In 2015, the EMA Committee for Orphan Medicinal Products (COMP) designated LJPC-401 as an orphan medicinal producta tetracycline class antibacterial indicated for the treatment of
beta thalassemia intermediacomplicated intra-abdominal infections (“cIAI”) in patients 18 years of age and
major. In 2016,older. XERAVA is approved by the
EMA COMP designated LJPC-401 as an orphan medicinal productEC for the treatment of
SCD.cIAI in adults. XERAVA is marketed in the U.S. by Tetraphase Pharmaceuticals, Inc., a wholly owned subsidiary of La Jolla, and is marketed in Europe by PAION Deutschland GmbH on behalf of Tetraphase. Everest, the Company’s licensee for mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines, submitted an NDA in China, which was accepted by the China National Medical Products Administration (“NMPA”) in March 2021. XERAVA was approved in Singapore by the Health Science Authority in April 2020.cIAIs are the second most common source of severe sepsis in the ICU (Brun-Buisson et al, JAMA 1995; 274(12):968–974). cIAIs are defined as consequences of perforations of the gastrointestinal tract that result in contamination of the peritoneal space (Solomkin et al, Clinical Infectious Diseases 2018; 69(6):921–929).
Source of Severe Sepsis in the ICU (%)(1)
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(1) Brun-Buisson et al, JAMA 1995; 274(12):968–974 |
In September 2016, we reported positive results fromThe use of antimicrobial agents that have activity against gram-negative, gram-positive and anaerobic pathogens is strongly recommended for the empiric treatment (treatment without a Phase 1 studyspecific pathogen diagnosis) of LJPC-401patients with cIAI. The increased prevalence of resistant bacteria makes the selection of appropriate treatment more challenging (Mazuski et al, Surgical Infections 2017; 18(1):1–76).
2,733 Baseline Pathogens in 846 Patients with cIAI
3.2 Pathogens/Patient(1)
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(1) Data on file from IGNITE1 and IGNITE4 microbiologic intent-to-treat (micro-ITT) population |
Approximately 3 million patients at riskwith cIAIs receive approximately 17 million days of iron overload suffering from HH, thalassemia and SCD. In this study, single, escalating doses of LJPC-401 were associatedbroad-spectrum antibiotics.
~3 MM Patients with a dose-dependent, statistically significant reduction in serum iron. LJPC-401 was well-tolerated with no dose-limiting toxicities. Injection-site reactions were the most commonly reported adverse event and were all mild or moderate in severity, self-limiting and fully resolved.cIAIs Receive Broad-Spectrum Antibiotics
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(1) 2014 Decision Resources AMR Hospital Database (2) Annually in the U.S. and EU5 (France, Germany, Italy, Spain and the United Kingdom) |
Investigating Gram-negative Infections Treated with Eravacycline (“IGNITE”)
XERAVA was approved by the FDA and the EC based on the results of IGNITE1 and IGNITE4, which were published in JAMA Surgery in March 2017 and Clinical Infectious Diseases in December 2018, respectively.
IGNITE1 was a multinational, randomized, double-blind, active-controlled study in 538 patients with clinical evidence of cIAIs requiring urgent surgical or percutaneous intervention who received either XERAVA or ertapenem. The primary endpoint was clinical cure, defined as complete resolution or significant improvement of signs or symptoms of the index infection, at the test of cure (“TOC”) visit. The TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered.
IGNITE4 was a multinational, randomized, double-blind, active controlled study in 499 patients with clinical evidence of cIAIs requiring urgent surgical or percutaneous intervention who received either XERAVA or meropenem. The primary endpoint was clinical cure, defined as complete resolution or significant improvement of signs or symptoms of the index infection, at the TOC visit. The TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered.
IGNITE1 and IGNITE4 Study Design
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(1) Solomkin et al, JAMA Surgery 2017; 152(3):224-232 (2) Solomkin et al, Clinical Infectious Diseases 2018; 69(6):921-9 (3) TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered |
XERAVA demonstrated statistical noninferiority in clinical cure rate in the micro-ITT population, which included all randomized subjects who had baseline bacterial pathogens that caused cIAIs and against at least one of which the investigational drug has in vitro (in a test tube)antibacterial activity (N=846).
Primary Endpoint: Clinical Cure Rate(1)
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(1) XERAVA FDA prescribing information (2) Noninferiority margins of 10% and 12.5% were used for IGNITE1 and IGNITE4, respectively |
Clinical cure ratesacrosspatients withgram-negative, gram-positive and anaerobic pathogens, including those with resistant strains, are shown in the following tables.
