 31, 2010 |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 53,557 | $ | | $ | | $ | 53,557 | $ | 53,557 | $ | | $ | | ||||||||||||||
Bank CDs
(including restricted certificate of deposit of $500) |
29,985 | | | 29,985 | | 21,416 | 8,569 | |||||||||||||||||||||
Money market currency funds |
15,488 | | | 15,488 | | 15,488 | | |||||||||||||||||||||
U.S. Government securities |
2,909 | | | 2,909 | | 2,909 | | |||||||||||||||||||||
Corporate debt securities |
2,304 | | | 2,304 | | 2,304 | | |||||||||||||||||||||
Other securities (included in other assets) |
35 | | 9 | 26 | | | 26 | |||||||||||||||||||||
Total investments |
$ | 104,278 | $ | | $ | 9 | $ | 104,269 | $ | 53,557 | $ | 42,117 | $ | 8,595 | ||||||||||||||
10
Fair Value Measurements | ||||||||||||||||
($ in 000s) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
2011 |
||||||||||||||||
Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 110,293 | $ | | $ | | $ | 110,293 | ||||||||
Bank CDs |
| 27,115 | | 27,115 | ||||||||||||
Money market currency funds |
| 23,369 | | 23,369 | ||||||||||||
Cash and cash equivalents and marketable securities |
110,293 | 50,484 | | 160,777 | ||||||||||||
Other securities |
213 | | | 213 | ||||||||||||
$ | 110,506 | $ | 50,484 | $ | | $ | 160,990 | |||||||||
11
Fair Value | ||||
Measurements of | ||||
Common Stock | ||||
Warrants Using | ||||
Significant | ||||
Unobservable | ||||
Inputs (Level 3) | ||||
($ in 000s) | ||||
Balance at December 31, 2010 |
$ | 3,904 | ||
Adjustments resulting from change
in value of warrants recognized in
earnings |
3,488 | |||
Adjustments resulting from
exercise of warrants recognized in
equity |
(7,392 | ) | ||
Balance at September 30, 2011 |
$ | | ||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
($ in 000s) | ||||||||
Zevalin intangibles |
$ | 41,900 | $ | 41,900 | ||||
Fusilev intangibles |
16,778 | | ||||||
58,678 | 41,900 | |||||||
Less: accumulated amortization |
(15,600 | ) | (12,295 | ) | ||||
$ | 43,078 | $ | 29,605 | |||||
12
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
($ in 000s) | ||||||||
Raw materials |
$ | 1,320 | $ | 962 | ||||
Work-in-process |
2,253 | | ||||||
Finished goods |
6,712 | 3,272 | ||||||
$ | 10,285 | $ | 4,234 | |||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
($ in 000s) | ||||||||
Trade payables |
$ | 9,475 | $ | 8,734 | ||||
Allowance for rebates |
9,754 | 14,474 | ||||||
Accrued product royalty |
8,008 | 4,026 | ||||||
Accrued milestone |
5,000 | | ||||||
Allowance for returns |
3,500 | 2,000 | ||||||
Accrued data and distribution fees |
4,049 | 1,874 | ||||||
Allowance for chargebacks |
560 | 350 | ||||||
Accrued income taxes |
669 | | ||||||
Other accrued obligations |
9,039 | 7,246 | ||||||
$ | 50,054 | $ | 38,704 | |||||
13
14
15
Weighted | ||||||||
Common Stock | Average | |||||||
Warrants | Exercise Price | |||||||
Outstanding at December 31, 2010 |
4,192,312 | $ | 6.45 | |||||
Issued |
| | ||||||
Exercised |
(3,747,312 | ) | 6.62 | |||||
Forfeited |
| | ||||||
Expired |
| | ||||||
Outstanding, at September 30, 2011 |
445,000 | $ | 5.04 | |||||
Exercisable, at September 30, 2011 |
420,000 | $ | 5.11 | |||||
Three Months Ended | Nine months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
($ in 000s) | ||||||||||||||||
Research and development |
$ | 280 | $ | 253 | $ | 1,179 | $ | 2,111 | ||||||||
Selling, general and administrative |
4,056 | 1,803 | 14,037 | 4,156 | ||||||||||||
Total share based
compensation expense |
$ | 4,336 | $ | 2,056 | $ | 15,216 | $ | 6,267 | ||||||||
16
Nine-months ended September 30, | ||||||||
2011 | 2010 | |||||||
Divided yield |
0.00 | % | 0.00 | % | ||||
Expected volatility |
70.04 | % | 70.80 | % | ||||
Risk free interest rate |
0.96 | % | 2.06 | % | ||||
Expected life (years) |
4.93 | 5.00 |
17
Conversion of Series E preferred
shares |
40,000 | |||
Exercise of stock options |
10,788,934 | |||
Exercise of warrants |
445,000 | |||
Total shares of common stock
reserved for future issuances |
11,273,934 | |||
18
Term of Incentive Plan |
5 Years | |||
Estimated trading days from grant to end of market condition
period |
1,260 | |||
Average stock price on date of grant |
$ | 9.29 | ||
Number of common shares outstanding proximate to grant date |
52,041,781 | |||
Maximum number of options expected to exercise during term |
8,397,094 | |||
Expected annual stock volatility |
65.0 | % | ||
Expected return on common equity |
15 | % |
19
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| our ability to successfully develop, obtain regulatory approval for and market our
products; |
| our ability to continue to grow sales revenue of our marketed products; |
| risks associated with doing business internationally; |
| our ability to generate and maintain sufficient cash resources to fund our business; |
| our ability to enter into strategic alliances with partners for manufacturing,
development and commercialization; |
| efforts of our development partners; |
| the ability of our manufacturing partners to meet our timelines; |
| the ability to timely deliver product supplies to our customers; |
| our ability to identify new product candidates and to successfully integrate those
product candidates into our operations; |
| the timing and/or results of pending or future clinical trials, and our reliance on
contract research organizations; |
| our ability to protect our intellectual property rights; |
| competition in the marketplace for our drugs; |
||
| delay in approval of our products or new indications for our products by the U.S. Food
and Drug Administration, or the FDA; |
| actions by the FDA and other regulatory agencies, including international agencies; |
20
| securing positive reimbursement for our products; |
| the impact of any product liability, or other litigation to which we are, or may become
a party; |
| the impact of legislative or regulatory reform of the healthcare industry and the
impact of recently enacted healthcare reform legislation; |
| the availability and price of acceptable raw materials and components from third-party
