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IDIX
IDENIX PHARMACEUTICALS INC
false
Accelerated Filer
2014
10-Q
2014-06-30
0001093649
--12-31
Q2
<div>
<p style="margin-top:0pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The following potential common shares were excluded from the
calculation of basic and diluted net loss per common share because
their effect was anti-dilutive:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:8pt" align="center">
<tr>
<td width="79%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three and Six Months Ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,188</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,671</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Contingently issuable shares to related party</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,202</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">511</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top"></td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10,390</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,182</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
1907775
0.0157
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b>Revenue Recognition</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Revenue is recognized in accordance with SEC Staff Accounting
Bulletin No. 101, <i>Revenue Recognition in Financial
Statements</i>, as amended by SEC Staff Accounting Bulletin
No. 104, <i>Revenue Recognition</i>, and for revenue
arrangements entered into after June 30, 2003, in accordance
with the revenue recognition guidance of the Financial Accounting
Standards Board, or FASB. For multiple-element revenue arrangements
entered into or materially modified after January 1, 2011, we
recognize revenue under ASC Topic 605.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
We record revenue provided that there is persuasive evidence that
an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable and collectability is
reasonably assured.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Collaboration Revenue — Related Party</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In July 2012, we executed a termination and revised relationship
agreement, which we refer to as the termination agreement, with
Novartis Pharma AG, or Novartis, which granted Novartis a
non-exclusive license to conduct clinical trials evaluating a
combination of any of our and Novartis’ HCV drug candidates
after the HCV drug candidates have completed dose-ranging studies,
subject to meeting certain criteria. The details of the termination
agreement are described more fully in Note 6. We determined that
the best estimate of selling price, or BESP, of Novartis’
non-exclusive license at July 31, 2012 was $5.0 million which
is recognized as collaboration revenue from related party on a
straight-line basis over the term of the non-exclusive license, or
seven years. In establishing BESP for the non-exclusive license, we
used a discounted cash flow model and considered the likelihood of
our and Novartis’ drugs being commercialized, the development
and commercialization timeline, discount rate, and probable
treatment combination and associated peak sales figures which
generate royalty amounts. As of June 30, 2014 and
December 31, 2013, the remaining balances of $3.6 million and
$4.0 million, respectively, were included in deferred revenue from
related party in our condensed consolidated balance sheets.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Also under the collaboration, Novartis is entitled to stock
subscription rights. If we issue any shares of capital stock, other
than in limited situations, Novartis has the right to purchase such
number of shares required to maintain its percentage ownership of
our voting stock for either the same consideration per share paid
by others acquiring our stock or, in specified situations, for a
10% premium to the consideration per share paid by others acquiring
our stock. Novartis has the right to purchase shares of our common
stock when stock options are exercised under certain plans.
Commencing in August 2012, the fair value of our common stock that
would be issuable to Novartis is recorded as an adjustment to the
revenue recognized from the collaboration with Novartis and
additional paid-in capital. The fair value of this stock
subscription right is estimated on a quarterly basis using a
trinomial lattice valuation model which includes inputs of our per
share common stock price, exercise prices of outstanding options,
expected term of our options and exercise rates as well as
assumptions regarding expected volatility and exercise multiples.
Our stock price as of the end of each fiscal quarter has a
significant impact on the fair value calculation. Typically, if the
stock price increases quarter over quarter, the fair value of
Novartis’ stock subscription right increases and this
increase in the fair value is recorded as a reduction to revenue in
the quarter with a corresponding increase to additional paid-in
capital. This may result in contra-revenue, or negative revenue,
being recognized in any given fiscal period. This stock
subscription right is described more fully in Note 6.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>6. COLLABORATION</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>Janssen Pharmaceuticals, Inc. Collaboration</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In January 2013, we entered into a non-exclusive collaboration
agreement with Janssen Pharmaceuticals, Inc., or Janssen, for the
clinical evaluation of all-oral direct acting antiviral, or DAA,
HCV combination therapies. The combination therapies involve
samatasvir, our once-daily pan-genotypic NS5A inhibitor,
simeprevir, a once-daily protease inhibitor jointly developed by
Janssen and Medivir AB, or Medivir, and TMC647055, a once-daily
non-nucleoside polymerase inhibitor, with low dose ritonavir, being
developed by Janssen.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under the terms of this collaboration agreement, we are conducting
the clinical trials. The collaboration includes two ongoing phase
II clinical trials, which we refer to as HELIX-1 and HELIX-2.
HELIX-1 is a 12-week phase II clinical trial evaluating samatasvir
and simeprevir plus ribavirin in treatment-naïve genotype 1b
or 4 HCV-infected patients. Interim data from HELIX-1 showed the
regimen was well-tolerated and that in patients receiving 50 mg of
samatasvir and 150 mg of simeprevir plus ribavirin, 85% had
undetectable virus levels at four weeks after completing therapy,
or SVR4. The 50 mg dose was advanced into the ongoing three-DAA
HELIX-2 clinical trial which was initiated in the fourth quarter of
2013. This 12-week phase II HELIX-2 clinical trial is evaluating
the three-DAA combination of samatasvir, simeprevir, and TMC647055
with low-dose ritonavir, with and without ribavirin, in genotype 1
HCV-infected patients who are either treatment-naïve or have
relapsed after treatment with interferon and ribavirin. We expect
to report rates of sustained virologic response, or SVR, data in
the second half of 2014.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under this collaboration agreement, the clinical trials are
conducted whereby Janssen provides us with clinical supply of
simeprevir and TMC647055 at no cost. Neither party will receive any
milestone or royalty payments from the other party under this
agreement. Both companies retain all rights to their respective
compounds under this agreement. The parties have no obligation to
conduct additional clinical trials beyond those described here.