Clinical Cure Rates at TOC by Selected Baseline Pathogens in the Micro-ITT Population(1)
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N=Number of subjects in the micro-ITT Population; N1=Number of subjects with a specific pathogen; n=Number of subjects with a clinical cure at the TOC visit (1) XERAVA FDA prescribing information (2) Comparators included ertapenem and meropenem for IGNITE1 and IGNITE4, respectively (3) Includes Streptococcus anginosus, Streptococcus constellatus, and Streptococcus intermedius (4) Includes Bacteroides caccae, Bacteroides fragilis, Bacteroides ovatus, Bacteroides thetaiotaomicron, Bacteroides uniformis, Bacteroides vulgatus, Clostridium perfringens, and Parabacteroides distasonis |
XERAVA Demonstrated High Clinical Cure Rates Against Resistant Pathogens(1)
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CEPH-R=cephalosporin-resistant; ESBL=extended-spectrum β-lactamases; MDR=multidrug resistance; N=Number of subjects in the micro-ITT Population; N1=Number of subjects with a specific pathogen; n=Number of subjects with a clinical cure at the TOC visit (1) Ditch et al, 2018 ASM Microbe Annual Meeting (2) Comparators included ertapenem and meropenem for IGNITE1 and IGNITE4, respectively (3) Data on file from IGNITE1 and IGNITE4 micro-ITT population |
The most common adverse reactions that were reported in XERAVA-treated patients in IGNITE1 and IGNITE4 were infusion site reactions.
Selected Adverse Reactions Reported in ≥1% of Patients Receiving XERAVA(1)
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(1) XERAVA FDA prescribing information (2) Comparators included ertapenem and meropenem for IGNITE1 and IGNITE4, respectively (3) Infusion site reactions include: catheter/vessel puncture site pain, infusion site extravasation, infusion site hypoaesthesia, infusion/injection site phlebitis, infusion site thrombosis, injection site/vessel puncture site erythema, phlebitis, phlebitis superficial, thrombophlebitis, and vessel puncture site swelling |
Product Candidates
In September 2016, we reached agreementconnection with the EMA onacquisition of Tetraphase, La Jolla acquired the designfollowing product candidates that are in early stage clinical or preclinical development: (i) TP-6076, an IV formulation of a pivotal study of LJPC-401fully synthetic fluorocycline derivative for the treatment of beta thalassemia patients suffering from iron overload,certain multidrug-resistant gram-negative bacteria; (ii) TP-271, an IV and oral formulation of a major unmet needfully synthetic fluorocycline for the treatment of respiratory disease caused by bacterial biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia; and (iii) TP-2846, an IV formulation of a tetracycline for the treatment of acute myeloid leukemia. At this time, there are no active studies nor anticipated future studies for any of these product candidates. We intend to seek out-license opportunities for these product candidates; however, at this time, we are unable to predict the likelihood of successfully out-licensing any of these product candidates.
Sales and Marketing Organization
La Jolla employs an experienced sales and marketing team dedicated to the commercialization of GIAPREZA and XERAVA. As of December 31, 2021, this team consisted of 36 professionals, including 28 critical care specialists.
Customers
During the year ended December 31, 2021, 492 hospitals in an orphan patient population. This study, which we refer to as LJ401-BT01, was initiated in December 2017. LJ401-BT01 is designed to enroll approximately 100 patients across 9 countries, including the U.S. Patients willpurchased GIAPREZA, and 929 hospitals and other healthcare organizations in the U.S. purchased XERAVA. Hospitals and other healthcare organizations generally purchase our products through a network of specialty and wholesale distributors. These specialty and wholesale distributors are considered our customers for accounting purposes. The Company does not believe that the loss of one of these distributors would significantly impact the ability to distribute our products, as the Company expects that sales volume would be randomized 1:1 to receive either: (i) weekly subcutaneous injections of LJPC‑401, while continuing standard-of-care chelation therapy (LJPC‑401 treatment arm); or (ii) a continuation of standard-of-care chelation therapy only (observation arm). After 6 months of treatment, patients randomizedabsorbed by the remaining distributors. Due to the observation arm will cross overrelatively short lead-time required to receive LJPC‑401 (plus standard-of-care chelation therapy)fill orders for 6 months,GIAPREZA and XERAVA, backlog is not material to our business.
Competition
Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used first line to treat distributive shock, while patientsvasopressin, including Vasostrict® (Endo International plc) and Vasopressin (Eagle Pharmaceuticals, Inc.), is typically used second line. In the randomized, to
the LJPC-401 treatment arm will continue with LJPC-401 (plus standard-of-care chelation therapy) for an additional 6 months (for a total of one year). The primary efficacy endpoint of thisPhase 3 study is the change in iron content in the heart after 6 months, as measured by cardiac magnetic resonance imaging (MRI). If this study is successful, we would anticipate filing an MAA for LJPC-401 in Europe.
