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`10-Q 1 a13-13609_110q htm 10-Q
`Table of Contents
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 10-Q
`
`(cid:1) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934
`
`For the quarterly period ended June 30, 2013
`
`or
`
`(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934
`
`Commission File Number: 0-21699
`
`VIROPHARMA INCORPORATED
`(Exact Name of Registrant as Specified in its Charter)
`
`Delaware
`(State or other jurisdiction of
`incorporation or organization)
`
`23-2789550
`(I.R.S. Employer
`Identification No.)
`
`730 Stockton Drive
`Exton, Pennsylvania 19341
`(Address of Principal Executive Offices and Zip Code)
`
`610-458-7300
`(Registrant’s Telephone Number, Including Area Code)
`
`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 (cid:1) No (cid:2)
`
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
`any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
`(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
`to submit and post such files). Yes (cid:1) No (cid:2)
`
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`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
`or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated
`filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
`
`Large Accelerated Filer (cid:1)
`
`Accelerated Filer (cid:2)
`
`Non-accelerated Filer (cid:2) Smaller Reporting Company (cid:2)
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
`Yes (cid:2) No (cid:1)
`
`Number of shares outstanding of the issuer’s Common Stock, par value $.002 per share, as of July 22, 2013:
`65,524,229 shares.
`
`Table of Contents
`
`VIROPHARMA INCORPORATED
`INDEX
`
`PART I FINANCIAL INFORMATION
`
`Item 1.
`
`Financial Statements
`Consolidated Balance Sheets (unaudited) at June 30, 2013 and December 31, 2012
`Consolidated Statements of Operations (unaudited) for the three and six months ended June 30,
`2013 and 2012
`Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six
`months ended June 30, 2013 and 2012
`Consolidated Statement of Stockholders’ Equity (unaudited) for the six months ended June 30,
`2013
`Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2013 and
`2012
`Notes to the Consolidated Financial Statements (unaudited)
`Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Quantitative and Qualitative Disclosures About Market Risk
`Item 3.
`Controls and Procedures
`Item 4.
`
`PART II OTHER INFORMATION
`
`Legal Proceedings
`Item 1.
`Item 1A. Risk Factors
`Item 6.
`Exhibits
`
`SIGNATURES
`
`Page
`
`4
`
`5
`
`6
`
`7
`
`8
`9
`32
`55
`55
`
`57
`58
`66
`
`67
`
`ViroPharma,” “ViroPharma” plus the design, “Cinryze”, CinryzeSolutions and”Vancocin” are trademarks and
`service marks of ViroPharma or its licensors. We have obtained trademark registration in the United States for the
`marks in connection with certain products and services. All other brand names or trademarks appearing in this
`Quarterly Report on Form 10-Q are the property of others.
`
`Unless the context requires otherwise, references in this report to “we,” “our,” “us,” “Company” and
`“ViroPharma” refer to ViroPharma Incorporated and its subsidiaries.
`
`FORWARD-LOOKING STATEMENTS
`
`Statements contained or incorporated by reference in this document contain information that includes or is based
`on “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the
`Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These
`statements, including expected future revenue growth drivers; clinical development timelines expected future cost
`estimates; expected manufacturing capacities; expected continued patient growth; potential to identify a partner for
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`2
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`Table of Contents
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`VP20621; and, expected tax rates and expected sources and uses of liquidity, are subject to risks and uncertainties.
`Forward-looking statements include the information concerning our possible or assumed results of operations. We
`have tried, whenever possible, to identify such statements by words such as “believes,” “expects,” “anticipates,”
`“intends,” “estimates,” “plan,” “projected,” “forecast,” “will,” “may” or similar expressions. We have based these
`forward-looking statements on our current expectations and projections about the growth of our business, our
`financial performance and the development of our industry. Because these statements reflect our current views
`concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that
`many factors, as more fully described in Item 1A under the caption “Risk Factors” in this document, supplement, and
`as otherwise enumerated herein, could affect our future financial results and could cause our actual results to differ
`materially from those expressed in forward-looking statements contained or incorporated by reference in this
`document.
