##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                 to
 Commission file number 000-31191
 THE MEDICINES COMPANY
  Delaware
    
    04-3324394(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)8 Sylvan WayParsippany, New Jersey
    
    07054(Address of principal executive offices)
    
    (Zip Code)
 (973) 290-6000
  þ o
 
 o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o þ




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##### 



THE MEDICINES COMPANY
  Part I. Financial Information
    
    
    2Item 1  Financial Statements
    
    
    2Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4  Controls and Procedures
    
    
    29Part II. Other Information
    
    
    29Item 1A  Risk Factors
    
    
    29Item 5  Other Information
    
    
    44Item 6  Exhibits
    
    
    45Signatures
    
    
    46Exhibit Index
    
    
    47EX-10.2EX-10.3EX-10.4EX-31.1EX-31.2EX-32.1EX-32.2




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® ® ® ®
  1




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Item 1. Financial Statements
 THE MEDICINES COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,202
    
    
    $
    81,018Available for sale securities
    
    
    126,110
    
    
    
    135,188Accrued interest receivable
    
    
    1,241
    
    
    
    1,336Accounts receivable, net of allowances of
approximately $2,434 and $1,889 at March 31,
2009 and December 31, 2008, respectively
    
    
    34,976
    
    
    
    33,657Inventory
    
    
    24,225
    
    
    
    28,229Prepaid expenses and other current assets
    
    
    16,423
    
    
    
    16,402Total current assets
    
    
    241,177
    
    
    
    295,830Fixed assets, net
    
    
    27,537
    
    
    
    27,331Intangible assets, net
    
    
    16,056
    
    
    
    16,349In-process research and development
    
    
    67,200
    
    
    
    Goodwill
    
    
    27,154
    
    
    
    Restricted cash
    
    
    8,004
    
    
    
    5,000Deferred tax assets
    
    
    12,428
    
    
    
    37,657Other assets
    
    
    5,328
    
    
    
    5,237Total assets
    
    $
    404,884
    
    
    $
    387,404LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,621
    
    
    $
    12,968Accrued expenses
    
    
    65,549
    
    
    
    61,028Deferred revenue
    
    
    5,044
    
    
    
    9,612Total current liabilities
    
    
    77,214
    
    
    
    83,608Contingent purchase price
    
    
    22,000
    
    
    
    Other liabilities
    
    
    5,627
    
    
    
    5,771Total liabilities
    
    
    104,841
    
    
    
    89,379Commitments and contingenciesStockholders equity:Preferred stock, $1.00 par value per share,
5,000,000 shares authorized; no shares issued
and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value per share,
125,000,000 shares authorized; 52,743,274
and 52,280,006 issued and outstanding at March
31, 2009 and December 31, 2008, respectively
    
    
    53
    
    
    
    52Additional paid-in capital
    
    
    571,351
    
    
    
    565,083Accumulated deficit
    
    
    (271,296
    )
    
    
    (267,948
    )Accumulated other comprehensive (loss) income
    
    
    (65
    )
    
    
    838Total stockholders equity
    
    
    300,043
    
    
    
    298,025Total liabilities and stockholders equity
    
    $
    404,884
    
    
    $
    387,404
  2




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THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Net revenue
    
    $
    99,217
    
    
    $
    79,427Operating expenses:Cost of revenue
    
    
    28,297
    
    
    
    19,092Research and development
    
    
    24,436
    
    
    
    18,663Selling, general and administrative
    
    
    53,595
    
    
    
    35,350Total operating expenses
    
    
    106,328
    
    
    
    73,105(Loss) income from operations
    
    
    (7,111
    )
    
    
    6,322Other income
    
    
    1,170
    
    
    
    2,381(Loss) income before income taxes
    
    
    (5,941
    )
    
    
    8,703Benefit from (provision for) income taxes
    
    
    2,593
    
    
    
    (3,850
    )Net (loss) income
    
    $
    (3,348
    )
    
    $
    4,853Basic (loss) earnings per common share
    
    $
    (0.06
    )
    
    $
    0.09Shares used in computing basic (loss) earnings per common share
    
    
    52,141
    
    
    
    51,749Diluted (loss) earnings per common share
    
    $
    (0.06
    )
    
    $
    0.09Shares used in computing diluted (loss) earnings per common share
    
    
    52,141
    
    
    
    52,274
 .
 3




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THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net (loss) income
    
    $
    (3,348
    )
    
    $
    4,853Adjustments to reconcile net (loss) income to net cash used in operating activities:Depreciation and amortization
    
    
    1,350
    
    
    
    543Amortization of net premiums and discounts on available for sale securities
    
    
    415
    
    
    
    (261
    )Unrealized foreign currency transaction losses, net
    
    
    99
    
    
    
    Non-cash stock compensation expense
    
    
    5,443
    
    
    
    4,562Loss on disposal of fixed assets
    
    
    11
    
    
    
    Gain on sales of available for sale securities
    
    
    
    
    
    
    (43
    )Deferred tax (benefit) provision
    
    
    (2,570
    )
    
    
    3,003Tax effect of option exercises
    
    
    (63
    )
    
    
    13Changes in operating assets and liabilities:Accrued interest receivable
    
    
    95
    
    
    
    312Accounts receivable
    
    
    (1,045
    )
    
    
    (4,446
    )Inventory
    
    
    3,961
    
    
    
    2,381Prepaid expenses and other current assets
    
    
    597
    
    
    
    (2,094
    )Other assets
    
    
    
    
    
    
    (43
    )Accounts payable
    
    
    (9,442
    )
    
    
    (3,984
    )Accrued expenses
    
    
    3,699
    
    
    