In December 2017, we announced the initiation of LJ401-HH01, a Phase 2ATHOS-3, GIAPREZA demonstrated clinical
study of LJPC‑401benefit in patients
with HH. LJ401-HH01 is a multinational, multicenter, randomized, placebo-controlled, double-blind, Phase 2 study that is designedwho were not adequately responding to
evaluate the safetyavailable vasopressors, including catecholamines and
efficacy of LJPC-401Vasostrict. GIAPREZA’s principal competition as a treatment
in patients not adequately responding to available vasopressors is the use of these same vasopressors at increased doses. If we are unable to successfully change treatment practices, the commercial prospects for
HH. Approximately 60 patientsGIAPREZA will be
randomizedlimited, and our business may suffer.XERAVA competes with a number of antibiotics that are currently marketed for the treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to receive weekly subcutaneous injections of either LJPC‑401 or placebosuccessfully change treatment practices, the commercial prospects for 12 weeks. The primary efficacy endpoint of the study is the change in transferrin saturation, a standard measurement of iron levels in the bodyXERAVA will be limited, and one of the two key measurements used to detect iron overload, from baseline to end of treatment. Secondary efficacy endpoints include: (i) the change in serum ferritin, the other key measurement used to detect iron overload, from baseline to end of treatment; and (ii) the requirement for and frequency of phlebotomy procedures used during the study.
our business may suffer.17
Manufacturing
We do not currently own or operate manufacturing facilities for the production of commercial or clinical quantities of GIAPREZA or any of our product candidates.XERAVA. We rely on a small number of third-party manufacturers to produce our compoundsGIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs and the requirements of our product candidates.
In order to meet our commercial needs, we are currently negotiating or have entered into long-term commercial supply agreements with certain third-party manufacturers. Historically, we have not had long-term agreements with any third parties and will likely continue to not have long-term arrangements as they relate to our clinical and preclinical product candidates.needs. In all of our manufacturing and processing agreements, we require that third-party contract manufacturers produce active pharmaceutical ingredients (API)(“APIs”) and finisheddrug products in accordance with the FDA’s current Good Manufacturing Practices (cGMP)(“cGMPs”) and all other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to our productGIAPREZA and product candidates.
With regard to GIAPREZA, we have utilized third parties to manufacture the API, formulate, fill and finish, and perform the analytical release testing of the drug product. We have also completed our commercial scale-up of manufacturing process development and the validation of commercial production runs.XERAVA. The
long-term commercial success of GIAPREZA
and XERAVA will depend in part on the ability of our contract manufacturers to
producesupply cGMP-compliant API and drug product
in commercial quantitieswithout interruption.Regulatory Exclusivity
GIAPREZA and at competitive costs. Further, someXERAVA are New Chemical Entities (“NCEs”) approved by the FDA. In the U.S., NCEs approved by the FDA are eligible for market exclusivity under the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”), which can prevent the approval of generic versions of the critical materials and components used in manufacturing GIAPREZA are sourcedNCE for 5 to 7.5 years from single suppliers. An interruptionthe date of the initial approval of the NCE. Specifically, the FDCA provides a 5-year period of marketing exclusivity within the U.S. to the applicant that gains approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”) or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all of the data required for approval. However, an application may be submitted 4 years after the NDA approval of the NCE if it contains a certification of patent invalidity or non-infringement. This certification will trigger an automatic stay in the supplyapproval of key materials could significantly delay our salesany generic competition until the earlier of: (i) 30 months from the certification; or increase our expenses.
We plan(ii) a court ruling of patent invalidity or non-infringement for the relevant patents. In the absence of a court ruling, the 30-month stay will be extended by such amount of time (if any) that is required for 7.5 years to
continuehave elapsed from the date of NDA approval of the NCE.On February 15, 2022, the Company received a paragraph IV notice of certification (the “Notice Letter”) from Gland Pharma Limited (“Gland”) advising that Gland has submitted an ANDA to scale up manufacturing through multiple third-party manufacturers as required,the FDA seeking approval to manufacture, use or sell a generic version of GIAPREZAin the U.S. prior to the expiration of the following U.S. Patent Nos.: 9,220,745; 9,572,856; 9,867,863; 10,028,995; 10,335,451; 10,493,124; 10,500,247; 10,548,943; 11,096,983; and 11,219,662 (the “GIAPREZA Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”). The Notice Letter alleges that the GIAPREZA Patents are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Gland’s ANDA.
The Company intends to vigorously defend its intellectual property rights protecting GIAPREZA. In accordance with the objectivesHatch-Waxman Act, because GIAPREZA is a new chemical entity, should the Company file a patent infringement lawsuit within 45 days of realizing important economiesreceipt of scalethe Notice Letter, the FDA cannot approve Gland’s ANDA any earlier than 7.5 years from the approval of the GIAPREZA NDA unless a District Court finds that all of the asserted claims of the patents-in-suit are invalid, unenforceable and/or not infringed.
