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1. Organization and Description of the Business
Egalet Corporation (the “Company”) is a fully integrated specialty pharmaceutical company developing, manufacturing and commercializing innovative medicines for patients with acute and chronic pain while helping to protect physicians, families and communities from the burden of prescription abuse. The Company was incorporated in Delaware in August 2013 and until its initial public offering (“IPO”) in February 2014, had nominal assets and no operations. Egalet Limited (“Egalet UK”), incorporated in July 2010 in England and Wales, owned all of the Company’s current assets and operations and acquired them in July 2010 pursuant to an agreement to purchase the business and certain assets of Egalet A/S, which was founded under the laws of Denmark. This transaction was accounted for as a business combination. In November 2013, all of the issued and outstanding ordinary shares and preferred shares of Egalet UK were exchanged for an identical number of shares of common stock and preferred stock of the Company, which resulted in Egalet UK becoming a wholly-owned subsidiary of the Company. As Egalet UK and Egalet US Inc. are entities under common control, the consolidated financial statements reflect the historical carrying values of Egalet UK’s assets and liabilities and its results of operations as if they were consolidated for all periods presented. As a result of these transactions, the Company has a late-stage portfolio of product candidates that are being developed using the Company’s broad-based drug delivery platform specifically designed to resist manipulation, to prevent easy extraction and to deter the abuse of medications via known routes of abuse, including chewing, snorting, and injecting. On January 8, 2015, the Company announced the acquisition and license of two innovative pain products, SPRIX® (ketorolac tromethamine) Nasal Spray and OXAYDO (oxycodone HCI, USP) tablets for oral use only —CII, both approved by the United States (“U.S.”) Food and Drug Administration (“FDA”) to treat pain. SPRIX Nasal Spray, a non-steroidal anti-inflammatory drug (NSAID), is indicated in adult patients for the short-term (up to five days) management of moderate to moderately severe pain that requires analgesia at the opioid level. OXAYDO is the first and only approved immediate-release (“IR”) oxycodone product formulated to deter abuse via snorting, for the management of acute and chronic moderate to severe pain where an opioid is appropriate. In addition, using our proprietary Guardian™ Technology, the Company is developing a pipeline of clinical-stage, opioid-based product candidates that are specifically designed to deter abuse by physical and chemical manipulation. The Company’s technology platform can be used with a broad range of opioids and non-opioids. The Company has filed patents to protect its inventions covering both the technology and product-specific patents.
Initial Public Offering
On February 11, 2014, 4,200,000 shares of common stock were sold on the Company’s behalf at an IPO price of $12.00 per share, for aggregate gross proceeds of $50.4 million. On March 7, 2014, in connection with the exercise by the underwriters of a portion of the over-allotment option granted to them as a part of the Company’s IPO, 630,000 additional shares of common stock were sold by the Company at the IPO price of $12.00 per share, for aggregate gross proceeds of approximately $7.6 million. In addition, as part of the IPO, the Company converted all of its convertible preferred stock and related party senior convertible debt into 5,329,451 and 2,585,745 shares of common stock, respectively. Also, Shionogi Limited (“Shionogi”), a collaboration partner of the Company, purchased 1,250,000 shares of the Company’s common stock in a separate private placement concurrent with the completion of the IPO at a price per share equal to $12.00 per share, for aggregate gross proceeds of $15.0 million. The sale of such shares has not been registered under the Securities Act of 1933, as amended. In addition, the 2013 related party senior convertible debt holders automatically exercised 600,000 warrants for shares of common stock at an exercise price of $0.0083 per share.
The Company paid to the underwriters discounts and commissions of approximately $5.1 million in connection with the offering, including discounts and commissions from the exercise of the over-allotment option. In addition, the Company incurred legal, accounting, and other offering-related expenses of approximately $2.4 million in connection with the offering, which when added to the underwriting discounts and commissions paid by the Company, amounts to total expenses of approximately $7.5 million. Thus, the net proceeds to the Company from the IPO, after deducting underwriting discounts and commissions and offering expenses, were approximately $51.5 million. Additionally, after deducting the expenses related to the private placement with Shionogi, the net proceeds to the Company from the private placement were approximately $14.0 million.
Liquidity
The Company has incurred recurring operating losses since inception. As of March 31, 2015, the Company had an accumulated deficit of $93.3 million and will require substantial additional capital to fund its research and development of its proprietary product candidates and commercial plans for SPRIX and OXAYDO. The Company reasonably expects that the net proceeds from the Company’s IPO, Hercules term loan (see Note 5), and the 5.50% Senior Convertible Notes (see Note 13), together with its pre-existing cash and cash equivalents, will enable it to fund its operating expenses and capital expenditure requirements through March 31, 2016. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, development of its product candidates and its preclinical programs, and the development of its administrative organization. As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of its product candidates and the achievement of a level of revenue adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through the sale of equity, debt financings or other sources, including potential additional collaborations. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, or at all.
In January 2015, the Company entered into a Loan and Security Agreement, (“the Loan Agreement”), with Hercules Technology Growth Capital, Inc., (“Hercules”) and certain other lenders, pursuant to which the Company borrowed $15.0 million under a term loan. Refer to Note 5 — Long term debt for additional information.
During the three months ended March 31, 2015 the Company had significant cash out flows related to the purchase of SPRIX and license of OXAYDO of $8.1 million and $5.2 million, respectively. With regards to OXAYDO, the Company also owes a $2.5 million milestone on the earlier to occur of first commercial sale of OXAYDO or January 1, 2016, but in no event earlier than June 30, 2015. Refer to Note 9 - Acquisitions and License and Collaboration Agreements for additional information.
Forward Stock Split
In connection with preparing for the IPO, the Company’s board of directors and stockholders approved a 1.2 to 1 forward stock split of the Company’s common stock. The forward stock split became effective on January 21, 2014. All share and per share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this forward stock split, including reclassifying an amount equal to the increase in par value of common stock to additional paid-in capital.
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2. Summary of Significant Accounting Policies and Basis of Accounting
Basis of Presentation
The unaudited consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and footnotes normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. The Company’s consolidation policy requires the consolidation of entities where a controlling financial interest is held. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial information at March 31, 2015 and for the three months ended March 31, 2014 and 2015 is unaudited. The interim unaudited financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2015 and for the three months ended March 31, 2014 and 2015. The financial data and other information disclosed in these notes related to the three months ended March 31, 2014 and 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015, any other interim periods or any future year or period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2014 filed on March 16, 2015 with the SEC.
The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies, except where noted below.
Reclassification
Certain reclassifications were made to prior period amounts to conform to the current period presentation.
Concentration of credit risk
The Company has an exposure to credit risk in trade accounts receivable from sales of product. In the U.S. the Company sells SPRIX to a specialty pharmacy which then distributes to patients. One customer represents 100% of our sales during the three months ended March 31, 2015. We did not have any trade accounts receivable as of March 31, 2015.
Fair Value Measurements
The carrying amounts reported in the Company’s consolidated financial statements for cash, accounts receivable, accounts payable, accrued liabilities, and notes payable approximate their respective fair values because of the short-term nature of these accounts. The carrying amount of the Company’s debt at March 31, 2015 approximates fair value because the interest rate is reflective of the rate the Company could obtain on debt with similar terms and conditions.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Fair value should be based on the assumptions that market participants would use when pricing an asset or liability and is based on a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets (observable inputs) and the lowest priority to the Company’s assumptions (unobservable inputs). Fair value measurements should be disclosed separately by level within the fair value hierarchy. For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with established fair value hierarchy.
Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates, and often are calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as assets held for sale and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1—Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 2—Valuations for assets and liabilities that can be obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company’s principal markets for these securities are the secondary institutional markets, and valuations are based on observable market data in those markets.
Level 3—Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange or dealer- or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
Level 3 valuations are for instruments that are not traded in active markets or are subject to transfer restrictions and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.
An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The Company had no assets or liabilities classified as Level 1 or Level 2 as of December 31, 2014 and March 31, 2015 and there were no material re-measurements of fair value with respect to financial assets and liabilities, during those years, other than those assets and liabilities that are measured at fair value on a recurring basis. There were no transfers between Level 1 and Level 2 in any of the periods reported.
Net Product Sales
The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that define the terms of the arrangements. Pursuant to the contract terms, the Company determines when title to products and associated risk of loss has passed on to the customer. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and creditworthiness.
The Company sells SPRIX in the U.S. to a single specialty pharmaceutical distributor subject to rights of return. The Company has limited SPRIX sales history under the current distribution model and pricing, and the Company has determined that at this time it cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on product shipments of SPRIX until the right of return no longer exists, which occurs at the earlier of the time SPRIX units are dispensed through patient prescriptions or expiration of the right of return. Units dispensed are generally not subject to return, except in the rare cases where the product malfunctions or the product is damaged in transit. The Company calculates patient prescriptions dispensed using an analysis of third-party information. As of March 31, 2015, the Company had deferred revenue of $14.7 million related to sales of SPRIX, which is expected to be recognized over the next 12 months.
Related Party Revenue
During 2013, the Company entered into a collaborative research and license agreement with Shionogi. The terms of this agreement contain multiple deliverables which include (i) licenses; (ii) research and development activities and (iii) certain of the Company’s core technologies and improvements thereon. The Company has adopted the provisions of Accounting Standards Update (“ASU”) 2009-13,”Multiple-Deliverable Revenue Arrangements,” which amends ASC 605-25, and also adopted ASU 2010-17, “Revenue Recognition—Milestone Method.” In accordance with ASU 2009-13, the Company considered whether the deliverables under the arrangement represent separate units of accounting. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have stand-alone value. See Note 9 Acquisitions and License and Collaboration Agreements for further discussion of the Company’s accounting for the collaborative research and license agreement.
Deferred Revenue
The Company records deferred revenue when either: a sale of product has occurred, but revenue recognition criteria has not been met; or when a milestone is achieved under the collaborative research and license agreement with Shionogi as discussed in the Company’s Related Party Revenue policy described above. As of March 31, 2015 the deferred revenue balance consisted of $14.7 million for product sales, all of which is classified as current, and $19.2 million related to the collaborative research and license agreement with Shionogi, $1.2 million of which is classified as current.
Product Sales Allowances
The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company’s agreements with customers and third-party payors that may result in future rebates or discounts taken. In certain cases, such as patient discount programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company’s product sales allowances include:
Specialty Pharmacy Discounts. The Company offers discounts to a certain specialty distributor based on contractually determined rates. The Company accrues the discount on shipment to the respective distributor and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.
Prompt Pay Discounts. The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.
Patient Discount Programs. The Company offers co-pay discount programs to patients for SPRIX in which patients receive a co-pay discount on their prescriptions. The Company estimates the total amount that will be redeemed based on the quantity of product shipped and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.
Inventories and Cost of Sales
Inventories are stated at the lower of cost or market net of reserve for excess and obsolete inventory. At March 31, 2015, inventory consisted of raw materials and deferred cost of goods.
Cost of sales includes the cost of inventory sold or reserved; manufacturing, manufacturing overhead and supply chain costs; product shipping and handling costs and product royalties. The cost of sales associated with the deferred product revenues are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.
Impairment of Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of tangible and identified intangible net assets of businesses acquired. Goodwill is not amortized, but is evaluated for impairment on an annual basis or more often when impairment indicators are present. The Company has one reporting unit. Therefore, the Company’s consolidated net assets, including existing goodwill and other intangible assets, are considered to be the carrying value of the reporting unit. If the carrying value of the reporting unit is in excess of its fair value, an impairment may exist, and the Company must perform the second step of the analysis, in which the implied fair value of the goodwill is compared to its carrying value to determine the impairment charge, if any. If the estimated fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and no further analysis is required.
The Company makes judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances indicate that impairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. Impairment, if any, is measured as the amount by which the carrying value exceeds the fair value of the impaired asset.
Stock-Based Compensation Expense
The Company accounts for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation (ASC 718), which requires the recognition of expense related to the fair value of stock-based compensation awards in the Statements of Operations and Comprehensive Loss.
For stock options issued to employees and members of the Board of Directors, the Company estimates the grant date fair value of each option using the Black-Scholes option-pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, the value of the common stock and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term.
Share-based payments issued to non-employees are recorded at their fair values, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity. See Note 7 — Stock-based compensation for a discussion of the assumptions used by the Company in determining the grant date fair value of options granted under the Black-Scholes option pricing model, as well as a summary of the stock option activity under the Company’s stock-based compensation plan for the three months ended March 31, 2015.
The stock-based compensation expense for restricted stock awards is determined based on the closing market price of the Company’s common stock on the grant date of the awards applied to the total number of awards that are anticipated to vest.
Long Term Debt
Long term debt consists of the Loan Agreement with Hercules and certain other lenders, pursuant to which the Company borrowed $15.0 million in January 2015 under a term loan (see Note 5). The term loan bears an interest rate per annum equal to the greater of either (i) 9.40% plus the prime rate as reported in The Wall Street Journal minus 3.25% or (ii) 9.40%.
Common Stock Warrants
The Company issued warrants to Hercules in connection with the Loan Agreement with Hercules and certain other lenders. The Company evaluated the warrants under ASC 480 - Distinguishing Liabilities from Equity and determined the warrants are classified as equity. The fair value of the warrants was recorded as a debt discount.
Income Taxes
Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (ASC 740), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2014 and March 31, 2015, the Company does not have any significant uncertain tax positions.
Foreign Currency Translation
The financial statements of the Company’s foreign operations are measured using the local currency as the functional currency. The local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the Company’s balance sheet date and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of other income (expense), net, within the Company’s consolidated statements of operations and foreign currency translation gains (losses) have been included as a component of the Company’s consolidated statements of comprehensive loss and accumulated other comprehensive income within the Company’s consolidated balance sheets.
Intercompany payables and receivables are considered to be long-term in nature and any change in balance due to foreign currency fluctuation is included as a component of the Company’s consolidated statements of comprehensive loss and accumulated other comprehensive income within the Company’s consolidated balance sheets.
Recent Accounting Pronouncements
In May 2014, a new accounting standard was issued that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. This new standard will be effective for interim and annual periods beginning January 1, 2017, and is required to be adopted using either a full retrospective or a modified retrospective approach, and early adoption is not permitted. We are currently evaluating the impact that this new standard will have on our financial statements.