`
`We do not undertake any obligation to update our forward-looking statements after the date of this document for
`any reason, even if new information becomes available or other events occur in the future. You are advised to consult
`any further disclosures we make on related subjects in our reports filed with the Securities and Exchange Commission
`(SEC). Also note that, in Item 1A, on this Form 10-Q, our Form 10-Q for the fiscal quarter ended March 31, 2013 and
`our Form 10-K for the fiscal year ended December 31, 2012, we provide a cautionary discussion of the risks,
`uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in
`the aggregate, we think could cause our actual results to differ materially from expected and historical results. We
`note these factors for investors as permitted by Section 27A of the Securities Act and Section 21E of the Exchange
`Act. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not
`consider this to be a complete discussion of all potential risks or uncertainties.
`
`Table of Contents
`
`3
`
`ViroPharma Incorporated
`Consolidated Balance Sheets
`(unaudited)
`
`(in thousands, except share and per share data)
`Assets
`Current assets:
`Cash and cash equivalents
`Short-term investments
`Accounts receivable
`Inventory
`Prepaid expenses and other current assets
`Prepaid income taxes
`Deferred income taxes
`Total current assets
`Intangible assets, net
`Property, equipment and building improvements, net
`Goodwill
`Debt issue costs, net
`Deferred income taxes
`Other assets
`Total assets
`
`Liabilities and Stockholders’ Equity
`Current liabilities:
`Accounts payable
`Contingent consideration
`Accrued expenses and other current liabilities
`
`June 30,
`2013
`
`December 31,
`2012
`
`$
`
`$
`
`$
`
`$
`
`$
`
`$
`
`191,398
`67,335
`55,949
`87,834
`28,305
`19,309
`18,397
`468,527
`494,392
`12,289
`96,264
`2,082
`19,815
`19,737
`1,113,106
`
`16,412
`—
`72,941
`
`175,518
`71,338
`74,396
`64,384
`25,361
`29,097
`13,324
`453,418
`617,539
`10,848
`96,759
`2,551
`17,988
`20,849
`1,219,952
`
`21,254
`8,367
`83,503
`
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`Income taxes payable
`Total current liabilities
`Other non-current liabilities
`Financing obligation
`Contingent consideration
`Deferred tax liability, net
`Long-term debt
`Total liabilities
`
`Stockholders’ equity:
`Preferred stock, par value $0.001 per share. 5,000,000 shares authorized; Series A
`convertible participating preferred stock; no shares issued and outstanding
`Common stock, par value $0.002 per share. 175,000,000 shares authorized;
`outstanding 65,457,373 shares at June 30, 2013 and 65,113,880 shares at
`December 31, 2012
`Treasury shares, at cost. 16,042,202 shares at June 30, 2013 and 16,042,202 shares
`at December 31, 2012
`Additional paid-in capital
`Accumulated other comprehensive loss
`Retained earnings
`Total stockholders’ equity
`Total liabilities and stockholders’ equity
`
`Page 4 of 64
`
`410
`89,763
`35
`1,929
`25,346
`120,050
`166,205
`403,328
`
`—
`
`163
`
`904
`114,028
`1,898
`—
`17,710
`167,484
`161,793
`462,913
`
`—
`
`163
`
`(350,000)
`806,682
`(3,801)
`256,734
`709,778
`1,113,106
`
`$
`
`(350,000)
`789,719
`(2,975)
`320,132
`757,039
`1,219,952
`
`$
`
`See accompanying notes to unaudited consolidated financial statements.
`
`4
`
`Table of Contents
`
`ViroPharma Incorporated
`Consolidated Statements of Operations
`(unaudited)
`
`(in thousands, except per share data)
`Revenues:
`Net product sales
`
`Costs and Expenses:
`Cost of sales (excluding amortization of product
`rights)
`Research and development
`Selling, general and administrative
`Intangible amortization
`Impairment loss
`Other operating expenses
`Total costs and expenses
`Operating income (loss)
`
`Other Income (Expense):
`Interest income
`Interest expense
`Other expense, net
`Income (loss) before income tax expense
`(benefit)
`
`Income tax expense (benefit)
`Net income (loss)
`
`Net income (loss) per share:
`
`Three Months Ended
`June 30,
`
`Six Months Ended
`June 30,
`
`2013
`
`2012
`
`2013
`
`2012
`
`$
`
`103,711
`
`$
`
`94,639
`
`$
`
`210,860
`
`$
`
`230,439
`
`28,158
`17,165
`46,235
`7,683
`—
`684
`99,925
`3,786
`
`153
`(3,681)
`(493)
`
`28,089
`16,621
`40,883
`8,787
`—
`858
`95,238
`(599)
`
`142
`(3,518)
`(4,783)
`
`58,017
`34,361
`88,958
`16,582
`104,245
`2,767
`304,930
`(94,070)
`
`319
`(7,290)
`(4,648)
`
`60,167
`32,020
`79,046
`17,614
`—
`2,054
`190,901
`39,538
`
`278
`(6,965)
`(3,548)
`
`(235)
`
`(8,758)
`
`(105,689)
`
`29,303
`
`(833)
`598
`
`$
`
`(2,928)
`(5,830) $
`
`(42,291)
`(63,398) $
`
`15,142
`14,161
`
`$
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`Basic
`Diluted
`
`$
`$
`
`0.01
`0.01
`
`$
`$
`
`(0.08) $
`(0.08) $
`
`(0.97) $
`(0.97) $
`
`0.20
`0.19
`
`Shares used in computing net income (loss) per
`share:
`Basic
`Diluted
`
`65,355
`68,917
`
`69,390
`69,390
`
`65,281
`65,281
`
`69,951
`73,028
`
`See accompanying notes to unaudited consolidated financial statements.