suppliers, and their ability to meet our demands; |
| our ability, and that of our suppliers, development partners, and manufacturing
partners, to comply with laws, regulations and standards, and the application and
interpretation of those laws, regulations and standards, that govern or affect the
pharmaceutical and biotechnology industries, the non-compliance with which may delay or
prevent the development, manufacturing, regulatory approvals and sale of our products; |
| defending against claims relating to improper handling, storage or disposal of
hazardous chemical, radioactive or biological materials could be time consuming and
expensive; |
| our ability to maintain the services of our key executives and technical and sales and
marketing personnel; |
| the difficulty in predicting the timing or outcome of product development efforts and
regulatory approvals; and |
| demand and market acceptance for our approved products. |
21
| Maximizing the growth potential of our marketed drugs, Zevalin and Fusilev. Our
near-term outlook largely depends on sales and marketing successes for our two marketed
drugs. For Zevalin, we stabilized sales in 2009, increased sales in 2010 and continue to
work on growing the Zevalin brand. For Fusilev, which we launched in August 2008, we were
able to benefit from broad utilization in community clinics and hospitals and recognized a
dramatic increase in sales beginning in the second half of 2010 due to a shortage of
generic leucovorin. While generic leucovorin supplies and utilization have been negatively
impacted by this shortage, we cannot predict how long the shortage may continue or the
extent the shortage may ultimately have on Fusilev utilization. Our
focus had previously been to
obtain approval for Fusilev in advanced metastatic colorectal cancer, which we received on
April 29, 2011. We are now actively engaged in marketing Fusilev for use in advanced
metastatic colorectal cancer and have engaged a focused commercial sales organization to
work with our commercial group to support efforts to grow Fusilev sales. |
| Optimizing our development portfolio and maximizing the asset values of its components.
While over the recent few years, we have evolved from a development-stage to a
commercial-stage pharmaceutical company, we have maintained a highly focused development
portfolio. Our strategy with regard to our development portfolio is to focus on late-stage
drugs and to develop them rapidly to the point of regulatory approval. We plan to develop
some of these drugs ourselves or with our subsidiaries and affiliates, or secure
collaborations with third parties such that we are able to suitably monetize these assets. |
| Expanding our pipeline of late stage and commercial drugs through licensing and
business development. It is our goal to identify new strategic opportunities that will
create strong synergies with our currently marketed drugs and identify and pursue
partnerships for out-licensing certain of our drugs in development. To this end, we will
continue to explore strategic collaborations as these relate to drugs that are either in
advanced clinical trials or are currently on the market. We believe that such opportunistic
collaborations will
provide synergies with respect to how we deploy our internal resources. In this regard, we
intend to identify and secure drugs that have significant growth potential either through
enhanced marketing and sales efforts or through pursuit of additional clinical development.
In January 2011, we signed a letter of agreement with Viropro, Inc., for the development of a
biosimilar version of the monoclonal antibody drug rituximab. Biosimilars, or follow-on
biologis, are terms used to describe officially-approved subsequent versions of innovator
biopharmaceutical products made by a different sponsor following patent and exclusivity
expiry. Under the agreement, we paid a nominal upfront payment and are required to make
additional payments based on certain development and regulatory milestones should we elect to
continue development efforts. We believe our in-licensing of belinostat, a novel histone
deacetylase, or HDAC, inhibitor, is also demonstrative of such licensing and business
development efforts outlined above. |
22
| Managing our financial resources effectively. We remain committed to fiscal
discipline, a policy which has allowed us to become well capitalized among our peers,
despite a very challenging capital markets environment during 2009, 2010 and continuing in
2011. This policy includes the pursuit of non-dilutive funding options, prudent expense
management, and the achievement of critical synergies within our operations in order to
maintain a reasonable burn rate. Even with the continued build-up in operational
infrastructure to facilitate the marketing of our two commercial drugs, we intend to be
fiscally prudent in any expansion we undertake. In terms of revenue generation, we plan to
become more reliant on sales from currently marketed drugs and intend to pursue
out-licensing of select pipeline drugs in select territories, as discussed above. When
appropriate, we may pursue other sources of financing, including non-dilutive financing
alternatives. While we are currently focused on advancing our key drug development
programs, we anticipate that we will make regular determinations as to which other
programs, if any, to pursue and how much funding to direct to each program on an ongoing
basis, based on clinical success and commercial potential, including termination of our
existing development programs, especially if we do not expect value being driven from
continued development. |
| Further enhancing the organizational structure to meet our corporate objectives. We
have highly experienced staff in pharmaceutical operations, clinical development,
regulatory and commercial functions who previously held positions at both small to mid-size
biotech companies, as well as large pharmaceutical companies. We have strengthened the
ranks of our management team, and will continue to pursue talent on an opportunistic basis.
