ACORDA THERAPEUTICS INC, 10-Q filed on 5/12/2021
Quarterly Report
v3.21.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2021
May 07, 2021
Cover [Abstract]    
Entity Registrant Name ACORDA THERAPEUTICS, INC.  
Entity Central Index Key 0001008848  
Document Type 10-Q  
Document Period End Date Mar. 31, 2021  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Document Quarterly Report true  
Document Transition Report false  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Trading Symbol ACOR  
Title of each class Common Stock $0.001 par value  
Name of each exchange on which registered NASDAQ  
Entity Common Stock, Shares Outstanding   9,488,596
Entity File Number 001-31938  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 13-3831168  
Entity Address, Address Line One 420 Saw Mill River Road  
Entity Address, City or Town Ardsley  
Entity Address, State or Province NY  
Entity Address, Postal Zip Code 10502  
City Area Code 914  
Local Phone Number 347-4300  
v3.21.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 116,773 $ 71,369
Restricted cash 13,054 12,917
Trade accounts receivable, net of allowances of $904 and $1,266, as of March 31, 2021 and December 31, 2020, respectively 17,295 20,193
Prepaid expenses 12,882 14,807
Inventory, net 27,415 28,677
Assets held for sale   71,795
Other current assets 2,300 1,577
Total current assets 189,719 221,335
Property and equipment, net of accumulated depreciation 6,451 7,263
Intangible assets, net of accumulated amortization 359,245 366,981
Right of use asset, net of accumulated amortization 10,013 18,481
Restricted cash 18,609 18,609
Other assets 11 11
Total assets 584,048 632,680
Current liabilities:    
Accounts payable 9,488 12,155
Accrued expenses and other current liabilities 38,123 38,167
Current portion of loans payable 68,529 68,631
Current portion of liability related to sale of future royalties 9,015 8,731
Current portion of lease liabilities 6,198 7,944
Current portion of acquired contingent consideration 1,698 1,624
Total current liabilities 133,051 137,252
Convertible senior notes 140,751 137,619
Derivative liability 1,418 1,193
Non-current portion of acquired contingent consideration 45,302 46,576
Non-current portion of lease liabilities 9,810 17,200
Non-current portion of loans payable 27,623 28,555
Deferred tax liability 15,495 19,116
Non-current portion of liability related to sale of future royalties 3,642 6,526
Other non-current liabilities 677 688
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value. Authorized 1,000,000 shares at March 31, 2021 and December 31, 2020; no shares issued as of March 31, 2021 and December 31, 2020, respectively
Common stock, $0.001 par value. Authorized 61,666,666 shares at March 31, 2021 and December 31, 2020; issued 9,476,256 and 9,475,631 shares, including those held in treasury, as of March 31, 2021 and December 31, 2020, respectively 9 9
Treasury stock at cost (5,543 shares at March 31, 2021 and December 31, 2020) (638) (638)
Additional paid-in capital 1,008,497 1,007,790
Accumulated deficit (799,855) (766,403)
Accumulated other comprehensive (loss) income (1,734) (2,803)
Total stockholders’ equity 206,279 237,955
Total liabilities and stockholders’ equity $ 584,048 $ 632,680
v3.21.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Trade accounts receivable, allowances (in dollars) $ 904 $ 1,266
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, Authorized shares 1,000,000 1,000,000
Preferred stock, issued shares 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, Authorized shares 61,666,666 61,666,666
Common stock, issued shares 9,476,256 9,475,631
Treasury stock, shares 5,543 5,543
v3.21.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Revenues:    
Total net revenues $ 28,862 $ 28,099
Costs and expenses:    
Cost of sales 11,961 3,843
Research and development 4,749 7,705
Selling, general and administrative 33,968 41,108
Amortization of intangible assets 7,691 7,691
Asset impairment 0 4,131
Change in fair value of derivative liability 225 (26,528)
Changes in fair value of acquired contingent consideration (951) (3,682)
Total operating expenses 57,643 34,268
Operating loss (28,781) (6,169)
Other income (expense), net:    
Interest and amortization of debt discount expense (7,825) (7,566)
Interest income 3 312
Other income (expense) 1 (42)
Realized loss on foreign currency transactions (1) (5)
Total other expense, net (7,822) (7,301)
Loss before taxes (36,603) (13,470)
Benefit from income taxes 3,152 6,998
Net loss $ (33,451) $ (6,472)
Net loss per share—basic $ (3.53) $ (0.81)
Net loss per share—diluted $ (3.53) $ (0.81)
Weighted average common shares outstanding used in computing net loss per share—basic 9,470 7,960
Weighted average common shares outstanding used in computing net loss per share—diluted 9,470 7,960
Net Product Revenues    
Revenues:    
Total net revenues $ 25,247 $ 24,672
Royalty Revenues    
Revenues:    
Total net revenues $ 3,615 $ 3,427
v3.21.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Statement Of Income And Comprehensive Income [Abstract]    
Net loss $ (33,451) $ (6,472)
Other comprehensive income (loss), net of tax:    
Foreign currency translation adjustment 1,069 387
Unrealized loss on available for sale debt securities   (37)
Other comprehensive income, net of tax 1,069 350
Comprehensive loss $ (32,382) $ (6,122)
v3.21.1
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock
Treasury stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive (loss) income
Balance at Dec. 31, 2019 $ 310,820 $ 8 $ (638) $ 979,428 $ (666,809) $ (1,169)
Balance (in shares) at Dec. 31, 2019   7,964,000        
Compensation expense for issuance of stock options to employees 1,976     1,976    
Other comprehensive income, net of tax 350         350
Net loss (6,472)       (6,472)  
Balance at Mar. 31, 2020 306,674 $ 8 (638) 981,404 (673,281) (819)
Balance (in shares) at Mar. 31, 2020   7,964,000        
Balance at Dec. 31, 2020 237,955 $ 9 (638) 1,007,790 (766,403) (2,803)
Balance (in shares) at Dec. 31, 2020   9,476,000        
Compensation expense for issuance of stock options to employees 483     483    
Compensation expense for issuance of restricted stock to employees $ 224     224    
Purchase of Treasury Stock ,Shares 0          
Other comprehensive income, net of tax $ 1,069         1,069
Net loss (33,451)       (33,451)  
Balance at Mar. 31, 2021 $ 206,279 $ 9 $ (638) $ 1,008,497 $ (799,854) $ (1,734)
Balance (in shares) at Mar. 31, 2021   9,476,000        
v3.21.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Dec. 31, 2020
Cash flows from operating activities:      
Net loss $ (33,451) $ (6,472)  
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      
Share-based compensation expense 707 1,976  
Amortization of net premiums and discounts on investments   (47)  
Amortization of debt discount and debt issuance costs 4,271 4,054  
Depreciation and amortization expense 8,527 10,077  
Asset impairment 0 4,131  
Change in acquired contingent consideration obligation (951) (3,682)  
Non-cash royalty revenue (3,000) (3,016)  
Deferred tax provision (benefit) (3,152) 6,796  
Change in derivative liability 225 (26,528)  
Changes in assets and liabilities:      
Decrease in accounts receivable 2,898 7,114  
(Increase) decrease in prepaid expenses and other current assets 811 (16,548)  
Increase in inventory (1,006) (345)  
Decrease in other assets   17  
Decrease in accounts payable, accrued expenses and other current liabilities (2,567) (15,920)  
Decrease in other non-current liabilities (200) (387)  
Net cash used in operating activities (26,888) (38,779)  
Cash flows from investing activities:      
Purchases of property and equipment (28) (2,245)  
Purchases of intangible assets (26)    
Proceeds from maturities of investments   13,288  
Net cash (used in) provided by investing activities (54) 11,043  
Cash flows from financing activities:      
Debt issuance costs   (981)  
Proceeds from sale of Chelsea facility, net 73,969    
Repayment of loans payable (655) (597)  
Net cash provided by (used in) financing activities 73,314 (1,578)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash (831) (15)  
Net increase (decrease) in cash, cash equivalents and restricted cash 45,541 (29,330)  
Cash, cash equivalents and restricted cash at beginning of period 102,895 105,192 $ 105,192
Cash, cash equivalents and restricted cash at end of period 148,436 75,862 $ 102,895
Supplemental disclosure:      
Cash paid for interest 6 12  
Cash paid for taxes $ 2 $ 63  
v3.21.1
Organization and Business Activities
3 Months Ended
Mar. 31, 2021
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Business Activities