In April 2015, a new accounting standard was issued that amends the presentation for debt issuance costs. Upon adoption, such costs shall be presented on our consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability and not as a deferred charge presented in other assets on our consolidated balance sheets. This new standard will be effective for interim and annual periods beginning on January 1, 2016, and is required to be retrospectively adopted. Adoption of this new standard is not expected to have a material impact on our consolidated balance sheets or related disclosures.
|
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3. Inventory
Inventory is stated at the lower of cost or market using actual cost net of reserve for excess and obsolete inventory. The following represents the components of inventory at March 31, 2015. There was no inventory at December 31, 2014.
|
(in thousands) |
|
March 31, |
|
|
|
Raw materials |
|
$ |
520 |
|
|
Work in process |
|
— |
|
|
|
Finished goods |
|
— |
|
|
|
Deferred cost of goods sold |
|
2,101 |
|
|
|
Total |
|
$ |
2,621 |
|
Deferred costs of goods sold represents inventory sold to our specialty pharmacy partner, but not yet sold to patients.
|
|||
4. Intangible Assets and Goodwill
The following represents the balance of the intangible assets at March 31, 2015:
|
(in thousands) |
|
Gross |
|
Accumulated |
|
Net |
|
Remaining Useful |
|
|||
|
OXAYDO product rights |
|
$ |
7,671 |
|
$ |
274 |
|
$ |
7,397 |
|
4.75 |
|
|
SPRIX product rights |
|
2,080 |
|
104 |
|
1,976 |
|
6.75 |
|
|||
|
IP R&D |
|
163 |
|
— |
|
163 |
|
Indefinite |
|
|||
|
Total |
|
$ |
9,914 |
|
$ |
378 |
|
$ |
9,536 |
|
|
|
The following represents the balance of the intangible assets at December 31, 2014:
|
(in thousands) |
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
IP R&D |
|
$ |
184 |
|
— |
|
$ |
184 |
|
|
|
Total |
|
$ |
184 |
|
$ |
— |
|
$ |
184 |
|
There was no impairment to intangible assets or goodwill recognized in the three months ended March 31, 2014 and 2015.
Collaboration and License Agreement with Acura
In January 2015, the Company entered into a License Agreement with Acura Pharmaceuticals, Inc. (“Acura”) to commercialize OXAYDO™ (oxycodone hydrochloride) tablets containing Acura’s Aversion® Technology. The Company paid Acura an upfront payment of $5.0 million in January 2015 and will pay a $2.5 million milestone on the earlier to occur of first commercial sale of OXAYDO or January 1, 2016, but in no event earlier than June 30, 2015. The Company also incurred transaction costs of $172,000 associated with the deal. Refer to Note 9 — Acquisitions and license and collaboration agreements for additional details.
During the three months ended March 31, 2015 the Company recognized amortization expense of $274,000 related to the OXAYDO product right intangible.
SPRIX Acquisition
In January 2015, the Company entered into and consummated the transactions contemplated by the Purchase Agreement with Luitpold Pharmaceuticals, Inc..(“Luitpold”). Pursuant to the Purchase Agreement, the Company acquired specified assets and liabilities associated with SPRIX® (ketorolac tromethamine) Nasal Spray for a purchase price of $7.0 million. The Company recorded an intangible asset of $2.1 million and goodwill of $3.4 million related to this transaction. Refer to Note 9 for additional details.
During the three months ended March 31, 2015 the Company recognized amortization expense of $104,000 related to the SPRIX product rights intangible.
In-Process Research and Development (“IP R&D”)
In connection with the acquisition of Egalet A/S, the Company recognized an IP R&D asset related to the drug delivery platform specifically designed to help deter physical abuse of pain medications. The IP R&D is considered an indefinite-lived intangible asset and is assessed for impairment annually or more frequently if impairment indicators exist. As of December 31, 2014 and March 31, 2015, the carrying value of IPR&D was $184,000, and $163,000, respectively. The change in value was entirely due to fluctuation in foreign currency exchange rates.
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5. Long-term Debt
Hercules Loan and Security Agreement
In January 2015, the Company entered into the Loan Agreement with Hercules and certain other lenders, pursuant to which the Company borrowed $15.0 million under a term loan. The term loan bears an interest rate per annum equal to the greater of either (i) 9.40% plus the prime rate as reported in The Wall Street Journal minus 3.25% or (ii) 9.40%. Pursuant to the terms of the Loan Agreement, the Company will make interest-only payments for 12 months beginning on February 1, 2015, and then repay the principal balance of the loan in 30 equal monthly payments of principal and interest through the scheduled maturity date of July 1, 2018. In connection with the Loan Agreement, the Company granted a security interest in substantially all of its assets, excluding intellectual property and certain new drug applications and related approvals, as collateral for the obligations under the Loan Agreement.
The Loan Agreement also contains representations and warranties, and indemnification in favor of Hercules. The Company is required to comply with various customary covenants, including, among others, restrictions on indebtedness, investments, distributions, transfers of assets and acquisitions. The Loan Agreement contains several events of default, including, among others, payment defaults, breaches of covenants or representations, material impairment in the perfection of Hercules’ security interest or in the collateral and events related to bankruptcy or insolvency. Upon an event of default, Hercules may declare all outstanding obligations immediately due and payable, and Hercules may take such further actions as set forth in the Loan Agreement, including collecting or taking such other action with respect to the collateral pledged in connection with the Loan Agreement.
In connection with the Loan Agreement, the Company issued Hercules a warrant (the “Warrant”) to purchase $600,000 in shares of the Company’s common stock at an exercise price of $5.29 per share (or, approximately 113,421 shares of common stock). The Warrant is considered a standalone instrument since it may be exercised separately from the Loan Agreement. .The Warrant is exercisable for a period of five years beginning on the date of issuance and has an expected fair value of $328,610 that is included in stockholders’ equity. The fair value of the Warrant was determined through the use of a Black Scholes calculation using the below assumptions:
|
Risk-free interest rate |
|
1.50 |
% |
|
Expected term (in years) |
|
5.00 |
|
|
Expected volatility |
|
71.68 |
% |
|
Dividend yield |
|
— |
|
|
|||
6. Net Loss Per Common Share
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
|
|
|
Three months Ended March 31, |
|
||||
|
(in thousands, except share and per share data) |
|
2014 |
|
2015 |
|
||
|
Basic and diluted net loss per common share calculation: |
|
|
|
|
|
||
|
Net loss attributable to common stockholders |
|
$ |
(12,916 |
) |
$ |
(16,721 |
) |
|
Weighted-average common shares outstanding |
|
9,638,260 |
|
16,451,669 |
|
||
|
Net loss per share of common stock—basic and diluted |
|
$ |
(1.34 |
) |
$ |
(1.02 |
) |
The following outstanding securities for the three months ended March 31, 2014 and 2015 have been excluded from the computation of diluted weighted shares outstanding, as they would have been anti-dilutive:
|
|
|
Three months Ended March 31, |
|
||
|
|
|
2014 |
|
2015 |
|
|
Options outstanding |
|
81,696 |
|
866,048 |
|
|
Unvested restricted stock awards |
|
1,113,360 |
|
872,535 |
|
|
Warrants outstanding |
|
— |
|
113,421 |
|
|
Total |
|
1,195,056 |
|
1,852,004 |
|
|
|||
7. Stock-based Compensation
2013 Stock-Based Incentive Plan
In November 2013, the Company adopted its 2013 Stock-Based Incentive Plan (the “Plan”). Pursuant to the Plan, the Company’s compensation committee is authorized to grant equity-based incentive awards to its board of directors, executive officers and other employees and service providers, including officers, employees and service providers of its subsidiaries and affiliates. The number of shares of common stock initially reserved for issuance under the Plan was 1,680,000, in the form of restricted stock and stock options. A 2,000,000 share increase to shares reserved for issuance under the plan was authorized by the Company’s stockholders in June 2014. The amount, terms of grants and exercisability provisions are determined by the board of directors or our chief executive officer. The term of the options may be up to 10 years, and options are exercisable in cash or as otherwise determined by the board of directors. All options vest over time as stipulated in the individual award agreements.