Neither party has licensed any commercial rights to the other
party.</p>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px">
 </p>
<p style="margin-top:0pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
This collaboration agreement may be terminated by either party in
certain circumstances. Janssen may terminate the collaboration
agreement, in its sole discretion, by providing us with 30 days
written notice. If Janssen terminates the collaboration agreement
in such instance, it shall reimburse us for certain of our costs
associated with the collaboration.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
If either us or Janssen materially breaches the collaboration
agreement and does not cure such breach within a specified time
period, the non-breaching party may terminate the collaboration
agreement in its entirety. Either party may also terminate the
collaboration agreement, effective immediately, if the other party
files for bankruptcy, is dissolved or has a receiver appointed for
substantially all of its property. Either party may also terminate
the collaboration agreement to protect the safety, health or
welfare of subjects in the trials. We may terminate the
collaboration agreement prior to the commencement of certain
activities if Janssen’s research, development and license
agreement with Medivir is terminated.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>Novartis Collaboration</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In May 2003, we entered into the development and commercialization
agreement with Novartis related to the worldwide development and
commercialization of our drug candidates. In May 2003, we also
entered into the stockholders’ agreement with Novartis. In
July 2012, we and Novartis materially modified our collaboration by
executing the termination agreement and the second amended and
restated stockholders’ agreement. As of July 23, 2014,
Novartis owned approximately 22% of our outstanding common
stock.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Termination Agreement</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Pursuant to the termination agreement, we granted Novartis a
non-exclusive license to conduct clinical trials evaluating a
combination of any of our and Novartis’ HCV drug candidates
after the HCV drug candidates have completed dose-ranging studies,
subject to meeting certain criteria. Novartis’ ability to
initiate combination trials expires on the seven year anniversary
of the execution of the termination agreement, or July 2019,
although any combination study commenced prior to such expiration
date may continue after the expiration date. We determined the BESP
of the non-exclusive license at July 31, 2012 to be $5.0
million which is recognized as revenue on a straight-line basis
over the term of the non-exclusive license, or seven years. During
each of the three and six months ended June 30, 2014 and 2013,
we recognized $0.2 million and $0.4 million, respectively, of
collaboration revenue related to the non-exclusive license. As of
June 30, 2014 and December 31, 2013, we had a balance of
$3.6 million and $4.0 million, respectively, of deferred revenue
from related party in our condensed consolidated balance sheets.
Collaboration revenue was also impacted by Novartis’ stock
subscription rights described below.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
If Novartis conducts a dose-ranging study with respect to our HCV
drug candidates, we have agreed to supply Novartis with our HCV
drug candidates for use in such combination trials. We and Novartis
have agreed to use commercially reasonable efforts to, in good
faith, enter into a supply agreement and other relevant agreements
in connection with any such combination trial. Additionally, under
the termination agreement, following the receipt of certain data
related to a combination trial and upon Novartis’ request, we
and Novartis are obligated to, in good faith, use commercially
reasonable efforts to negotiate a future agreement for the
development, manufacture and commercialization of such combination
therapy for the treatment of HCV. Neither party is obligated to
negotiate for a period longer than 180 days.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under the termination agreement, Novartis’ option right to
license our current and future development-stage drug candidates in
any therapeutic area was terminated. In exchange, we agreed to pay
Novartis a royalty based on worldwide product sales of our HCV drug
products, unless such drug products are prescribed in combination
with Novartis’ HCV drug products. The royalty percentage will
vary based on our commercialized HCV drug product, but range from
the high single digits to the low double digit percentages.
Royalties are payable until the later to occur of: a) expiration of
the last-to-expire of specified patent rights in a country; or b)
ten years after the first commercial sale of a product in such
country, provided that if royalties are payable on a product after
the expiration of the patent rights in a country, each of the
respective royalty rates for such product in such country would be
reduced by one-half.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under the termination agreement, we no longer receive royalty or
milestone payments from Novartis based upon worldwide product sales
of telbivudine (Tyzeka®/Sebivo®) for the treatment of
hepatitis B virus, or HBV. Novartis is obligated to pay for our
contractual payments to Le Centre National de la Recherche
Scientifique, or CNRS, and the University of Alabama at Birmingham
Research Foundation, or UABRF, in connection with intellectual
property related to Tyzeka®/Sebivo®. We are otherwise
responsible for any payments to third-parties in connection with
intellectual property necessary to sell
Tyzeka®/Sebivo®.</p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px">
 </p>
<p style="margin-top:0pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">
<i>Termination or Breach by Either Party</i></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
If either we or Novartis materially breaches the termination
agreement and does not cure such breach within 30 days, the
non-breaching party may terminate this agreement in its entirety.
Either party may also terminate this agreement, effective
immediately, if the other party files for bankruptcy, is dissolved,
or has a receiver appointed for substantially all of its property.
Novartis may also terminate this agreement for convenience. If
Novartis terminates this agreement either because of a material
breach by us that has not been cured or because we have filed for
bankruptcy, Novartis may, at its election, retain the licenses
granted to it by us under the termination agreement to conduct
clinical trials evaluating a combination of any of our HCV drug
candidates and any of Novartis’ HCV drug candidates and we
would remain obligated to make royalty payments to Novartis based
on sales of our HCV drug products. If we terminate this agreement
either because of a material breach by Novartis that has not been
cured or because Novartis has filed for bankruptcy, or if Novartis
terminates this agreement for convenience, the licenses granted to
Novartis to conduct combination trials terminate and we would
remain obligated to make royalty payments to Novartis based on
sales of our HCV drug products.</p>
<p style="margin-top:18pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">
<i>Indemnification</i></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
We have agreed to indemnify Novartis and its affiliates against
losses suffered as a result of our development, manufacture and
commercialization of our HCV products. We have also agreed to
indemnify Novartis and its affiliates against losses suffered as a
result of any breach of representations and warranties in the
termination agreement, the development and commercialization
agreement and a stock purchase agreement entered into in 2003.
Under these agreements with Novartis, we made numerous
representations and warranties to Novartis regarding our drug
candidates for the treatment of HBV and HCV, including
representations regarding ownership of related inventions and
discoveries. In the event of a breach of any such representation or
warranty by us, Novartis has the right to seek indemnification from
us and, under certain circumstances, our stockholders who sold
shares to Novartis in 2003, which includes certain of our current
and former directors and officers, for damages suffered by Novartis
as a result of such breach. The amounts for which we and our
stockholders could be liable to Novartis could be substantial.</p>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b><i>Second Amended and Restated Stockholders’
Agreement</i></b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In May 2003, we entered into the stockholders’ agreement with
Novartis and in July 2012, we amended this agreement by executing
the second amended and restated stockholders’ agreement which
includes the terms as described below.</p>
<p style="margin-top:18pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">
<i>Novartis’ Registration Rights and Corporate Governance
Rights</i></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under the second amended and restated stockholders’
agreement, Novartis maintains its rights to cause us to register
for resale, under the Securities Act of 1933, as amended, shares
held by Novartis and/or its affiliates.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under the second amended and restated stockholders’
agreement, we have agreed to use our reasonable best efforts to
nominate for election one designee of Novartis for so long as
Novartis and its affiliates own at least 15% of our voting stock.
Novartis has the rights to appoint a non-voting observer to any
committee of our board of directors. Novartis has no other
corporate governance rights under the second amended and restated
stockholders’ agreement.</p>
<p style="margin-top:18pt; margin-bottom:0pt; margin-left:4%; font-size:10pt; font-family:Times New Roman">
<i>Novartis’ Stock Subscription Rights</i></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Under the second amended and restated stockholders’
agreement, if we issue any shares of capital stock, other than in
limited situations, Novartis has the right to purchase such number
of shares required to maintain its percentage ownership of our
voting stock for either the same consideration per share paid by
others acquiring our stock or, in specified situations, for a 10%
premium to the consideration per share paid by others acquiring our
stock.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Novartis has the right to purchase shares of our common stock when
stock options are exercised under certain stock option plans.