Finally, we remain committed to running a lean and efficient organization, while
effectively leveraging our critical resources. |
23
24
25
26
Chargebacks | Data and | |||||||||||||||||||||||
and | Distribution | Doubtful | ||||||||||||||||||||||
Discounts | Rebates | Returns | Fees | accounts | Total | |||||||||||||||||||
($ in 000s) | ||||||||||||||||||||||||
Period ended September 30, 2011: |
||||||||||||||||||||||||
Balances at beginning of the period |
$ | 675 | $ | 14,474 | $ | 2,000 | $ | 1,874 | $ | 339 | $ | 19,362 | ||||||||||||
Add provisions: |
5,343 | 14,068 | 1,594 | 5,518 | 91 | 26,614 | ||||||||||||||||||
Less: Credits or actual allowances: |
(4,474 | ) | (18,788 | ) | (94 | ) | (3,343 | ) | | (26,699 | ) | |||||||||||||
Balances at the close of the period |
$ | 1,544 | $ | 9,754 | $ | 3,500 | $ | 4,049 | $ | 430 | $ | 19,277 | ||||||||||||
Period ended September 30, 2010: |
||||||||||||||||||||||||
Balances at beginning of period |
$ | 860 | $ | 388 | $ | 1,176 | $ | 213 | $ | 150 | $ | 2,787 | ||||||||||||
Add provisions: |
693 | 4,205 | 2,372 | 794 | 533 | 8,597 | ||||||||||||||||||
Less: Credits or actual allowances: |
(467 | ) | (255 | ) | (2,292 | ) | (640 | ) | (138 | ) | (3,792 | ) | ||||||||||||
Balances at the close of the period |
$ | 1,086 | $ | 4,338 | $ | 1,256 | $ | 367 | $ | 545 | $ | 7,592 | ||||||||||||
27
28
| Revenue recognition |
| Share-Based compensation |
| Warrant Accounting |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
29
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1A. | RISK FACTORS |
30
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Total Number | ||||||||||||||||
of Shares | Maximum Number of | |||||||||||||||
Purchased as | Shares (or | |||||||||||||||
Part | Approximate Dollar | |||||||||||||||
Total Number | Average | of Publicly | Value) that May Yet | |||||||||||||
of | Price | Announced | Be Purchased Under | |||||||||||||
Shares | Paid Per | Plans or | the Plans or | |||||||||||||
Period | Purchased | Share | Programs (1) | Programs (1) | ||||||||||||
July 1, 2011
July 31, 2011 |
| $ | | | $ | 25,000 | ||||||||||
August 1, 2011
August 31, 2011 |
| $ | | | $ | 25,000 | ||||||||||
September 1, 2011
September 31, 2011 |
353,055 | $ | 8.05 | 353,055 | $ | 22,200 | ||||||||||
Total |
353,055 | $ | 8.05 | 353,055 | $ | 22,200 | ||||||||||
(1) | On June 15, 2011, we announced that our board of directors had authorized the repurchase and
retirement of up to $25 million of our common stock in open market transactions, including
block purchases, through 10b5-1 plans or in privately negotiated transactions, each in
accordance with applicable Securities and Exchange Commission rules, when opportunities became
available to purchase shares at prices believed to be attractive. The term for the repurchase
program expires on December 31, 2012, however, we may suspend or terminate it at any time. |
31
ITEM 6. | EXHIBITS |
Exhibit | ||||
Number | Description | |||
3.3 | * | Certificate
of Amendment to Certificate of Incorporation. |
||
10.38 | * | Deferred
Compensation Plan (Filed as Exhibit 4.1 to Form S-8, as filed with
the Securities and Exchange Commission on September 6, 2011, and
incorporated herein by reference). |
||
31.1 | Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the
Securities Exchange Act of 1934. |
|||
31.2 | Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the
Securities Exchange Act of 1934. |
|||
32.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) promulgated under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |
|||
32.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) promulgated under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |
|||
101.1 | + | XBRL Instance Document. |
||
101.2 | + | XBRL Taxonomy Extension Schema Document. |
||
101.3 | + | XBRL Taxonomy Extension Calculation Linkbase Document. |
||
101.4 | + | XBRL Taxonomy Extension Definition Linkbase Document. |
||
101.5 | + | XBRL Taxonomy Extension Label Linkbase Document. |
||
101.6 | + | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Indicates a management contract or compensatory plan or arrangement. |
|
+ | The XBRL information is being furnished and not filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is
not incorporated by reference into any registration statement under
the Securities Act of 1933, as amended. |
32
SPECTRUM PHARMACEUTICALS, INC. | ||||||
Date: October 27, 2011
|
By: | /s/ Brett L. Scott
|
||||
Senior Vice President, Acting Chief Financial Officer
(Authorized Signatory and Principal Financial and Accounting Officer) |
33
Exhibit | ||||
Number | Description | |||
3.3 | * | Certificate
of Amendment to Certificate of Incorporation. |
||
10.38 | * | Deferred
Compensation Plan (Filed as Exhibit 4.1 to Form S-8, as filed with
the Securities and Exchange Commission on September 6, 2011, and
incorporated herein by reference). |
||
31.1 | Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the
Securities Exchange Act of 1934. |
|||
31.2 | Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the
Securities Exchange Act of 1934. |
|||
32.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) promulgated under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |
|||
32.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) promulgated under the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |
|||
101.1 | + | XBRL Instance Document. |
||
101.2 | + | XBRL Taxonomy Extension Schema Document. |
||
101.3 | + | XBRL Taxonomy Extension Calculation Linkbase Document. |
||
101.4 | + | XBRL Taxonomy Extension Definition Linkbase Document. |
||
101.5 | + | XBRL Taxonomy Extension Label Linkbase Document. |
||
101.6 | + | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Indicates a management contract or compensatory plan or arrangement. |
|
+ | The XBRL information is being furnished and not filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is
not incorporated by reference into any registration statement under
the Securities Act of 1933, as amended. |
34
SPECTRUM PHARMACEUTICALS, INC. |
||||
By: | /s/ Brett L. Scott | |||
Brett L. Scott | ||||
Senior V.P. & Acting Chief Financial Officer | ||||
1. | I have reviewed this quarterly report on Form 10-Q of Spectrum Pharmaceuticals, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Accounting Standard
Codification (ASC) No. 105, Generally Accepted Accounting Principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
(b) | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: October 27, 2011
|
/s/ Rajesh C. Shrotriya
|
|||
Chairman, Chief Executive Officer and President |
1. | I have reviewed this quarterly report on Form 10-Q of Spectrum Pharmaceuticals, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
(b) | Designed such internal controls over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Accounting Standard
Codification (ASC) No. 105, Generally Accepted Accounting Principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
(b) | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: October 27, 2011
|
/s/ Brett L. Scott
|
|||
Senior Vice President, Acting Chief Financial Officer |
Date: October 27, 2011 | By: | /s/ Rajesh C. Shrotriya | ||||||
Name: | Rajesh C. Shrotriya, MD | |||||||
Title: | Chairman, Chief Executive Officer and President |
Date: October 27, 2011 | By: | /s/ Brett L. Scott | ||||||