Shares Reserved for Future Issuance
As of March 31, 2015, the Company has reserved the following shares of common stock for issuance:
|
Shares initially reserved under the Plan |
|
1,680,000 |
|
|
Authorized increase to the Plan |
|
2,000,000 |
|
|
Common stock options outstanding |
|
(866,048 |
) |
|
Restricted stock awards granted |
|
(1,436,160 |
) |
|
Remaining shares available for future issuance |
|
1,377,792 |
|
The estimated grant-date fair value of the Company’s share-based awards is amortized ratably over the awards’ service periods. Stock-based compensation expense recognized was as follows:
|
(in thousands) |
|
Three months Ended |
|
||||
|
|
|
2014 |
|
2015 |
|
||
|
General and administrative |
|
$ |
1,156 |
|
$ |
831 |
|
|
Sales and marketing |
|
— |
|
20 |
|
||
|
Research and development |
|
527 |
|
263 |
|
||
|
Total stock-based compensation expense |
|
$ |
1,683 |
|
$ |
1,114 |
|
Stock Options Granted under the 2013 Stock-Based Incentive Plan
|
|
|
Options Outstanding |
|
|||||
|
|
|
Number of |
|
Weighted-Average |
|
Weighted-average |
|
|
|
Balance, December 31, 2014 |
|
638,548 |
|
$ |
7.38 |
|
9.43 |
|
|
Granted |
|
232,500 |
|
$ |
9.43 |
|
|
|
|
Exercised |
|
— |
|
— |
|
|
|
|
|
Expired |
|
(5,000 |
) |
11.50 |
|
|
|
|
|
Balance, March 31, 2015 |
|
866,048 |
|
$ |
7.97 |
|
9.60 |
|
|
Vested or expected to vest at March 31, 2015 |
|
866,048 |
|
$ |
7.97 |
|
9.60 |
|
|
Exercisable at March 31, 2015 |
|
24,706 |
|
$ |
11.63 |
|
9.05 |
|
The intrinsic value of our 841,343 unvested options as of March 31, 2015 was $4.4 million, based on a per share price of $12.93, the Company’s closing stock price on that date, and a weighted-average exercise price of $7.87 per share.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s common stock, assumptions related to the expected price volatility of the Company’s stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s stock.
The per-share weighted-average grant date fair value of the options granted to employees during the three months ended March 31, 2015 was estimated at $6.49 per share on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
Risk-free interest rate |
|
1.77 |
% |
|
Expected term of options (in years) |
|
6.25 |
|
|
Expected volatility |
|
78.04 |
% |
|
Dividend yield |
|
— |
|
The weighted-average valuation assumptions were determined as follows:
|
· |
Risk-free interest rate: The Company based the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term. |
|
· |
Expected term of options: The Company estimated the expected life of its employee stock options using the “simplified” method, as prescribed in Staff Accounting Bulletin (SAB) No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. |
|
· |
Expected stock price volatility: The Company estimated the expected volatility based on actual historical volatility of the stock price of similar companies with publicly-traded equity securities. The Company calculated the historical volatility of the selected companies by using daily closing prices over a period of the expected term of the associated award. The companies were selected based on their enterprise value, risk profiles, position within the industry and with historical share price information sufficient to meet the expected term of the associated award. A decrease in the selected volatility would have decreased the fair value of the underlying instrument. |
|
· |
Expected annual dividend yield: The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in the continued growth of the business. Accordingly, the Company assumed an expected dividend yield of 0.0%. |
As of March 31, 2015, there was $4.4 million of total unrecognized compensation expense, related to unvested options granted under the Plan, which will be recognized over the weighted-average remaining period of 2.07 years.
Restricted stock
Upon consummation of the IPO, the Company granted an aggregate of 862,800 shares of restricted stock to its chief executive officer, chief financial officer, chief business officer and senior vice president of research and development. On March 3, 2014, the Company granted an aggregate of 250,560 shares of restricted stock to three individuals who were providing research and development consulting services to the Company. On May 1, 2014, the Company granted an aggregate of 257,800 shares of restricted stock to certain employees at a grant date fair value of $11.15 per share. On August 5, 2014, the Company granted 25,000 shares of restricted stock to its chief medical officer. On January 2, 2015 the Company granted 40,000 shares of restricted stock to its chief commercial officer.
A summary of the status of the Company’s restricted stock awards at March 31, 2015 and of changes in restricted stock awards outstanding under the Plan for the three months ended March 31, 2015 is as follows:
|
|
|
Shares |
|
Weighted-average |
|
|
|
Outstanding balance at December 31, 2014 |
|
832,535 |
|
$ |
— |
|
|
Granted |
|
40,000 |
|
$ |
5.18 |
|
|
Vested restricted stock awards |
|
(54,955 |
) |
$ |
12.01 |
|
|
Outstanding balance at March 31, 2015 |
|
817,580 |
|
$ |
11.41 |
|
For stock awards that vest subject to the satisfaction of service requirements, compensation expense is measured based on the fair value of the award on the date of grant and is recognized as expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. All restricted stock awards issued above vest over time as stipulated in the individual award agreements. In the event of a change in control, the unvested awards will be accelerated and fully vested immediately prior to the change in control. There are no performance based features or market conditions.
As of March 31, 2015, there was $7.8 million of total unrecognized compensation expense, related to restricted stock under the Plan, which will be recognized over the weighted-average remaining period of 1.56 years.
|
|||
8. Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with its president and chief executive officer, chief financial officer, chief business officer, chief medical officer, chief commercial officer and senior vice president of research and development, that provide for, among other things, salary, bonus and severance payments.
Legal Proceedings
As a result of the Company’s acquisition of SPRIX from Luitpold and in-license of OXAYDO from Acura in January 2015, the Company has been substituted or otherwise become subject to certain legal proceedings involving SPRIX and OXAYDO, which are further described below.
On August 10, 2012, Luitpold, the prior exclusive licensee of U.S. Patent No. 6,333,044 (the “‘044 patent”), filed a complaint for infringement of the ‘044 patent against Amneal Pharmaceuticals, LLC et al. in response to Amneal’s certification under 21 U.S.C. §355(j)(2)(B)(iv)(II) that the ‘044 Patent covering SPRIX is invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use, or sale of Luitpold’s generic ketorolac tromethamine nasal spray, filed under ANDA No. 23-382 with the FDA. On November 19, 2013, Luitpold and Amneal entered into a settlement and license agreement permitting Amneal to launch its generic product on or after March 25, 2018 subject to royalty payments.
On January 26, 2015, the Company was substituted for Luitpold as plaintiff in a patent litigation against Apotex Corp. and Apotex, Inc. (collectively, “Apotex”), involving the SPRIX Nasal Spray. Apotex submitted an ANDA to the FDA under the provisions of 21 U.S.C. § 355(j) seeking approval for the commercial manufacture, use, offer for sale, sale, and/or importation of generic ketorolac tromethamine nasal spray 15.75 mg/spray (“ANDA Product”). In so doing, Apotex made a certification under 21 U.S.C. §355(j)(2)(B)(iv)(II) that the ‘044 Patent covering SPRIX is invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use, or sale of Apotex’s ANDA Product. On July 11, 2014, Luitpold filed a complaint for infringement of the ‘044 patent against Apotex, prompting a 30-month stay on the approval of Apotex’s ANDA application by the FDA. This litigation is currently ongoing. The Company is aggressively defending its legal position to preserve the exclusivity of SPRIX in the market. As is the case with patent litigation, there is a risk that the ‘044 patent may be invalidated, unenforceable, not infringed or limited or narrowed in scope. The ‘044 Patent expires on December 25, 2018.