Under the Generating Antibiotic Incentives Now (“GAIN”) provisions of the FDA Safety and securityInnovation Act (“FDASIA”), the FDA may designate a product as a qualified infectious disease product (“QIDP”). In order to receive this designation, a drug must qualify as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections. We obtained a QIDP designation for the IV formulation of supply. These scale-up activitiesXERAVA for cIAI in July 2013. Upon approving an application for a QIDP, the FDA will take timeextend by an additional 5 years any non-patent marketing exclusivity period awarded, such as a 5-year exclusivity period awarded for an NCE. This extension is in addition to implement, require additional capital investment, process development, validation and FDA review.
Patents and Proprietary Technologies
any pediatric exclusivity extension awarded. XERAVA has been awarded this 5-year exclusivity under FDASIA.18
Intellectual Property
Patents and other proprietary rights are important to our business. As part of our strategy to protect our current product and product candidates and to provide a foundation for future products, we have filed a number of patent applications and have licensed rights from third parties for other patent applications related to our product candidates.
As of December 31, 2017, we owned or hadFebruary 18, 2022, the rights to 24 issued patents (12 U.S. and 12 foreign) and 109 pending applications (36 U.S. and 73 foreign). These patents and patent applications owned or licensed by us cover GIAPREZA, LJPC-401 and other product candidates.
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| | | United States | | Foreign |
| Description | | Issued | | Pending | | Expiration | | Issued | | Pending | | Expiration |
| GIAPREZA | | 3 | | 10 | | 2029 - 2038 | | — | | 42 | | 2034 - 2037 |
| LJPC-401 | | 2 | | 8 | | 2022 - 2038 | | 5 | | 6 | | 2022 - 2037 |
| Other | | 7 | | 18 | | 2022 - 2038 | | 7 | | 25 | | 2022 - 2037 |
In addition to those above, we plan to file additional patent applications that, if issued, would provide further protection for GIAPREZA and LJPC-401. Although we believe the bases for these patents and patent applications are sound, they are untested, and there is no assurance that they will not be successfully challenged. There can be no assurance that any patent previously issued will be of commercial value, that any patent applications will result in issued patents of commercial value, or that our technology will not be held to infringe patents held by others.
Material Contract
In December 2014, the Company entered into a patent license agreement with the George Washington University (GW), which the parties amended and restated on March 1, 2016. Pursuant to the amended and restated license agreement, GW exclusively licensed to the Company certain intellectual property
rightsportfolio relating to GIAPREZA
including the exclusive rights to certainincluded 14 issued
U.S. patents, 10 pending U.S. patent applications, 10 issued foreign patents and
43 pending foreign patent applications. The issued U.S. patents, and patents that may issue from the pending U.S. patent applications,
covering GIAPREZA. Under the license agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee and additional payments following the achievement of certain development and regulatory milestones, including FDA approval. The Company may be obligated to make additional milestone payments of up to $1.6 million in the aggregate. Following the commencement of commercial sales of GIAPREZA, the Company is obligated to pay tiered royalties in the low- to mid-single digits on products covered by the licensed rights. The patents and patent applications covered by the GW license agreementwill expire between 2029 and
2038,2040, absent any disclaimers, extensions, or adjustments of patent term. The foreign patents, and patents that may issue from the pending foreign patent applications, will expire between 2034 and 2037, absent any disclaimers, extensions, or adjustments of patent term.As of February 18, 2022, we owned 2 issued U.S. patents, 1 pending U.S. patent application, 17 issued foreign patents and 4 pending foreign patent applications relating to XERAVA. The issued U.S. patents, and the obligation to pay royalties under this agreement extend throughpatent that may issue from the last-to-expirepending U.S. patent covering GIAPREZA.
Salesapplication, will have an expiration date of August 7, 2029, absent any disclaimers, extensions, or adjustments of patent term. The term of 1 of the U.S. patents has received 508 days of patent term adjustment. The foreign patents, and Marketing
Our U.S.-based sales and marketing team consistedpatents that may issue from the pending foreign applications, will likewise have an expiration date of
130 employees asAugust 7, 2029, absent any disclaimers, extensions, or adjustments of patent term.As of February 16, 2018. 18, 2022, we also filed applications for Supplementary Protection Certificates based on European Patent No. 2323972 covering the composition of matter and use of XERAVA. Some applications have been granted and others are pending.
As of February 18, 2022, we also owned 1 issued U.S. patent, 1 pending U.S. patent application and 9 pending foreign patent applications that relate to crystalline forms of eravacycline. Any U.S. patent that may issue from the pending patent application will expire in 2037 absent any disclaimers, extensions, or adjustments of patent term. Likewise, any foreign patents that may issue from the pending foreign patent applications will expire in 2037.