Name: | Brett L. Scott | |||||||
Title: | Senior Vice President, Acting Chief Financial Officer |
Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenues: | ||||
Product sales, net | $ 47,949 | $ 13,660 | $ 130,759 | $ 30,050 |
License and contract revenue | 3,075 | 3,075 | 9,225 | 10,117 |
Total revenues | 51,024 | 16,735 | 139,984 | 40,167 |
Operating costs and expenses: | ||||
Cost of product sales (excludes amortization of purchased intangible assets) | 8,845 | 3,789 | 23,555 | 10,626 |
Selling, general and administrative | 15,811 | 11,411 | 47,261 | 36,075 |
Research and development | 7,388 | 7,485 | 20,904 | 50,314 |
Amortization of purchased intangibles | 930 | 930 | 2,790 | 2,790 |
Total operating costs and expenses | 32,974 | 23,615 | 94,510 | 99,805 |
Income (loss) from operations | 18,050 | (6,880) | 45,474 | (59,638) |
Change in fair value of common stock warrant liability | 2,999 | 1,629 | (3,488) | 6,030 |
Other income (loss), net | (144) | 578 | 550 | 245 |
Income (loss) before provision for income taxes | 20,905 | (4,673) | 42,536 | (53,363) |
Provision for income taxes | (650) | 79 | (2,300) | 79 |
Net income (loss) | $ 20,255 | $ (4,594) | $ 40,236 | $ (53,284) |
Net income (loss) per share: | ||||
Basic | $ 0.38 | $ (0.09) | $ 0.77 | $ (1.08) |
Diluted | $ 0.34 | $ (0.09) | $ 0.70 | $ (1.08) |
Weighted average shares outstanding: | ||||
Basic | 53,810,047 | 49,739,072 | 52,477,789 | 49,146,245 |
Diluted | 59,469,863 | 49,739,072 | 57,326,069 | 49,146,245 |
Document and Entity Information (USD $) | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Oct. 19, 2011 | Jun. 30, 2010 | |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | SPECTRUM PHARMACEUTICALS INC | ||
Entity Central Index Key | 0000831547 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Accelerated Filer | ||
Entity Public Float | $ 189,068,452 | ||
Entity Common Stock, Shares Outstanding | 57,407,424 |
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Income Taxes | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Income Taxes [Abstract] | |
Income Taxes |
7. Income Taxes
On an interim basis, we estimate what the anticipated annual effective tax rate will be and
record a quarterly income tax provision in accordance with this anticipated annual rate. The
effective tax rate may be subject to fluctuations during the year as new information is obtained,
which may affect the assumptions used to estimate the annual effective tax rate, including factors
such as the valuation allowances against deferred tax assets, the recognition or derecognition of
tax benefits related to uncertain tax positions, expected utilization of R&D tax credits and
changes in or the interpretation of tax laws in jurisdictions where the we conduct business.
Our provision for income taxes is computed using the asset and liability method, under which
deferred tax assets and liabilities are recognized for the expected future tax consequences of
temporary differences between the financial reporting and tax bases of assets and liabilities, and
for the expected future tax benefit to be derived from tax loss and credit carryforwards. Deferred
tax assets and liabilities are determined using the enacted tax rates in effect for the years in
which those tax assets are expected to be realized. A valuation allowance is established when it is
more likely than not the future realization of all or some of the deferred tax assets will not be
achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction by
jurisdiction basis, and includes a
review of all available positive and negative evidence. As of September 30, 2011 and December
31, 2010, we maintained a valuation allowance against deferred tax assets that we concluded have
not met the “more likely than not” threshold. The change in the valuation allowance was primarily
due to a corresponding change in a deferred tax asset that we determined required a valuation
allowance.
We recognize excess tax benefits associated with share-based compensation to stockholders’
equity only when realized. When assessing whether excess tax benefits relating to share-based
compensation have been realized, we follow the with-and-without approach, excluding any indirect
effects of the excess tax deductions. Under this approach, excess tax benefits related to
share-based compensation are not deemed to be realized until after the utilization of all other tax
benefits available to us.
We recognize the impact of a tax position in our financial statements only if that position is
more likely than not of being sustained upon examination by taxing authorities, based on the
technical merits of the position. Any interest and penalties related to uncertain tax positions
will be reflected in income tax expense.
|
Fair Value Measurements | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
3. Fair Value Measurements
The
carrying values of our cash and cash equivalents, marketable
securities and other securities, carried at fair value as of September 30, 2011 are classified in the
table below in one of the three categories of the fair value hierarchy described below:
We measure fair value based on the prices that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to
measure fair value. These tiers include the following:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that
are accessible at the measurement date. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but
corroborated by market data. These inputs include quoted prices for similar assets or liabilities;
quoted market prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair
value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs to the extent possible, as well as consider
counterparty credit risk in the assessment of fair value. Cash equivalents consist of certificates
of deposit and are valued at cost, which approximates fair value due to the short-term maturities
of these instruments. Marketable securities consist of certificates of deposit, US Treasury bills,
US Treasury-backed securities and corporate deposits, which are
stated at carrying value as it approximates fair value due to the
short term maturities of these instruments.
The following summarizes the activity of Level 3 inputs measured on a recurring basis for the nine
months ended September 30, 2011:
During the nine months ended September 30, 2011, the fair value of common stock warrants
decreased approximately $3.9 million due to the exercise of 3,747,312 warrants on or before
September 15, 2011, for a total aggregate exercise price of $24.8 million
We did not elect the fair value option, as allowed, to account for financial assets and
liabilities that were not previously carried at fair value. Therefore, material financial assets
and liabilities that are not carried at fair value, such as trade accounts receivable and payable,
are reported at their historical carrying values.
|
Stockholders' Equity | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholder's Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholder's Equity |
9. Stockholder’s Equity
Treasury Stock
On
June 13, 2011, our Board of Directors authorized the purchase of up to $25 million of our
outstanding common stock through the end of 2012. During the three months ended September 30, 2011, we
purchased 353,055 shares of our common stock for an aggregate purchase price of $2.8 million.