(1) Organization and Business Activities

Acorda Therapeutics, Inc. (“Acorda” or the “Company”) is a biopharmaceutical company focused on developing therapies that restore function and improve the lives of people with neurological disorders.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information, Accounting Standards Codification (ASC) Topic 270-10 and with the instructions to Form 10-Q. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments considered necessary for a fair presentation have been included in the interim periods presented and all adjustments are of a normal recurring nature. The Company has evaluated subsequent events through the date of this filing. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. When used in these notes, the terms “Acorda” or “the Company” mean Acorda Therapeutics, Inc. The December 31, 2020 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. You should read these unaudited interim condensed consolidated financial statements in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K, for the year ended December 31, 2020.

v3.21.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting

(2) Summary of Significant Accounting Policies

Our significant accounting policies are detailed in our Annual Report on Form 10-K for the year ended December 31, 2020. Effective January 1, 2021, the Company adopted ASU 2019-12, “Simplifying the Accounting for Income Taxes” (Topic 740). Other than the adoption of the new accounting guidance, our significant accounting policies have not changed materially from December 31, 2020.

Basis of Presentation

On December 31, 2020, we filed an amendment to our Certificate of Incorporation which effected, as of 4:01 p.m. Eastern Time on December 31, 2020, a 1-for-6 reverse stock split of the shares of our outstanding common stock and proportionate reduction in the number of authorized shares of our common stock from 370,000,000 to 61,666,666. Our common stock began trading on a split-adjusted basis on The Nasdaq Global Select Market commencing upon market open on January 4, 2021. The common stock continued to trade under the symbol “ACOR” after the reverse stock split became effective. The reverse stock split applied equally to all outstanding shares of the common stock and did not modify the rights or preferences of the common stock. As such, all figures in this report relating to shares of our common stock (such as share amounts, per share amounts, and conversion rates and prices), including in the financial statements and accompanying notes to the financial statements, have been retroactively restated to reflect the 1-for-6 reverse stock split of our common stock.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the statement of cash flows:

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

(In thousands)

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

Cash and cash equivalents

$

71,369

 

 

$

116,773

 

 

$

62,085

 

 

$

32,417

 

Restricted cash

 

12,917

 

 

 

13,054

 

 

 

12,836

 

 

 

13,175

 

Restricted cash non-current

 

18,609

 

 

 

18,609

 

 

 

30,270

 

 

 

30,270

 

Total Cash, cash equivalents and restricted cash per statement of cash flows

$

102,895

 

 

$

148,436

 

 

$

105,191

 

 

$

75,862

 

 

 

Restricted cash represents an escrow account with funds to maintain the interest payments for an amount equal to all remaining scheduled interest payments on the outstanding convertible senior secured notes due 2024 through the interest payment date of June 1, 2023; and a bank account with funds to cover the Company’s self-funded employee health insurance. At March 31, 2021, the Company also held $0.2 million of restricted cash related to cash collateralized standby letters of credit in connection with obligations under facility leases and $18.4 million related to the escrow account for interest payments included in restricted cash non-current in the consolidated balance sheet due to the long-term nature of the letters of credit and interest payments. (see Note 10).

Inventory

The major classes of inventory were as follows:

(In thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Raw materials

 

$

1,024

 

 

$

3,434

 

Work-in-progress

 

 

 

 

 

6,602

 

Finished goods

 

 

26,391

 

 

 

18,641

 

Total

 

$

27,415

 

 

$

28,677

 

The Company reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected product sales volume and provides reserves against the carrying amount of inventory as appropriate. On February 10, 2021, we completed the sale of our Chelsea, Massachusetts manufacturing operations to Catalent Pharma Solutions. In connection with the sale of the manufacturing operations, we transferred approximately $2.3 million of raw materials to Catalent (see Note 12). Additionally, in reviewing the inventory for slow moving or obsolete amounts we recorded a charge of $1.3 million for the remaining work-in-progress inventory that was scrapped or discarded during the three-month period ended March 31, 2021.

Foreign Currency Translation

The functional currency of operations outside the United States of America is deemed to be the currency of the local country, unless otherwise determined that the United States dollar would serve as a more appropriate functional currency given the economic operations of the entity. Accordingly, the assets and liabilities of the Company’s foreign subsidiary, Biotie, are translated into United States dollars using the period-end exchange rate; income and expense items are translated using the average exchange rate during the period; and equity transactions are translated at historical rates. Cumulative translation adjustments are reflected as a separate component of equity. Foreign currency transaction losses and gains are recognized in the period incurred and are reported as other (expense) income, net in the statement of operations.