    (11,883
    )Deferred revenue
    
    
    (4,535
    )
    
    
    Other liabilities
    
    
    (557
    )
    
    
    Net cash used in operating activities
    
    
    (5,890
    )
    
    
    (7,087
    )Cash flows from investing activities:Purchases of available for sale securities
    
    
    (39,330
    )
    
    
    (42,205
    )Maturities and sales of available for sale securities
    
    
    47,786
    
    
    
    38,538Purchases of fixed assets
    
    
    (5,712
    )
    
    
    (833
    )Acquisition of business, net of cash acquired
    
    
    (37,168
    )
    
    
    Increase in restricted cash
    
    
    (3,004
    )
    
    
    Net cash used in investing activities
    
    
    (37,428
    )
    
    
    (4,500
    )Cash flows from financing activities:Proceeds from issuances of common stock, net
    
    
    890
    
    
    
    1,298Net cash provided by financing activities
    
    
    890
    
    
    
    1,298Effect of exchange rate changes on cash
    
    
    (388
    )
    
    
    2Decrease in cash and cash equivalents
    
    
    (42,816
    )
    
    
    (10,287
    )Cash and cash equivalents at beginning of period
    
    
    81,018
    
    
    
    88,127Cash and cash equivalents at end of period
    
    $
    38,202
    
    
    $
    77,840Supplemental disclosure of cash flow information:Interest paid
    
    $
    
    
    
    $
    Taxes paid
    
    $
    58
    
    
    $
    551Supplemental disclosure of non-cash investing activities:Fixed asset additions included in current liabilities
    
    $
    
    
    
    $
    35
 .
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THE MEDICINES COMPANY
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Nature of Business
 ® ®
 ®
   5




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2. Significant Accounting Policies
 Basis of Presentation
    Use of Estimates
  Cash, Cash Equivalents and Available for Sale Securities
    Fair Value Measurements
  6




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Level 1
    
    Quoted prices in active markets for identical assets or
liabilities. The Companys Level 1 assets and liabilities include
investments in available for sale securities.Level 2
    
    Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities. At March 31, 2009, the Company
did not have any Level 2 assets or liabilities.Level 3
    
    Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. The Companys Level 3 assets and liabilities
consist of the contingent purchase price associated with the
Targanta acquisition (Note 7). The fair value of the contingent
purchase price was determined utilizing a probability weighted
discounted financial model.
  SignificantQuoted Prices In
    
    Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    Inputs
    
    Balance atAssets and Liabilities
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    March 31, 2009(in thousands)Assets:Available for sale securities
    
    $
    126,110
    
    
    $
    
    
    
    $
    
    
    
    $
    126,110Liabilities:Contingent purchase price
    
    $
    
    
    
    $
    
    
    
    $
    22,000
    
    
    $
    22,000
 Restricted Cash
  Revenue Recognition
 Product Sales.
 7




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##### Table of Contents




    
    Product returns. The Companys customers have the right to return any unopened
product during the 18-month period beginning six months prior to the labeled expiration
date and ending 12 months after the labeled expiration date. As a result, in calculating
the accrual for product returns, the Company must estimate the likelihood that product
sold might not be used within six months of expiration and analyze the likelihood that
such product will be returned within 12 months after expiration.In estimating the likelihood of product being returned, the Company relies on
information from the sole source distributor and wholesalers regarding inventory
levels, measured hospital demand as reported by third-party sources and internal sales
data. The Company also considers the past buying patterns of the sole source
distributor and wholesalers, the estimated remaining shelf life of product previously
shipped and the expiration dates of product currently being shipped.At March 31, 2009 and December 31, 2008, the Companys accrual for product returns was
$1.0 million. Included within the accrual at March 31, 2009 and December 31, 2008 is a
reserve of $0.8 million that the Company established for existing inventory at Nycomed
that Nycomed has the right to return at any time. A 10% change in the Companys accrual
for Angiomax product returns would have had an approximate $0.1 million effect on the
Companys reported net revenue for the three months ended March 31, 2009.
    
    Chargebacks and rebates. Although the Company primarily sells products to a sole
source distributor in the United States, the Company typically enters into agreements
with hospitals, either directly or through group purchasing
 8




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organizations acting on behalf of their hospital members, in connection with the
hospitals purchases of products. Based on these agreements, most of the Companys
hospital customers have the right to receive a discounted price for products and
volume-based rebates on product purchases. In the case of discounted pricing, the
Company typically provides a credit to the sole source distributor, or a chargeback,
representing the difference between the sole source distributors acquisition list
price and the discounted price. In the case of the volume-based rebates, the Company
typically pays the rebate directly to the hospitals.
 As a result of these agreements, at the time of product shipment, the Company estimates
the likelihood that product sold to the sole source distributor might be ultimately
sold to a contracting hospital or group purchasing organization. The Company also
estimates the contracting hospitals or group purchasing organizations volume of
purchases.The Company bases its estimates on certain industry data, hospital purchases and the
historic chargeback data it receives from its sole source distributor, most of which
the sole source distributor receives from wholesalers, which detail historic buying
patterns and sales mix for particular hospitals and group purchasing organizations, and
the applicable customer chargeback rates and rebate thresholds.The Companys allowance for chargebacks was $1.4 million and $1.2 million at March 31,
2009 and December 31, 2008, respectively. A 10% change in the Companys allowance for
chargebacks would have had an approximate $0.1 million effect on the Companys reported
net revenue for the three months ended March 31, 2009. The Companys accrual for
rebates was $0.5 million and $0.4 million at March 31, 2009 and December 31, 2008,
respectively. A 10% change in the Companys accrual for rebates would have had an
approximate $0.1 million effect on the Companys reported net revenue for the three
months ended March 31, 2009.
    