Repurchased shares have been recorded as treasury shares and will be held until the Company’s
Board of Directors designates that these shares be retired or used for other purposes.
Warrant Activity
We have issued warrants to purchase shares of our common stock to investors as part of
financing transactions, or in connection with services rendered by consultants. Our outstanding
warrants expire on varying dates through June 2015. Below is a summary of warrant activity during
the nine months ended September 30, 2011:
Share-Based Compensation
We record share-based employee compensation expense for all equity-based programs, including
stock options, restricted stock grants, management incentive plan, 401(k) plan matching and our employee stock purchase plan.
Total expense recorded for the three and nine months periods ended September 30, is as shown below:
Stock Options
During the three and nine month periods ended September 30, 2011, the Compensation Committee
of our Board of Directors granted stock options at exercise prices equal to the closing price of
our common stock on the trading day prior to the grant date. The weighted average grant date fair
value of stock options granted during the nine months period ended September 30, 2011 and 2010 were
estimated at approximately $4.58 and $2.53, respectively using the Black-Scholes option pricing
model with the following assumptions:
Share based compensation expense is recognized only for those awards that are ultimately
expected to vest, and we have applied a forfeiture rate to unvested awards for the purpose of
calculating the compensation cost. These estimates will be reversed in future periods if actual
forfeitures differ from our estimates.
During the three and nine months ended September 30, 2011, our share-based charge in
connection with the expensing of stock options was approximately $1.5 million and $7.0 million,
respectively. During the three and nine months ended September 30, 2010, our share-based charge in
connection with the expensing of stock options was approximately $1.7 million and $4.7 million,
respectively.
As of September 30, 2011, there was approximately $14.0 million of unrecognized stock-based
compensation cost related to stock options which we expect to recognize over a weighted average
period of approximately 2.36 years.
Restricted Stock
The fair value of restricted stock awards is the grant date closing market price of our common
stock, and is charged to expense over the period of vesting. These awards are subject to forfeiture
to the extent that the recipient’s service is terminated prior to the shares becoming vested.
During the three and nine month periods ended September 30, 2011, the share-based charge in
connection with the expensing of restricted stock awards was approximately $260,000 and $1.4
million, respectively. During the three and nine month periods ended September 30, 2010, the
share-based charge in connection with the expensing of restricted stock awards was approximately
$121,000 and $879,000, respectively.
As of September 30, 2011, there was approximately $2.2 million of unrecognized share-based
compensation cost related to non-vested restricted stock awards, which is expected to be recognized
over a weighted average period of approximately 2.27 years.
401(k) Plan Matching Contribution
During
the three and nine month periods ended September 30, 2011, we issued 16,683 and 53,307
shares of common stock, respectively, as our match of approximately $145,000 and
$432,000, respectively, on the 401(k)
contributions of our employees. During the three and nine month periods ended September 30, 2010,
we issued 33,584 and 108,263 shares of common stock as our match of approximately $134,000 and
$463,000, respectively, on the 401(k) contributions of our employees.
Employee Stock Purchase Plan
Effective July 2009, we adopted the 2009 Employee Stock Purchase Plan (“Purchase Plan”). The
Purchase Plan provides our eligible employees with an incentive by providing a method whereby they
may voluntarily purchase shares of our common stock upon terms described in the Purchase Plan. The
Purchase Plan is designed to be operated on the basis of six consecutive month offering periods
commencing January 1 and July 1 of each year. The Purchase Plan provides that eligible employees
may authorize payroll deductions to purchase shares of our common stock at 85% of the fair market
value of common stock on the first or last day of the applicable purchase period. A participant may
purchase a maximum of 50,000 shares of common stock during a 6-month offering period, not to exceed
$25,000 worth of stock on the offering date during each plan year. The Purchase Plan terminates in
2019.
As of September 30, 2011, Purchase Plan participant contributions of $132,818 are included in
other accrued obligations in the accompanying condensed consolidated balance sheet. A total of
5,000,000 shares of common stock are authorized for issuance under the Purchase Plan, and as of
September 30, 2011, 302,232 shares have been issued under the Purchase Plan.
Common Stock Reserved for Future Issuances
As of September 30, 2011, approximately 11.3 million shares of our common stock, when fully
vested, were issuable upon conversion or exercise of rights granted under prior financing
arrangements, stock options and warrants, as follows:
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Long-Term Retention and Management Incentive Plan |
10. Long-Term Retention and Management Incentive Plan
Effective April 22, 2011, our Board of Directors adopted a Long-Term Retention and Management
Incentive Plan (the “Incentive Plan”) to provide equity and cash incentives for our principal
executive officer, principal financial officer and certain other named executive officers. The
Incentive Plan rewards long-term corporate performance, with a goal of helping to align the total
compensation of the participants with the interests of our stockholders. The Incentive Plan
provides that, upon the occurrence of certain events, defined as a $750 million (the “Initial
Capitalization Target”) and/or $1 billion market capitalization target (the “Subsequent
Capitalization Target”), each participant will be entitled to receive stock awards under our 2009
Incentive Award Plan, as amended, and cash awards upon a change in control. The Incentive Plan
will terminate on April 22, 2016, the fifth anniversary of its effective date. The number of
shares available for issuance under the Incentive Plan will not exceed 1,039,500 shares.
The fair value of each stock award under the Incentive Plan was estimated on the date of the
grant using the Monte Carlo valuation model and assumes that the Initial Capitalization Target will
be achieved at 13 months and the Subsequent Capitalization Target will be achieved at 20 months
(collectively referred to as the “Service Life”), from the effective date. The key inputs used to
estimate the awards’ fair value include the following:
The fair value of these equity awards was determined to be approximately $8.1 million and will
be amortized over the respective Service Life. Included in selling, general and administrative
expense was $2.5 million and $5.5 million, respectively, of compensation expense for the three and
nine months ended September 30, 2011.