There were a number of generic challengers to OXAYDO (formerly Oxecta) during 2012 and 2013, including Watson Laboratories, Inc., Par Pharmaceuticals, Inc., Impax Laboratories, Inc., Sandoz, Inc., and Ranbaxy Laboratories, Ltd. Along with their ANDA submissions, each generic challenger made a certification under 21 U.S.C. §355(j)(2)(B)(iv)(II) that U.S. Patent Nos. 7,201,920; 7,510,726; 7,981,439; 8,409,616; and/or 8,637,540 are invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use, or sale of their generic oxycodone HCl product. In response, Acura filed a complaint for infringement of U.S. Patent No.7,510,726 (the “‘726 Patent”) against each generic challenger. As of November 2013, Acura resolved all claims at issue in each of the litigations: Watson amended its ANDA to a Paragraph III certification (i.e., launch at expiry of the patents) and the lawsuit was dismissed; Acura entered into a settlement agreement and consent judgment with Ranbaxy that its generic oxycodone HCl product does not infringe Acura’s patents; and Acura entered into settlement and license agreements with the remaining generic challengers allowing entry of a generic oxycodone HCl product on or after January 1, 2022.
On April 3, 2015, Purdue Pharma L.P., Purdue Pharmaceuticals L.P., and The P.F. Laboratories, Inc. (collectively, “Purdue”) sued Acura Pharmaceuticals, Inc. (“Acura”) and Egalet Corporation and Egalet US, Inc. (collectively, “Egalet”) in the U.S. District Court for the District of Delaware for patent infringement of U.S. Patent No. 8,389,007 (the “‘007 patent”) alleging that Acura’s and Egalet’s commercialization of OXAYDO will infringe the ‘007 patent. Purdue contends that the court should declare that such commercialization will infringe the ‘007 patent, and that Acura and Egalet should be enjoined from making, using, selling and offering for sale OXAYDO. The Company’s review of Purdue’s allegations is ongoing and the due date to answer or otherwise respond to Purdue’s allegations has been extended until May 29, 2015. The Company will avail itself of all legal positions, actions and remedies to preserve its right to market and sell OXAYDO. As is the case with patent litigation, there is a risk that the Court may enjoin the making, using, selling and offering for sale OXAYDO and/or may find that OXAYDO infringes the ‘007 patent.
In addition, Purdue has requested the U.S. Patent and Trademark Office (USPTO) to declare an interference between Purdue’s U.S. Patent Application Ser. Nos. 14/243,580 and 14/605,034 and Acura’s U.S. Patent Nos. 8,409,616, 8,637,540, 7,981,439, 7,510,726, and 7,201,920. These patents, which have been exclusively licensed to the Company, cover OXAYDO. The USPTO denied Purdue’s request for interference as premature . However, Purdue may request an interference in the future. The Company is reviewing Purdue’s assertions, but no response is due or requested at this time.
|
|||
9. Acquisitions and License and Collaboration Agreements
License and Collaboration Agreement with Shionogi
In November 2013, the Company entered into a license and collaboration agreement with Shionogi, granting Shionogi an exclusive, royalty-bearing, worldwide license to develop, manufacture and commercialize abuse-deterrent hydrocodone-based product candidates using certain of the Company’s core technologies. The collaboration allows Shionogi to develop and commercialize an abuse-deterrent single-agent hydrocodone-based product and up to 20 different abuse-deterrent combination product candidates containing hydrocodone.
Under the terms of the agreement, the Company received an upfront payment of $10.0 million in 2013 and payment of $10.0 million in April 2015 upon submission of an investigational new drug (“IND”) application by Shionogi. The Company is eligible to receive regulatory milestone payments under the agreement as follows: (i) an additional $50.0 million upon successful achievement of specified regulatory milestones for the first licensed product candidate; (ii) up to $42.5 million upon successful achievement of specified regulatory milestones for a defined combination product candidate; (iii) up to $25.0 million upon successful achievement of specified regulatory milestones for a second product candidate (other than the defined combination product candidate); and (iv) up to $12.5 million upon successful achievement of specified regulatory milestones for further product candidates. In addition, the Company is eligible to receive up to an aggregate of $185.0 million based on successful achievement of specified net sales thresholds of licensed products.
The Company determined that the deliverables under the Shionogi agreement were the exclusive, royalty-bearing, worldwide license to its abuse-deterrent hydrocodone-based product candidates using certain of the Company’s core technologies, the research and development services to be completed by the Company and the Company’s obligation to serve on a joint committee. The license did not have standalone value to Shionogi and was not separable from the research and development services, because of the uncertainty of Shionogi’s ability to develop the product candidates without the research and development services of the Company during the transfer period and over the term of the agreement.
Due to the lack of standalone value for the license and research and development services, the upfront and IND payment are being recognized ratably using the straight line method through November 2030, the expected term of the agreement. The Company recorded the $10.0 million upfront payment and subsequent $10.0 million IND milestone as deferred revenue within its consolidated balance sheet as of March 31, 2015. For the three months ended March 31, 2014 and 2015, the Company recognized revenue of $115,000 and $173,000, respectively, related to the milestones the Company has received.
Additionally, during the three months ended March 31, 2014 and 2015, the Company recognized revenue of $141,000 and $470,000, respectively, related to certain development costs incurred under the Company’s collaborative research and license agreement. In accordance with the accounting guidance, the Company recorded revenue on a gross basis for the reimbursement of development costs.
License Agreement with Acura
In January 2015, the Company entered into a License Agreement with Acura to commercialize OXAYDO™ (oxycodone hydrochloride) tablets containing Acura’s Aversion® Technology. OXAYDO (formerly known as Oxecta®) is currently approved by the FDA for marketing in the U.S. in 5 and 7.5 mg strengths. Under the terms of the License Agreement, Acura transferred the approved NDA for OXAYDO to the Company and the Company was granted an exclusive license under Acura’s intellectual property rights for development and commercialization of OXAYDO worldwide (the “Territory”) in all strengths.
The Company paid Acura an upfront payment of $5.0 million in January 2015 and will pay a $2.5 million milestone on the earlier to occur of first commercial sale of OXAYDO or January 1, 2016, but in no event earlier than June 30, 2015. In addition, Acura will be entitled to a one-time $12.5 million milestone payment when OXAYDO net sales reach a specified level of $150 million in a calendar year.
The Company has recorded an intangible asset of $7.7 million related to the License Agreement, which includes $172,000 of transaction costs related to the agreement. The intangible asset is being amortized over a useful life of 7 years, which coincides with the patent protection of the product in the U.S.
Asset Purchase Agreement with Luitpold
In January 2015, the Company entered into and consummated the transactions contemplated by the Purchase Agreement with Luitpold. Pursuant to the Purchase Agreement, the Company acquired specified assets and liabilities associated with SPRIX® (ketorolac tromethamine) Nasal Spray for a purchase price of $7.0 million, of which $315,000 was deposited into an escrow account to secure Luitpold’s indemnification obligations under the Purchase Agreement. The Company concurrently purchased an additional $1.1 million of glassware, equipment and active pharmaceutical ingredient from Luitpold, and agreed to purchase an additional $340,000 of active pharmaceutical ingredient (“API) after closing within two business days of the release of such API from Luitpold’s supplier. SPRIX is a NSAID indicated in adult patients for the short-term (up to five days) management of moderate to moderately severe pain that requires analgesia at the opioid level.