Commencing in August 2012, the fair value of our common stock that
would be issuable to Novartis pursuant to this right is recorded as
an adjustment to the revenue recognized from the collaboration with
Novartis and additional paid-in capital. The fair value of this
stock subscription right is estimated on a quarterly basis using a
trinomial lattice valuation model which includes inputs of our per
share common stock price, exercise prices of outstanding options,
expected term of our options and exercise rates as well as
assumptions regarding expected volatility and exercise multiples.
Our stock price as of the end of each fiscal quarter has a
significant impact on the fair value calculation. Typically, if the
stock price increases quarter over quarter, the fair value of
Novartis’ stock subscription right increases and this
increase in the fair value is recorded as a reduction to revenue in
the quarter with a corresponding increase to additional paid-in
capital. This may result in contra-revenue, or negative revenue,
being recognized in any given fiscal period.</p>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px">
 </p>
<p style="margin-top:0pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
For the three months ended June 30, 2014, the $26.2 million
impact of Novartis’ stock subscription rights increased
additional paid-in capital and reduced collaboration revenue. For
the six months ended June 30, 2014, the $29.4 million impact
of Novartis’ stock subscription rights increased additional
paid-in capital and reduced collaboration revenue.</p>
</div>
<div>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The following table summarizes option activity under the equity
incentive plans:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="72%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>Number of<br />
Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>Weighted<br />
Average Exercise<br />
Price per Share</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Options outstanding at December 31, 2013</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,430,965</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.67</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,907,775</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.15</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Cancelled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(219,685</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">11.77</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(930,564</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.96</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Options outstanding at June 30, 2014</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,188,491</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.61</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Options exercisable at June 30, 2014</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,912,218</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.39</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
</table>
</div>
0.813
7.15
-57082000
P5Y4M28D
<div>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Accrued expenses consisted of the following:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="77%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and development contract costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">8,765</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,832</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Payroll and benefits</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,053</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,888</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Professional fees</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,955</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">992</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued settlement payment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,050</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,052</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">843</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,539</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top"></td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">19,666</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,303</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>4. ACCRUED EXPENSES</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Accrued expenses consisted of the following:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="77%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and development contract costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">8,765</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,832</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Payroll and benefits</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,053</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,888</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Professional fees</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,955</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">992</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued settlement payment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,050</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,052</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">843</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,539</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top"></td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">19,666</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,303</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Other long-term liabilities consisted of the following:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued settlement payment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,555</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,082</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and development contract costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,278</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,278</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,407</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">918</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top"></td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,240</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,278</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
148059000
<div>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The following sets forth the computation of basic and diluted net
loss per common share:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="64%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three Months Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In Thousands,
Except<br />
per Share Data)</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="6" align="center"><b>(In Thousands,
Except<br />
per Share Data)</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Basic and diluted net loss per common share:</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Net loss</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(64,462</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(28,919</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(98,576</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(59,672</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Basic and diluted weighted average number of common shares
outstanding</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">150,968</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">133,960</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">148,059</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">133,959</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Basic and diluted net loss per common share</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.43</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.22</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.67</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.45</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
</table>
</div>
4.77
0.00
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Cash and Cash Equivalents</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We consider all highly liquid investments purchased with a maturity
date of 90 days or less at the date of purchase to be cash
equivalents.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In connection with certain of our operating lease commitments, we
issued letters of credit collateralized by cash deposits that were
classified as restricted cash on the condensed consolidated balance
sheets. Restricted cash amounts have been classified as current
assets based on the expected release date of the restrictions.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>3. NET LOSS PER COMMON SHARE</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Basic net loss per common share is computed by dividing the net
loss available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted net
loss per common share is computed by dividing the net loss
available to common stockholders by the weighted average number of
common shares and other potential common shares then outstanding.
Potential common shares consist of common shares issuable upon the
assumed exercise of outstanding stock options (using the treasury
stock method) and the issuance of contingently issuable shares
subject to Novartis’ stock subscription rights (Note 6)
and restricted stock awards.</p>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The following sets forth the computation of basic and diluted net
loss per common share:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="64%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three Months Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In Thousands,
Except<br />
per Share Data)</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="6" align="center"><b>(In Thousands,
Except<br />
per Share Data)</b></td>
<td valign="bottom"> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Basic and diluted net loss per common share:</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Net loss</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(64,462</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(28,919</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(98,576</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(59,672</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Basic and diluted weighted average number of common shares
outstanding</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">150,968</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">133,960</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">148,059</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">133,959</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Basic and diluted net loss per common share</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.43</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.22</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.67</td>
<td nowrap="nowrap" valign="bottom">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.45</td>
<td nowrap="nowrap" valign="bottom">) </td>
</tr>
</table>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px">
 </p>
<p style="margin-top:0pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The following potential common shares were excluded from the
calculation of basic and diluted net loss per common share because
their effect was anti-dilutive:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:8pt" align="center">
<tr>
<td width="79%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three and Six Months Ended<br />
June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,188</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,671</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Contingently issuable shares to related party</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,202</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">511</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top"></td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10,390</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,182</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In addition to the contingently issuable shares to related party
listed in the table above, Novartis could be entitled to additional
shares under its stock subscription rights which would be
anti-dilutive in future periods based on our current stock
price.</p>
</div>
930564
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Concentration of Credit Risk</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Financial instruments that potentially subject us to concentrations
of credit risk primarily consist of cash and cash equivalents and
receivables from related party. We invest our excess cash and cash
equivalents in interest bearing accounts at major United States
financial institutions. Management mitigates credit risk by
limiting the investment type and maturity to securities that
preserve capital, maintain liquidity and have a high credit
quality.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
At June 30, 2014 and December 31, 2013, all of our
receivables from related party were due from Novartis related to
Novartis’ commitment under the termination agreement to
reimburse us for contractual payments due by us to third-parties
(Note 7).</p>
</div>
<div>
<p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
Other long-term liabilities consisted of the following:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>June 30,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>December 31,<br />
2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Accrued settlement payment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4,555</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5,082</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and development contract costs</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,278</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,278</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,407</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">918</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top"></td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,240</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,278</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b>Revenue Recognition</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Revenue is recognized in accordance with SEC Staff Accounting
Bulletin No. 101, <i>Revenue Recognition in Financial
Statements</i>, as amended by SEC Staff Accounting Bulletin
No. 104, <i>Revenue Recognition</i>, and for revenue
arrangements entered into after June 30, 2003, in accordance
with the revenue recognition guidance of the Financial Accounting
Standards Board, or FASB. For multiple-element revenue arrangements
entered into or materially modified after January 1, 2011, we
recognize revenue under ASC Topic 605.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
We record revenue provided that there is persuasive evidence that
an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable and collectability is
reasonably assured.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Collaboration Revenue — Related Party</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In July 2012, we executed a termination and revised relationship
agreement, which we refer to as the termination agreement, with
Novartis Pharma AG, or Novartis, which granted Novartis a
non-exclusive license to conduct clinical trials evaluating a
combination of any of our and Novartis’ HCV drug candidates
after the HCV drug candidates have completed dose-ranging studies,
subject to meeting certain criteria. The details of the termination
agreement are described more fully in Note 6. We determined that
the best estimate of selling price, or BESP, of Novartis’
non-exclusive license at July 31, 2012 was $5.0 million which
is recognized as collaboration revenue from related party on a
straight-line basis over the term of the non-exclusive license, or
seven years. In establishing BESP for the non-exclusive license, we
used a discounted cash flow model and considered the likelihood of
our and Novartis’ drugs being commercialized, the development
and commercialization timeline, discount rate, and probable
treatment combination and associated peak sales figures which
generate royalty amounts. As of June 30, 2014 and
December 31, 2013, the remaining balances of $3.6 million and
$4.0 million, respectively, were included in deferred revenue from
related party in our condensed consolidated balance sheets.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Also under the collaboration, Novartis is entitled to stock
subscription rights. If we issue any shares of capital stock, other
than in limited situations, Novartis has the right to purchase such
number of shares required to maintain its percentage ownership of
our voting stock for either the same consideration per share paid
by others acquiring our stock or, in specified situations, for a
10% premium to the consideration per share paid by others acquiring
our stock. Novartis has the right to purchase shares of our common
stock when stock options are exercised under certain plans.