`
`5
`
`Table of Contents
`
`ViroPharma Incorporated
`Consolidated Statements of Comprehensive Income (Loss)
`(unaudited)
`
`(in thousands)
`Net income (loss)
`Other comprehensive income (loss), before tax:
`Foreign currency translations adjustments
`Unrealized gain (loss) on available for sale
`securities
`Unrealized holding gain (loss) arising during
`period
`Less: Reclassification adjustment for gains
`included in net income
`Income tax benefit
`Unrealized gain (loss) on available for sale
`securities, net of tax
`Other comprehensive income (loss), net of tax
`
`Three Months Ended
`June 30,
`
`Six Months Ended
`June 30,
`
`2013
`
`$
`
`598
`
`$
`
`2012
`(5,830) $
`
`2013
`(63,398) $
`
`2012
`14,161
`
`(278)
`
`(639)
`
`(805)
`
`364
`
`(44)
`
`—
`(16)
`
`(28)
`(306)
`
`(1)
`
`—
`—
`
`(1)
`(640)
`
`(32)
`
`—
`(11)
`
`(21)
`(826)
`
`1
`
`—
`—
`
`1
`365
`
`Comprehensive income (loss)
`
`$
`
`292
`
`$
`
`(6,470) $
`
`(64,224) $
`
`14,526
`
`See accompanying notes to unaudited consolidated financial statements.
`
`6
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`Table of Contents
`
`ViroPharma Incorporated
`Consolidated Statements of Stockholders’ Equity
`(unaudited)
`
`(in thousands)
`Balance, December 31,
`2012
`Exercise of common
`stock options
`Conversion of senior
`convertible notes
`Restricted stock vested
`Employee stock
`purchase plan
`
`Preferred Stock Common Stock Treasury Shares
`Number
`Number
`Number
`of
`of
`of
`shares Amount shares Amount shares Amount
`
`Accumulated
`Total
`other
`Additional
`paid-in comprehensive Retained stockholders’
`capital
`loss
`Earnings
`equity
`
`—$ — 65,114$ 163 16,042$(350,000)$789,719$
`
`(2,975)$320,132 $ 757,039
`
`— — 281 — —
`
`— 3,300
`
`1 — —
`— —
`— — 34 — —
`
`—
`—
`
`11
`—
`
`— — 27 — —
`— — — — —
`
`558
`—
`— 12,286
`
`—
`
`—
`—
`
`—
`—
`
`—
`
`—
`—
`
`—
`—
`
`3,300
`
`11
`—
`
`558
`12,286
`
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`Share-based
`compensation
`Other comprehensive
`loss
`Stock option tax
`benefits
`Net loss
`Balance, June 30, 2013
`
`— — — — —
`
`—
`
`—
`
`(826)
`
`—
`
`(826)
`
`808
`—
`— — — — —
`—
`—
`— — — — —
`—$ — 65,457$ 163 16,042$(350,000)$806,682$
`
`808
`—
`—
`(63,398)
`— (63,398)
`(3,801)$256,734 $ 709,778
`
`See accompanying notes to unaudited consolidated financial statements.