Segment and Geographic Information

The Company is managed and operated as one business which is focused on developing therapies that restore function and improve the lives of people with neurological disorders. The entire business is managed by a single management team that reports to the Chief Executive Officer, who is the chief operating decision maker. The Company does not operate separate lines of business with respect to any of its products or product candidates and the Company does not prepare discrete financial information with respect to separate products or product candidates or by location. Accordingly, the Company views its business as one reportable operating segment. Net product revenues reported are derived from the sales of Inbrija and Ampyra in the U.S. for the three-month periods ended March 31, 2021 and 2020.

Impairment of Long-Lived Assets

The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful lives of its long-lived assets, including identifiable intangible assets subject to amortization and indefinite lived intangible assets not subject to amortization and property plant and equipment, may warrant revision or that the carrying value of the assets may be impaired. Factors the Company considers important that could trigger an impairment review include significant changes in the use of any assets, changes in historical trends in operating performance, changes in

projected operating performance, results of clinical trials, stock price, loss of a major customer and significant negative economic trends. Based on the Company’s evaluation for the three-month period ended March 31, 2020, the Company determined that its indefinite lived intangible asset BTT1023 was fully impaired and recorded an asset impairment in its consolidated statement of operations. The Company also determined that no impairments were required during the three-month period ended March 31, 2021.

Liquidity

  The Company’s ability to meet its future operating requirements, repay its liabilities, and meet its other obligations are dependent upon a number of factors, including its ability to generate cash from product sales, reduce planned expenditures, and obtain additional financing. If the Company is unable to generate sufficient cash flow from the sale of its products, it will be required to adopt one or more alternatives, subject to the restrictions contained in the indenture governing its   convertible senior secured notes due 2024, such as further reducing expenses, selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous and which are likely to be highly dilutive. Also, the Company’s ability to raise additional capital and repay or restructure its indebtedness will depend on the capital markets and its financial condition at such time, among other factors. In addition, financing may not be available when needed, at all, on terms acceptable to us or in accordance with the restrictions described above. As a result of these factors, the Company may not be able to engage in any of the alternative activities, or engage in such activities on desirable terms, which could harm the Company’s business, financial condition and results of operations, as well as result in a default on the Company’s debt obligations. If the Company is unable to take these actions, it may be forced to significantly alter its business strategy, substantially curtail its current operations, or cease operations altogether.

At March 31, 2021, the Company had $116.8 million of cash and cash equivalents, compared to $71.4 million at December 31, 2020. The Company’s March 31, 2021 cash and cash equivalents balance does not include restricted cash, currently held in escrow under the terms of its convertible senior secured notes due 2024, which may potentially be released from escrow if the Company pays interest on those notes using shares of its common stock. The Company incurred a net loss of $33.5 million for the three-month period ended March 31, 2021.

Based on the Company’s cash and cash equivalents at March 31, 2021, which includes net proceeds received from the sale of the Company’s Chelsea manufacturing operations in February 2021, and the Company’s obligations that are due within the next twelve months, management has concluded that there is no substantial doubt regarding the Company’s ability to meet its obligations within one year after the date the consolidated financial statements included in this report are issued.

Subsequent Events

Subsequent events are defined as those events or transactions that occur after the balance sheet date, but before the financial statements are filed with the Securities and Exchange Commission. The Company completed an evaluation of the impact of any subsequent events through the date these financial statements were issued, and determined there were no subsequent events that required disclosure in these financial statements. 

Accounting Pronouncements Adopted

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740 and removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted. The Company adopted this guidance effective January 1, 2021. The adoption of this guidance did not have a significant impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”: The amendments in this update are to clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2020-03 are not expected to have a significant effect on current accounting practices. The ASU improves

various financial instrument topics in the Codification to increase stakeholder awareness of the amendments and to expedite the improvement process by making the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 with early application permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.

In August 2020, the FASB issued ASCU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This update simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models which require separate accounting for embedded conversion features. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. ASU 2020-06 is effective for smaller reporting companies for fiscal periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.

v3.21.1
Revenue
3 Months Ended
Mar. 31, 2021
Revenue From Contract With Customer [Abstract]  
Revenue

(3) Revenue

In accordance with ASC 606, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the good or service. ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. We did not have any contract assets or any contract liabilities as of March 31, 2021 and 2020.

The following table disaggregates our revenue by major source:

 

(In thousands)

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Revenues:

 

 

 

 

 

 

 

Net product revenues:

 

 

 

 

 

 

 

Ampyra

$

20,250

 

 

$

20,124

 

Inbrija

 

4,996

 

 

 

4,354

 

Other

 

1

 

 

 

194

 

Total net product revenues

 

25,247

 

 

 

24,672

 

Royalty revenues

 

3,615

 

 

 

3,427

 

Total net revenues

$

28,862

 

 

$

28,099

 

 

v3.21.1
Share-based Compensation
3 Months Ended
Mar. 31, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-based Compensation

(4) Share-based Compensation

During the three‑month periods ended March 31, 2021 and 2020, the Company recognized share-based compensation expense of $0.7 million and $2.0 million, respectively. Activity in options and restricted stock during the three-month period ended March 31, 2021 and related balances outstanding as of that date are reflected below. The weighted average fair value per share of options granted to employees for the three-month periods ended March 31, 2021 and 2020 were approximately $3.81 and $5.90, respectively.

The following table summarizes share-based compensation expense included within the consolidated statements of operations:

 

 

 

For the Three-month period ended March 31,

 

(In thousands)

 

2021

 

 

2020

 

Research and development expense

 

$

166

 

 

$

416

 

Selling, general and administrative expense

 

 

534

 

 

 

1,479

 

Cost of Sales

 

 

7

 

 

 

81

 

Total

 

$

707

 

 

$

1,976

 

 

A summary of share-based compensation activity for the three-month period ended March 31, 2021 is presented below:

Stock Option Activity

 

 

 

Number of

Shares

(In thousands)

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Intrinsic

Value

(In thousands)

 

Balance at January 1, 2021

 

 

1,331

 

 

$

127.13

 

 

 

 

 

 

 

 

 

Granted

 

 

1

 

 

 

5.67

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(104

)

 

 

105.34

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

1,228

 

 

$

128.87

 

 

 

4.7

 

 

$

7

 

Vested and expected to vest at

    March 31, 2021

 

 

1,227

 

 

$

128.96

 

 

 

4.7

 

 

$

7

 

Vested and exercisable at

    March 31, 2021

 

 

1,081

 

 

$

142.50

 

 

 

4.2

 

 

$

 

Restricted Stock and Performance Stock Unit Activity

 

(In thousands)

 

 

 

 

Restricted Stock and Performance Stock Units

 

Number of Shares

 

Nonvested at January 1, 2021

 

 

31

 

Granted

 

 

261

 

Vested

 

 

(1

)

Forfeited

 

 

(12

)

Nonvested at March 31, 2021

 

 

279

 

 

Unrecognized compensation cost for unvested stock options, restricted stock awards and performance stock units as of March 31, 2021 totaled $5.3 million and is expected to be recognized over a weighted average period of approximately 1.3  years.