Commencing in August 2012, the fair value of our common stock that
would be issuable to Novartis is recorded as an adjustment to the
revenue recognized from the collaboration with Novartis and
additional paid-in capital. The fair value of this stock
subscription right is estimated on a quarterly basis using a
trinomial lattice valuation model which includes inputs of our per
share common stock price, exercise prices of outstanding options,
expected term of our options and exercise rates as well as
assumptions regarding expected volatility and exercise multiples.
Our stock price as of the end of each fiscal quarter has a
significant impact on the fair value calculation. Typically, if the
stock price increases quarter over quarter, the fair value of
Novartis’ stock subscription right increases and this
increase in the fair value is recorded as a reduction to revenue in
the quarter with a corresponding increase to additional paid-in
capital. This may result in contra-revenue, or negative revenue,
being recognized in any given fiscal period. This stock
subscription right is described more fully in Note 6.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Cash and Cash Equivalents</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We consider all highly liquid investments purchased with a maturity
date of 90 days or less at the date of purchase to be cash
equivalents.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In connection with certain of our operating lease commitments, we
issued letters of credit collateralized by cash deposits that were
classified as restricted cash on the condensed consolidated balance
sheets. Restricted cash amounts have been classified as current
assets based on the expected release date of the restrictions.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Concentration of Credit Risk</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Financial instruments that potentially subject us to concentrations
of credit risk primarily consist of cash and cash equivalents and
receivables from related party. We invest our excess cash and cash
equivalents in interest bearing accounts at major United States
financial institutions. Management mitigates credit risk by
limiting the investment type and maturity to securities that
preserve capital, maintain liquidity and have a high credit
quality.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
At June 30, 2014 and December 31, 2013, all of our
receivables from related party were due from Novartis related to
Novartis’ commitment under the termination agreement to
reimburse us for contractual payments due by us to third-parties
(Note 7).</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>Fair Value Measurements</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Our financial statements include assets and liabilities that are
measured at fair value on a recurring basis as of June 30,
2014 and December 31, 2013. Fair values determined by Level 1
inputs utilize observable data such as quoted prices in active
markets. Fair values determined by Level 2 inputs utilize data
points other than quoted prices in active markets that are
observable either directly or indirectly. Fair values determined by
Level 3 inputs utilize unobservable data points in which there is
little or no market data, which require the reporting entity to
develop its own assumptions.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
At June 30, 2014 and December 31, 2013, we had $120.7
million and $88.0 million, respectively, invested in money market
funds. Our money market investments have calculated net asset
values and are therefore classified as Level 2. There were no Level
3 assets held at fair value at June 30, 2014 or at
December 31, 2013. There were no gross unrealized gains or
losses for the three and six months ended June 30, 2014 or
2013.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Accrued Expenses</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We accrue expenses we have incurred but have not been invoiced.
This process involves estimating the level of service performed by
third-parties on our behalf and the associated cost incurred for
these services as of each balance sheet date in our financial
statements. Examples of estimated accrued expenses in which
subjective judgments may be required include services provided by
contract organizations for preclinical development, clinical trials
and manufacturing of clinical materials. Accruals for amounts due
to clinical research organizations are among our most significant
estimates. In connection with these service fees, our estimates are
most affected by our understanding of the status and timing of
services provided relative to the actual level of services incurred
by the service providers. The date on which certain services
commence, the level of services performed on or before a given date
and the cost of services is often subject to our judgment. We make
these judgments based upon the facts and circumstances known to us.