The salesfollowing table summarizes our issued patents and marketing infrastructure includes marketing, commercial insights, commercial operations and sales training. La Jolla has deployed a hospital market access team, clinical nurse educator team and specialized hospital sales team to focus on a targeted group of hospitals and hospital systems that treat high rates of distributive shock. These teams work to educate critical care physicians, ICU nurses and hospital pharmacists, with the goal of ensuring that they understand the clinical value of, and adopt,pending applications for GIAPREZA, as part of their clinical pathway for the management of distributive shock.
Customers
GIAPREZA is distributed in the U.S. through a limited number of specialty distributors that subsequently resell GIAPREZA to hospitals. Due to the relatively short lead-time required to fill orders for our product, backlog is not material to our business. We have engaged a third-party logistics service provider to act as our logistics and supply-chain manager for the commercial distribution of GIAPREZA to our specialty-distributor customers.
Competition
The biotechnology and pharmaceutical industries are subject to rapid technological change. Competition from domestic and foreign biotechnology companies, large pharmaceutical and specialty pharmaceutical companies, generic drug companiesXERAVA and other
institutions, is intensetetracycline-related intellectual property. | | | | | | | | | | | | | |
| | United States | | Foreign |
Description | | Issued | | Pending | | Expiration | | Issued | | Pending | | Expiration | |
GIAPREZA | | 14 | | 10 | | 2029−2040 | | 10 | | 43 | | 2034−2037 | |
XERAVA | | 3 | | 2 | | 2029−2037 | | 17 | | 13 | | 2029−2037 | |
Other | | 10 | | 1 | | 2029−2037 | | 34 | | 25 | | 2029−2037 | |
Material Contracts
See “Item 7. Management’s Discussion and expected to increase. A numberAnalysis of companies are pursuing the developmentFinancial Condition and Results of pharmaceuticals in our targeted areas. However, we are not currently aware of any other angiotensin II drug product in development. We believe that the key competitive factors that will affect the commercial success of GIAPREZA, as well as future product candidates that we may develop, are: efficacy, safety and tolerability profiles; convenience in dosing; and price and reimbursement.
Operations—Contractual Obligations.”19
Government Regulation
Pharmaceutical Regulation
Pharmaceutical products, in the U.S., including GIAPREZA and XERAVA, are subject to extensive government regulation. Likewise, if we seek to market and distribute products abroad, they would also be subject to extensive foreign government regulation.
In the U.S., the FDA regulates pharmaceutical products. FDA regulations govern the testing, research and development activities, manufacturing, quality, storage, advertising, promotion, labeling, sale and distribution of pharmaceutical products. Accordingly, there is a rigorous process for the approval of new drugs and ongoing oversight of marketed products. We aremay also be subject to foreign regulatory requirements governing clinical trialsstudies and drug products if products are tested or marketed abroad. The approval process outside of the U.S. varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval.
See Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of the factors that could adversely impact our development of commercial products and industry regulation.
The FDA testing and approval process requires substantial time, effort and money. We cannot assure you that any of our product candidates will ever obtain approval. The FDA approval process for new drugs includes, without limitation:
preclinical studies;
submission in the U.S. of an IND for clinical trials conducted in the U.S.;
adequate and well-controlled human clinical trials to establish safety and efficacy of the product;
review of an NDA in the U.S.; and
inspection of the facilities used in the manufacturing of the drug to assess compliance with the FDA’s current cGMP regulations.
The FDA monitors the progress of trials conducted in the U.S. under an IND and may, at its discretion, re-evaluate, alter, suspend or terminate testing based on the data accumulated to that point and the FDA’s benefit-risk assessment with regard to the patients enrolled in the trial. The FDA may also withdraw approval for an IND for that drug if deemed warranted. Furthermore, even after regulatory approval is obtained, under certain circumstances, such as later discovery of previously unknown problems, the FDA can withdraw approval or subject the drug to additional restrictions.
Preclinical Testing
The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess the potential safety and effectiveness of the product. Most of these studies must be performed according to Good Laboratory Practices, a system of management controls for laboratories and research organizations to ensure the consistency and reliability of results.
An IND is the request for authorization from the FDA to administer an investigational new drug product to humans. The IND includes information regarding the preclinical studies, the investigational product’s chemistry and manufacturing, supporting data and literature, and the investigational plan and protocol(s). Clinical trials may begin 30 days after an IND is received, unless the FDA raises concerns or questions about the conduct of the clinical trials. If concerns or questions are raised, an IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. An IND must become effective before human clinical trials begin.