The Company accounted for the acquisition as a business combination and the purchase price has been preliminarily allocated to the acquisition date fair values as follows:
|
|
|
Allocation |
|
|
|
Inventory |
|
$ |
2,581 |
|
|
Property, plant & equipment |
|
100 |
|
|
|
Finite lived intangible-intellectual property |
|
2,080 |
|
|
|
Goodwill |
|
3,367 |
|
|
|
Net assets acquired |
|
$ |
8,128 |
|
During the three months ended March 31, 2015, management determined that the API acquired could not be used in commercially available product prior to its expiration date and that excess quantities of glassware were included in the purchase. The above table reflects this change in the fair value of inventory and the related increase in goodwill.
The above estimated fair values of assets acquired are provisional and are based on the information that was available from the acquisition date through the three months ended March 31, 2015 to estimate the fair value of assets acquired. The Company believes that information provides a reasonable basis for estimating the fair values but the Company is waiting for additional information and analyses necessary to finalize all of the amounts listed above. Thus, the provisional measurements of fair value reflected above are subject to change. Such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
The fair value of the intellectual property was estimated using an income approach, specifically known as the relief from royalty method. The relief from royalty method is based on a hypothetical royalty stream that would be received if the Company were to license the SPRIX. Thus, the Company derived the hypothetical royalty income from the projected revenues. Cash flows were assumed to extend through the remaining economic useful life of the intellectual property, which is 5 years.
The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $3.4 million was recorded as goodwill, [which is not expected to be deductible for tax purposes] and represents the future economic benefits arising from the acquisition that could not be individually identified and separately recognized and the other benefits that the Company believes will result from the acquisition of SPRIX.
The Company incurred $1.1 million of SPRIX acquisition-related costs.
The following table presents supplemental pro forma information for the three months ended March 31, 2015 as if the acquisition of SPRIX had occurred on January 1, 2014 (unaudited). Due to the acquisition date of January 8, 2015 there is no material difference between the Company’s results presented in the consolidated statement of operations and the pro forma results for the three months ended March 31, 2015:
|
|
|
Three months |
|
|
|
(in thousands, except per share data) |
|
March 31, 2014 |
|
|
|
|
|
(unaudited) |
|
|
|
Pro forma revenue |
|
$ |
1,454 |
|
|
Pro forma net loss |
|
(14,536 |
) |
|
|
Pro forma net loss per share |
|
$ |
(1.51 |
) |
|
|||
10. Income Taxes
In accordance with ASC Topic No. 270 “Interim Reporting” and ASC Topic No. 740 “Income Taxes” (Topic No. 740) at the end of each interim period, the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the three months ended March 30, 2014 and 2015, the Company had tax expense of $35,000 and $26,000, respectively.
As of December 31, 2014 and March 31, 2015, the Company had a non-current deferred tax liability of $25,000 and $49,000 respectively. The deferred tax liability relates to an indefinite-lived intangible that was recorded in connection with the Danish IPR&D and the tax amortization of goodwill that was generated in acquisition accounting in the U.S. The Company maintains a full valuation against all deferred tax assets as management has determined that it is not more likely than not that the Company will realize these future tax benefits.
|
|||
11. Related-Party Transactions
Related Party Receivables
The Company has derived a portion of revenue for the three months ended March 31, 2014 and 2015 under its license and collaboration agreement with Shionogi, who is also an investor in the Company. As of December 31, 2014 and March 31, 2015, related party receivables with Shionogi were $679,000 and $10.5 million, respectively and consisted of revenue from development costs incurred under the Company’s collaborative research and license agreement of $679,000 and $470,000, respectively. The March 31, 2015 balance also includes the $10.0 million milestone payment related to the filing of an IND in the three months ended March 31, 2015.
|
|||
12. Subsequent Events
5.50% Convertible Senior Notes Due 2020
On April 1, 2015 the Company issued through a private placement $60.0 million in aggregate principal amount of 5.50% convertible senior notes due April 1, 2020 (the “5.50% Notes”). Interest on the 5.50% Notes is payable semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2015.
The 5.50% Notes are general, unsecured and unsubordinated obligations and will rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the notes. The 5.50% Notes rank equal in right of payment to the Company’s existing and future indebtedness and other liabilities that are not so subordinated. The 5.50% Notes are effectively subordinated to any of the Company’s future secured indebtedness to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries, including trade payables.
The 5.50% Notes are effectively junior to the $15.0 million principal amount of secured indebtedness outstanding under the Senior Secured Loan Agreement with Hercules and certain other lenders, to the extent of the value of the assets securing such indebtedness.
The Company may not redeem the 5.50% Notes prior to maturity. The 5.50% Notes are convertible prior to maturity, subject to certain conditions described below, into shares of the Company’s common stock at an initial conversion rate of 67.2518 shares per $1,000 principal amount of the 5.50% Notes (equivalent to an initial conversion price of approximately $14.87 per share of common stock). This conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. The Company will satisfy the conversion obligation by paying or delivering, as the case may be, cash, shares of common stock or a combination thereof, at the Company’s election.
Holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding January 1, 2020 only under the following circumstances:
|
· |
on or after the date that is six months after the last date of original issuance of the notes, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the five trading days immediately preceding a conversion date is greater than or equal to the conversion price for the notes on each applicable trading day; |
|
· |
during the five business day period after any five consecutive trading day period, the measurement period’ in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or |
|
· |
upon the occurrence of specified corporate events. |
On or after January 1, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
|
· |
The conversion rate for the notes is initially 67.2518 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $14.87 per share of common stock), subject to adjustment. |
|
· |
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, and an interest make-whole payment in shares of the common stock, if applicable. If the Company satisfies the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 50 trading day observation period. |
In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances. Holders will not receive any additional cash payment or additional shares representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, interest will be deemed to be paid by the cash, shares the Company’s common stock or a combination of cash and shares of the Company’s common stock paid or delivered, as the case may be, to the holders upon conversion of a note.
On or after the date that is six months after the last date of original issuance of the notes, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the five trading days immediately preceding a conversion date is greater than or equal to the conversion price for the notes on each applicable trading day, the Company will, in addition to the other consideration payable or deliverable in connection with such conversion, make an interest make-whole payment to the converting holder equal to the sum of the present value of the remaining scheduled payments of interest that would have been made on the notes to be converted had such notes remained outstanding from the conversion date through April 1, 2018, computed using a discount rate equal to 2%. The Company will pay any interest make-whole payment by delivering shares of the Company’s common stock valued at 95% of the simple average of the daily volume weighted average price for the 10 trading days ending on and including the trading day immediately preceding the conversion date. Notwithstanding the foregoing, the number of shares the Company may deliver in connection with a conversion of the notes, including those delivered in connection with an interest make-whole payment, will not exceed 77.3395 shares of common stock per $1,000 principal amount of notes, subject to adjustment. The Company will not be required to make any cash payments in lieu of any fractional shares or have any further obligation to deliver any shares of common stock or pay any cash in excess of the threshold described above. In addition, if in connection with any conversion the conversion rate is adjusted, then such holder will not receive the interest make-whole payment with respect to such note.
The Company will account for convertible debt instruments by recording the liability and equity components of the convertible debt separately. The liability will be computed based on the fair value of a similar liability that does not include the conversion option. The liability component will include both the value of the embedded interest make-whole derivative and the carrying value of the notes. The equity component will be computed based on the total debt proceeds less the fair value of the liability component. The equity component will also recorded as debt discount and amortized as interest expense over the expected term of the notes, using the effective interest method.
