##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 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 No. 0-50772
 INHIBITEX, INC.
  Delaware
    
    74-2708737(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)9005 Westside ParkwayAlpharetta, Georgia
    
    30004(Address of principal executive
    
    (Zip Code)offices)
 (678) 746-1100   Not Applicable
 þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007
and 2006 and for the Period from Inception (May 13, 1994) through September 30, 2007
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
and for the Period from Inception (May 13, 1994) through September 30, 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 4. Submission of Matters to a Vote
    
    
    27Item 6. Exhibits
    
    
    29Signatures
    
    
    30Exhibit IndexEX-10.49 LICENSE AGREEMENTEX-10.50 EMPLOYMENT AGREEMENTEX-10.51 EMPLOYEE STOCK OPTION AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF THE CEO AND CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO
  2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,024,147
    
    
    $
    19,681,861Short-term investments
    
    
    36,964,313
    
    
    
    41,676,223Prepaid expenses and other current assets
    
    
    998,491
    
    
    
    1,002,810Accounts receivable
    
    
    438,528
    
    
    
    332,669Total current assets
    
    
    55,425,479
    
    
    
    62,693,563Property and equipment, net
    
    
    2,765,981
    
    
    
    3,530,796Other assets and investments
    
    
    545,105
    
    
    
    Total assets
    
    $
    58,736,565
    
    
    $
    66,224,359LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,761,055
    
    
    $
    629,249Accrued expenses
    
    
    7,276,562
    
    
    
    7,392,210Current portion of notes payable
    
    
    312,500
    
    
    
    833,333Current portion of capital lease obligations
    
    
    742,770
    
    
    
    816,184Current portion of deferred revenue
    
    
    1,191,667
    
    
    
    191,667Other current liabilities
    
    
    152,727
    
    
    
    152,728Total current liabilities
    
    
    11,437,281
    
    
    
    10,015,371Long-term liabilities:Notes payable, net of current portion
    
    
    781,250
    
    
    
    625,000Capital lease obligations, net of current portion
    
    
    218,285
    
    
    
    829,871Deferred revenue, net of current portion
    
    
    425,000
    
    
    
    537,500Other liabilities, net of current portion
    
    
    1,023,480
    
    
    
    1,139,599Total long-term liabilities
    
    
    2,448,015
    
    
    
    3,131,970Total liabilities
    
    
    13,885,296
    
    
    
    13,147,341Stockholders equity:Preferred stock, $.001 par value; 5,000,000
shares authorized at September 30, 2007 and
December 31, 2006; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 75,000,000 shares
authorized at September 30, 2007 and December
31, 2006; 42,393,979 and 30,278,135 shares
issued and outstanding at September 30, 2007 and
December 31, 2006, respectively
    
    
    42,394
    
    
    
    30,278Warrants
    
    
    15,551,492
    
    
    
    11,517,743Additional paid-in capital
    
    
    239,793,901
    
    
    
    214,192,588Other comprehensive income
    
    
    73,951
    
    
    
    12,000Deficit accumulated during the development stage
    
    
    (210,610,469
    )
    
    
    (172,675,591
    )Total stockholders equity
    
    
    44,851,269
    
    
    
    53,077,018Total liabilities and stockholders equity
    
    $
    58,736,565
    
    
    $
    66,224,359
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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Period fromInception(May 13, 1994)Three Months Ended
    
    
    Nine Months Ended
    
    
    ThroughSeptember 30
    
    
    September 30,
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Revenue:License fees and milestones
    
    $
    412,500
    
    
    $
    37,500
    
    
    $
    1,237,500
    
    
    $
    112,500
    
    
    $
    2,550,000Collaborative research and
development
    
    
    250,000
    
    
    
    125,000
    
    
    
    750,000
    
    
    
    375,000
    
    
    
    4,249,455Grants and other revenue
    
    
    
    
    
    
    6,127
    
    
    
    28,500
    
    
    
    193,579
    
    
    
    810,551Total revenue
    
    
    662,500
    
    
    
    168,627
    
    
    
    2,016,000
    
    
    
    681,079
    
    
    
    7,610,006Operating expense:In-process research and development
    
    
    32,575,273
    
    
    
    
    
    
    
    32,575,273
    
    
    
    
    
    
    
    32,575,273Research and development
    
    
    3,223,154
    
    
    
    2,510,667
    
    
    
    6,468,191
    
    
    
