Achillion Pharmaceuticals Inc. Reports Operating Results (10-Q)
ACHILLION PHARMACEUTICALS INC. is an innovative pharmaceutical company dedicated to bringing important new treatments to patients with infectious disease. The company's proven discovery and development teams have advanced multiple product candidates with novel mechanisms of action. Achillion is focused on solutions for the most challenging problems in infectious disease -- HIV hepatitis and resistant bacterial infections. Achillion sees significant competitive advantages in developing anti-infective drugs compared to developing drugs in other therapeutic areas. The emergence of drug resistance seen with current antiviral and antibacterial therapies creates a continuing need for new drugs providing a large and growing potential business opportunity. In addition development cycle times tend to be somewhat shorter in infectious disease than other therapeutic areas and early drug development results tend to be more predictive of longer term results. Achillion Pharmaceuticals Inc. has a market cap of $54.2 million; its shares were traded at around $2.05 with and P/S ratio of 13.4. Highlight of Business Operations: We have devoted and are continuing to devote substantially all of our efforts toward product research and development. We have incurred losses of $173 million from inception through March 31, 2009 and had an accumulated deficit of $187 million through March 31, 2009. Our net losses were $6.7 million and $6.0 million for the three months ended March 31, 2009 and 2008, respectively. We have funded our operations primarily through:
To date, we have not generated revenue from the sale of any drugs. The majority of our revenue recognized to date has been derived from our collaboration with Gilead to develop compounds for use in treating chronic hepatitis C. During the three months ended March 31, 2009 and 2008 we recognized $(293,000) and $627,000, respectively, under this collaboration agreement.
Upon initiating our collaboration with Gilead, we received a payment of $10.0 million, which included an equity investment by Gilead determined to be worth approximately $2.0 million. The remaining $8.0 million is being accounted for as a nonrefundable up-front fee recognized under the proportionate performance model. Revenue under the proportionate performance model is recognized as our effort under the collaboration is incurred. Payments made by us to Gilead in connection with this collaboration are being recognized as a reduction of revenue. When our performance obligation is complete, we will recognize milestone payments, if any, when the corresponding milestone is achieved. We will recognize royalty payments, if any, upon product sales.
We estimate that the costs associated with early clinical development of ACH-1625, our HCV protease inhibitor, will be approximately $3.0 million, exclusive of internal personnel costs. We are currently assessing our strategic and development plans for ACH-702 and considering whether to undertake such development independently or with a collaborative partner. We currently estimate that the clinical trial costs for two phase III clinical trials of elvucitabine in different HIV populations will be approximately $50.0 million, exclusive of the internal personnel costs associated with conducting these trials; however, we currently do not plan to undertake these two Phase III trials for elvucitabine unless or until we enter into a collaboration agreement.
Revenue. Revenue was $(293,000) and $627,000 for the three months ended March 31, 2009 and 2008, respectively. The decrease in revenue in 2009 is substantially due to the fact that there was no recognition of revenue in the current quarter related to the non-refundable upfront fee, pre proof-of-concept milestone and FTE reimbursement under the collaboration arrangement with Gilead coupled with net payments to Gilead of $293,000 for shared external costs. At a meeting of the joint research committee in May 2009, we and Gilead arrived at different opinions on the appropriate further progression of GS 9525, also known as ACH-1095, based on their respective scientific assessments of the therapeutic index for GS 9525 from various preclinical studies. Gilead indicated that it does not intend to initiate clinical development of GS 9525, while Achillion believes that the compound should be advanced. Gilead and Achillion are in discussions regarding a proposal for a restructuring of the existing license and collaboration agreement. Achillion has proposed that it continue to develop ACH-1095, while the parties would jointly continue to advance additional compounds also operating by the NS4A mechanism of action. There can be no assurance, however, that the parties will reach a definitive agreement regarding a revision to the license and collaboration agreement.
Research and Development Expenses. Research and development expenses were $4.8 million and $5.0 million for the three months ended March 31, 2009 and 2008, respectively. The decrease for the three months ended March 31, 2009 was primarily due to lower personnel and stock based compensation costs, offset by increased costs associated with ACH-1625 preclinical studies. We expect that research and development expenses during the remainder of 2009 will remain substantially unchanged. Research and development expenses for the three months ended March 31, 2009 and 2008 are comprised as follows:
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