`
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`Table of Contents
`
`ViroPharma Incorporated
`Consolidated Statements of Cash Flows
`(unaudited)
`
`(in thousands)
`Cash flows from operating activities:
`Net income (loss)
`Adjustments to reconcile net income (loss) to net cash provided by operating
`activities:
`Non-cash impairment charge
`Non-cash share-based compensation expense
`Non-cash interest expense
`Non-cash charge for contingent consideration
`Non-cash charge for option amortization
`Non-cash investment premium amortization
`Deferred tax provision
`Depreciation and amortization expense
`Other, net
`Changes in assets and liabilities:
`Accounts receivable
`Inventory
`Prepaid expenses and other current assets
`Prepaid income taxes and income taxes payable
`Other assets
`Accounts payable
`Accrued expenses and other current liabilities
`Other non-current liabilities
`Net cash provided by operating activities
`
`Cash flows from investing activities:
`Purchase of property, equipment and building improvements
`Purchase of short-term investments
`Maturities of short-term investments
`Net cash provided by investing activities
`
`Cash flows from financing activities:
`Payment for treasury shares acquired
`Net proceeds from issuance of common stock
`Excess tax benefits from share-based payment arrangements
`Net cash provided by (used in) financing activities
`
`Effect of exchange rate changes on cash
`
`Net increase in cash and cash equivalents
`
`Six Months Ended
`June 30,
`
`2013
`
`2012
`
`$
`
`(63,398) $
`
`14,161
`
`104,245
`12,286
`4,890
`42
`2,169
`501
`(54,176)
`18,211
`2,093
`
`18,230
`(24,098)
`(3,266)
`9,325
`(1,223)
`(4,582)
`(11,831)
`(160)
`9,258
`
`(1,189)
`(38,180)
`41,650
`2,281
`
`—
`3,858
`808
`4,666
`
`—
`10,360
`4,557
`1,846
`1,656
`1,072
`(11,357)
`19,040
`2,481
`
`23,635
`18,117
`(9,272)
`(2,539)
`(7,484)
`(4,950)
`13,779
`(224)
`74,878
`
`(585)
`(77,408)
`90,103
`12,110
`
`(71,523)
`5,947
`4,832
`(60,744)
`
`(325)
`
`(383)
`
`15,880
`
`25,861
`
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`Cash and cash equivalents at beginning of period
`Cash and cash equivalents at end of period
`
`175,518
`191,398
`
`$
`
`331,352
`357,213
`
`$
`
`See accompanying notes to unaudited consolidated financial statements.
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`Table of Contents
`
`ViroPharma Incorporated
`Notes to the Unaudited Consolidated Financial Statements
`
`Note 1. Organization and Business Activities
`
`ViroPharma Incorporated is an international biotechnology company dedicated to the development and
`commercialization of novel solutions for physician specialists to address unmet medical needs of patients living with
`serious diseases that have few if any clinical therapeutic options, including therapeutics for rare and orphan diseases.
`We intend to grow through sales of our marketed products, through continued development of our product pipeline,
`expansion of sales into additional territories outside the United States, through potential acquisition or licensing of
`products and product candidates and the acquisition of companies. We expect future growth to be driven by sales of
`Cinryze for hereditary angioedema (HAE), both domestically and internationally, sales of Plenadren for treatment of
`adrenal insufficiency (AI) and Buccolam in Europe for treatment of paediatric seizures, and by our development
`programs, including C1 esterase inhibitor [human], maribavir for cytomegalovirus (CMV) infection and VP20629 for
`the treatment of Friedreich’s Ataxia (FA).
`
`We market and sell Cinryze in the United States for routine prophylaxis against angioedema attacks in adolescent and
`adult patients with HAE. Cinryze is a C1 esterase inhibitor therapy for routine prophylaxis against HAE, also known
`as C1 inhibitor (C1-INH) deficiency, a rare, severely debilitating, life-threatening genetic disorder. We acquired rights
`to Cinryze for the United States in October 2008 and in January 2010, we acquired expanded rights to commercialize
`Cinryze and future C1-INH derived products in certain European countries and other territories throughout the world
`as well as rights to develop future C1-INH derived products for additional indications. In June 2011, the European
`Commission (EC) granted us Centralized Marketing Authorization for Cinryze in adults and adolescents with HAE
`for routine prevention, pre-procedure prevention and acute treatment of angioedema attacks. The approval also
`includes a self administration option for appropriately trained patients. We have begun to commercialize Cinryze in
`Europe and continue to evaluate our commercialization opportunities in countries where we have distribution rights.
`
`On August 6, 2012, FDA approved our supplement to the Cinryze Biologics License Application (BLA) for industrial
`scale manufacturing which increases our manufacturing capacity of Cinryze.