    Fees-for-service.The Company offers discounts to certain wholesalers and its sole
source distributor based on contractually determined rates for certain services. The
Company estimates its fee-for-service accruals and allowances based on historical sales,
wholesaler and distributor inventory levels and the applicable discount rate. The
Companys discounts are accrued at the time of the sale and are typically settled with
the wholesalers or sole source distributor within 60 days after the end of each
respective quarter. The Companys fee-for-service accruals and allowances were $2.3
million and $2.0 million at March 31, 2009 and December 31, 2008, respectively. A 10%
change in the Companys fee-for-service accruals and allowances would have had an
approximate $0.2 million effect on the Companys reported net revenue for the three
months ended March 31, 2009.
  International Distributors.
 Revenue from Collaborations.
 9




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Inventory
   March 31,
    
    
    December 31,Inventory
    
    2009
    
    
    2008(in thousands)Raw materials
    
    $
    4,609
    
    
    $
    10,003Work-in-progress
    
    
    10,811
    
    
    
    10,334Finished goods
    
    
    8,805
    
    
    
    7,892Total
    
    $
    24,225
    
    
    $
    28,229
  Fixed Assets
  Impairment of Long-Lived Assets
  Goodwill and Indefinite-lived Intangible Assets
  Research and Development
  Stock-Based Compensation
  10




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Translation of Foreign Currencies
  Segments and Geographic Information
   Three Months Ended March 31,2009
    
    
    2008(In thousands)Net revenues:United States
    
    $
    96,011
    
    
    $
    76,883Europe
    
    
    2,509
    
    
    
    1,333Other
    
    
    697
    
    
    
    1,211Total net revenue
    
    $
    99,217
    
    
    $
    79,427Long-lived assets:United States
    
    $
    141,291
    
    
    $
    47,308Europe
    
    
    1,537
    
    
    
    1,609Other
    
    
    447
    
    
    
    Total long-lived assets
    
    $
    143,275
    
    
    $
    48,917
 11




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Income Taxes
     Reclassifications
  Recent Accounting Pronouncements
   3. Net (Loss) Income per Share
  12




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Three Months Ended March 31,2009
    
    
    2008(in thousands, except per shareamounts)Basic and dilutedNet (loss) income
    
    $
    (3,348
    )
    
    $
    4,853Weighted average common shares outstanding, basic
    
    
    52,470
    
    
    
    51,923Less: unvested restricted common shares outstanding
    
    
    329
    
    
    
    174Net weighted average common shares outstanding, basic
    
    
    52,141
    
    
    
    51,749Plus: net effect of dilutive stock options and restricted common shares
    
    
    
    
    
    
    525Weighted average common shares outstanding, diluted
    
    
    52,141
    
    
    
    52,274(Loss) earnings per share, basic
    
    $
    (0.06
    )
    
    $
    0.09(Loss) earnings per share, diluted
    
    $
    (0.06
    )
    
    $
    0.09
  Three MonthsEnded March 31,2009
    
    2008(in thousands)Weighted average options outstanding
    
    
    11,102
    
    
    
    8,998Weighted average options included in computation of
diluted earnings per share
    
    
    
    
    
    
    1,970Weighted average options considered anti-dilutive
and excluded from the computation of diluted
earnings per share
    
    
    11,102
    
    
    
    7,028Weighted average restricted shares outstanding
    
    
    328
    
    
    
    174Weighted average restricted shares included in
computation of diluted earnings per share
    
    
    
    
    
    
    174Weighted average restricted shares considered
anti-dilutive and excluded from the computation of
earnings per share
    
    
    328
    
    
    
    
 4. Comprehensive (Loss) Income
  Three Months Ended March 31,2009
    
    
    2008(in thousands)Net (loss) income
    
    $
    (3,348
    )
    
    $
    4,853Unrealized (loss) gain on available for sale securities
    
    
    (604
    )
    
    
    491Currency translation adjustment
    
    
    (299
    )
    
    
    (7
    )Comprehensive (loss) income
    
    $
    (4,251
    )
    
    $
    5,337
 5. Income Taxes
   13




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6. Investment
  7. Acquisitions
 Targanta Therapeutics
   
    
    If the Company or a MDCO Affiliated Party (meaning an affiliate of the Company, a
successor or assigns of the Company, or a licensee or collaborator of the Company)
obtains approval from the European Agency for the Evaluation of Medical Products (EMEA)
for a MAA for oritavancin for the treatment of cSSSI on or before December 31, 2013,
then former Targanta shareholders will be entitled to receive a cash payment equal to
(1) $1.00 per share if such approval is granted on or before December 31, 2009, (2)
$0.75 per share if such approval is granted between January 1, 2010 and June 30, 2010,
or (3) $0.50 per share if such approval is granted between July 1, 2010 and December 31,
2013, a payment of approximately $21.0 million in the aggregate, approximately $15.8
million in the aggregate, or approximately $10.5 million in the aggregate, respectively.
    
    If the Company or a MDCO Affiliated Party obtains final approval from the FDA for a
new drug application (NDA), for oritavancin for the treatment of cSSSI (1) within 40
months after the date the first patient is enrolled in a Phase III clinical trial of
cSSSI that is initiated by the Company or a MDCO Affiliate Party after the date of the
Companys merger agreement with Targanta and (2) on or before December 31, 2013, then
former Targanta shareholders will be entitled to receive a cash payment equal to $0.50
per share, or approximately $10.5 million in the aggregate.
    