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Commitments and Contingencies [Abstract] | |
Commitments and Contingencies |
8. Commitments and Contingencies
Facility Lease
We sublease our principal executive office in Henderson, Nevada under a non cancelable
operating lease expiring April 30, 2014. We also lease our research and development facility in
Irvine, California under a non cancelable operating lease expiring June 30, 2016. The lease
agreements contain certain scheduled rent increases which are accounted for on a straight-line
basis.
As part of our Irvine facility lease renewal in 2009, the landlord agreed to contribute up to
approximately $1.5 million toward the cost of tenant improvements. The tenant improvements were
completed in the second quarter of 2010 at an aggregate cost of approximately $1.4 million, of
which, $451,000 is being financed. This landlord contribution is being amortized on a straight-line
basis over the term of the lease as a reduction to rent expense.
Licensing Agreements
We are developing almost all of our drug candidates pursuant to license agreements that
provide us with rights in certain territories, among other things, to develop, sublicense,
manufacture and sell the drugs. We are generally required to use commercially reasonable efforts to
develop the drugs, and are generally responsible for all development, patent filing and
maintenance, sales and marketing and liability insurance costs, and are generally contingently
obligated to make milestone payments to the licensors if we successfully reach development and
regulatory milestones specified in the license agreements. In addition, we are obligated to pay
royalties and, in some cases, milestone payments based on net sales, if any, after marketing
approval is obtained from regulatory authorities.
The potential contingent development and regulatory milestone obligations under all of our
licensing agreements are generally tied to progress through the various regulatory authorities’
approval process, which approval significantly depends on positive clinical trial results. The
following items are typical of such milestone events: conclusion of Phase 2 or commencement of
Phase 3 clinical trials; filing of new drug applications in each of the United States, Europe and
Japan; and approvals from each of the regulatory agencies in those jurisdictions.
In October 2008, we signed an exclusive development and commercialization collaboration
agreement with Allergan for apaziquone. Under the terms of the agreement, Allergan paid us an
up-front non-refundable $41.5 million at closing and will make additional payments of up to $304
million based on the achievement of certain development, regulatory and commercialization
milestones. In November 2009, we entered into a collaboration agreement with Handok
Pharmaceuticals of Korea for the development and commercialization of apaziquone for the treatment
of non-muscle invasive bladder cancer in North and South Korea. Under the terms of the Handok
collaboration agreement, Handok paid us an up-front payment of $1.0 million and is required to pay
potential milestone payments of approximately $19.0 million. The potential milestones will be
based on the achievement of
certain regulatory and commercialization milestones. In
June 2011, we amended the agreement with Allergan to, among other things, revise the target indications of additional clinical trials, and extend
certain milestone dates, and to modify certain payment obligations and expense allocation
provisions.
In March 2006, we entered into an Asset Purchase Agreement with Targent, Inc. As part of the
consideration for the purchase of certain assets, we agreed to pay milestone payments to Targent
upon the achievement of certain regulatory events as well as for certain sales levels for Fusilev
within a calendar year. In connection with the achievement of the FDA approval milestone in April
2011, we issued an aggregate amount of 733,715 shares of common stock to certain of Targent’s
stockholders, as directed by Targent. We capitalized $6.3 million associated with this milestone
as intangible assets during the three months ended June 30, 2011 which is being amortized over the
estimated useful life of 8.7 years.
In addition, in the event that aggregate net sales of Fusilev, as defined in the agreement,
exceed $40 million and or $100 million during any calendar year, we are to pay to Targent $5
million in cash or the common stock equivalent thereof for each milestone. These milestone
payments are in effect only with respect to the first calendar year in which aggregate net sales
combined exceed such amount and not with respect to any subsequent calendar year in which aggregate
net sales of the products combined exceed such amounts. In connection with the achievement of the
first sales milestone of $40 million in May 2011 we issued 577,367 shares of common stock to
certain of Targent’s stockholders, as directed by Targent. In September 2011, we achieved the
second milestone of $100 million and have capitalized an
additional $5 million for an aggregate with the first sales
milestone of $10.0 million associated with these milestones as intangible assets. The
second milestone payment may be
paid in cash or in shares of common stock at the Company’s discretion within 45 days from September
30, 2011. In the event we determine to pay this milestone in stock, it will equate to 598,086
shares. These intangible assets are being amortized over the estimated useful life of 8.6 years.
Included in cost of goods sold expense for the nine months ended September 30, 2011 is $515,000
related to the amortization of these milestones.
Service Agreements
In connection with the research and development of our drug products, we have entered into
contracts with numerous third party service providers, such as radio-pharmacies, distributors,
clinical trial centers, clinical research organizations, data monitoring centers, and with drug
formulation, development and testing laboratories. The financial terms of these contracts are
varied and generally obligate us to pay in stages, depending on the occurrence of certain events
specified in the contracts, such as contract execution, reservation of service or production
capacity, actual performance of service, or the successful accrual and dosing of patients.
At each period end, we accrue for all costs of goods and services received, with such accruals
based on factors such as estimates of work performed, patient enrollment, completion of patient
studies and other events. Generally, we are in a position to accelerate, slow down or discontinue
any or all of the projects that we are working on at any given point in time. Should we decide to
discontinue and/or slow down the work on any project, the associated costs for those projects would
be limited to the extent of the work completed. Generally, we are able to terminate these contracts
due to the discontinuance of the related project(s) and can thus avoid paying for the services that
have not yet been rendered and our future purchase obligations would reduce accordingly.
Employment Agreement
We have entered into an employment agreement with Dr. Rajesh C. Shrotriya, our President and
Chief Executive Officer, which expires January 2, 2013. The employment agreement automatically
renews for subsequent one-year calendar term unless either party gives written notice of such
party’s intent not to renew the agreement at least 90 days prior to the commencement of the new
term. The employment agreement requires Dr. Shrotriya to devote his full working time and effort to
our business and affairs during the term of the agreement. The employment agreement provides for a
minimum annual base salary with annual increases, periodic bonuses and option grants as determined
by the Compensation Committee of our Board of Directors.