    15,985,417
    
    
    
    139,680,866Total research and development
    
    
    35,798,427
    
    
    
    2,510,667
    
    
    
    39,043,464
    
    
    
    15,985,417
    
    
    
    172,256,139General and administrative
    
    
    1,581,888
    
    
    
    1,953,787
    
    
    
    4,849,952
    
    
    
    7,328,153
    
    
    
    41,673,670Total operating expense
    
    
    37,380,315
    
    
    
    4,464,454
    
    
    
    43,893,416
    
    
    
    23,313,570
    
    
    
    213,929,809Loss from operations
    
    
    (36,717,815
    )
    
    
    (4,295,827
    )
    
    
    (41,877,416
    )
    
    
    (22,632,491
    )
    
    
    (206,319,803
    )Other (expense) income, net
    
    
    (31
    )
    
    
    1,002,250
    
    
    
    1,944,548
    
    
    
    1,059,993
    
    
    
    3,662,206Interest income, net
    
    
    645,085
    
    
    
    704,996
    
    
    
    1,997,990
    
    
    
    2,329,441
    
    
    
    8,429,191Net loss
    
    
    (36,072,761
    )
    
    
    (2,588,581
    )
    
    
    (37,934,878
    )
    
    
    (19,243,057
    )
    
    
    (194,228,406
    )Dividends and accretion to
redemption value of redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,382,063
    )Net loss attributable to common
stockholders
    
    $
    (36,072,761
    )
    
    $
    (2,588,581
    )
    
    $
    (37,934,878
    )
    
    $
    (19,243,057
    )
    
    $
    (210,610,469
    )Basic and diluted net loss per share
    
    $
    (1.12
    )
    
    $
    (0.09
    )
    
    $
    (1.22
    )
    
    $
    (0.64
    )Weighted average shares used to
compute basic and diluted net loss
per share
    
    
    32,170,657
    
    
    
    30,272,775
    
    
    
    31,168,994
    
    
    
    30,253,888
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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Period fromInception(May 13, 1994)Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (37,934,878
    )
    
    $
    (19,243,057
    )
    
    $
    (194,228,406
    )Adjustments to reconcile net loss to net cash used in operating
activities:In-process research and development
    
    
    32,575,273
    
    
    
    
    
    
    
    32,575,273Depreciation and amortization
    
    
    790,711
    
    
    
    1,572,645
    
    
    
    10,569,894Share-based compensation
    
    
    1,487,828
    
    
    
    1,462,348
    
    
    
    5,283,510Loss on sale of equipment
    
    
    1,538
    
    
    
    1,017
    
    
    
    102,546Amortization of investment premium or discount
    
    
    (1,096,357
    )
    
    
    99,815
    
    
    
    (757,254
    )Forgiveness of receivables from stockholders
    
    
    
    
    
    
    
    
    
    
    28,695Amortization of warrants and discount on debt
    
    
    
    
    
    
    
    
    
    
    176,477Stock issued for interest
    
    
    
    
    
    
    
    
    
    
    126,886Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (58,460
    )
    
    
    41,040Changes in operating assets and liabilities, net of acquisition:Prepaid expenses and other assets
    
    
    27,328
    
    
    
    240,303
    
    
    
    (975,482
    )Accounts receivable
    
    
    (105,859
    )
    
    
    (174,748
    )
    
    
    (438,528
    )Accounts payable and other liabilities
    
    
    (459,435
    )
    
    
    (2,079,283
    )
    
    
    1,462,141Accrued expenses
    
    
    (866,550
    )
    
    
    (2,433,402
    )
    
    
    6,525,660Deferred revenue
    
    
    887,500
    
    
    
    (112,500
    )
    
    
    1,616,667Net cash used in operating activities
    
    
    (4,692,901
    )
    
    
    (20,725,322
    )
    
    
    (137,890,881
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (23,834
    )
    
    
    (232,863
    )
    
    
    (8,986,875
    )Purchases of investments
    
    
    (60,690,948
    )
    
    
    (39,963,323
    )
    
    
    (275,194,872
    )Proceeds from maturities of investments
    
    
    65,998,000
    
    
    
    55,563,000
    
    
    
    238,486,598Cash paid in connection with the acquisition, net of cash acquired
    
    
    (2,273,202
    )
    
    
    
    
    
    
    (2,273,202
    )Net cash provided by (used in) investing activities
    
    
    3,010,016
    
    
    