`
`We acquired Buccolam® (Oromucosal Solution, Midazolam [as hydrochloride]) in May 2010. In September 2011, the
`EC granted a Centralized Pediatric Use Marketing Authorization (PUMA) for Buccolam, for treatment of prolonged,
`acute, convulsive seizures in infants, toddlers, children and adolescents, from 3 months to less than 18 years of age.
`We have begun to commercialize Buccolam in Europe.
`
`On November 15, 2011, we acquired rights to Plenadren® (hydrocortisone, modified release tablet) for treatment of
`AI. The acquisition of Plenadren further expands our orphan disease commercial product portfolio. On November 3,
`2011, the EC granted European Marketing Authorization for Plenadren, an orphan drug for treatment of AI in adults,
`which will bring these patients their first pharmaceutical innovation in over 50 years. We are in the process of
`launching Plenadren in the various countries in Europe and a named patient program is available to patients in
`countries in which we have not launched Plenadren commercially. We are currently conducting an open label trial
`with Plenadren in Sweden and have initiated a registry study as a condition of approval in Europe.
`
`In April 2013, the Food and Drug Administration FDA) provided us responses to questions related to the regulatory
`and development path for Plenadren. The FDA has indicated the data filed in the European Union (EU) and approved
`by the European Medicines Agency (EMA) related to use of Plenadren for treatment of adrenal insufficiency in adults
`are not sufficient for assessment of benefit/risk in a marketing authorization submission in the United States and that
`additional clinical data would be required. We are currently reviewing the FDA feedback and will seek to meet with
`the FDA to discuss potential Phase 3 study design. Our decision whether to pursue regulatory approval for Plenadren
`in the United States will be dependent upon, among other things, additional feedback from the FDA regarding
`potential Phase 3 study design and the availability of orphan drug exclusivity. We also are currently exploring
`commercialization opportunities in additional geographies.
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`We also sell branded and authorized generic Vancocin HCl capsules, the oral capsule formulation of vancomycin
`hydrochloride, in the U.S. and its territories. Vancocin is indicated for the treatment of C. difficile-associated diarrhea
`(CDAD). Vancocin capsules are also used for the treatment of enterocolitis caused by Staphylococcus aureus,
`including methicillin-resistant strains.
`
`On April 9, 2012, the FDA denied the citizen petition we filed on March 17, 2006 related to the FDA’s proposed in
`vitro method for determining bioequivalence of generic versions of Vancocin (vancomycin hydrochloride, USP)
`capsules. The FDA also informed us
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`Table of Contents
`
`ViroPharma Incorporated
`Notes to the Unaudited Consolidated Financial Statements
`
`in the same correspondence that the recent supplemental new drug application (sNDA) for Vancocin which was
`approved on December 14, 2011 would not qualify for three additional years of exclusivity, as the agency interpreted
`Section 505(v) of the FD&C Act to require a showing of a significant new use (such as a new indication) for an old
`antibiotic such as Vancocin in order for such old antibiotic to be eligible for a grant of exclusivity. FDA also
`indicated that it approved three abbreviated new drug applications (ANDAs) for generic vancomycin capsules and the
`companies holding these ANDA approvals indicated that they began shipping generic vancomycin hydrochloride,
`USP. In June 2012, the FDA approved a fourth ANDA for generic vancomycin capsules.
`
`®
`We granted a third party a license under our NDA for Vancocin (vancomycin hydrochloride capsules, USP) to
`distribute and sell vancomycin hydrochloride capsules as an authorized generic product. We are also obligated to pay
`Genzyme royalties of 10 percent, 10 percent and 16 percent of our net sales of Vancocin for the three year period
`following the approval of the sNDA as well as a lower royalty on sales of our authorized generic version of Vancocin
`in connection with our purchase of exclusive rights to two studies of Vancocin.
`
`Currently our product development portfolio is primarily focused on the following programs: C1 esterase inhibitor
`[human], maribavir for cytomegalovirus (CMV) infection and VP20629 (treatment of Friedreich’s Ataxia).