Litigation
We are involved with various legal matters arising in the ordinary course of our business.
Although the ultimate resolution of these various matters cannot be determined at this time, we do
not believe that such matters, individually or in the aggregate, will have a material adverse
effect on our consolidated results of operations, cash flows or financial condition.
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Business and Basis of Presentation |
1. Business and Basis of Presentation
Business
Spectrum Pharmaceuticals, Inc. (“Spectrum”, the “Company”, “we”, “our”, or “us”) is a
biotechnology company with fully integrated commercial and drug development operations, with a
primary focus in both hematology and oncology. Our strategy is comprised of acquiring, developing and commercializing a
broad and diverse pipeline of late-stage clinical and commercial products. We market two oncology
drugs, ZEVALIN® and FUSILEV® and have two drugs, apaziquone and belinostat,
in late stage development along with a diversified pipeline of novel drug candidates. We have
assembled an integrated in-house scientific team, including formulation development, clinical
development, medical research, regulatory affairs, biostatistics and data management, and have
established a commercial infrastructure for the marketing of our drug products. We also leverage
the expertise of our worldwide partners to assist in the execution of our strategy. Apaziquone is
presently being studied in two large Phase 3 clinical trials for non-muscle invasive bladder
cancer, or NMIBC, and is under strategic collaborations with Allergan, Inc., (“Allergan”), Nippon
Kayaku Co. Ltd., (“Nippon Kayaku”), and Handok Pharmaceuticals Co. Ltd., (“Handok”). Belinostat,
is being studied in multiple indications including a Phase 2 registrational trial for relapsed or
refractory peripheral T-cell lymphoma, (“PTCL”), under a strategic collaboration with TopoTarget
A/S (“TopoTarget”).
Basis of Presentation
We have prepared the accompanying unaudited condensed consolidated financial statements,
pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for
interim reporting. We have condensed or omitted certain information and footnote disclosures
normally included in our annual financial statements prepared in accordance with generally accepted
accounting principles (“GAAP”) pursuant to such rules and regulations. The unaudited condensed
consolidated financial statements reflect all adjustments, which are normal and recurring, that
are, in the opinion of management, necessary to fairly state the financial position as of September
30, 2011 and the results of operations and cash flows for the related interim periods ended
September 30, 2011 and 2010. The results of operations for the three and nine months ended
September 30, 2011 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2011 or for any other periods.
The condensed
consolidated balance sheet at December 31, 2010 has been derived from the audited financial
statements at that date but does not include all of the information and disclosures required by
GAAP for complete financial statements.
Significant Accounting Policies
The accounting policies followed by us and other information are contained in the notes to our
audited consolidated financial statements for the year ended December 31, 2010 included in our
Annual Report on Form 10-K filed on March 10, 2011. We have not changed our significant accounting
policies as of September 30, 2011. You should read this Quarterly Report on Form 10-Q in
connection with the information contained in our Annual Report on Form 10-K filed on March 10,
2011.
Segment and Geographic Information
We operate in one reportable segment: acquiring, developing and commercializing prescription
drug products. Accordingly, we report the accompanying condensed consolidated financial statements
in the aggregate, including all of our activities in one reportable segment. Foreign operations
were not significant for any of the periods presented herein.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent obligations in the financial statements and accompanying notes. The
estimation process requires assumptions to be made about future events and conditions, and as such,
is inherently subjective and uncertain. Actual results could differ materially from our estimates.
Recent Accounting Pronouncements
In
June 2011, the Financial Accounting Standards Board
(“FASB”) issued an accounting standards update that eliminates the option to
present components of other comprehensive income as part of the statement of changes in equity and
requires an entity to present items of net income and other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. This
guidance also requires an entity to present on the face of the financial statements
reclassification adjustments from other comprehensive income to net income. This guidance will be
effective for fiscal years beginning after December 15, 2011, which will be our fiscal year 2012,
with early adoption permitted. We do not expect the adoption of the guidance will have a material
impact on our consolidated financial statements.
In May 2011, the FASB issued an accounting standards update that clarifies and amends the
existing fair value measurement and disclosure requirements. This guidance will be effective
prospectively for interim and annual periods beginning after December 15, 2011, which will be our
fiscal year 2012, with early adoption prohibited. We do not expect the adoption of the guidance
will have a material impact on our consolidated financial statements.
In December 2010, the FASB issued an accounting
standards update that provides guidance on the recognition and classification of the annual fee
imposed by the Patient Protection Act and Affordable Care Act as amended by the Health Care and
Education Reconciliation Act on pharmaceutical companies that manufacture or import branded
prescription drugs. Under this guidance, the annual fee should be estimated and recognized in full
as a liability upon the first qualifying sale with a corresponding deferred cost that is amortized
to operating expense using a straight-line method of allocation unless another method better
allocates the fee over the calendar year in which it is payable. The annual fee ranges from $2.5
billion to $4.1 billion for all affected entities in total, a portion of which will be allocated to
us on the basis of the amount of our branded prescription drug sales for the preceding year as a
percentage of the industry’s branded prescription drug sales for the same period. The annual fee is
not deductible for federal income tax purposes. This guidance became effective for calendar years
beginning after December 31, 2010. We adopted the provisions of the guidance in the first quarter
of 2011, and current estimates do not result in a material impact on our consolidated financial
statements.