Advance payments for goods and services that will be used in future
research and development activities are expensed when the activity
has been performed or when the goods have been received rather than
when payment is made.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Share-Based Compensation</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We recognize share-based compensation for employees and directors
using a grant date fair value based method that results in expense
being recognized in our condensed consolidated financial
statements.</p>
</div>
11.77
<div>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The following table shows share-based compensation expense as
included in our condensed consolidated statements of operations and
comprehensive loss:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:8pt" align="center">
<tr>
<td width="68%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three Months Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Research and development</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">569</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">525</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,052</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">995</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
General and administrative</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,083</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">861</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,030</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,640</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1.00px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:3.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Total share-based compensation expense</p>
</td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,652</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,386</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,082</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"><font style="font-size:8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,635</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-size:1px;">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3.00px double #000000"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
<b>1. BUSINESS OVERVIEW</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b>Overview</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Idenix Pharmaceuticals, Inc., which we refer to together with our
wholly owned subsidiaries as Idenix, we, us or our, is a
biopharmaceutical company engaged in the discovery and development
of drugs for the treatment of human viral diseases with operations
in the United States and France. Currently, our primary research
and development focus is on the treatment of patients with
hepatitis C virus, or HCV, using nucleotide polymerase inhibitors
and NS5A inhibitors.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On June 9, 2014, we announced that we had entered into an
agreement and plan of merger, which we refer to as the merger
agreement, with Merck & Co., Inc. and its wholly-owned
subsidiary, Imperial Blue Corporation, which together we refer to
as Merck. On June 20, 2014, pursuant to the merger agreement,
Merck commenced a tender offer, which we refer to as the offer, to
purchase all of our issued and outstanding shares of common stock
for $24.50 per share in cash. Consummation of the offer is subject
to customary closing conditions. The tender offer will expire on
August 4, 2014. We expect that the transaction will be
completed in August 2014, but there can be no assurance that the
offer will close in this timeframe or at all. Upon consummation of
the merger we anticipate incurring merger related costs including
approximately $64.0 million payable to third-parties. Upon closing
of the offer and subject to the terms of the merger agreement, we
will become a wholly-owned subsidiary of Merck and our common stock
will cease to trade on the NASDAQ Global Market. The foregoing
description of the transaction with Merck does not purport to be
complete and is qualified in its entirety by reference to the
merger agreement, a copy of which was filed as Exhibit 2.1 on Form
8-K filed with the Securities and Exchange Commission, or SEC, on
June 9, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In April 2014, we completed a seven-day proof-of-concept study of
IDX21437, our lead uridine nucleotide prodrug candidate. IDX21437
monotherapy was well-tolerated and showed potent antiviral activity
of mean maximal viral load reductions of 4.2 to 4.3 log<sub style="FONT-SIZE: 85%; VERTICAL-ALIGN: bottom">10</sub> IU/mL for
patients infected with HCV genotype 1, 2 or 3 receiving 300 mg
once-daily of IDX21437 for seven days. We expect to initiate an
all-oral pan-genotypic combination phase II clinical trial of
IDX21437 and samatasvir in mid-2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
IDX21459 is our follow-on uridine-based nucleotide prodrug
candidate that has shown a favorable preclinical profile including
potent, pan-genotypic activity and favorable safety with respect to
cardiac, mitochondrial and genotoxicity assessments. In April 2014,
we initiated a phase I clinical trial in several countries outside
the U.S. to evaluate IDX21459 in healthy volunteers and genotype 1
HCV-infected patients at multiple doses.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
As part of our ongoing and extensive nucleotide discovery effort,
we continue to explore and develop a diverse spectrum of
nucleotides with novel bases, prodrugs and sugar moieties. Our
discovery efforts are currently focused on the identification of a
novel nucleotide prodrug with a distinct resistance profile from
our clinical nucleotide candidates that can be used in a
combination strategy to treat HCV.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In March 2014, we and certain co-owners were granted a European
Patent, EP 1 523 489, that covers 2’-methyl-2’-fluoro
nucleosides for treating HCV. Subsequently, we filed infringement
lawsuits against Gilead Sciences, Inc., and/or certain of its
subsidiaries, which we refer to as Gilead, in France, Germany and
the United Kingdom. In these lawsuits, we are seeking remedies with
respect to Gilead’s marketing and sales of drugs containing
Sovaldi<sup style="FONT-SIZE: 85%; VERTICAL-ALIGN: top">TM</sup>,
which we believe infringes our European patent. Gilead has
counterclaimed for invalidity of our patent in certain of these
jurisdictions. We also have several other legal matters ongoing
with Gilead including infringement lawsuits in the U.S. and Canada,
an ongoing interference case declared by the U.S. Patent and
Trademark Office, or USPTO, and invalidity matters in other foreign
jurisdictions. In March 2014, related to a Norway invalidity
proceeding, the Oslo District Court determined that our patent NO
330 755 covering 2’-methyl-2’-fluoro nucleoside
compounds useful in the treatment of HCV and other flaviviridae
infections is invalid. We filed an appeal to challenge the
court’s decision. The details of these ongoing legal matters
are described more fully in Note 7.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In January 2014, we issued 16.4 million shares of our common
stock to Baupost Group, L.L.C., a related party, through a
registered direct offering under a shelf registration and received
$106.6 million in net proceeds. We believe our current cash and
cash equivalents will be sufficient to sustain operations into at
least the second half of 2015.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Our drug development programs and the potential commercialization
of our drug candidates will require substantial cash to fund costs
that we incur in connection with preclinical studies and clinical
trials, regulatory review, manufacturing and sales and marketing
efforts. We have incurred losses in each year since our inception
and at June 30, 2014, we had an accumulated deficit of
$929.0 million. We expect to incur losses over the next
several years as we continue to expand our drug discovery and
development efforts. As a result of continuing losses, we may seek
additional funding through a combination of public or private
financing, collaborative relationships or other arrangements and we
may seek a partner who will assist in the future development and
commercialization of our drug candidates.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
We are subject to risks common to companies in the
biopharmaceutical industry including, but not limited to, the
successful development of products, clinical trial uncertainty,
regulatory approval, fluctuations in operating results and
financial risks, potential need for additional funding, protection
of proprietary technology and patent risks, compliance with
government regulations, dependence on key personnel and
collaboration partners, competition, technological and medical
risks and management of growth.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Basis of Presentation</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The condensed consolidated financial statements reflect the
operations of Idenix Pharmaceuticals, Inc. and our wholly owned
subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The accompanying condensed consolidated financial statements are
unaudited and have been prepared by us in accordance with generally
accepted accounting principles in the United States of America, or
GAAP, for interim reporting. Accordingly, these interim financial
statements do not include all the information and footnotes
required by GAAP for complete financial statements and should be
read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2013, which are
included in our Annual Report on Form 10-K filed with the SEC on
February 27, 2014. These interim financial statements are
unaudited, but in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a
fair statement of the financial position and results of operations
for the interim periods presented. The year ended condensed
consolidated balance sheet data presented for comparative purposes
was derived from audited financial statements, but does not include
all disclosures required by GAAP.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The preparation of condensed consolidated financial statements in
accordance with GAAP requires management to make estimates and
judgments that may affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, judgments and methodologies, including
those related to revenue recognition, accrued expenses, clinical
trial expenses, impairment and amortization of long-lived assets,
share-based compensation, income taxes including the valuation
allowance for deferred tax assets, contingencies and litigation. We
base our estimates on historical experience and on various other
assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected
for any future period or the fiscal year ending December 31,
2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Recent Accounting Pronouncements</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In May 2014, the Financial Accounting Standards Board, or FASB,
issued Accounting Standards Update 2014-09, <i>Revenue from
Contracts with Customers</i>, or ASU 2014-09. ASU 2014-09
supersedes the revenue recognition requirements of FASB Accounting
Standards Codification Topic 605, <i>Revenue Recognition,</i> or
ASC Topic 605, and most industry-specific guidance throughout the
ASC, resulting in the creation of FASB ASC Topic 606, <i>Revenue
from Contracts with Customers</i>. ASU 2014-09 requires entities to
recognize revenue in a way that depicts the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled to in
exchange for those goods or services. ASU 2014-09 provides
alternative methods of retrospective adoption and is effective for
fiscal years, and interim periods within those years, beginning
after December 15, 2016. Early adoption is not permitted. We
are currently assessing the potential impact of adopting ASU
2014-09 on our financial statements and related disclosures.</p>
</div>
<div>