    If the Company obtains final FDA approval for an NDA for the use of oritavancin for
the treatment of cSSSI administered by a single dose intravenous infusion (1) within 40
months after the date the first patient is enrolled in a Phase III clinical trial of
cSSSI that is initiated by the Company or a MDCO Affiliated Party after the date of the
Companys merger agreement with Targanta and (2) on or before December 31, 2013, then
former Targanta shareholders will be entitled to receive a cash payment equal to $0.70
per share, or approximately $14.7 million in the aggregate. This payment may become
payable simultaneously with the payment described in the previous bullet above.
    
    If aggregate net sales of oritavancin in four consecutive calendar quarters ending on
or before December 31, 2021 reach or exceed $400 million, each former Targanta
shareholder will be entitled to receive a cash payment equal to $2.35 per share, or
approximately $49.4 million in the aggregate.
  14




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##### Table of Contents



(in thousands)Acquired Assets:Cash and cash equivalents
    
    $
    4,815Available for sale securities
    
    
    397Prepaid expenses & other current assets
    
    
    999Fixed assets, net
    
    
    1,960In-process research and development
    
    
    67,200Goodwill
    
    
    27,154Other assets
    
    
    69Total assets
    
    
    102,594Liabilities Assumed:Accounts payable
    
    
    3,280Accrued expenses
    
    
    6,976Contingent purchase price
    
    
    22,000Deferred tax liability
    
    
    27,799Other liabilities
    
    
    556Total liabilities
    
    
    60,611Total cash purchase price paid upon acquisition
    
    $
    41,983
   Three months ended March 31,(in thousands, except per share data)
    
    2009
    
    2008Net revenue
    
    $
    99,217
    
    
    $
    79,427Loss from operations
    
    
    (17,782
    )
    
    
    (11,575
    )Net loss
    
    
    (14,465
    )
    
    
    (12,504
    )Basic and diluted loss per share:Basic and diluted loss per share
    
    $
    (0.28
    )
    
    $
    (0.24
    )Shares used in computing basic and diluted loss per common share
    
    
    52,141
    
    
    
    51,749
  Curacyte Discovery
 
 15




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
  (in thousands)Acquired Assets:Total current assets
    
    $
    1,970Fixed assets
    
    
    1,273Other assets
    
    
    51In-process research and development
    
    
    21,373Total acquired assets
    
    
    24,667Acquired Liabilities:Total current liabilities
    
    
    (1,004
    )Total purchase price
    
    $
    23,663
  8. Nycomed Agreements
     16




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9. Intangible Assets and Goodwill
  As of March 31, 2009
    
    As of December 31, 2008Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetWeighted Average
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingUseful Life
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(in thousands)Identifiable intangible assetsCustomer relationships
    
    8 years
    
    
    $
    7,457
    
    
    $
    431
    
    
    $
    7,026
    
    
    $
    7,457
    
    
    $
    288
    
    
    $
    7,169Distribution agreement
    
    8 years
    
    
    
    4,448
    
    
    
    257
    
    
    
    4,191
    
    
    
    4,448
    
    
    
    171
    
    
    
    4,277Trademarks
    
    8 years
    
    
    
    3,024
    
    
    
    175
    
    
    
    2,849
    
    
    
    3,024
    
    
    
    116
    
    
    
    2,908Cleviprex milestones
    
    13 years
    
    
    
    2,000
    
    
    
    10
    
    
    
    1,990
    
    
    
    2,000
    
    
    
    5
    
    
    
    1,995Total
    
    9 years
    
    
    $
    16,929
    
    
    $
    873
    
    
    $
    16,056
    
    
    $
    16,929
    
    
    $
    580
    
    
    $
    16,349
   As of March 31, 2009
    
    
    As of December 31, 2008Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(in thousands)Intangible assets
not subject to
amortization:In-process
research and
development
    
    $
    67,200
    
    
    $
    
    
    
    $
    67,200
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    67,200
    
    
    $
    
    
    
    $
    67,200
    
    
    $
    
    
    
    $
    
    
    
    $
    
 17




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##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008(in thousands)Balance at beginning of period
    
    $
    
    
    
    $
    Goodwill acquired during the year
    
    
    27,154
    
    
    
    Balance at end of period
    
    $
    27,154
    
    
    $
    
  10. Relocation of Principal Offices
  11. Contingencies
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis of our financial condition and results
of operations together with our financial statements and accompanying notes included elsewhere in
this quarterly report. In addition to the historical information, the discussion in this quarterly
report contains certain forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated by the forward-looking statements due to our
critical accounting estimates discussed below and important factors set forth in this quarterly
report, including under Risk Factors in Part II, Item 1A of this quarterly report.
 Overview
 Our Business
 ® ® ®
 18




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##### Table of Contents



Distribution and Sales
    19




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##### Table of Contents



Targanta Acquisition
  
    
    If we or a MDCO Affiliated Party (meaning an affiliate of ours, a successor or
assigns of ours, or a licensee or collaborator of ours) obtain approval from the
European Agency for the Evaluation of Medical Products, or EMEA for a MAA for
oritavancin for the treatment of cSSSI on or before December 31, 2013, then former
Targanta shareholders will be entitled to receive a cash payment equal to (1) $1.00 per
share if such approval is granted on or before December 31, 2009, (2) $0.75 per share if
such approval is granted between January 1, 2010 and June 30, 2010, or (3) $0.50 per
share if such approval is granted between July 1, 2010 and December 31, 2013, a payment
of approximately $21.0 million in the aggregate, approximately $15.8 million in the
aggregate, or approximately $10.5 million in the aggregate, respectively.
    