    15,366,814
    
    
    
    (47,968,351
    )Cash flows from financing activities:Proceeds from promissory notes, notes payable and related warrants
    
    
    
    
    
    
    
    
    
    
    5,513,492Payments on promissory notes and capital leases
    
    
    (1,049,583
    )
    
    
    (1,759,793
    )
    
    
    (7,906,633
    )Proceeds from bridge loan and related warrants
    
    
    
    
    
    
    
    
    
    
    2,220,000Net proceeds from the issuance of preferred stock and warrants
    
    
    
    
    
    
    
    
    
    
    81,788,868Proceeds from the issuance of common stock, net of issuance costs
    
    
    74,754
    
    
    
    80,348
    
    
    
    121,267,652Net cash (used in) provided by financing activities
    
    
    (974,829
    )
    
    
    (1,679,445
    )
    
    
    202,883,379(Decrease) increase in cash and cash equivalents
    
    
    (2,657,714
    )
    
    
    (7,037,953
    )
    
    
    17,024,147Cash and cash equivalents at beginning of period
    
    
    19,681,861
    
    
    
    33,842,937
    
    
    
    Cash and cash equivalents at end of period
    
    $
    17,024,147
    
    
    $
    26,804,984
    
    
    $
    17,024,147Supplemental cash flow information:Interest paid
    
    $
    116,254
    
    
    $
    257,778
    
    
    $
    1,398,766Supplemental non-cash investing and financing activities:Fixed assets capitalized using promissory notes and capital leases
    
    
    
    
    
    
    
    
    
    
    4,447,946Conversion of bridge loans and interest payable into preferred stock
    
    
    
    
    
    
    
    
    
    
    2,124,576Preferred stock dividends and accretion of preferred stock to
redemption value
    
    
    
    
    
    
    
    
    
    
    16,382,063
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1. Overview
  ® Staphylococcus aureus (S. aureus)
     2. Basis of Presentation and Consolidation
  Principles of Consolidation.
 Income Taxes.
 6




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Recent Accounting Pronouncements.
  3. Agreement and Plan of Merger and Reorganization
    Fair value of Inhibitex common stock issued
    
    $
    18,924Estimated fair value of FermaVir stock options and stock warrants assumed
    
    
    9,223Estimated transaction and exit costs
    
    
    1,920Cash advance consideration as note receivable
    
    
    1,500Total purchase price
    
    $
    31,567
 Goodwill and Other Intangible Assets
  7




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(in thousands)Cash and cash equivalents
    
    $
    69Prepaid expenses and other current assets
    
    
    23Property and equipment, net
    
    
    4Other assets
    
    
    44Accounts payable
    
    
    (871
    )Accrued expenses
    
    
    (277
    )Net fair value of acquired assets and liabilities
    
    
    (1,008
    )In-process research and development
    
    
    32,575Total purchase price
    
    $
    31,567
   
 Pro Forma Results of Operations  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands, except earnings per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    663
    
    
    $
    169
    
    
    $
    2,016
    
    
    $
    681Operating expenses
    
    $
    38,118
    
    
    $
    4,932
    
    
    $
    48,116
    
    
    $
    26,006Net loss
    
    $
    (36,833
    )
    
    $
    (3,082
    )
    
    $
    (50,068
    )
    
    $
    (22,098
    )Basic and diluted net loss per common share
    
    $
    (0.87
    )
    
    $
    (0.07
    )
    
    $
    (1.19
    )
    
    $
    (0.53
    )
 8




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4. Notes Payable
   Year Ending December 31,2007
    
    $
    78,1252008
    
    
    312,5002009
    
    
    312,5002010
    
    
    312,5002011
    
    
    78,125Total future payments
    
    $
    1,093,750
 5. Stockholders Equity
 Common Stock Warrants.
 6. Net Loss Per Share
  9




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss attributable to common stockholders
    
    $
    (36,072,761
    )
    
    $
    (2,588,581
    )
    
    $
    (37,934,878
    )
    
    $
    (19,243,057
    )Weighted average common shares outstanding used
to compute basic earnings per share
    
    
    32,170,657
    
    
    
    30,272,775
    
    
    
    31,168,994
    
    
    
    30,253,888Dilutive effect of:Stock options and restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares used to compute diluted earnings per share
    
    
    32,170,657
    
    
    