During the three‑month period ended March 31, 2021, the Company did not make any repurchases of shares.

 

v3.21.1
Loss Per Share
3 Months Ended
Mar. 31, 2021
Earnings Per Share [Abstract]  
Loss Per Share

(5) Loss Per Share

The following table sets forth the computation of basic and diluted loss per share for the three-month periods ended March 31, 2021 and 2020:

 

(In thousands, except per share data)

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Basic and diluted

 

 

 

 

 

 

 

 

Net loss

 

$

(33,451

)

 

$

(6,472

)

Weighted average common shares outstanding used in

   computing net loss per share—basic

 

 

9,470

 

 

 

7,960

 

Plus: net effect of dilutive stock options and restricted

   common shares

 

 

 

 

 

 

Weighted average common shares outstanding used in

   computing net loss per share—diluted

 

 

9,470

 

 

 

7,960

 

Net loss per share—basic

 

$

(3.53

)

 

$

(0.81

)

Net loss per share—diluted

 

$

(3.53

)

 

$

(0.81

)

 

Securities that could potentially be dilutive are excluded from the computation of diluted loss per share when a loss from continuing operations exists or when the exercise price exceeds the average closing price of the Company’s common stock during the period, because their inclusion would result in an anti-dilutive effect on per share amounts.

The following amounts were not included in the calculation of net loss per diluted share because their effects were anti-dilutive:

 

(In thousands)

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Denominator

 

 

 

 

 

 

 

 

Stock options and restricted common shares

 

 

1,391

 

 

 

1,730

 

 

Performance share units are excluded from the calculation of net loss per diluted share as the performance criteria has not been met for the three-month periods ended March 31, 2021 and 2020. Additionally, the impact of the convertible senior notes was determined to be anti-dilutive and excluded from the calculation of net loss per diluted share for the three-month periods ended March 31, 2021 and 2020.  

v3.21.1
Income Taxes
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

(6) Income Taxes

The Company’s effective income tax rate differs from the U.S. statutory rate primarily due to an increase in the valuation allowance and expense recorded on the equity forfeiture.

For the three-month periods ended March 31, 2021 and 2020, the Company recorded a benefit of $3.2 million and $7.0 million for income taxes, respectively. The effective income tax rates for the Company for the three-month periods ended March 31, 2021 and 2020 were 8.6% and 52.0%, respectively. The variances in the effective tax rates for the three-month period ended March 31, 2021 as compared to the three-month period ended March 31, 2020 was due primarily to the valuation allowance recorded on deferred tax assets for which no tax benefit can be recognized and the benefit recorded on the net operating loss carryback under the CARES act recorded at 21% to recover taxes paid at the previous statutory rate of 35%.

The Company continues to evaluate the realizability of its deferred tax assets on a quarterly basis and will adjust such amounts in light of changing facts and circumstances including, but not limited to, future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits and the regulatory approval of products currently under development. Any changes to the valuation allowance or deferred tax assets and liabilities in the future would impact the Company's income taxes.

The Company was notified during the three-month period ended March 31, 2021, they are being audited by the state of Massachusetts for the tax years 2018 and 2019. There have been no proposed adjustments at this stage of the examination.

The Company also has ongoing state examinations in New Jersey and Minnesota which cover a range of tax periods, 2015 – 2018. There have been no proposed adjustments at this stage of the examinations.

v3.21.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements

(7) Fair Value Measurements

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates, exchange rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. The Company’s Level 1 assets consist of investments in a Treasury money market fund and U.S. government securities. The Company’s level 2 assets consist of investments in corporate bonds and commercial paper which are categorized as short-term investments for investments with original maturities between three months and one year. The Company’s Level 3 liabilities represent acquired contingent consideration related to the acquisition of Civitas which are valued using a probability weighted discounted cash flow valuation approach and derivative liabilities related to conversion options for the convertible senior notes due December 2024 which are valued using a binomial model. For assets and liabilities not accounted for at fair value, the carrying values of these accounts approximates their fair values at March 31, 2021, except for the fair value of the Company’s convertible senior notes due June 2021, which was approximately $66.9 million and the fair value of the Company’s convertible senior notes due December 2024, which was approximately $153.2 million as of March 31, 2021. The Company estimates the fair value of its notes utilizing market quotations for the debt (Level 2).

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

33,692

 

 

$

 

 

$

 

Corporate bonds

 

 

 

 

 

 

 

 

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

47,000

 

Derivative liability - conversion option

 

 

 

 

 

 

 

 

1,418

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

36,693

 

 

$

 

 

$

 

Commercial paper

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

 

 

 

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

48,200

 

Derivative liability - conversion option

 

 

 

 

 

 

 

 

1,193

 

 

The following table presents additional information about liabilities measured at fair value on a recurring basis and for which the Company utilizes Level 3 inputs to determine fair value.

Acquired contingent consideration

 

(In thousands)

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Acquired contingent consideration:

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

48,200

 

 

$

80,300

 

Fair value change to contingent consideration

   included in the statement of operations

 

 

(951

)

 

 

(3,682

)

Royalty payments

 

 

(249

)

 

 

(218

)

Balance, end of period

 

$

47,000

 

 

$

76,400

 

 

 

The Company estimates the fair value of its acquired contingent consideration using a probability weighted discounted cash flow valuation approach based on estimated future sales expected from Inbrija (levodopa inhalation powder), an FDA approved drug for the treatment of OFF periods in Parkinson’s disease. Using this approach, expected probability adjusted future cash flows are calculated over the expected life of the agreement and discounted to estimate the current value of the liability at the period end date. Some of the more significant assumptions made in the valuation include (i) the estimated revenue forecast for Inbrija, (ii) probabilities of success, and (iii) discount periods and rate. The milestone payments ranged from $1.0 million to $22.0 million for Inbrija. The estimated revenue forecast for Inbrija is based on peak annual sales of $300 to $500 million. The discount rate used in the valuation was 21.5% for the three-month period ended March 31, 2021. The valuation is performed quarterly and changes in the fair value of the contingent consideration are included in the statement of operations. For the three-month periods ended March 31, 2021 and 2020, changes in the fair value of the acquired contingent consideration were primarily due to updates to certain revenue and expense forecast assumptions, as well as an increase in the discount rate.