Clinical Trials
Clinical trials involve the administration of the product candidate that is the subject of the trial to volunteers or patients under the supervision of a qualified principal investigator and in accordance with a clinical trial protocol, which sets forth details, such as the study objectives and the safety and effectiveness criteria to be evaluated. Each clinical trial must be reviewed and approved by an independent institutional review board (IRB) in the U.S. or ethics committee in the European Union (EU) at each institution at which the study will be conducted. The IRB or ethics committee will consider, among other things, ethical factors, safety of human subjects and the possible liability of the institution arising from the conduct of the proposed clinical trial. In addition, clinical trials in the U.S. must be performed according to good clinical practices, which are enumerated in FDA regulations and guidance documents. Some studies include oversight by an independent group of experts, known as a data safety monitoring board, which provides authorization for whether a study may move forward based on certain data from the study and may stop the clinical trial if it determines that there is an unacceptable safety risk for subjects or on other grounds.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
Clinical trials in the U.S. typically are conducted in sequential phases: Phases 1, 2, 3 and 4. The phases may overlap. The FDA may require that we suspend clinical trials at any time on various grounds, including if the FDA makes a finding that the subjects participating in the trial are being exposed to an unacceptable health risk.
In Phase 1 clinical trials, the investigational product is usually tested on a small number of healthy volunteers to determine safety, any adverse effects, proper dosage, absorption, metabolism, distribution, excretion and other drug effects. Phase 1b clinical trials may also evaluate efficacy with respect to trial participants.
In Phase 2 clinical trials, the investigational product is usually tested on a limited number of patients (generally up to several hundred) to preliminarily evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning Phase 3 clinical studies and support proof of concept.
In Phase 3 clinical studies, the investigational product is administered to an expanded patient population to support efficacy claims, provide evidence of clinical efficacy and to further test for safety, generally at multiple clinical sites.
In Phase 4 clinical studies or other post-approval commitments, additional studies and patient follow-up are conducted to gain experience from the treatment of patients in the intended therapeutic indication. FDA may require a commitment to conduct post-approval Phase 4 studies as a condition of approval. Additional studies and follow-up may be conducted to document a clinical benefit where drugs are approved under accelerated approval regulations and based on surrogate endpoints. In clinical trials, surrogate endpoints are alternative measurements of the symptoms of a disease or condition that are substituted for measurements of observable clinical symptoms. Failure to timely conduct Phase 4 clinical trials and follow-up could result in withdrawal of approval for products approved under accelerated approval regulations.
We cannot assure you that any of our current or future clinical studies will result in approval to market our product candidates.
Clinical Data Review and Approval in the U.S.
The data from the clinical studies, together with preclinical data and other supporting information that establishes a product candidate’s safety, are submitted to the FDA in the form of an NDA, or NDA supplement (for approval of a new indication if the product candidate is already approved for another indication). Under applicable laws and FDA regulations, FDA reviews the NDA within 60 days of receipt of the NDA to determine whether the application will be accepted for filing based on FDA’s threshold determination that the NDA is sufficiently complete to permit substantive review. If deemed complete, the FDA will “file” the NDA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA that it deems incomplete or not properly reviewable.
The FDA has established internal substantive review goals of ten months for most NDAs. The FDA has various programs, including Fast Track, priority review, and accelerated approval, which are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval based on surrogate endpoints. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification or that the period for FDA review or approval will not be shortened. Generally, drugs that may be eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development, and expedite the review, of drugs to treat serious diseases and fill an unmet medical need. The request may be made at the time of IND submission and generally no later than the pre-NDA meeting. The FDA will respond within 60 calendar days of receipt of the request. Priority review, which is requested at the time of an NDA submission, is designed to give drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists, an initial review within six months as compared to a standard review time of ten months. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Accelerated approval provides an earlier approval of drugs to treat serious diseases, and that fill an unmet medical need based on a surrogate endpoint. The FDA, however, is not legally required to complete its review within these periods, and these performance goals may change over time.
If the FDA approves the NDA, it will issue an approval letter authorizing the commercial marketing of the drug with prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use. Additionally, the FDA
will inspect the facility or the facilities at which the drug is manufactured. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. In many cases, the outcome of the review, even if generally favorable, is not an actual approval, but a “complete response” that generally outlines the deficiencies in the submission, which may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.
Satisfaction of FDA requirements or similar requirements of state, local, and foreign regulatory agencies typically take several years and requires the expenditure of substantial financial resources. Information generated in this process is susceptible to varying interpretations that could delay, limit or prevent regulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to market may vary substantially. We cannot assure you that we will submit applications for required authorizations to manufacture and/or market potential products or that any such application will be reviewed and approved by the appropriate regulatory authorities in a timely manner, if at all. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Success in early stage clinical trials does not ensure success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages, or have conditions placed on it that restrict the commercial applications, advertising, promotion or distribution of these products.
Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the safety or effectiveness of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. The FDA may also request or require additional Phase 4 clinical trials after a product is approved. The results of Phase 4 clinical trials can confirm the effectiveness of a product candidate and can provide important safety information to augment the FDA’s voluntary adverse drug reaction reporting system. Any products manufactured or distributed by us pursuant to FDA approvals would beare subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP,cGMPs, which impose certain procedural and documentation requirements on us and our third-party manufacturers. We cannot be certain that we, or our present or future suppliers, will be able to comply with the cGMP regulations and other FDAEven after regulatory requirements.