    30,272,775
    
    
    
    31,168,994
    
    
    
    30,253,888Basic and diluted net loss per share
    
    $
    (1.12
    )
    
    $
    (0.09
    )
    
    $
    (1.22
    )
    
    $
    (0.64
    )Number of antidilutive stock options and
restricted stock excluded from computation
    
    
    5,923,697
    
    
    
    3,511,504
    
    
    
    5,923,697
    
    
    
    3,511,504Number of antidilutive warrants excluded from
computation
    
    
    8,535,097
    
    
    
    3,807,706
    
    
    
    8,535,097
    
    
    
    3,807,706
 7. License Fees and Collaborative Research and Support
  8. Share-Based Award Plans
  Stock Options
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Weighted average risk-free interest rate
    
    
    4.19
    %
    
    
    
    
    
    
    4.22
    %
    
    
    4.81
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected weighted average volatility
    
    
    .71
    
    
    
    
    
    
    
    .71
    
    
    
    .70Expected weighted average life of options (years)
    
    
    4.0
    
    
    
    
    
    
    
    4.0
    
    
    
    4.0Weighted average fair value of options granted
    
    $
    0.81
    
    
    
    
    
    
    $
    0.81
    
    
    $
    1.93
 10




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AggregateWeighted Average
    
    
    Weighted-Average
    
    
    IntrinsicNumber of
    
    
    Exercise Price
    
    
    Remaining Contractual
    
    
    ValueStock Options
    
    
    Per Option
    
    
    Term
    
    
    ($000)Balance at December
31, 2006
    
    
    2,081,054
    
    
    $
    5.35Granted
    
    
    3,419,884
    
    
    
    1.61Exercised
    
    
    (11,977
    )
    
    
    0.48Forfeited or
expired
    
    
    (629,833
    )
    
    
    7.96Balance at
September 30,
2007
    
    
    4,859,128
    
    
    $
    2.39
    
    
    
    6.38
    
    
    $
    117
  Restricted Stock
  Weighted-AverageGrant DateRestricted Stock
    
    Shares
    
    
    Fair ValueBalance at December 31, 2006
    
    
    1,659,157
    
    
    $
    1.87Granted
    
    
    35,377
    
    
    
    1.59Released
    
    
    (626,615
    )
    
    
    1.93Forfeited
    
    
    (3,350
    )
    
    
    2.05Balance at September 30, 2007
    
    
    1,064,569
    
    
    $
    1.82
  9. Other Income
  11




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10. Income Taxes
   11. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (36,072,761
    )
    
    $
    (2,588,581
    )
    
    $
    (37,934,878
    )
    
    $
    (19,243,057
    )Change in net unrealized gains on investments
    
    
    54,417
    
    
    
    69,034
    
    
    
    61,951
    
    
    
    99,400Comprehensive loss
    
    $
    (36,018,344
    )
    
    $
    (2,519,547
    )
    
    $
    (37,872,927
    )
    
    $
    (19,143,657
    )
 12. Contingency
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATIONS
 This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. In some cases,
you can identify forward-looking statements by terms such as may, will, should, could,
would, expect, plan, intend, anticipate, believe, estimate, project, predict,
forecast, potential, likely or possible, as well as the negative of such expressions, and
similar expressions intended to identify forward-looking statements. These forward-looking
statements include, without limitation, statements relating to:
 
    
    the expected timing and development plans associated with our antiviral and anti-bacterial
development programs;
    
    our ability to execute our strategy;
    
    our plan to expand our pipeline by in-licensing and/or acquiring additional antiviral dug
candidates or programs to diversify our risk in our pipeline on any single drug;
    
    our intent to further leverage, develop or monetize our MSCRAMM® platform including
Aurexis through licenses, co-development, collaborations or other transactions;
    
    our intent to establish new strategic collaborations to accelerate development and
commercialization of our dug candidates;
    
    the expected timing of data from our exploratory clinical trial for FV-100;
    
    our timing and plan to select a lead candidate for our HIV integrase inhibitor program and perform
IND enabling studies;
    
    our timing and plan to select a lead candidate for our CMV program;
    
    our timing and plan to advance Aurexis into well, powered Phase II proof of concept trial through
license, co-development, collaboration or other transaction;
    
    our plans to support our existing collaborations;
    
    the number of months that our current cash, cash equivalents, and short-term investments will allow
us to operate;
    