    If we or a MDCO Affiliated Party obtain final approval from the FDA for a NDA for
oritavancin for the treatment of cSSSI (1) within 40 months after the date the first
patient is enrolled in a Phase III clinical trial of cSSSI that is initiated by us or a
MDCO Affiliated Party after the date of our merger agreement with Targanta and (2) on or
before December 31, 2013, then former Targanta shareholders will be entitled to receive
a cash payment equal to $0.50 per
 20




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##### Table of Contents



share, or approximately $10.5 million in the
aggregate.
    
    If we obtain final FDA approval for an NDA for the use of oritavancin for the
treatment of cSSSI administered by a single dose intravenous infusion (1) within 40
months after the date the first patient is enrolled in a Phase III clinical trial of
cSSSI that is initiated by us or a MDCO Affiliated Party after the date of our merger
agreement with Targanta and (2) on or before December 31, 2013, then former Targanta
shareholders will be entitled to receive a cash payment equal to $0.70 per share, or
approximately $14.7 million in the aggregate. This payment may become payable
simultaneously with the payment described in the previous bullet above.
    
    If aggregate net sales of oritavancin in four consecutive calendar quarters ending on
or before December 31, 2021 reach or exceed $400 million, then former Targanta
shareholders will be entitled to receive a cash payment equal to $2.35 per share, or
approximately $49.4 million in the aggregate.
   Curacyte Acquisition
  
  Application of Critical Accounting Estimates
   
    
    the nature of the estimate or assumption is material due to the level of subjectivity
and judgment necessary to account for highly uncertain matters or the susceptibility of
such matters to change; and
    
    the impact of the estimates and assumptions on financial condition or operating
performance is material.
 21




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##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2009 and 2008
 Net Revenue.
 Net Revenue
 Three Months Ended March 31,% of Total
    
    
    
    
    
    
    % of Total2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue(in thousands)
    
    
    
    
    
    
    (in thousands)Net RevenueAngiomax and CleviprexUnited States net revenue
    
    $
    96,011
    
    
    
    97
    %
    
    $
    76,883
    
    
    
    97
    %AngiomaxInternational net revenue
    
    
    3,206
    
    
    
    3
    %
    
    
    1,211
    
    
    
    1
    %Revenue from collaborations, net
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    2
    %Total net revenue
    
    $
    99,217
    
    
    
    100
    %
    
    $
    79,427
    
    
    
    100
    %
    Cost of Revenue.
 22




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##### Table of Contents



Cost of Revenue
 Three Months Ended March 31,% of Total
    
    
    
    
    
    
    % of Total2009
    
    
    Cost
    
    
    2008
    
    
    Cost(in thousands)
    
    
    
    
    
    
    (in thousands)Cost of RevenueManufacturing
    
    $
    6,195
    
    
    
    22
    %
    
    $
    4,838
    
    
    
    25
    %Royalty
    
    
    19,190
    
    
    
    68
    %
    
    
    12,257
    
    
    
    64
    %Logistics
    
    
    2,912
    
    
    
    10
    %
    
    
    1,997
    
    
    
    11
    %Total Cost of Revenue
    
    $
    28,297
    
    
    
    100
    %
    
    $
    19,092
    
    
    
    100
    %
 Research and Development Expenses.
  23




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##### Table of Contents



Research and Development Spending
 Three Months Ended March 31,% of
    
    
    
    
    
    
    % of2009
    
    
    Total R&D
    
    
    2008
    
    
    Total R&D(in thousands)
    
    
    
    
    
    
    (in thousands)Research and DevelopmentAngiomaxClinical trials
    
    $
    641
    
    
    
    3
    %
    
    $
    918
    
    
    
    5
    %Manufacturing development
    
    
    2,364
    
    
    
    10
    %
    
    
    480
    
    
    
    2
    %Administrative and headcount costs
    
    
    1,063
    
    
    
    4
    %
    
    
    512
    
    
    
    3
    %Total Angiomax
    
    
    4,068
    
    
    
    17
    %
    
    
    1,910
    
    
    
    10
    %CleviprexClinical trials
    
    
    1,680
    
    
    
    7
    %
    
    
    776
    
    
    
    4
    %Manufacturing development
    
    
    286
    
    
    
    1
    %
    
    
    883
    
    
    
    5
    %Administrative and headcount costs
    
    
    1,776
    
    
    
    7
    %
    
    
    900
    
    
    
    5
    %Total Cleviprex
    
    
    3,742
    
    
    
    15
    %
    
    
    2,559
    
    
    
    14
    %CangrelorClinical trials
    
    
    8,927
    
    
    
    37
    %
    
    
    9,076
    
    
    
    49
    %Manufacturing development
    
    
    1,251
    
    
    
    5
    %
    
    
    956
    
    
    
    5
    %Administrative and headcount costs
    
    
    1,265
    
    
    
    5
    %
    
    
    1,160
    
    
    
    6
    %Total Cangrelor
    
    
    11,443
    
    
    
    47
    %
    
    
    11,192
    
    
    
    60
    %CU2010Clinical trials
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Manufacturing development
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Administrative and headcount
    
    
    1,020
    
    
    
    4
    %
    
    
    
    
    
    
    0
    %Total CU2010
    
    
    1,020
    
    
    
    4
    %
    
    
    
    
    
    
    0
    %OritavancinClinical trials
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Manufacturing development
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Administrative and headcount
    
    
    718
    
    
    
    3
    %
    
    
    
    
    
    
    0
    %Total Oritavancin
    
    
    718
    
    
    
    3
    %
    
    
    
    
    
    
    0
    %Other
    
    
    3,445
    
    
    
    14
    %
    
    
    3,002
    
    
    