<p style="margin-top:0pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The table below illustrates the fair value per share and
Black-Scholes option pricing model with the following assumptions
used for grants issued:</p>
<p style="font-size:12pt;margin-top:0pt;margin-bottom:0pt">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0" style="BORDER-COLLAPSE:COLLAPSE; font-family:Times New Roman; font-size:10pt" align="center">
<tr>
<td width="64%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Three Months Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1.00pt solid #000000">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-family:Times New Roman; font-size:8pt">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1.00pt solid #000000"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="font-size:1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Weighted average fair value of options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.11</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.21</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.77</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.04</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.85</td>
<td nowrap="nowrap" valign="bottom">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.01</td>
<td nowrap="nowrap" valign="bottom">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.57</td>
<td nowrap="nowrap" valign="bottom">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.88</td>
<td nowrap="nowrap" valign="bottom">% </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Expected dividend yield</p>
</td>
<td valign="bottom">  </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom" align="right">
—  </td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom" align="right">
—  </td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom" align="right">
—  </td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom"> </td>
<td nowrap="nowrap" valign="bottom" align="right">
—  </td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Expected option term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.42</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.27</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.41</td>
<td nowrap="nowrap" valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.27</td>
<td nowrap="nowrap" valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF" style="font-family:Times New Roman; font-size:10pt">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em; font-size:10pt; font-family:Times New Roman">
Expected volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">80.4</td>
<td nowrap="nowrap" valign="bottom">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">79.7</td>
<td nowrap="nowrap" valign="bottom">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">81.3</td>
<td nowrap="nowrap" valign="bottom">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">80.3</td>
<td nowrap="nowrap" valign="bottom">% </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>Fair Value Measurements</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Our financial statements include assets and liabilities that are
measured at fair value on a recurring basis as of June 30,
2014 and December 31, 2013. Fair values determined by Level 1
inputs utilize observable data such as quoted prices in active
markets. Fair values determined by Level 2 inputs utilize data
points other than quoted prices in active markets that are
observable either directly or indirectly. Fair values determined by
Level 3 inputs utilize unobservable data points in which there is
little or no market data, which require the reporting entity to
develop its own assumptions.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
At June 30, 2014 and December 31, 2013, we had $120.7
million and $88.0 million, respectively, invested in money market
funds. Our money market investments have calculated net asset
values and are therefore classified as Level 2. There were no Level
3 assets held at fair value at June 30, 2014 or at
December 31, 2013. There were no gross unrealized gains or
losses for the three and six months ended June 30, 2014 or
2013.</p>
</div>
-0.67
6.96
219685
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>5. SHARE-BASED COMPENSATION</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The following table shows share-based compensation expense as
included in our condensed consolidated statements of operations and
comprehensive loss:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="68%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Three Months Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td valign="bottom" colspan="6" align="center"><b>(In
Thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Research and development</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">569</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">525</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,052</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">995</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
General and administrative</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,083</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">861</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,030</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,640</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total share-based compensation expense</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,652</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,386</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,082</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,635</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
The table below illustrates the fair value per share and
Black-Scholes option pricing model with the following assumptions
used for grants issued:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="64%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Three Months Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 1pt">
<td height="8"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
<td height="8" colspan="4"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Weighted average fair value of options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.11</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.21</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.77</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.04</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.85</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.01</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.57</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.88</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected option term (in years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.42</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.27</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.41</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5.27</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">80.4</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">79.7</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">81.3</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">80.3</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The expected option term and expected volatility were determined by
examining the expected option term and expected volatilities of
similarly sized biotechnology companies as well as expected term
and expected volatility of our own stock. During the three months
ended June 30, 2014 certain options were granted with a
contractual term of 10 years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The following table summarizes option activity under the equity
incentive plans:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="72%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br />
Average Exercise<br />
Price per Share</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Options outstanding at December 31, 2013</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">7,430,965</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.67</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,907,775</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.15</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Cancelled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(219,685</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">11.77</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(930,564</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.96</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Options outstanding at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">8,188,491</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.61</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Options exercisable at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,912,218</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.39</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
We had an aggregate of $15.1 million of share-based compensation
expense as of June 30, 2014 remaining to be amortized over a
weighted average expected term of 2.71 years.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Share-Based Compensation</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We recognize share-based compensation for employees and directors
using a grant date fair value based method that results in expense
being recognized in our condensed consolidated financial
statements.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>7. COMMITMENTS AND CONTINGENCIES</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b>Product and Drug Candidates</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In connection with the resolution of matters relating to certain of
our HCV drug candidates, in May 2004, we entered into a settlement
agreement with the University of Alabama at Birmingham, or UAB,
which provides for a milestone payment of $1.0 million to UAB
upon receipt of regulatory approval in the United States to market
and sell certain HCV products invented or discovered by our former
chief executive officer during the period from November 1,
1999 to November 1, 2000. This settlement agreement also
provides that we will pay UAB an amount equal to 0.5% of worldwide
net sales of such HCV products with a minimum sales-based payment
equal to $12.0 million. Such payments would be due even in the
instance where we licensed such technology to a third-party.
Currently, there are no such HCV products approved and therefore
there was no related liability recorded as of June 30,
2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
We have potential payment obligations under the license agreement
with the Universita degli Studi di Cagliari, or the University of
Cagliari, pursuant to which we have the exclusive worldwide right
to make, use and sell certain HCV technologies and the right to
sublicense any of those rights. If we receive license fees,
milestone payments or any other payments with respect to technology
licensed to us by the University of Cagliari, we must provide
payments to the University of Cagliari. In addition, we will be
liable to the University of Cagliari for a fixed royalty payment on
worldwide sales of licensed drug products that derive from the
specified patents. The license agreement terminates at the
expiration of all royalty payment obligations, unless terminated
earlier by us, by the mutual agreement of the parties or by a
material breach of the terms of the agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Pursuant to the license agreement between us and UAB, we were
granted an exclusive license to the rights that the UABRF an
affiliate of UAB, Emory University and CNRS have to a 1995 U.S.
patent application and progeny thereof and counterpart patent
applications in Europe, Canada, Japan and Australia that cover the
use of certain synthetic nucleosides for the treatment of HBV. In
July 2008, we entered into a settlement agreement with UAB, UABRF
and Emory University relating to our telbivudine technology.