On May 6, 2015, the Company received an additional $1 million from the purchasers’ exercise of their 30-day over-allotment.
Appointments to Board of the Directors
On April 13, 2015, the Company announced the appointment of Nicholas C. Nicolaides, president and chief executive officer of Morphotek, a subsidiary of Eisai North America, and John Osborn, executive-in-residence at Warburg Pincus and senior advisor at Hogan Lovells, to its board of directors.
|
|||
Basis of Presentation
The unaudited consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and footnotes normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. The Company’s consolidation policy requires the consolidation of entities where a controlling financial interest is held. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial information at March 31, 2015 and for the three months ended March 31, 2014 and 2015 is unaudited. The interim unaudited financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2015 and for the three months ended March 31, 2014 and 2015. The financial data and other information disclosed in these notes related to the three months ended March 31, 2014 and 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015, any other interim periods or any future year or period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2014 filed on March 16, 2015 with the SEC.
The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies, except where noted below.
Reclassification
Certain reclassifications were made to prior period amounts to conform to the current period presentation.
Concentration of credit risk
The Company has an exposure to credit risk in trade accounts receivable from sales of product. In the U.S. the Company sells SPRIX to a specialty pharmacy which then distributes to patients. One customer represents 100% of our sales during the three months ended March 31, 2015. We did not have any trade accounts receivable as of March 31, 2015.
Fair Value Measurements
The carrying amounts reported in the Company’s consolidated financial statements for cash, accounts receivable, accounts payable, accrued liabilities, and notes payable approximate their respective fair values because of the short-term nature of these accounts. The carrying amount of the Company’s debt at March 31, 2015 approximates fair value because the interest rate is reflective of the rate the Company could obtain on debt with similar terms and conditions.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Fair value should be based on the assumptions that market participants would use when pricing an asset or liability and is based on a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets (observable inputs) and the lowest priority to the Company’s assumptions (unobservable inputs). Fair value measurements should be disclosed separately by level within the fair value hierarchy. For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with established fair value hierarchy.
Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates, and often are calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as assets held for sale and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1—Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 2—Valuations for assets and liabilities that can be obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company’s principal markets for these securities are the secondary institutional markets, and valuations are based on observable market data in those markets.
Level 3—Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange or dealer- or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
Level 3 valuations are for instruments that are not traded in active markets or are subject to transfer restrictions and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.
An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The Company had no assets or liabilities classified as Level 1 or Level 2 as of December 31, 2014 and March 31, 2015 and there were no material re-measurements of fair value with respect to financial assets and liabilities, during those years, other than those assets and liabilities that are measured at fair value on a recurring basis. There were no transfers between Level 1 and Level 2 in any of the periods reported.
Net Product Sales
The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that define the terms of the arrangements. Pursuant to the contract terms, the Company determines when title to products and associated risk of loss has passed on to the customer. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and creditworthiness.
The Company sells SPRIX in the U.S. to a single specialty pharmaceutical distributor subject to rights of return. The Company has limited SPRIX sales history under the current distribution model and pricing, and the Company has determined that at this time it cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on product shipments of SPRIX until the right of return no longer exists, which occurs at the earlier of the time SPRIX units are dispensed through patient prescriptions or expiration of the right of return. Units dispensed are generally not subject to return, except in the rare cases where the product malfunctions or the product is damaged in transit. The Company calculates patient prescriptions dispensed using an analysis of third-party information. As of March 31, 2015, the Company had deferred revenue of $14.7 million related to sales of SPRIX, which is expected to be recognized over the next 12 months.
Related Party Revenue
During 2013, the Company entered into a collaborative research and license agreement with Shionogi. The terms of this agreement contain multiple deliverables which include (i) licenses; (ii) research and development activities and (iii) certain of the Company’s core technologies and improvements thereon. The Company has adopted the provisions of Accounting Standards Update (“ASU”) 2009-13,”Multiple-Deliverable Revenue Arrangements,” which amends ASC 605-25, and also adopted ASU 2010-17, “Revenue Recognition—Milestone Method.” In accordance with ASU 2009-13, the Company considered whether the deliverables under the arrangement represent separate units of accounting. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have stand-alone value. See Note 9 Acquisitions and License and Collaboration Agreements for further discussion of the Company’s accounting for the collaborative research and license agreement.
Deferred Revenue
The Company records deferred revenue when either: a sale of product has occurred, but revenue recognition criteria has not been met; or when a milestone is achieved under the collaborative research and license agreement with Shionogi as discussed in the Company’s Related Party Revenue policy described above. As of March 31, 2015 the deferred revenue balance consisted of $14.7 million for product sales, all of which is classified as current, and $19.2 million related to the collaborative research and license agreement with Shionogi, $1.2 million of which is classified as current.
Product Sales Allowances
The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company’s agreements with customers and third-party payors that may result in future rebates or discounts taken. In certain cases, such as patient discount programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company’s product sales allowances include:
Specialty Pharmacy Discounts. The Company offers discounts to a certain specialty distributor based on contractually determined rates. The Company accrues the discount on shipment to the respective distributor and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.
Prompt Pay Discounts. The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.
Patient Discount Programs. The Company offers co-pay discount programs to patients for SPRIX in which patients receive a co-pay discount on their prescriptions. The Company estimates the total amount that will be redeemed based on the quantity of product shipped and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.
Inventories and Cost of Sales
Inventories are stated at the lower of cost or market net of reserve for excess and obsolete inventory. At March 31, 2015, inventory consisted of raw materials and deferred cost of goods.
Cost of sales includes the cost of inventory sold or reserved; manufacturing, manufacturing overhead and supply chain costs; product shipping and handling costs and product royalties. The cost of sales associated with the deferred product revenues are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized.
Impairment of Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of tangible and identified intangible net assets of businesses acquired. Goodwill is not amortized, but is evaluated for impairment on an annual basis or more often when impairment indicators are present. The Company has one reporting unit. Therefore, the Company’s consolidated net assets, including existing goodwill and other intangible assets, are considered to be the carrying value of the reporting unit. If the carrying value of the reporting unit is in excess of its fair value, an impairment may exist, and the Company must perform the second step of the analysis, in which the implied fair value of the goodwill is compared to its carrying value to determine the impairment charge, if any. If the estimated fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and no further analysis is required.
The Company makes judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances indicate that impairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. Impairment, if any, is measured as the amount by which the carrying value exceeds the fair value of the impaired asset.
Stock-Based Compensation Expense
The Company accounts for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation (ASC 718), which requires the recognition of expense related to the fair value of stock-based compensation awards in the Statements of Operations and Comprehensive Loss.
For stock options issued to employees and members of the Board of Directors, the Company estimates the grant date fair value of each option using the Black-Scholes option-pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, the value of the common stock and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term.
Share-based payments issued to non-employees are recorded at their fair values, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period in accordance with the provisions of ASC 718 and ASC Topic 505, Equity. See Note 7 — Stock-based compensation for a discussion of the assumptions used by the Company in determining the grant date fair value of options granted under the Black-Scholes option pricing model, as well as a summary of the stock option activity under the Company’s stock-based compensation plan for the three months ended March 31, 2015.
The stock-based compensation expense for restricted stock awards is determined based on the closing market price of the Company’s common stock on the grant date of the awards applied to the total number of awards that are anticipated to vest.
Long Term Debt
Long term debt consists of the Loan Agreement with Hercules and certain other lenders, pursuant to which the Company borrowed $15.0 million in January 2015 under a term loan (see Note 5). The term loan bears an interest rate per annum equal to the greater of either (i) 9.40% plus the prime rate as reported in The Wall Street Journal minus 3.25% or (ii) 9.40%.