    16
    %Total
    
    $
    24,436
    
    
    
    100
    %
    
    $
    18,663
    
    
    
    100
    %
 Angiomax
   Cleviprex
  24




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Cangrelor
    CU2010
  Oritavancin
  25




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##### Table of Contents



Other
    
    
    the scope, rate of progress and cost of our clinical trials and other research and
development activities;
    
    future clinical trial results;
    
    the terms and timing of any collaborative, licensing and other arrangements that we
may establish;
    
    the cost and timing of regulatory approvals;
    
    the cost and timing of establishing and maintaining sales, marketing and distribution
capabilities;
    
    the cost of establishing and maintaining clinical and commercial supplies of our
product candidates;
    
    the effect of competing technological and market developments; and
    
    the cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights.
 Selling, General and Administrative Expenses.
 Other Income.
 Benefit (Provision) for Income Tax.
 26




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##### Table of Contents



Liquidity and Capital Resources
 Sources of Liquidity.
 Cash Flows.
    Funding Requirements.
 
    
    the extent to which Angiomax is commercially successful globally;
    
    the extent to which Cleviprex is commercially successful in the United States;
    
    the extent to which we can successfully establish a commercial infrastructure outside
the United States;
    
    the expansion of our sales force in connection with the expansion of our sales and
marketing efforts in Europe and the sale of Cleviprex in the United States;
    
    our plan to continue to evaluate possible acquisitions of development-stage products,
approved products, or businesses and possible additional strategic or licensing
arrangements with companies that fit within our growth strategy, such as our
acquisitions of Curacyte Discovery and Targanta;
 27




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##### Table of Contents




    
    the progress, level and timing of our research and development activities related to
our clinical trials with respect to Angiomax, Cleviprex, cangrelor, oritavancin and
CU2010;
    
    the cost and outcomes of regulatory submissions and reviews, including our efforts to
obtain approval of the expansion of the Angiomax product label in the United States to
include an additional dosing regimen in the treatment of ACS initiated in the emergency
department in the United States, approval of Cleviprex internationally and approval of
our product candidates globally;
    
    the continuation or termination of third-party manufacturing or sales and marketing
arrangements;
    
    the size, cost and effectiveness of our sales and marketing programs in the United
States and internationally;
    
    the status of competitive products;
    
    the success of obtaining regulatory approval of oritavancin and the extent of the
commercial success of oritavancin, if and when it is approved, which could result in the
cash payment to former Targanta shareholders; and
    
    our ability to defend and enforce our intellectual property rights.
  Contractual Obligations
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   28




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Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1A. Risk Factors
 Investing in our common stock involves a high degree of risk. You should carefully consider
the risks and uncertainties described below in addition to the other information included or
incorporated by reference in this quarterly report. If any of the following risks actually occur,
our business, financial condition or results of operations would likely suffer. In that case, the
trading price of our common stock could fall. An updated description of the risk factors
associated with our business is set forth below.
 Risks Related to Our Financial Results
 We have a history of net losses and may not maintain profitability on an annual basis
  Our business is very dependent on the commercial success of Angiomax
  29




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##### Table of Contents




    
    its continued acceptance by regulators, physicians, patients and other key
decision-makers as a safe, therapeutic and cost-effective alternative to heparin and
other products used in current practice or currently being developed;
    
    our ability to further develop Angiomax for use in additional patient populations
and the clinical data we generate to support expansion of the product label, including
our ability to obtain EMEA approval of Angiox for the treatment of STEMI patients
undergoing PCI;
    
    the overall number of PCI procedures performed;
    
    our ability sell and market of Angiox in Europe; and
    
    the extent to which we and our international distributors are successful in
marketing Angiomax.
   Our revenue has been substantially dependent on our sole source distributor and a limited
number of domestic wholesalers and international distributors involved in the sale of our products,
and such revenue may fluctuate from quarter to quarter based on the buying patterns of such
distributor, wholesalers and distribution partners
    Failure to achieve our revenue targets or raise additional funds in the future may require us
to delay, reduce the scope of, or eliminate one or more of our planned activities
  30




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##### Table of Contents




    
    the extent to which Angiomax is commercially successful globally;
    
    the extent to which Cleviprex is commercially successful in the United States;
    
    the extent to which we can successfully establish a commercial infrastructure
outside the United States;
    
    the expansion of our sales force in connection with the expansion of our sales
and marketing efforts in Europe and the sale of Cleviprex in the United States;
    
    our plan to continue to seek possible acquisitions of development-stage products,
approved products, or businesses and possible additional strategic or licensing
arrangements with companies that fit within our growth strategy, such as our
acquisitions of Curacyte Discovery and Targanta;
    
    the progress, level and timing of our research and development activities related
to our clinical trials with respect to Angiomax, Cleviprex, cangrelor, oritavancin and
CU2010;
    
    the cost and outcomes of regulatory submissions and reviews, approval of
Cleviprex internationally and approval of our product candidates globally;
    
    the continuation or termination of third-party manufacturing or sales and
marketing arrangements;
    
    the size, cost and effectiveness of our sales and marketing programs in the
United States and internationally;
    
    the status of competitive products;
    
    the success of obtaining regulatory approval of oritavancin and the extent of the
commercial success of oritavancin, if and when it is approved, which could result in the
cash payment to former Targanta shareholders; and
    
    our ability to defend and enforce our intellectual property rights.
  Risks Related to Commercialization
 Angiomax competes with all categories of anticoagulant drugs, which may limit the use of
Angiomax
   Because the market for thrombin inhibitors is competitive, Angiomax may not obtain widespread
use
 31