Pursuant to this settlement agreement, all contractual disputes
relating to patents covering the use of certain synthetic
nucleosides for the treatment of HBV and all litigation matters
relating to patents and patent applications related to the use of
ß-L-2’-deoxy-nucleosides for the treatment of HBV
assigned to one or more of Idenix, CNRS and L’Universite
Montpellier II, or the University of Montpellier, and which cover
the use of Tyzeka®/Sebivo® have been resolved. UAB also
agreed to abandon certain continuation patent applications it filed
in July 2005. Under the terms of the settlement agreement, we
paid UABRF (on behalf of UAB and Emory University) a
$4.0 million upfront payment and agreed to make additional
payments to UABRF equal to 20% of all royalty payments received by
us from Novartis from worldwide sales of Tyzeka®/Sebivo®,
subject to minimum payment obligations aggregating
$11.0 million. Our payment obligations under the settlement
agreement expire in August 2019. The settlement agreement was
effective on June 1, 2008 and included mutual releases of all
claims and covenants not to sue among the parties. It also included
a release from a third-party scientist who had claimed to have
inventorship rights in certain Idenix/CNRS/University of
Montpellier patents. Included in the condensed consolidated balance
sheets as of June 30, 2014 and December 31, 2013 was a
liability of $5.6 million and $6.1 million, respectively, related
to this settlement agreement. Under the termination agreement
executed in July 2012, we no longer receive royalty or milestone
payments from Novartis based upon worldwide product sales of
Tyzeka®/Sebivo®. Novartis is required to reimburse us for
our contractual payments to UABRF in connection with our
intellectual property related to Tyzeka®/Sebivo®.
Included in receivables from related party at June 30, 2014
and December 2013 was $5.6 million and $6.1 million, respectively,
for the reimbursement from Novartis for these contractual payments
to UABRF.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In May 2003, we and Novartis entered into an amended and
restated agreement with CNRS and the University of Montpellier. The
agreement includes provisions relating to ownership and
commercialization of the technology which is discovered or obtained
as part of the collaboration as well as rights regarding ownership
and use of such technology, including telbivudine, which remain in
effect following termination or expiration of the agreement. Under
the cooperative agreement, we are obligated to make royalty
payments for products derived from such patents, including products
for HCV. Such payments would be due even in the instance where we
licensed such patents to a third-party.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<b>Legal Contingency</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The USPTO has declared two interferences between Idenix and Gilead.
An interference proceeding is divided into two stages. The first
phase determines the application filing dates each party will have
benefit of for the interfering subject matter. The party with the
benefit of the earliest application filing date is deemed the
‘senior party’ and the party with the later date is
deemed the ‘junior party’. The second phase of the
interference determines which party was first to invent. The party
who is deemed first to invent prevails in the interference
proceeding. Certain or all of the claims in a patent may be
declared invalid if the party does not prevail in the
interference.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In February 2012, the first interference was declared by the USPTO
concerning our co-owned U.S. Patent Application 12/131,868 and
Gilead’s U.S. Patent No. 7,429,572. Both the application
and patent claim certain nucleoside compounds useful in treating
HCV. In January 2014, the USPTO awarded Gilead priority of
invention. We have challenged this decision outside the USPTO in
the U.S. District Court for the District of Delaware.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In December 2013, the second interference was declared by the USPTO
concerning our co-owned U.S. Patent No. 7,608,600 and
Gilead’s U.S. Patent Application 11/854,218. Both the patent
and application claim certain nucleoside compounds useful in
treating HCV. In this case, the USPTO has initially determined that
we are the ‘senior party’ and that Gilead is the
‘junior party’, although that determination may change
after the first phase of the interference. We cannot predict if the
decision in the first interference will influence the timing and/or
outcome of the second interference.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In June 2012, Gilead filed suit against us in the Canadian Federal
Court seeking to invalidate one of our issued co-owned Canadian
patents. This patent covers similar subject matter to our U.S.
Patent Application 12/131,868 and U.S. Patent No. 7,608,600.
In April 2014, we counterclaimed for infringement against Gilead in
Canada. Through this counterclaim we are seeking remedies with
respect to Gilead’s marketing and sales of drugs containing
Sovaldi™, which we believe infringes our Canadian patent. The
Canadian patent involved covers similar subject matter to our U.S.
Patent No. 7,608,600.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In September 2012, Gilead filed suit against us in Norway in the
Oslo District Court seeking to invalidate one of our issued
co-owned Norwegian patents. Our patent, NO 330 755, covers certain
2’-methyl-2’-fluoro nucleoside compounds useful in the
treatment of HCV and other flaviviridae infections, which is
similar subject matter to our U.S. Patent Application 12/131,868
and U.S. Patent No. 7,608,600. In March 2014, the Oslo
District Court determined that our Norwegian patent, NO 330 755, is
invalid. We filed an appeal to challenge the court’s
decision. In the event we do not prevail in the appeals process, we
may be liable for reimbursement of legal fees incurred by Gilead of
an amount, if any, as determined by the Norway court. Accordingly,
no estimate regarding the range of possible loss can be made for
the reimbursement of legal fees.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In January 2013, Gilead commenced proceedings in the Federal Court
of Australia seeking a declaration of certain claims of one of our
issued co-owned Australian patents. This patent covers similar
subject matter to our U.S. Patent Application 12/131,868 and U.S.
Patent No. 7,608,600.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In August 2013, we filed a request with the Chinese Patent
Office’s Patent Re-examination Board, or PRB, to invalidate
Gilead’s Chinese Patent No. ZL.200480019148.4. Gilead’s
patent relates to 2’-fluoro-2’-methyl-nucleoside
compounds that are useful for treating HCV. The request
alleges that Gilead’s patent is invalid for lack of novelty
over a prior filed Idenix co-owned Chinese patent
application. We cannot predict whether our request will be
granted by the PRB.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In December 2013, we filed infringement lawsuits against Gilead in
the U.S District Court for the District of Massachusetts and in
U.S. District Court for the District of Delaware. In the
Massachusetts action, we allege that Gilead’s method of
treating HCV using its Sovaldi™ product infringes our two
asserted co-owned patents, U.S. Patent Nos. 6,914,054 and
7,608,597. In the Delaware action, we allege that Gilead’s
method of treating HCV using its Sovaldi™ product infringes
our asserted co-owned patent U.S. Patent No. 7,608,600. The
Massachusetts action has been transferred to the U.S. District
Court for the District of Delaware. In these lawsuits, we are
seeking remedies with respect to Gilead’s marketing and sales
of drugs containing Sovaldi™, which we believe infringes our
U.S. patents. In the Delaware action, we also filed an interference
claim between our co-owned U.S. Patent No. 7,608,600 and
Gilead’s U.S. Patent No. 8,415,322. As part of that
claim, we are asking that our U.S. Patent No. 7,608,600 be
deemed to have priority of invention over Gilead’s U.S.
Patent No. 8,415,322.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
In March 2014, we and certain co-owners were granted a European
Patent, EP 1 523 489, that covers 2’-methyl-2’-fluoro
nucleosides for treating HCV. Subsequently, we filed infringement
lawsuits against Gilead in France, Germany and the United Kingdom.
In these lawsuits, we are seeking remedies with respect to
Gilead’s marketing and sales of drugs containing
Sovaldi™, which we believe infringes our European patent. The
European patent involved covers similar subject matter to our U.S.