In April 2010, the FASB issued an accounting standards update that provides guidance on the
milestone method of revenue recognition for research and development arrangements. Under the
milestone method contingent consideration received from the achievement of a substantive milestone
is recognized in its entirety in the period in which the milestone is achieved, which we believe is
more consistent with the substance of our performance under our various licensing and collaboration
agreements. A milestone is defined as an event (i) that can only be achieved based in whole or in
part on either the entity’s performance or on the occurrence of a specific outcome resulting from
the entity’s performance, (ii) for which there is substantive uncertainty at the date the
arrangement is entered into that the event will be achieved, and (iii) that would result in
additional payments being due to the entity. A milestone is substantive if the consideration
earned from the achievement of the milestone is consistent with our performance required to achieve
the milestone or the increase in value to the collaboration resulting from our performance, relates
solely to our past performance, and is reasonable relative to all of the other deliverables and
payments within the arrangement. Our license and collaboration agreements with our partners
provide for payments to us upon the achievement of development milestones, such as the completion
of clinical trials or regulatory approval for drug candidates. As of September 30, 2011, our
agreements with partners included potential future payments to us for development milestones
totaling approximately $323.0 million, including potential milestone
payments totaling $304.0 million and $19.0 million from our agreements with Allergan and
Handok Pharmaceuticals, respectively. Given the challenges inherent in developing and obtaining
approval for pharmaceutical and biologic products, there was substantial uncertainty whether any
such milestones would be achieved at the time these licensing and collaboration agreements were
entered into. In addition, we evaluated whether the development milestones met the remaining
criteria to be considered substantive. As a result of our analysis, we consider our development
milestones to be substantive and, accordingly, we expect to recognize as revenue future payments
received from such milestones as we achieve each milestone. The election to adopt the milestone
method did not impact our financial position or results of operations as of and for the three month
period ended September 30, 2011. However, this policy election may result in revenue recognition
patterns for future milestones that are materially different from those recognized for milestones
received prior to adoption.
Acquisitions and Collaborations
For all in-licensed products, pursuant to authoritative guidance issued by the FASB, we
perform an analysis to determine whether we hold a variable interest or interests that give us a
controlling financial interest in a variable interest entity. On the basis of our interpretations
and conclusions, we determine whether the acquisition falls under the purview of variable interest
entity accounting and if so, consider the necessity to consolidate
the acquisition.
We also perform an analysis to determine if the inputs and/or processes acquired in an
acquisition qualify as a business. On the basis of our interpretations and conclusions, we
determine if the in-licensed products qualify as a business and whether to account for such
products as a business combination or an asset acquisition. The excess of the purchase price over
the fair value of the net assets acquired can only be recognized as goodwill in a business
combination.
Variable Interest Entity
Our Canadian affiliate, Spectrum Pharma Canada, is owned 50% by us and was organized in
Quebec, Canada in January 2008. We fund 100% of the expenditures and, as a result we are the party
with the controlling financial interest. We are the primary beneficiary of Spectrum Pharma Canada,
which is determined to be a variable interest entity. As a result of this characterization, it is
consolidated in our financial statements as though it is a wholly-owned subsidiary. We have
eliminated all intercompany balances and transactions among our consolidated entities
from the consolidated financial statements.
Basic and Diluted Earnings per Share
We calculate basic and diluted net income (loss) per share using the weighted average number
of common shares outstanding during the periods presented, and adjust the amount of net income
(loss) used in this calculation for preferred stock dividends (if any) declared during the period.
In periods of a net loss position, basic and diluted weighted average shares are the same. For the
diluted earnings per share calculation, we adjust the weighted average number of common shares
outstanding to include dilutive stock options, warrants and other common stock equivalents
outstanding during the periods.
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Intangible Assets |
4. Intangible Assets
Intangible assets consist of the following:
During the three and nine months ended September 30, 2011, Zevalin intangible
amortization of $1.3 million and $3.3 million, respectively, are included in amortization of
purchased intangibles. In addition, during the three months ended September 30, 2011, $515,000 is
included in cost of goods sold related to Fusilev Targent milestones.
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Inventories |
5. Inventories
Inventories, net of allowances consisted of the following:
We continually review product inventories on hand, evaluating inventory levels relative to
product demand, remaining shelf life, future marketing plans and other factors, and record reserves
for obsolete and slow-moving inventories for amounts which we may not realize.
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Accounts payable and accrued obligations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued obligations |
6. Accounts payable and accrued obligations
Accounts payable and other accrued obligations consisted of the following:
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Cash, Cash Equivalents and Marketable Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Marketable Securities |
2. Cash, Cash Equivalents and Marketable Securities
As of September 30, 2011, we held substantially all of our cash, cash equivalents and
marketable securities at major financial institutions, which must invest our funds in accordance
with our investment policy with the principal objectives of such policy being preservation of
capital, fulfillment of liquidity needs and above market returns commensurate with preservation of
capital. Our investment policy also requires that investments in marketable securities be in only
highly rated instruments, which are primarily US treasury bills or US treasury backed securities,
with limitations on investing in securities of any single issuer. To a limited degree, the Federal
Deposit Insurance Corporation and third party insure these investments. However, these investments
are not insured against the possibility of a complete loss of earnings or principal and are
inherently subject to the credit risk related to the continued credit worthiness of the underlying
issuer and general credit market risks. We manage such risks on our portfolio by investing in
highly liquid, highly rated instruments and not investing in long-term maturity instruments.
Cash, cash equivalents and investments in marketable securities, including long term bank
certificates of deposits, totaled $160.8 million and $104.2 million as of September 30, 2011 and
December 31, 2010, respectively. Long term bank certificates of deposit include a $500,000
restricted certificate of deposit that collateralizes tenant improvement obligations to the lessor
of our principal offices. The following is a summary of such investments (in thousands):
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Deferred Compensation Plan | 9 Months Ended |
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Sep. 30, 2011 | |
Deferred Compensation Plan [Abstract] | |
Deferred Compensation Plan |
11. Deferred Compensation Plan
On September 2, 2011, the Board of Directors approved the Spectrum Pharmaceuticals, Inc.
Deferred Compensation Plan (the “Plan”). The Plan is intended to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended. The Plan will be administered by
the Compensation Committee of the board of directors, or a designee or designees of the
Compensation Committee. The Plan is intended to be an unfunded plan which is maintained primarily
to provide deferred compensation benefits for a select group of our employees including management,
as selected by the Plan administrator (the “Participants”). Under the Plan, we will provide the
Participants with the opportunity to make annual elections to defer up to a specified amount or
percentage of their eligible cash compensation, as established by the Plan administrator, and we
have the option to make discretionary contributions. At September 30, 2011, deferrals and contributions totaling
$95,236 are included in other accrued obligations in the accompanying condensed consolidated
balance sheet.
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