    our future financing requirements, the factors that influence these requirements, and how we expect
to fund them;
    
    potential future revenue from collaborative research agreements, partnerships, license agreements,
or materials transfer agreements;
    
    our ability to successfully develop our programs and generate product-related revenue in the future;
    
    and anticipated future and increased losses from operations and the potential volatility of our
quarterly and annual operating costs.
 These statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties including, without limitation: the continued
successful development of our product candidates; 3M Company or Wyeth terminating our license
and collaborative research agreements; maintaining sufficient resources, including executive
management and key employees; our ability to successfully develop current and future product
candidates either independently or in collaboration with partner and through the regulatory
process; our collaborators do not fulfill their obligations under our agreements with them in
the future; our ability to attract suitable organizations to collaborate on the development and
commercialization of our product candidates; the condition of the financial equity and debt
markets and our ability to raise sufficient funding in such markets; our ability to manage our
current cash reserves as planned; our ability to in-license or acquire additional antiviral
development programs in the future to expand our emerging antiviral pipeline; changes in general
economic business or competitive conditions; and other statements contained elsewhere in this
Quarterly Report on Form 10-Q and risk factors described in or referred to in greater detail in
the Risk Factors section of this Form 10-K for December 31, 2006. There
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may be events in the
future that we are unable to predict accurately, or over which we have no control. You should
read this Form 10-Q and the documents that we reference herein and have been filed or
incorporated by reference as exhibits completely and with the understanding that our actual
future results may be materially different from what we expect. Our business, financial
condition, results of operations, and prospects may change. We may not update these
forward-looking statements, even though our situation may change in the future, unless we have
obligations under the federal securities laws to update and disclose material developments
related to previously disclosed information. We qualify all of the information presented in this
Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
 Inhibitex ® , MSCRAMM ® , Veronate ® ,
and Aurexis ® are
registered trademarks of Inhibitex, Inc. MSCRAMM is an acronym for Microbial Surface Components
Recognizing Adhesive Matrix Molecules
 The following discussion should be read in conjunction with the financial statements and the notes
thereto included in Item 1 of this Quarterly Report on Form 10-Q .
 Overview
 Staphylococcal aureus
    Recent Developments
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Our Pipeline
  CurrentDrug
    
    
    
    Stage of
    
    
    
    MarketingCandidate
    
    Indication
    
    Development
    
    Current Status
    
    RightsAntiviralsFV-100
    
    Herpes Zoster
(shingles)
    
    Completed
IND-enabling
studies
    
     Initiated an exploratory first in-man Phase I
clinical trial in the fourth quarter of 2007
    
    InhibitexHIV Integrase 
Inhibitor
    
    HIV Infection
    
    Preclinical
    
     Lead optimization studies in progress
    
    InhibitexCMV
    
    CMV Infection
    
    Preclinical
    
     Lead optimization studies in progress
    
    InhibitexHCV Inhibitor
    
    Chronic HCV
Infection
    
    Discovery
    
     Discovery activities in progress
    
    InhibitexAnti-bacterialsAurexis
    
    Life-threatening
Serious
S. aureus Infections
    
    Completed Phase IIa
    
     Completed 60 patient Phase II clinical trial
    
    InhibitexStaphylococcal 
Vaccines
    
    Vaccine
    
    Preclinical
    
     Preclinical studies in progress
    
    WyethDiagnostics
    
    Various
    
    Pre-Market
    
     Expected launch of first diagnostic product in 2008
    
    3M
 Our Strategy
  
    
    Advance the Development of Our Current Product Candidates. We plan to
focus our resources on the development of our most advanced antiviral
compounds: FV-100 for the treatment of varicella zoster infection, or
shingles, and HIV integrase inhibitors. We also have a preclinical
development programs in which we are evaluating a series of nucleoside
analogues for the treatment of CMV and a discovery-stage inhibitors
for the treatment of chronic hepatitis C that we plan to advance. In
particular, our goals are to:
 
    
    Complete the exploratory 24 patient Phase I clinical trial of FV-100
in the fourth quarter of 2007, and if warranted
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initiate further Phase
I studies of FV-100 in 2008;
    
    complete early preclinical evaluation of several of our HIV integrase
inhibitors and nominate one of these compounds to be further evaluated
in IND enabling studies in 2008; and
    
    complete early preclinical testing of several of our nucleoside
analogues for CMV and identify a potential lead compound for possible
further development by the end of 2007.
 