Patent No. 7,608,600. Gilead has counterclaimed for invalidity
of our patent in certain of these jurisdictions.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
While we cannot predict whether we will prevail, we intend to
vigorously defend all of these actions described above and any
others like it brought by a third-party. These legal proceedings
are likely to be expensive and time consuming. We do not believe
the patents at issue in these cases are relevant to any compounds
we currently have under clinical development. In the event we do
not prevail in certain jurisdictions, we may be liable for
reimbursement of legal fees incurred by the other party. As of
June 30, 2014, we have not recorded a liability associated
with any of these legal matters as we do not consider a loss to be
probable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On June 16 2014, two cases were filed in the Court of Chancery
of the State of Delaware against Idenix, our directors and certain
officers, and Merck, captioned as follows: Ronald Burns, et. al. v.
Idenix Pharmaceuticals, Inc., et. al., Case No. 9764-VCG (Del.
Ch.) and Emin Dulger, et. al. v. Idenix Pharmaceuticals, Inc., et.
al., Case No. 9767-VCG (Del. Ch.). The two cases are putative
class actions brought by purported stockholders alleging, among
other things, that our directors breached their fiduciary duties by
approving the merger agreement, and that we and Merck aided and
abetted these alleged breaches of fiduciary duty. Both complaints
seek, among other things, either to enjoin the proposed transaction
or to rescind it should it be consummated, as well as money
damages.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On June 26, 2014, a case was filed in the Trial Court of the
Commonwealth of Massachusetts, Superior Court Department, for
Suffolk County against Idenix, our directors, and Merck, captioned
as follows: Bill Lioio, et. al. v. Idenix Pharmaceuticals, Inc.,
et. al., Docket No. B.L.S. 14-2010. This case is a putative class
action brought by purported stockholders alleging, among other
things, that our directors breached their fiduciary duties by
approving the merger agreement, and that Merck aided and abetted
these alleged breaches of fiduciary duty. The complaint seeks,
among other things, either to enjoin the proposed transaction or to
rescind it should it be consummated, as well as money damages.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On July 2, 2014, another case was filed in the Court of
Chancery of the State of Delaware against Idenix, our directors,
and Merck, captioned as follows: David Wohlberg, et. al. v. Idenix
Pharmaceuticals, Inc., et. al., Case No. 9854 (Del. Ch.). This
case is a putative class action brought by purported stockholders
alleging, among other things, that our directors breached their
fiduciary duties by approving the merger agreement and issuing a
materially false and misleading Schedule 14D-9, and that Idenix and
Merck aided and abetted these alleged breaches of fiduciary duty.
This complaint seeks, among other things, either to enjoin the
proposed transaction or to rescind it should it be consummated, as
well as money damages.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On July 24, 2014, we, the members of our board of directors
and Merck entered into a memorandum of understanding, which we
refer to as the MOU, with the plaintiffs in the above-captioned
actions reflecting an agreement in principle to settle the actions
based on the agreement to include certain additional disclosures
relating to the offer and the merger in our public filings. As
defendants in the actions, to eliminate the burden, expense,
distraction and uncertainties inherent in further litigation, and
without admitting the validity of any allegation made in such
actions, or any liability with respect thereto, we have concluded
that it is desirable that the claims against us be settled on the
terms reflected in the MOU. The terms of the settlement reflected
in the MOU are subject to customary conditions including completion
of appropriate settlement documentation, court approval and
consummation of the offer and the merger.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The MOU provides that all actions will be dismissed with prejudice
as to all defendants. Pursuant to the terms of the MOU, the parties
expect to execute a stipulation of settlement, which will be
subject to approval by the court, following notice to holders of
shares of our common stock. There can be no assurance that the
settlement will be finalized or that the court will approve the
settlement. No amount of loss or range of possible loss can be
reasonably estimated therefore at June 30, 2014, we have not
recorded a liability associated with any of these legal
matters.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>Indemnification</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We have agreed to indemnify Novartis and its affiliates against
losses suffered as a result of the development, manufacture and
commercialization of our HCV products. We have also agreed to
indemnify Novartis and its affiliates against losses suffered as a
result of any breach of representations and warranties in the
termination agreement, development and commercialization agreement
and the stock purchase agreement. Under these agreements with
Novartis, we made numerous representations and warranties to
Novartis regarding our HBV and HCV drug candidates, including
representations regarding our ownership of the inventions and
discoveries. In the event of a breach of any such representation or
warranty by us, Novartis has the right to seek indemnification from
us and, under certain circumstances, from our stockholders who sold
shares to Novartis in 2003, which includes some of our current and
former directors and officers, for damages suffered by Novartis as
a result of such breach. The amounts for which we and our
stockholders could be liable to Novartis could be substantial.
While it is possible that we may be required to make payments
pursuant to the indemnification obligations we have under these
agreements, we cannot reasonably estimate the amount of such
payments or the likelihood that such payments would be
required.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Under the Janssen collaboration agreement, we agreed to indemnify
Janssen against losses suffered as a result of a breach of
representations and warranties in the agreement and/or any injury
to a subject in a clinical trial under the collaboration agreement
caused by the use or manufacture of samatasvir. We made numerous
representations and warranties to Janssen. If one or more of these
representations or warranties were not true at the time they were
made, we would be in breach of the agreement. In the event of a
breach by us or in the event of injury to a subject in a clinical
trial under the collaboration agreement caused by the use or
manufacture of samatasvir, Janssen has the right to seek
indemnification from us for damages suffered as a result of such
breach or subject injury. The amounts for which we could be liable
to Janssen under these circumstances may be substantial. In the
instance where a subject in a clinical trial suffers injury or
death and it is not determinable which compound caused the injury
or death, each party shall be responsible for defending any
third-party claims alleged against the party after the application
of our clinical trial insurance, to the extent applicable.</p>
</div>
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<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
We accrue expenses we have incurred but have not been invoiced.
This process involves estimating the level of service performed by
third-parties on our behalf and the associated cost incurred for
these services as of each balance sheet date in our financial
statements. Examples of estimated accrued expenses in which
subjective judgments may be required include services provided by
contract organizations for preclinical development, clinical trials
and manufacturing of clinical materials. Accruals for amounts due
to clinical research organizations are among our most significant
estimates. In connection with these service fees, our estimates are
most affected by our understanding of the status and timing of
services provided relative to the actual level of services incurred
by the service providers. The date on which certain services
commence, the level of services performed on or before a given date
and the cost of services is often subject to our judgment. We make
these judgments based upon the facts and circumstances known to us.
Advance payments for goods and services that will be used in future
research and development activities are expensed when the activity
has been performed or when the goods have been received rather than
when payment is made.</p>
</div>
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royalty rates for such product in such country would be reduced by one-half.
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