Common Stock Warrants
The Company issued warrants to Hercules in connection with the Loan Agreement with Hercules and certain other lenders. The Company evaluated the warrants under ASC 480 - Distinguishing Liabilities from Equity and determined the warrants are classified as equity. The fair value of the warrants was recorded as a debt discount.
Income Taxes
Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (ASC 740), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2014 and March 31, 2015, the Company does not have any significant uncertain tax positions.
Foreign Currency Translation
The financial statements of the Company’s foreign operations are measured using the local currency as the functional currency. The local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the Company’s balance sheet date and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of other income (expense), net, within the Company’s consolidated statements of operations and foreign currency translation gains (losses) have been included as a component of the Company’s consolidated statements of comprehensive loss and accumulated other comprehensive income within the Company’s consolidated balance sheets.
Intercompany payables and receivables are considered to be long-term in nature and any change in balance due to foreign currency fluctuation is included as a component of the Company’s consolidated statements of comprehensive loss and accumulated other comprehensive income within the Company’s consolidated balance sheets.
Recent Accounting Pronouncements
In May 2014, a new accounting standard was issued that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. This new standard will be effective for interim and annual periods beginning January 1, 2017, and is required to be adopted using either a full retrospective or a modified retrospective approach, and early adoption is not permitted. We are currently evaluating the impact that this new standard will have on our financial statements.
In April 2015, a new accounting standard was issued that amends the presentation for debt issuance costs. Upon adoption, such costs shall be presented on our consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability and not as a deferred charge presented in other assets on our consolidated balance sheets. This new standard will be effective for interim and annual periods beginning on January 1, 2016, and is required to be retrospectively adopted. Adoption of this new standard is not expected to have a material impact on our consolidated balance sheets or related disclosures.
|
|||
|
(in thousands) |
|
March 31, |
|
|
|
Raw materials |
|
$ |
520 |
|
|
Work in process |
|
— |
|
|
|
Finished goods |
|
— |
|
|
|
Deferred cost of goods sold |
|
2,101 |
|
|
|
Total |
|
$ |
2,621 |
|
|
|||
The following represents the balance of the intangible assets at March 31, 2015:
|
(in thousands) |
|
Gross |
|
Accumulated |
|
Net |
|
Remaining Useful |
|
|||
|
OXAYDO product rights |
|
$ |
7,671 |
|
$ |
274 |
|
$ |
7,397 |
|
4.75 |
|
|
SPRIX product rights |
|
2,080 |
|
104 |
|
1,976 |
|
6.75 |
|
|||
|
IP R&D |
|
163 |
|
— |
|
163 |
|
Indefinite |
|
|||
|
Total |
|
$ |
9,914 |
|
$ |
378 |
|
$ |
9,536 |
|
|
|
The following represents the balance of the intangible assets at December 31, 2014:
|
(in thousands) |
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
IP R&D |
|
$ |
184 |
|
— |
|
$ |
184 |
|
|
|
Total |
|
$ |
184 |
|
$ |
— |
|
$ |
184 |
|
|
|||
|
Risk-free interest rate |
|
1.50 |
% |
|
Expected term (in years) |
|
5.00 |
|
|
Expected volatility |
|
71.68 |
% |
|
Dividend yield |
|
— |
|
|
|||
|
|
|
Three months Ended March 31, |
|
||||
|
(in thousands, except share and per share data) |
|
2014 |
|
2015 |
|
||
|
Basic and diluted net loss per common share calculation: |
|
|
|
|
|
||
|
Net loss attributable to common stockholders |
|
$ |
(12,916 |
) |
$ |
(16,721 |
) |
|
Weighted-average common shares outstanding |
|
9,638,260 |
|
16,451,669 |
|
||
|
Net loss per share of common stock—basic and diluted |
|
$ |
(1.34 |
) |
$ |
(1.02 |
) |
|
|
|
Three months Ended March 31, |
|
||
|
|
|
2014 |
|
2015 |
|
|
Options outstanding |
|
81,696 |
|
866,048 |
|
|
Unvested restricted stock awards |
|
1,113,360 |
|
872,535 |
|
|
Warrants outstanding |
|
— |
|
113,421 |
|
|
Total |
|
1,195,056 |
|
1,852,004 |
|
|
|||
As of March 31, 2015, the Company has reserved the following shares of common stock for issuance:
|
Shares initially reserved under the Plan |
|
1,680,000 |
|
|
Authorized increase to the Plan |
|
2,000,000 |
|
|
Common stock options outstanding |
|
(866,048 |
) |
|
Restricted stock awards granted |
|
(1,436,160 |
) |
|
Remaining shares available for future issuance |
|
1,377,792 |
|
|
(in thousands) |
|
Three months Ended |
|
||||
|
|
|
2014 |
|
2015 |
|
||
|
General and administrative |
|
$ |
1,156 |
|
$ |
831 |
|
|
Sales and marketing |
|
— |
|
20 |
|
||
|
Research and development |
|
527 |
|
263 |
|
||
|
Total stock-based compensation expense |
|
$ |
1,683 |
|
$ |
1,114 |
|
|
|
|
Options Outstanding |
|
|||||
|
|
|
Number of |
|
Weighted-Average |
|
Weighted-average |
|
|
|
Balance, December 31, 2014 |
|
638,548 |
|
$ |
7.38 |
|
9.43 |
|
|
Granted |
|
232,500 |
|
$ |
9.43 |
|
|
|
|
Exercised |
|
— |
|
— |
|
|
|
|
|
Expired |
|
(5,000 |
) |
11.50 |
|
|
|
|
|
Balance, March 31, 2015 |
|
866,048 |
|
$ |
7.97 |
|
9.60 |
|
|
Vested or expected to vest at March 31, 2015 |
|
866,048 |
|
$ |
7.97 |
|
9.60 |
|
|
Exercisable at March 31, 2015 |
|
24,706 |
|
$ |
11.63 |
|
9.05 |
|
The per-share weighted-average grant date fair value of the options granted to employees during the three months ended March 31, 2015 was estimated at $6.49 per share on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
Risk-free interest rate |
|
1.77 |
% |
|
Expected term of options (in years) |
|
6.25 |
|
|
Expected volatility |
|
78.04 |
% |
|
Dividend yield |
|
— |
|
|
|
|
Shares |
|
Weighted-average |
|
|
|
Outstanding balance at December 31, 2014 |
|
832,535 |
|
$ |
— |
|
|
Granted |
|
40,000 |
|
$ |
5.18 |
|
|
Vested restricted stock awards |
|
(54,955 |
) |
$ |
12.01 |
|
|
Outstanding balance at March 31, 2015 |
|
817,580 |
|
$ |
11.41 |
|
|
|||
|
|
|
Allocation |
|
|
|
Inventory |
|
$ |
2,581 |
|
|
Property, plant & equipment |
|
100 |
|
|
|
Finite lived intangible-intellectual property |
|
2,080 |
|
|
|
Goodwill |
|
3,367 |
|
|
|
Net assets acquired |
|
$ |
8,128 |
|
|
|
|
Three months |
|
|
|
(in thousands, except per share data) |
|
March 31, 2014 |
|
|
|
|
|
(unaudited) |
|
|
|
Pro forma revenue |
|
$ |
1,454 |
|
|
Pro forma net loss |
|
(14,536 |
) |
|
|
Pro forma net loss per share |
|
$ |
(1.51 |
) |
|
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