    
    Expand our Anti-infective Portfolio.We plan to complement our
pipeline by in-licensing and/or acquiring additional antiviral drug
candidates or programs to diversify the risk in our portfolio on any
single drug candidate; however, we cannot assure you when, if ever, we
might be successful in doing so on terms acceptable to us.
    
    Leverage our MSCRAMM Protein Platform. We will continue to explore
opportunities intend to further leverage our capabilities and
intellectual property associated with our MSCRAMM protein platform by
pursuing licenses, co-development, collaborations or other business
arrangements that could provide financial and other synergistic
capabilities to support the further development and potential of these
programs, including Aurexis.
    
    Support our Existing Collaborations. We plan to continue to support
our existing MSCRAMMbased license and collaboration agreements with
Wyeth for the development of staphylococcal vaccines and 3M for the
development of diagnostic products.
    
    Accelerate Growth Through New Collaborations. We intend to establish
new strategic collaborations where we believe we can accelerate the
development of our available drug candidates beyond proof of concept
and maximize the value of our drug candidates by utilizing the
financial, clinical development, manufacturing and commercialization
strengths of a leading pharmaceutical or biopharmaceutical company.
 Critical Accounting Policies
   
    
    Revenue Recognition
    
    Share-based Compensation
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Results of Operations
 Three Months Ended September 30, 2007 and 2006
 Revenue.
 Research and Development Expense.
   September 30,2007
    
    
    2006(In millions)In-process research and development expenses
    
    $
    32.6
    
    
    $
    Salaries, benefits and share-based compensation expenses
    
    
    0.9
    
    
    
    1.1License fees, patent-related legal fees and other expenses
    
    
    1.7
    
    
    
    0.7Depreciation and facility related expenses
    
    
    0.6
    
    
    
    0.7Total research and development expense
    
    $
    35.8
    
    
    $
    2.5
 General and Administrative Expense.
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September 30,2007
    
    
    2006(In millions)Professional and legal fees and market research expenses
    
    $
    0.3
    
    
    $
    0.4Salaries, benefits and share-based compensation expense
    
    
    0.9
    
    
    
    0.9Other expenses
    
    
    0.3
    
    
    
    0.5Depreciation and facility-related expenses
    
    
    0.1
    
    
    
    0.2Total general and administrative expense
    
    $
    1.6
    
    
    $
    2.0
 Other Income (Loss), net .
 Nine Months Ended September 30, 2007 and 2006
 Revenue.
 Research and Development Expense.
   September 30,2007
    
    
    2006(In millions)In-process research and development expenses
    
    $
    32.6
    
    
    $
    Clinical and manufacturing-related expenses
    
    
    
    
    
    
    6.5Salaries, benefits and share-based compensation expense
    
    
    2.5
    
    
    
    5.0License fees, patent-related legal fees and other expenses
    
    
    2.3
    
    
    
    2.5Depreciation and facility related expenses
    
    
    1.6
    
    
    
    2.0Total research and development expense
    
    $
    39.0
    
    
    $
    16.0
 General and Administrative Expense.
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September 30,2007
    
    
    2006(In millions)Professional and legal fees and market research expenses
    
    $
    0.8
    
    
    $
    2.1Salaries, benefits and share-based compensation expense
    
    
    2.7
    
    
    
    3.1Other expenses
    
    
    1.0
    
    
    
    1.5Depreciation and facility-related expenses
    
    
    0.4
    
    
    
    0.6Total general and administrative expense
    
    $
    4.9
    
    
    $
    7.3
 Other Income (Loss), net .
 Liquidity and Capital Resources
 Sources of Liquidity
     Cash Flows
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Funding Requirements
  
    
    any changes in our strategy in the future;
    
    whether we obtain additional preclinical or clinical-stage product candidates or programs through
future in-licensing, acquisition or merger activities;
    
    the development plans and timing of our pipeline;
    
    the terms and timing of any collaborative, licensing and other arrangements that we may establish;
    
    the variability, timing and costs associated with conducting pre-clinical studies;
    
    the cost of manufacturing clinical trial materials for our product candidates;
    
    the variability, timing and costs associated with conducting clinical trials, the rate of
enrollment in such clinical trials and the results of these clinical trials;
    
    the cost to obtain and timing of regulatory approvals required to advance the development of our
programs or product candidates;
    