The acquired contingent consideration is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, including but not limited to, assumptions involving sales estimates for Inbrija and estimated discount rates, the estimated fair value could be significantly higher or lower than the fair value determined.

Derivative Liability-Conversion Option

The following table represents a reconciliation of the derivative liability recorded in connection with the issuance of the convertible senior secured notes due 2024:

(In thousands)

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Derivative Liability-Conversion Option

 

 

 

 

 

 

 

Balance, beginning of period

$

1,193

 

 

$

59,409

 

Fair value adjustment

 

225

 

 

 

(26,528

)

Balance, end of period

$

1,418

 

 

$

32,881

 

During 2019, a derivative liability was initially recorded as a result of the issuance of the 6.00% Convertible Senior Secured Notes due 2024 (see Note 10). The fair value measurement of the derivative liability is classified as Level 3 under the fair value hierarchy as it has been valued using certain unobservable inputs. These inputs include: (1) share price as of the valuation date, (2) assumed timing of conversion of the Notes, (3) historical volatility of the share price, and (4) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement. The fair value of the derivative liability was determined using a binomial model that calculates the fair value of the Notes with the conversion feature as compared to the fair value of the Notes without the conversion feature, with the difference representing the value of the conversion feature, or the derivative liability. There are several embedded features within the Notes which, upon issuance, did not meet the conditions for equity classification. As a result, these features were aggregated together and recorded as a derivative liability conversion option. The derivative liability conversion feature is measured at fair value on a quarterly basis and changes in the fair value will be recorded in the consolidated statement of operations. The Company received stockholder approval on August 28, 2020 to increase the number of authorized shares of the Company’s common stock from 13,333,333 shares to 61,666,666 shares. As a result of the share approval, the Company determined that multiple embedded conversion options met the conditions for equity classification. The Company performed a valuation of these conversion options as of September 17, 2020, which was the date the Company completed certain securities registration obligations. The resulting fair value of these conversion options was calculated to be  $18.3 million which was reclassified to equity and presented in the statement of stockholder’s equity as of September 30, 2020 net of the $4.4 million tax impact. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company performed a valuation of the derivative liability related to certain embedded conversion features that are precluded from equity classification. The fair value of these conversion features was calculated to be $1.4 million as of March 31, 2021. Key inputs used in the calculation of the fair value include stock price, volatility, risky (bond) rate, and the last observed bond price during the three-month period ended March 31, 2021.

v3.21.1
Investments
3 Months Ended
Mar. 31, 2021
Investments Debt And Equity Securities [Abstract]  
Investments

(8) Investments

There were no available-for-sale investments at March 31, 2021 and December 31, 2020, respectively. 

Short-term investments with maturities of three months or less from date of purchase have been classified as cash equivalents, and amounted to approximately $33.7 million and $36.7 million as of March 31, 2021 and December 31, 2020, respectively. There were no short-term investments will original maturities of greater than 3 months but less than 1 year as of March 31, 2021 and December 31, 2020, respectively. Additionally, there were no short-term investments in an unrealized loss position as of March 31, 2021 and December 31, 2020, respectively. Long-term investments have original maturities of greater than 1 year. There were no investments classified as long-term at March 31, 2021 or December 31, 2020. The Company has determined that there were no other-than-temporary declines in the fair values of its investments as of March 31, 2021 as the Company does not intend to sell its investments and it is not more likely than not that the Company will be required to sell its investments prior to the recovery of its amortized cost basis.

Unrealized holding gains and losses, which relate to debt instruments, are reported within accumulated other comprehensive income (AOCI) in the statements of comprehensive income. There were no changes in AOCI associated with unrealized holding gains or losses on available-for-sale investments during the three-month period ended March 31, 2021.  

v3.21.1
Liability Related to Sale of Future Royalties
3 Months Ended
Mar. 31, 2021
Deferred Revenue Disclosure [Abstract]  
Liability Related to Sale of Future Royalties

(9) Liability Related to Sale of Future Royalties

As of October 1, 2017, the Company completed a royalty purchase agreement with HealthCare Royalty Partners, or HCRP (“Royalty Agreement”). In exchange for the payment of $40 million to the Company, HCRP obtained the right to receive Fampyra royalties payable by Biogen under the License and Collaboration Agreement between the Company and Biogen, up to an agreed upon threshold of royalties. When this threshold is met, if ever, the Fampyra royalty revenue will revert back to the Company and the Company will continue to receive the Fampyra royalty revenue from Biogen until the revenue stream ends. The transaction does not include potential future milestones to be paid.

The Company maintained the rights under the license and collaboration agreement with Biogen, therefore, the Royalty Agreement has been accounted for as a liability that will be amortized using the effective interest method over the life of the arrangement, in accordance with the relevant accounting guidance. The Company recorded the receipt of the $40 million payment from HCRP and established a corresponding liability in the amount of $40 million, net of transaction costs of approximately $2.2 million. The net liability is classified between the current and non-current portion of liability related to the sale of future royalties in the consolidated balance sheets based on the recognition of the interest and principal payments to be received by HCRP in the next 12 months from the financial statement reporting date. The total net royalties to be paid, less the net proceeds received will be recorded to interest expense using the effective interest method over the life of the Royalty Agreement. The Company will estimate the payments to be made to HCRP over the term of the Agreement based on forecasted royalties and will calculate the interest rate required to discount such payments back to the liability balance. Over the course of the Royalty Agreement, the actual interest rate will be affected by the amount and timing of net royalty revenue recognized and changes in forecasted revenue. On a quarterly basis, the Company will reassess the effective interest rate and adjust the rate prospectively as necessary.