`
`We are currently undertaking studies on the viability of subcutaneous administration of Cinryze. In May 2011,
`Halozyme Therapeutics Inc. (Halozyme) granted us an exclusive worldwide license to use Halozyme’s proprietary
`Enhanze™ technology, a proprietary drug delivery platform using Halozyme’s recombinant human hyaluronidase
`enzyme (rHuPH20) technology, in combination with a C1 esterase inhibitor which we intend to apply initially to
`develop a subcutaneous formulation of Cinryze for routine prophylaxis against attacks of HAE. In the first quarter of
`2012, we completed a Phase 2 study to evaluate the safety, and pharmacokinetics and pharmacodynamics of
`subcutaneous administration of Cinryze in combination with rHuPH20 and announced the presentation of positive
`data. In December 2012, we initiated a Phase 2b double blind, multicenter, dose ranging study to evaluate the safety
`and efficacy of subcutaneous administration of Cinryze® (C1 esterase inhibitor [human]) in combination with
`rHuPH20 in adolescents and adults with HAE for prevention of HAE attacks. On August 1, 2013, we announced that
`after discussion with representatives of the Center for Biologics Evaluation and Research (CBER) division of the U.S.
`Food and Drug Administration, we are going to discontinue our Phase 2 study. The discontinuation of the study is a
`precaution related to the emergence of anti-rHuPH20 non-neutralizing antibodies in study patients. We are
`investigating an alternative optimized, low volume standalone formulation of C1esterase inhibitor for subcutaneous
`administration and expect to begin a Phase 3 subcutaneous registration study mid 2014. We plan to evaluate potential
`future plans involving rHuPH20, however, there can be no assurance that we will be able to conduct additional studies
`with the combination of Cinryze and rHuPH2O. We are also investigating recombinant forms of C1-INH.
`
`We are investigating potential new uses for our C1 esterase inhibitor product with a goal of pursuing additional
`indications in patient populations with other C1 INH mediated diseases. To that end, we are supporting investigator-
`initiated studies (IISs) evaluating C1 INH as a treatment for patients with Neuromyelitis Optica (NMO) and
`Autoimmune Hemolytic Anemia (AIHA); both of these studies were initiated in 2012. We’ve also completed
`enrollment into a clinical trial in Antibody-Mediated Rejection (AMR) post renal transplantation with data expected in
`the fourth quarter of 2013 and are also evaluating the potential effect of C1-INH in Refractory Paroxysmal Nocturnal
`Hemoglobinuria (PNH). ViroPharma plans to continue to conduct both clinical and non-clinical studies to evaluate
`additional therapeutic uses for its C1 INH product in the future.
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`We are currently enrolling patients into a Phase 2 program to evaluate maribavir for the treatment of CMV infections
`in transplant recipients. The program consists of two independent Phase 2 clinical studies that include subjects who
`have asymptomatic CMV in one trial, and those who have failed therapy with other anti-CMV agents in another trial.
`Interim data from these studies was presented in June of 2013. We expect to complete enrollment into both studies in
`mid 2014. CMV is a common virus, but in immune compromised individuals, including transplant recipients, it can
`lead to serious illness or death. The U.S. Food and Drug Administration (FDA) and the European Commission have
`granted orphan drug designation to maribavir for treatment of clinically significant cytomegalovirus viremia and
`disease in at-risk patients, and the prevention and treatment of cytomegalovirus disease in patients with impaired cell
`mediated immunity, respectively.
`
`We have also been developing VP20621 for the prevention of C. difficile-associated diarrhea (CDAD). In May 2011,
`we initiated a Phase 2 dose-ranging clinical study to evaluate the safety, tolerability, and efficacy of VP20621 for
`prevention of recurrence of CDAD in adults previously treated for CDAD. We completed enrollment of patients in
`December 2012 and disclosed the results of this study in April 2013. We will complete the evaluation of these Phase
`2 data however, we are seeking a partner to complete the development and commercialization of the asset as it is not
`considered core to our strategy. Our decision whether to pursue further development of
`
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`Table of Contents
`
`ViroPharma Incorporated
`Notes to the Unaudited Consolidated Financial Statements
`
`VP20621 will be dependent upon, among other things, our ability to find a partner, our final assessment of the results
`of the Phase 2 data set and the cost of future clinical studies.
`
`In September 2011, we entered in to a licensing agreement for the worldwide rights to develop VP20629, or indole-3-
`propionic acid for the treatment of FA, a rare, hereditary, progressive neurodegenerative disease. We initiated a single
`and multiple oral dose safety and tolerability study in patients in 2013. The company anticipates completion of
`enrollment in the first half of 2014.
`
`In December 2011, we entered into an exclusive development and option agreement with Meritage Pharma, Inc.