    the number of drug candidates we may advance into clinical development;
    
    future payments we may receive or make under existing or future license or collaboration agreements;
    
    the cost to maintain a corporate infrastructure to support being a publicly-traded company;
    
    the cost of filing, prosecuting, and enforcing patent and other intellectual property claims; and
    
    the future need to acquire additional licenses or acquire product candidates or programs.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
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PART II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
 You should carefully consider the following discussion of risks, together with the other
information contained in this Form 10-Q and the risk factors included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2006 and the Companys Quarterly Reports on
Form 10-Q for the period ended March 31, 2007 and June 30, 2007. The occurrence of any of the
following risks could materially harm our business, our financial condition, and our ability to
raise additional capital in the future or ever become profitable. In that event, the market price
of our common stock could decline and you could lose part or all of your investment.
 Risks Relating to Our Business
 If we are unable to successfully develop our drug candidates, our business will be materially
harmed.
  We have limited experience in the development of small molecule antiviral product candidates and
therefore may encounter difficulties in further developing our pipeline or managing our operations
in the future.
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If preclinical studies or clinical trials for our product candidates, including those that are
subject to collaboration agreements, are unsuccessful or delayed, we could be delayed or precluded
from further developing or ultimately commercializing or selling our product candidates.
  In order to develop our product candidates, we expect that we will need to raise additional capital
in the future, which may not be available to us on acceptable terms, if at all.
  
    
    our ability to successfully advance the development of the antiviral
programs and product candidates that we have recently obtained through
proof of concept trials;
    
    the time and cost to complete the requisite preclinical studies and
clinical trials and receive regulatory approval to advance our product
candidates through the various phases of clinical development;
    
    whether we continue the continued development of Aurexis or our other
MSCRAMM-related programs through co-development, collaborative or
other business arrangements that could provide financial support and
other synergistic capabilities;
    
    the extent to which we can enter into license or collaboration
agreements with larger biotechnology or pharmaceutical companies that
can provide financial support and other synergistic capabilities to further develop and commercialize our antiviral product candidates
    
    the amount of future payments, if any, received or made under existing
or future license, collaboration or similar arrangements;
    
    the costs associated with protecting or expanding our patent and other
intellectual property rights; and
    
    whether we acquire licenses to new products, development programs or
compounds in the future through in-licensing, acquisition or merger,
and the stage of development of any such development programs.
  We may be unable to obtain additional antiviral development programs via in-licensing, acquisition
or merger activities, which could limit our growth potential and harm our business.
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We may be unable to successfully develop product candidates that are the subject of collaborations
if our collaborators do not perform or otherwise chose to delay, suspend the development of the
product candidate or termination the related agreement.
  We may be unable to enter into future license, collaborations or other transactions with respect to
Aurexis or our MSCRAMM protein platform, which could harm our business.
  We must comply with extensive government regulations in order to advance our product candidates
through the clinical development process and ultimately obtain and maintain marketing approval for
our products in the United States and abroad.
  
    
    adversely affect our ability to further develop or commercialize any product candidates;
    
    diminish any competitive advantages that we may have or attain; and
    
    adversely affect product revenues or the receipt of milestones and royalties from the
development or sale of our products.
  
    
    delays, suspension or termination of the clinical trials related to our products;
    
    refusal by the FDA to review pending applications or supplements to approved applications;
    
    product recalls or seizures;
    
    suspension of manufacturing;
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
    
    withdrawals of previously approved marketing applications; and
    
    fines, civil penalties and criminal prosecutions.
   We have experienced losses since our inception. We expect to continue to incur such losses for the
foreseeable future and we may never become profitable.
  
    
    costs related to our research programs and the clinical development of
our product candidates; and
    
    general and administrative costs relating to our operations.
  If third party vendors upon whom we rely to conduct our preclinical studies or clinical trials do
not perform or fail to comply with strict regulations, the clinical trials for our product
candidates may be terminated, delayed, or fail.
  If we fail to enter into collaborations or sales, marketing and distribution arrangements with
third parties to commercialize our product candidates, or successfully establish marketing and
sales capabilities ourselves, we may not be able to successfully commercialize our products.
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Our revenues, expenses and results of operations will be subject to significant fluctuations, which
will make it difficult to compare our operating results from period to period.
  Our industry is highly competitive and subject to rapid technological changes. As a result, we may
be unable to compete successfully or develop innovative products, which could harm our business.
   Risks Related to Owning Our Common Stock
 Our
common stock price has been highly volatile, and your investment in us could suffer a decline in value.
  