In addition, both before and after approval is sought, we are required to comply with a numberobtained, under certain circumstances, such as later discovery of FDA requirements. For example, we are required to report certain adverse reactions and production problems, if any, topreviously unknown safety risks, the FDA andcan withdraw approval or subject the drug to comply with certain limitations and other requirements concerning advertising and promotion for our products. In addition, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with continuing cGMP. In addition, discovery of problems, such as safety problems, may result in changes in labeling or restrictions on a product manufacturer or NDA holder, including removal of the product from the market.
additional restrictions.The FDA closely regulates the marketing and promotion of drugs. Drugs may only be marketed in a manner consistent with their FDA-approved labeling. Approval may be subject to post-marketing surveillance and other record-keeping and reporting obligations, and involve ongoing requirements.obligations. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure
The failure to comply with theseFDA’s requirements canmay result in adverse publicity, warning letters, corrective advertising, restrictions on marketing or manufacturing, refusals to review pending product applications, refusals to permit the import or export of products, seizures, injunctions, and potential civil and criminal penalties.
Third-party Payor Coverage and Reimbursement
In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other like systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors.
U.S. Health Care Fraud and Abuse Laws and Compliance Requirements
We are subject to various federal and state laws targeting fraud and abuse in the health care industry. These laws may impact, among other things, our sales and marketing efforts. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
| • | The federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example gifts, cash payments, donations, the furnishing of supplies or equipment, |
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| | waivers of payment, ownership interests, and providing any item, service or compensation for something other than fair market value. |
| • | Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs. |
| • | Provisions of the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services. |
Clinical Trial Conduct and Product Approval | • | The federal Physician Payment Sunshine Act requirements, under the Patient Protection and Affordable Care Act (“PPACA”), which require manufacturers of certain drugs and biologics to track and report to U.S. Centers for Medicare & Medicaid Services (“CMS”) payments and other transfers of value they make to U.S. physicians and teaching hospitals as well as physician ownership and investment interests in the manufacturer. |
| • | Provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations (“HITECH”), which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information. |
| • | Section 1927 of the Social Security Act, which requires that manufacturers of drugs and biological products covered by Medicaid report pricing information to CMS on a monthly and quarterly basis, including the best price available to any customer of the manufacturer, with certain exceptions for government programs, and pay prescription rebates to state Medicaid programs based on a statutory formula derived from reported pricing information. |
| • | Various state and/or foreign law equivalents of each of the above federal laws, such as the California Consumer Privacy Act, many of which differ from each other in significant ways and may not have the same effect, which complicates our compliance efforts. |
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Regulation in Non-U.S. Jurisdictions
In addition to regulations in the U.S., we may be subject to a variety of foreign regulations governing clinical trialsstudies and commercial sales and distribution of ourGIAPREZA, XERAVA or future products. Our clinical trials conducted in the EU must be done under a clinical trial application (CTA), which must be supported by an Investigational Medicinal Product Dossier (IMPD), and the oversight of an ethics committee. If we market our productsGIAPREZA in foreign countries, we also will be subject to foreign regulatory requirements governing marketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials,studies, product approval, pricing and reimbursement vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained before manufacturing or marketing the product in those countries. The approval process varies from country to country, and the time required for such
approvals may differ substantially from that required for FDA approval. Foreign regulatory approval processes involve many of the risks associated with FDA marketing approval discussed above. There is no assurance that any future FDA approval of any of our product candidates will result in similar foreign approvals or vice versa. The process for clinical trialsstudies in the EUEuropean Union and other countries is similar, and trialsstudies are heavily scrutinized by the designated ethics committee.
Section 505(b)(2) Applications
Some of our product candidatescommittees and regulatory authorities. In addition, foreign regulations may be eligible for submission of applications for approval under the FDA’s Section 505(b)(2) approval process, which provides an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, and allows approval of NDAs that rely, at least in part, on studies that were not conducted by or for the applicant and to which the applicant has not obtained a right of reference. Such studies can be provided by published literature, or the FDA can rely on previous findings ofinclude applicable post-marketing requirements, including safety and efficacy for a previously approved drug. If the 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical studies or clinical trials of the new product. Section 505(b)(2) applications may be submitted for drug products that represent a modification (e.g., a new indication or new dosage form) of an eligible approved drug. In such cases, the additional information in 505(b)(2) applications necessary to support the change from the previously approved drug is frequently provided by new studies submitted by the applicant. Because a Section 505(b)(2) application relies in part on previous studies or previous FDA findings of safety and effectiveness, preparing 505(b)(2) applications is generally less costly and time-consuming than preparing an NDA based entirely on new data and information from a full set of clinical trials. The FDA may approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. The law governing Section 505(b)(2) or FDA’s current policies may change in such a way as to adversely affect our applications for approval that seek to utilize the Section 505(b)(2) approach. Such changes could result in additional costs associated with additional studies or clinical trials and delays.