`(Meritage) , a private company based in San Diego, CA focused on developing oral budesonide suspension (OBS) as
`a treatment for eosinophilic esophagitis (EoE). EoE is a newly recognized chronic disease that is increasingly being
`diagnosed in children and adults. It is characterized by inflammation and accumulation of a specific type of immune
`cell, called an eosinophil, in the esophagus. EoE patients may have persistent or relapsing symptoms, which include
`dysphagia (difficulty in swallowing), nausea, stomach pain, chest pain, heartburn, loss of weight and food impaction.
`
`We intend to continue to evaluate in-licensing or other opportunities to acquire products in development, or those that
`are currently on the market. We plan to seek products that treat serious or life threatening illnesses with a high unmet
`medical need, require limited commercial infrastructure to market, and which we believe will provide both revenue
`and earnings growth over time.
`
`Basis of Presentation
`
`The consolidated financial information at June 30, 2013 and for the three and six months ended June 30, 2013 and
`2012, is unaudited but includes all adjustments (consisting only of normal recurring adjustments), which in the
`opinion of management, are necessary to state fairly the consolidated financial information set forth therein in
`accordance with accounting principles generally accepted in the United States of America. The interim results are not
`necessarily indicative of results to be expected for the full fiscal year. These unaudited consolidated financial
`statements should be read in conjunction with the audited consolidated financial statements for the year ended
`December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange
`Commission.
`
`Immaterial Correction
`
`As part of our review of our operating results during the fourth quarter of 2012, we noted that our reported cost of
`sales for the second quarter of 2012 was understated by approximately $3.4 million. We assessed the materiality of
`this error for the second quarter, the six months ended June 30, 2012 and the nine months ended September 30, 2012
`in accordance with the guidance in SAB 99 (SAB Topic 1.M) Materiality, and determined that the error was
`immaterial to the three and six months ended June 30, 2012 and the nine months ended September 30, 2012. We have
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`revised the amounts previously reported for the three and six months ended June 30, 2012. We will correct our results
`for the nine months ended September 30, 2012 when that period is presented in our subsequent periodic filings. The
`effect of reflecting the correction of this immaterial error in the second quarter of 2012 is shown in the table below.
`
`11
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`Table of Contents
`
`ViroPharma Incorporated
`Notes to the Unaudited Consolidated Financial Statements
`
`Three months ended June 30, 2012
`As Reported
`Adjustment
`As Revised
`
`Net product sales
`Cost of sales (excluding amortization of product
`rights)
`Income tax benefit
`Net loss
`Basic net loss per share
`Diluted net loss per share
`
`$
`
`94,639
`
`$
`
`— $
`
`94,639
`
`24,721
`(1,187)
`(4,203)
`(0.06) $
`(0.06) $
`
`3,368
`(1,741)
`(1,627)
`(0.02) $
`(0.02) $
`
`28,089
`(2,928)
`(5,830)
`(0.08)
`(0.08)
`
`$
`$
`
`Six months ended June 30, 2012
`As Reported
`Adjustment
`As Revised
`
`Net product sales
`Cost of sales (excluding amortization of product
`rights)
`Income tax expense
`Net income
`Basic net income per share
`Diluted net income per share
`
`$
`
`230,439
`
`$
`
`— $
`
`230,439
`
`56,799
`16,883
`15,788
`0.23
`0.22
`
`$
`$
`
`$
`$
`
`3,368
`(1,741)
`(1,627)
`(0.02) $
`(0.02) $
`
`60,167
`15,142
`14,161
`0.20
`0.19
`
`Subsequent Events
`
`We have evaluated all subsequent events through the date the consolidated financial statements were issued and have
`not identified any such events.
`
`Use of Estimates
`
`The preparation of the Company’s consolidated financial statements in conformity with accounting principles
`generally accepted in the United States of America requires management to make estimates and assumptions that
`affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could
`differ from those estimates.
`
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`
`Table of Contents
`
`Adoption of Standards
`
`ViroPharma Incorporated
`Notes to the Unaudited Consolidated Financial Statements
`
`In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-
`05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or
`Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ( Topic 830, EITF Issue 11-A),
`which specifies that a cumulative translation adjustment (CTA) should be released into earnings when an entity ceases
`to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the
`sale or transfer results in the complete or substantially complete liquidation of the foreign entity. When an entity sells
`either a part or all of its investment in a consolidated f