    
    our ability to obtain other preclinical or clinical-stage development programs on terms
acceptable to us, our stockholders, analysts and institutional buyers;
    
    our ability to integrate FermaVir and other programs and conduct preclinical and clinical
development activities;
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
    
    our ability to manage our cash burn rate at an acceptable level;
    
    disclosure of our or our competitors clinical trial status or data;
    
    the approval or commercialization of new products by us or our competitors, and the
disclosure thereof;
    
    announcements of scientific innovations by us or our competitors;
    
    rumors relating to us or our competitors;
    
    public concern about the safety of our product candidates, products or similar classes of
products;
    
    litigation to which we may become subject;
    
    disclosures of any favorable or unfavorable preclinical or clinical data, or regulatory
developments concerning our clinical trials, manufacturing or product candidates;
    
    actual or anticipated variations in our annual and quarterly operating results;
    
    changes in general conditions or trends in the biotechnology and pharmaceutical industries;
    
    changes in drug reimbursement rates or government policies related to reimbursement;
    
    announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
    
    new regulatory legislation adopted in the United States or abroad;
    
    our failure to achieve or meet equity research analysts expectations or their estimates
of our business, or a change in their recommendations concerning us, the value of our
common stock or our industry in general;
    
    termination or delay in any of our existing or future collaborative arrangements;
    
    future sales of equity or debt securities in connection with raising capital;
    
    the sale of shares held by our directors or management;
    
    the loss of our eligibility to have shares of our common stock traded on the Nasdaq Global
Market due to our failure to maintain listing standards;
    
    changes in accounting principles;
    
    failure to comply with the periodic reporting requirements of publicly-owned companies,
under the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002;
and
    
    general economic conditions.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE
  Approval of the issuance of shares for the merger with FermaVir Pharmaceuticals, Inc.For
    
    
    16,167,886
    
    
    Against
    
    
    1,897,640
    
    
    Abstain
    
    
    6,338Approval of the increase of shares for the Amended and Restated 2004 Stock Incentive Plan.For
    
    
    15,725,420
    
    
    Against
    
    
    2,258,336
    
    
    Abstain
    
    
    88,108


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Approved the proposal to elect the director nominees named below:M. James Barrett
    
    For
    
    
    24,474,864
    
    
    Withheld
    
    
    2,605,953Michael A. Henos
    
    For
    
    
    24,585,410
    
    
    Withheld
    
    
    2,495,407Marc L. Preminger
    
    For
    
    
    25,201,446
    
    
    Withheld
    
    
    1,879,371Approved the ratification of Ernst &Young LLP, as independent registered public accounting firm for the fiscal year ending December 31, 2007.For
    
    
    25,339,148
    
    
    Against
    
    
    1,470,779
    
    
    Abstain
    
    
    270,888
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ITEM 6. EXHIBITS
  Exhibit No.
    
    Description10.49
    
    License Agreement, dated September 11, 2007, by and between registrant and University of
Georgia Research Foundation, Inc.10.50
    
    Employment Agreement, dated September 20, 2007, by and between registrant and Geoff Henson10.51
    
    Form of Employee Stock Option
Agreement, dated September 19, 2007.31.1
    
    Section 302 Certification of the Chief Executive Officer and Chief Financial Officer
Required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer
 
 
    
    We have requested confidential treatment with respect to the omitted portions of this exhibit and
such information has been filed separately with the Securities and Exchange Commission 29




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SIGNATURES
  Date: November 9, 2007
    INHIBITEX, INC/s/ Russell H. PlumbRussell H. Plumb

President, Chief Executive Officer, and Chief Financial Officer 30




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EXHIBIT INDEX
 Exhibit No.
    
    Description10.49
    
    License Agreement, dated September 11, 2007, by and between registrant and University of
Georgia Research Foundation, Inc.10.50
    
    Employment Agreement, dated September 20, 2007, by and between registrant and Geoff Henson10.51
    
    Form of Employee Stock Option
Agreement, dated September 19, 2007.31.1
    
    Section 302 Certification of the Chief Executive Officer and Chief Financial Officer
Required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer 
 
    
    We have requested confidential treatment with respect to the omitted portions of this exhibit and
such information has been filed separately with the Securities and Exchange Commission
 31