The following table shows the activity within the liability account for March 31, 2021 and December 31, 2020, respectively:

 

(In thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Liability related to sale of future royalties - beginning balance

 

$

15,257

 

 

$

24,401

 

Deferred transaction costs amortized

 

 

70

 

 

 

401

 

Non-cash royalty revenue payable to HCRP

 

 

(3,000

)

 

 

(11,486

)

Non-cash interest expense recognized

 

 

330

 

 

 

1,941

 

Liability related to sale of future royalties - ending balance

 

$

12,657

 

 

$

15,257

 

 

 

 

 

 

 

 

 

 

 

 

v3.21.1
Debt
3 Months Ended
Mar. 31, 2021
Debt Disclosure [Abstract]  
Debt

(10) Debt

Convertible Senior Secured Notes Due 2024

On December 24, 2019, the Company completed the private exchange of $276.0 million aggregate principal amount of its outstanding 1.75% Convertible Senior Notes due 2021 (the “2021 Notes”) for a combination of newly-issued 6.00% Convertible Senior Secured Notes due 2024 (the “2024 Notes”) and cash. For each $1,000 principal amount of exchanged 2021 Notes, the Company issued $750 principal amount of the 2024 Notes and made a cash payment of $200 (the “Exchange”). In the aggregate, the Company issued approximately $207.0 million aggregate principal amount of the 2024 Notes and paid approximate $55.2 million in cash to participating holders. The Exchange was conducted with a limited number of institutional holders of the 2021 Notes pursuant to Exchange Agreements dated as of December 20, 2019 (each, an “Exchange Agreement”).

The 2024 Notes were issued pursuant to an Indenture, dated as of December 23, 2019, among the Company, its wholly owned subsidiary, Civitas Therapeutics, Inc. (along with any domestic subsidiaries acquired or formed after the date of issuance, the “Guarantors”), and Wilmington Trust, National Association, as trustee and collateral agent (the “2024 Indenture”). The 2024 Notes are senior obligations of the Company and the Guarantors, secured by a first priority security interest in substantially all of the assets of the Company and the Guarantors, subject to certain exceptions described in the Security Agreement, dated as of December 23, 2019, between the grantors party thereto and Wilmington Trust, National Association, as collateral agent (the “Security Agreement”).

The 2024 Notes will mature on December 1, 2024 unless earlier converted in accordance with their terms prior to such date. Interest on the 2024 Notes is payable semi-annually in arrears at a rate of 6.00% per annum on each June 1 and December 1, beginning on June 1, 2020. The Company may elect to pay interest in cash or shares of the Company’s common stock, subject to the satisfaction of certain conditions. If the Company elects to pay interest in shares of common stock, such common stock will have a per share value equal to 95% of the daily volume-weighted average price for the 10 trading days ending on and including the trading day immediately preceding the relevant interest payment date. In December 2020, the Company issued 1,484,871 shares of common stock in satisfaction of the interest payable to holders of the 2024 Notes on December 1, 2020. In connection with this stock-based interest payment approximately $6.2 million of accrued interest was released from restricted case and became available to the Company for other purposes.

The 2024 Notes are convertible at the option of the holder into shares of common stock of the Company at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. The adjusted conversion rate for the 2024 Notes is 47.6190 shares of the Company’s common stock per $1,000 principal amount of 2024 Notes, representing an adjusted conversion price of approximately $21.00 per share of common stock. The conversion rate was adjusted to reflect the 1-for-6 reverse stock split effected on December 31, 2020 and is subject to additional adjustments in certain circumstances as described in the 2024 Indenture.

The Company may elect to settle conversions of the 2024 Notes in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. Holders who convert their 2024 Notes prior to June 1, 2023 (other than in connection with a make-whole fundamental change) will also be entitled to an interest make-whole payment equal to the sum of all regularly scheduled stated interest payments, if any, due on such 2024 Notes on each interest payment date occurring after the conversion date for such conversion and on or before June 1, 2023. In addition, the Company will have the right to cause all 2024 Notes then outstanding to be converted automatically if the volume-weighted average price per share of the Company’s common stock equals or exceeds 130% of the adjusted conversion price for a specified period of time and certain other conditions are satisfied.

Holders of the 2024 Notes will have the right, at their option, to require the Company to purchase their 2024 Notes if a fundamental change (as defined in the 2024 Indenture) occurs, in each case, at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. If a make-whole fundamental change occurs, as described in the 2024 Indenture, and a holder elects to convert its 2024 Notes in connection with such make-whole fundamental change, such holder may be entitled to an increase in the adjusted conversion rate as described in the 2024 Indenture.

Subject to a number of exceptions and qualifications, the 2024 Indenture restricts the ability of the Company and certain of its subsidiaries to, among other things, (i) pay dividends or make other payments or distributions on their capital stock, or purchase, redeem, defease or otherwise acquire or retire for value any capital stock, (ii) make certain investments, (iii) incur indebtedness or issue preferred stock, other than certain forms of permitted debt, which includes, among other

items, indebtedness incurred to refinance the 2021 Notes, (iv) create liens on their assets, (v) sell their assets, (vi) enter into certain transactions with affiliates or (vii) merge, consolidate or sell of all or substantially all of their assets. The 2024 Indenture also requires the Company to make an offer to repurchase the 2024 Notes upon the occurrence of certain asset sales.

The 2024 Indenture provides that a number of events will constitute an event of default, including, among other things, (i) a failure to pay interest for 30 days, (ii) failure to pay the 2024 Notes when due at maturity, upon any required repurchase, upon declaration of acceleration or otherwise, (iii) failure to convert the 2024 Notes in accordance with the 2024 Indenture and the failure continues for five business days, (iv) not issuing certain notices required by the 2024 Indenture within a timely manner, (v) failure to comply with the other covenants or agreements in the 2024 Indenture for 60 days following the receipt of a notice of non-compliance, (vi) a default or other failure by the Company to make required payments under other indebtedness of the Company or certain subsidiaries having an outstanding principal amount of $30.0 million or more, (vii) failure by the Company or certain subsidiaries to pay final judgments aggregating in excess of $30.0 million, (viii) certain events of bankruptcy or insolvency and (ix) the commercial launch in the United States of a product determined by the U.S. FDA to be bioequivalent to Inbrija. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding 2024 Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding 2024 Notes may declare all the notes to be due and payable immediately.

The 2021 Notes received by the Company in the Exchange were cancelled in accordance with their terms. Accordingly, upon completion of the Exchange, $69.0 million of the 2021 Notes remained outstanding.

The Company determined that the exchange of the 2021 Notes for 2024 Notes qualified for a debt extinguishment and recognized a gain on extinguishment of $55.1 million for the year ended December 31, 2019, representing the difference between the fair value of the liability component immediately before the exchange and the carrying value of the debt. The Company recorded an adjustment of $38.4 million to additional paid-in capital to adjust the equity component of 2021 Notes in connection with the extinguishment.