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Cleviprex competes with all categories of IV antihypertensive, or IV-AHT, drugs, which may
limit the use of Cleviprex
   Because the IV-AHT market is competitive and many of the IV-AHT drugs with which we expect
Cleviprex to compete have been widely used in patient care for many years and are generic, our
product may not obtain widespread use
  The market for Cleviprex will depend significantly on its inclusion on hospital formularies
  Near-term growth in our sales of Angiomax and Cleviprex is dependent on acceptance by
physicians, patients and other key decision-makers of clinical data
  32




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##### Table of Contents



We face substantial competition, which may result in others discovering, developing or
commercializing competing products before or more successfully than we do
  Our ability to generate future revenue from products will be affected by our ability to
develop our international operations
  
    
    continue to improve operating, administrative, and information systems;
    
    accurately predict future personnel and resource needs to meet contract
commitments;
    
    track the progress of ongoing projects; and
    
    attract and retain qualified management, sales, professional, scientific and
technical operating personnel.
  Our future growth depends, in part, on our ability to penetrate foreign markets, particularly
in Europe. However, we have limited experience marketing, servicing and distributing our products
and otherwise conducting our business outside the United States, where we are subject to additional
regulatory burdens and other risks
  33




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##### Table of Contents




    
    our customers ability to obtain reimbursement for procedures using our products
in foreign markets;
    
    the burden of complying with complex and changing foreign legal, tax, accounting
and regulatory requirements;
    
    language barriers and other difficulties in providing long-range customer support
and service;
    
    longer accounts receivable collection times;
    
    significant currency fluctuations;
    
    reduced protection of intellectual property rights in some foreign countries; and
    
    the interpretation of contractual provisions governed by foreign laws in the
event of a contract dispute.
  Our ability to generate future revenue from products will be affected by reimbursement and
drug pricing
    We must comply with federal, state and foreign laws and regulations relating to the health
care business, and, if we do not fully comply with such laws and regulations, we could face
substantial penalties
  
    
    the Federal Anti-Kickback Law, which prohibits persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or
indirectly, in cash or in kind, to induce either the referral of an individual or
 34




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##### Table of Contents



furnishing or arranging for a good or service for which payment may be made under
federal health care programs such as Medicare and Medicaid;
    
    other Medicare laws and regulations that prescribe the requirements for coverage
and payment for services performed by our customers, including the amount of such
payment;
    
    the Federal False Claims Act, which imposes civil and criminal liability on
individuals and entities who submit, or cause to be submitted, false or fraudulent
claims for payment to the government; and
    
    the Federal False Statements Act, which prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false
statement in connection with delivery of or payment for health care benefits, items or
services.
  We could be exposed to significant liability if we are unable to obtain insurance at
acceptable costs and adequate levels or otherwise protect ourselves against potential product
liability claims
    Risks Related to Regulatory Matters
 If we do not obtain regulatory approvals for our product candidates, we will not be able to
market our product candidates and our ability to generate additional revenue could be materially
impaired
  35




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##### Table of Contents




    
    delay or prevent the successful commercialization of any of our product
candidates;
    
    diminish our competitive advantage; and
    
    defer or decrease our receipt of revenue.
  We cannot expand the indications for which we are marketing Angiomax unless we receive
regulatory approval for each additional indication. Failure to expand these indications will limit
the size of the commercial market for Angiomax
  Clinical trials of product candidates are expensive and time-consuming, and the results of
these trials are uncertain
   36




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##### Table of Contents




    
    our clinical trials may produce negative or inconclusive results, and we may
decide, or regulators may require us, to conduct additional clinical trials which even
if undertaken cannot ensure we will gain approval;
    
    data obtained from pre-clinical testing and clinical trials may be subject to
varying interpretations, which could result in the FDA or other regulatory authorities
deciding not to approve a product in a timely fashion, or at all;
    
    the cost of clinical trials may be greater than we currently anticipate;
    
    regulators or institutional review boards may not authorize us to commence a
clinical trial or conduct a clinical trial at a prospective trial site;
    
    we, or the FDA or other regulatory authorities, might suspend or terminate a
clinical trial at any time on various grounds, including a finding that participating
patients are being exposed to unacceptable health risks. For example, we have in the
past voluntarily suspended enrollment in one of our clinical trials to review an interim
analysis of safety data from the trial; and
    
    the effects of our product candidates may not be the desired effects or may
include undesirable side effects or the product candidates may have other unexpected
characteristics.
  If we or our contract manufacturers fail to comply with the extensive regulatory requirements
to which we, our contract manufacturers and our products are subject, our products could be subject
to restrictions or withdrawal from the market and we could be subject to penalties
  
    
    delay in approving or refusal to approve a product;
    
    product recall or seizure;
    
    suspension or withdrawal of an approved product from the market;
    
    interruption of production;
    
    operating restrictions;
    
    warning letters;
    
    injunctions;
    
    fines and other monetary penalties;
    
    criminal prosecutions; and
 37




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##### Table of Contents




    
    unanticipated expenditures.
 Risks Related to our Dependence on Third Parties for Manufacturing, Research and Development,
and Distribution Activities
 We depend on single suppliers for the production of Angiomax, Cleviprex, cangrelor and
oritavancin bulk drug substance and a limited number of suppliers to carry out all fill-finish
activities
       The development and commercialization of our products may be terminated or delayed, and the
costs of development and commercialization may increase, if third parties on whom we rely to
manufacture and support the development and commercialization of our products do not fulfill their
obligations
   38