The Company assessed all terms and features of the 2024 Notes in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the 2024 Notes, including the conversion, put and call features. The Company concluded the conversion features required bifurcation as a derivative. The fair value of the conversion feature derivative was determined based on the difference between the fair value of the 2024 Notes with the conversion options and the fair value of the 2024 Notes without the conversion options using a binomial model. The Company determined that the fair value of the derivative upon issuance of the 2024 Notes was $59.4 million and recorded this amount as a derivative liability with an offsetting amount as a debt discount as a reduction to the carrying value of the 2024 Notes on the closing date, or December 24, 2019. There are several embedded features within the 2024 Notes which, upon issuance, did not meet the conditions for equity classification. As a result, these features were aggregated together and recorded as the derivative liability conversion option. The conversion feature is measured at fair value on a quarterly basis and the changes in the fair value of the conversion feature for the period will be recognized in the consolidated statements of operations.   

The Company received stockholder approval on August 28, 2020 to increase the number of authorized shares of the Company’s common stock from 13,333,333 shares to 61,666,666 shares. As a result of the share approval, the Company determined that multiple embedded conversion options met the conditions for equity classification. The Company performed a valuation of these conversion options as of September 17, 2020, which was the date the Company completed certain securities registration obligations. The resulting fair value of these conversion options was $18.3 million, which was reclassified to equity and presented in the statement of stockholder’s equity as of September 30, 2020, net of the $4.4 million tax impact. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company performed a valuation of the derivative liability related to certain embedded conversion features that are precluded from equity classification. The fair value of these conversion features was calculated to be $1.4 million representing an increase of $0.2 million that is recognized in the consolidated statement of operations for the three-month period ended March 31, 2021.

The outstanding 2024 Note balances as of March 31, 2021 and December 31, 2020 consisted of the following:

 

(In thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Liability component:

 

 

 

 

 

 

 

 

Principal

 

 

207,000

 

 

$

207,000

 

Less: debt discount and debt issuance costs, net

 

 

(66,249

)

 

 

(69,381

)

Net carrying amount

 

$

140,751

 

 

$

137,619

 

Equity component

 

$

18,257

 

 

$

18,257

 

Derivative liability-conversion option

 

$

1,418

 

 

$

1,193

 

 

The Company determined that the expected life of the 2024 Notes was equal to the period through December 1, 2024 as this represents the point at which the 2024 Notes will mature unless earlier converted in accordance with their terms prior to such date. Accordingly, the total debt discount of $75.1 million, inclusive of the fair value of the embedded conversion feature derivative at issuance, is being amortized using the effective interest method through December 1, 2024. For the three-month period ended March 31, 2021, the Company recognized $6.2 million of interest expense related to the 2024 Notes at the effective interest rate of 18.1%. The fair value of the Company’s 2024 Notes was approximately $153.2 million as of March 31, 2021.

In connection with the issuance of the 2024 Notes, the Company incurred approximately $5.7 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the liability component and recorded as a reduction in the carrying amount of the debt liability on the balance sheet. The portion allocated to the 2024 Notes is amortized to interest expense over the expected life of the 2024 Notes using the effective interest method.

The following table sets forth total interest expense recognized related to the 2024 Notes for the three-month periods ended March 31, 2021 and 2020:

 

(In thousands)

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Contractual interest expense

 

$

3,105

 

 

$

3,105

 

Amortization of debt issuance costs

 

 

222

 

 

 

186

 

Amortization of debt discount

 

 

2,910

 

 

 

2,437

 

Total interest expense

 

$

6,237

 

 

$

5,728

 

 

Convertible Senior Notes Due 2021

On June 17, 2014, the Company issued $345 million aggregate principal amount of 1.75% Convertible Senior Notes due 2021 (the “2021 Notes”) in an underwritten public offering. The net proceeds from the offering were $337.5 million after deducting the Underwriter’s discount and offering expenses paid by the Company. On December 24, 2019, the Company completed the private exchange of $276.0 million aggregate principal amount of its outstanding 2021 Notes for a combination of newly-issued 6.00% Convertible Senior Secured Notes due 2024 (the “2024 Notes”) and cash. The 2021 Notes received by the Company in the exchange were cancelled in accordance with their terms. Accordingly, upon completion of the exchange, $69.0 million of the 2021 Notes remained outstanding.

The 2021 Notes are governed by the terms of an indenture, dated as of June 23, 2014 (the “Base Indenture”) and the first supplemental indenture, dated as of June 23, 2014 (the “Supplemental Indenture”, and together with the Base Indenture, the “2021 Indenture”), each between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”). The 2021 Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, under certain circumstances as outlined in the 2021 Indenture, based on an adjusted conversion rate of 3.9161 shares per $1,000 principal amount of the 2021 Notes (representing an adjusted conversion price of approximately $255.35 per share). The conversion rate was adjusted to reflect the 1-for-6 reverse stock split effected on December 31, 2020 and is subject to additional adjustments in certain circumstances as described in the 2021 Indenture.

The Company may redeem for cash all or part of the 2021 Notes, at the Company’s option, after June 20, 2017, under certain circumstances as outlined in the 2021 Indenture.

The Company pays 1.75% interest per annum on the principal amount of the 2021 Notes, payable semiannually in arrears in cash on June 15 and December 15 of each year. The 2021 Notes will mature on June 15, 2021.

If the Company undergoes a “fundamental change” (as defined in the 2021 Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or part of their 2021 Notes in principal amounts of $1,000 or an integral multiple thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the 2021 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If a make-whole fundamental change occurs, as described in the 2021 Indenture, and a holder elects to convert its 2021 Notes in connection with such make-whole fundamental change, such holder may be entitled to an increase in the adjusted conversion rate as described in the 2021 Indenture.

The 2021 Indenture contains customary terms and covenants and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2021 Notes by notice to the Company and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2021 Notes to be due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal and accrued and unpaid interest, if any, on all of the 2021 Notes will become due and payable automatically. Notwithstanding the foregoing, the 2021 Indenture provides that, to the extent the Company elects and for up to 270 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the 2021 Indenture consists exclusively of the right to receive additional interest on the 2021 Notes.

The 2021 Notes are senior unsecured obligations and rank equally with all of the Company’s existing and future senior debt and senior to any of the Company’s subordinated debt. The 2021 Notes are structurally subordinated to all existing or future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries and are effectively subordinated to the Company’s existing or future secured indebtedness to the extent of the value of the collateral. The 2021 Indenture does not limit the amount of debt that the Company or its subsidiaries may incur.

In accounting for the issuance of the 2021 Notes, the Company separated the 2021 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2021 Notes as a whole. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The outstanding 2021 Note balances as of March 31, 2021 and December 31, 2020 consisted of the following:

 

(In thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Liability component:

 

 

 

 

 

 

 

 

Principal

 

 

69,000

 

 

$

69,000

 

Less: debt discount and debt issuance costs, net

 

 

(471

)

 

 

(1,029

)

Net carrying amount

 

$

68,529

 

 

$

67,971

 

Equity component

 

$

22,791

 

 

$

22,791

 

 

In connection with the issuance of the 2021 Notes, the Company incurred approximately $7.5 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $7.5 million of debt issuance costs, $1.3 million were allocated to the equity component and recorded as a reduction to additional paid-in capital and $6.2 million were allocated to the liability component and recorded as a reduction in the carrying amount of the debt liability on the balance sheet. The portion allocated to the liability component is amortized to interest expense over the expected life of the 2021 Notes using the effective interest method. The Company wrote off $1.2 million of issuance cost associated with the exchange of the 2021 Notes.

The Company determined the expected life of the debt was equal to the seven year term on the 2021 Notes. The fair value of the Company’s convertible senior notes was approximately $66.9 million as of March 31, 2021.

As of March 31, 2021, the remaining contractual life of the 2021 Notes is approximately 3 months. The effective interest rate on the liability component was approximately 4.8% for the period from the date of issuance through March 31, 2021.  

The following table sets forth total interest expense recognized related to the 2021 Notes for the three-month periods ended March 31, 2021 and 2020:

 

(In thousands)

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Contractual interest expense

 

$

302

 

 

$

302

 

Amortization of debt issuance costs

 

 

52

 

 

 

49

 

Amortization of debt discount

 

 

507

 

 

 

483

 

Total interest expense

 

$

861

 

 

$

834

 

 

v3.21.1
Leases
3 Months Ended
Mar. 31, 2021
Leases [Abstract]  
Leases

(11) Leases

In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases.

The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our leases have remaining lease terms of 1.25 years to 5.75 years, some of which include options to extend the lease term for up to 15 years, and some of which include options to terminate the lease within 1.25 years.

Operating Leases

We lease certain office and lab space under arrangements classified as leases under ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal options ranging from 5 to 15 years. The exercise of lease renewal options is at our sole discretion. One of our leases also includes an option to early terminate the lease within 1.25 years.

Ardsley, New York

In June 2011, the Company entered into a 15-year lease for an aggregate of approximately 138,000 square feet of office and laboratory space in Ardsley, New York. In 2014, the Company exercised its option to expand into an additional 25,405 square feet of office space, which the Company occupied in January 2015. The Company has options to extend the term of the lease for three additional five-year periods, and the Company has an option to terminate the lease after 10 years subject to payment of an early termination fee. The Company’s extension and early termination rights are subject to specified terms and conditions, including specified time periods when they must be exercised, and are also subject to limitations including that the Company not be in default under the lease.

The Ardsley lease provides for monthly payments of rent during the lease term. These payments consist of base rent, which takes into account the costs of the facility improvements funded by the facility owner prior to the Company’s occupancy, and additional rent covering customary items such as charges for utilities, taxes, operating expenses, and other facility fees and charges. The base rent is currently $5.0 million per year, which reflects an annual 2.5% escalation factor.   

Chelsea, Massachusetts

Our Civitas subsidiary leased a manufacturing facility in Chelsea, Massachusetts which we used to manufacture Inbrija through February 10, 2021. Civitas leased this facility from North River Everett Ave, LLC pursuant to a lease with a term that expires on December 31, 2025, and Civitas had two additional extension options of five years each.  On February 10, 2021, the Company completed the sale of its Chelsea manufacturing operations to Catalent Pharma Solutions. In connection with the sale, Civitas assigned the lease of the Chelsea facility to a Catalent affiliate (see Note 12).

  In 2018, the Company initiated a renovation and expansion of a building within the Chelsea manufacturing facility that increased the size of the facility to approximately 95,000 square feet. The project added a new manufacturing production line for Inbrija and other ARCUS products that has greater capacity than the existing manufacturing line, and created additional warehousing space for manufactured product. All costs to renovate and expand the facility through the date of assignment were borne by the Company. Catalent is now responsible for finalizing the expansion, including obtaining needed regulatory approvals.

Additional Facilities

In October 2016, we entered into a 10-year lease agreement with a term commencing January 1, 2017, for approximately 26,000 square feet of lab and office space in Waltham, MA. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $1.1 million per year.

Our leases have remaining lease terms of 1.25 years to 5.75 years, which assumes exercise of the early termination of our Ardsley, NY lease. We do not include any renewal options in our lease terms when calculating our lease liabilities as we are not reasonably certain that we will exercise these options. When calculating the lease liability, we assume exercise of the Ardsley early termination option. The weighted-average remaining lease term for our operating leases was 2.9 years at March 31, 2021. The weighted-average discount rate was 7.13% at March 31, 2021.

ROU assets and lease liabilities related to our operating leases are as follows:

 

(In thousands)

 

Balance Sheet Classification

 

March 31, 2021

 

 

December 31, 2020

 

Right-of-use assets

 

Right of use assets

 

$

10,013

 

 

$

18,481

 

Current lease liabilities

 

Current portion of lease liabilities

 

 

6,198

 

 

 

7,944

 

Non-current lease liabilities

 

Non-current portion of lease liabilities

 

 

9,810

 

 

 

17,200

 

 

We have lease agreements that contain both lease and non-lease components. We account for lease components together with non-lease components (e.g., common-area maintenance). The components of lease costs were as follows:

 

(In thousands)

 

Three-month period ended March 31, 2021

 

 

Three-month period ended March 31, 2020

 

Operating lease cost

 

$

1,586

 

 

$

1,901

 

Variable lease cost

 

 

1,356

 

 

 

932

 

Short-term lease cost

 

 

305

 

 

 

353

 

Total lease cost

 

$

3,247

 

 

$

3,186

 

 

Future minimum commitments under all non-cancelable operating leases are as follows:

 

(In thousands)

 

 

 

 

2021 (excluding the three months ended March 31, 2021)

 

$

4,636

 

2022

 

 

8,191

 

2023

 

 

1,215

 

2024

 

 

1,252

 

2025

 

 

1,290

 

Later years

 

 

1,328

 

Total lease payments

 

 

17,912

 

Less: Imputed interest