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##### Table of Contents




    
    delay or otherwise adversely impact the manufacturing, development or
commercialization of Angiomax, Cleviprex, cangrelor, oritavancin, CU2010 or any
additional products that we may acquire or develop;
    
    require us to seek a new collaborator or undertake unforeseen additional
responsibilities or devote unforeseen additional resources to the manufacturing,
development or commercialization of our products; or
    
    result in the termination of the development or commercialization of our
products.
 Use of third-party manufacturers may increase the risk that we will not have appropriate
supplies of our product candidates
  
    
    reliance on the third party for regulatory compliance and quality assurance;
    
    the possible breach of the manufacturing agreement by the third party; and
    
    the possible termination or nonrenewal of the agreement by the third party, based
on its own business priorities, at a time that is costly or inconvenient for us.
   In order to satisfy regulatory authorities, we may need to reformulate the way in which our
oritavancin bulk drug substance is created to remove animal source product
 39




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##### Table of Contents



If we use hazardous and biological materials in a manner that causes injury or violates
applicable law, we may be liable for damages
  Risks Related to Our Intellectual Property
 A breach of any of the agreements under which we license commercialization rights to products
or technology from others could cause us to lose license rights that are important to our business
or subject us to claims by our licensors
  If we are unable to obtain or maintain patent protection for the intellectual property
relating to our products, the value of our products will be adversely affected
  
    
    obtain and maintain U.S. and foreign patents, including defending those patents
against adverse claims;
    
    secure patent term extension for the patents covering our approved products;
 40




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##### Table of Contents




    
    protect trade secrets;
    
    operate without infringing the proprietary rights of others; and
    
    prevent others from infringing our proprietary rights.
        We may be unable to utilize the Chemilog process if Lonza Braine breaches our agreement
  41




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##### Table of Contents



If we are not able to keep our trade secrets confidential, our technology and information may
be used by others to compete against us
  If we infringe or are alleged to infringe intellectual property rights of third parties, it
will adversely affect our business
    Risks Related to Growth and Employees
 If we fail to acquire and develop additional product candidates or approved products it will
impair our ability to grow
   42




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##### Table of Contents




    
    manufactured or produced economically;
    
    successfully commercialized; or
    
    widely accepted in the marketplace.
  We may undertake strategic acquisitions in the future and any difficulties from integrating
such acquisitions could damage our ability to attain or maintain profitability
  We may not be able to manage our business effectively if we are unable to attract and retain
key personnel and consultants
  Risks Related to Our Common Stock
 Fluctuations in our operating results could affect the price of our common stock
  43




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##### Table of Contents



Our stock price has been and may in the future be volatile. This volatility may make it
difficult for you to sell common stock when you want or at attractive prices
  
    
    changes in securities analysts estimates of our financial performance;
    
    changes in valuations of similar companies;
    
    variations in our operating results;
    
    acquisitions and strategic partnerships;
    
    announcements of technological innovations or new commercial products by us or
our competitors;
    
    disclosure of results of clinical testing or regulatory proceedings by us or our
competitors;
    
    the timing, amount and receipt of revenue from sales of our products and margins
on sales of our products;
    
    governmental regulation and approvals;
    
    developments in patent rights or other proprietary rights;
    
    changes in our management; and
    
    general market conditions.
  Our corporate governance structure, including provisions in our certificate of incorporation
and by-laws and Delaware law, may prevent a change in control or management that security holders
may consider desirable
   
 Item 5. Other Information
  44




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##### Table of Contents



2008 Annual2009 Annual
    
    Cash BonusName and Title
    
    Base Salary
    
    PaymentsClive A. Meanwell
    
    $
    588,640
    
    
    $
    357,599Chief Executive OfficerJohn P. Kelley
    
    $
    463,500
    
    
    $
    173,813President and Chief Operating OfficerGlenn P. Sblendorio
    
    $
    434,531
    
    
    $
    170,859Executive Vice President and Chief Financial OfficerPaul M. Antinori
    
    $
    381,150
    
    
    $
    103,950Senior Vice President and General CounselCatharine Newberry(1)
    
    $
    
    
    
    $
    53,865Former Senior Vice President and Chief Human Strategy Officer
 
 (1)
    
    Ms. Newberrys employment with us terminated January 26, 2009. 
 Item 6. Exhibits
   45




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SIGNATURES
  THE MEDICINES COMPANYDate: May 11, 2009
    By:
    /s/ Glenn P. SblendorioGlenn P. SblendorioExecutive Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer) 46




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EXHIBIT INDEX
 Exhibit Number
    
    Description2.1
    
    Agreement and Plan of Merger among the registrant, Boxford Subsidiary Corporation, and
Targanta Therapeutics Corporation, dated as of January 12, 2009 (filed as Exhibit 2.1
of the registrants current report on Form 8-K, filed on January 14, 2009)10.1
    
    2009 Equity Inducement Plan (filed as Exhibit 10.1 to the registration statement on
Form S-8 filed February 24, 2009 (registration number 333-157499))10.2
    
    Form of stock option agreement under 2009 Equity Inducement Plan10.3
    
    Form of stock option agreement for employees in Italy under 2009 Equity Inducement Plan10.4
    
    Form of restricted stock agreement under 2009 Equity Inducement Plan10.5
    
    Severance Agreement, dated February 17, 2009 by and between Catharine Newberry and the
registrant (filed as Exhibit 10.42 of the registrants annual report on Form 10-K,
filed on March 2, 2009)10.6
    
    Contingent Payment Rights Agreement dated February 25, 2009 between the registrant and
American Stock Transfer & Trust Company (filed as Exhibit 99.1 of the registrants
current report on Form 8-K, filed on March 2, 2009)31.1
    
    Chairman and Chief Executive Officer Certification pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Chairman and Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 47