The FDA provides that reviews and/or approvals of applications submitted under Section 505(b)(2) will be delayed in various circumstances. For example, the holder of the NDA for the listed drug may be entitled to a period of market exclusivity during which the FDA will not approve, and may not even review, a Section 505(b)(2) application from other sponsors. If the listed drug is claimed by one or more patents that the NDA holder has listed with the FDA, the Section 505(b)(2) applicant must submit a certification with respect to each such patent. If the 505(b)(2) applicant certifies that a listed patent is invalid, unenforceable or not infringed by the product that is the subject of the Section 505(b)(2) application, it must notify the patent holder and the NDA holder. If, within 45 days of providing this notice, the NDA holder sues the 505(b)(2) applicant for patent infringement, the FDA will not approve the Section 505(b)(2) application until the earlier of a court decision favorable to the Section 505(b)(2) applicant or the expiration of 30 months. The regulations governing marketing exclusivity and patent protection are complex, and it is often unclear how they will be applied in particular circumstances.
Drug Enforcement Agency Regulation
Our research and development processes involve the controlled use of hazardous materials, including chemicals. Some of these hazardous materials are considered to be controlled substances and subject to regulation by the U.S. Drug Enforcement Agency (DEA). Controlled substances are those drugs that appear on one of five schedules promulgated and administered by the DEA under the Controlled Substances Act (CSA). The CSA governs, among other things, the distribution, recordkeeping, handling, security and disposal of controlled substances. We must be registered by the DEA in order to engage in these activities, and are subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities to assess ongoing compliance with the DEA’s regulations. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocation, or a denial of renewal, of the DEA registration, injunctions or civil or criminal penalties.
Third-Party Payor Coverage and Reimbursement
Commercial success of GIAPREZA, and any of our other product candidates that are approved or commercialized for any indication will depend, in part, on the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Government payor programs, including Medicare and Medicaid, private healthcare insurance companies and managed care plans have attempted to control costs by limiting coverage and the amount of reimbursement for particular procedures or drug treatments. The U.S. Congress and state legislatures, from time to time, propose and adopt initiatives aimed at cost containment. Ongoing federal and state government initiatives directed at lowering the total cost of healthcare will likely continue to focus on healthcare reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid payment systems.
Examples of how limits on drug coverage and reimbursement in the U.S. may cause reduced payments for drugs in the future include:
changing Medicare reimbursement methodologies;
fluctuating decisions on which drugs to include in formularies;
revising drug rebate calculations under the Medicaid program or requiring that new or additional rebates be provided to Medicare, Medicaid, other federal or state healthcare programs; and
reforming drug importation laws.
Some third-party payors also require pre-approval of coverage for new drug therapies before they will reimburse healthcare providers that use such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and to operate profitably.
Reimbursement systems in international markets vary significantly by country and, within some countries, by region. Reimbursement approvals must be obtained on a country-by-country basis. In many foreign markets, including markets in which we hope to sell our products, the pricing of prescription pharmaceuticals is subject to government pricing control. In these markets, once marketing approval is received, pricing negotiations could take significant additional time. As in the U.S., the lack of satisfactory reimbursement or inadequate government pricing of any of our products would limit widespread use and lower potential product revenues.
Anti-Kickback, Fraud and Abuse and False Claims Regulation
On commercial launch of a product in the U.S., we will be subject to healthcare fraudsurveillance, anti-fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Arrangements with third-party payors and customers may expose us to applicable fraud and abuse and other healthcare laws, and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval.
Regulations under applicable federal and state healthcare laws and regulations include the federal healthcare programs’ Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral or purchase of any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Many states have similar laws that apply to their state healthcare programs as well as private payors. In addition, the False Claims Act (FCA) imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal healthcare program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. Actions under the FCA may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the FCA can result in significant monetary penalties and treble damages. The federal government is using the FCA, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices.
The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent healthcare reform legislation has strengthened many of these laws. For example, the Patient Protection and Affordable Care Act (PPACA), among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In addition, PPACA provides that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes.
The continuing interpretation and application of these laws could have a material adverse impact on our business and our ability to compete should we commence marketing a product.
Federal and State Sunshine Laws
We must comply with federal “sunshine” laws that require transparency regarding financial arrangements with healthcare providers. This would include the reporting and disclosure requirements imposed by the PPACA on drug manufacturers regarding any “payment or transfer of value” made or distributed to physicians and teaching hospitals. Failure to submit required information can result in civil monetary penalties. A number of states have laws that require the implementation of commercialcorporate compliance programs impose restrictions on drug manufacturer marketing practices, and/and reporting of payments or require pharmaceutical companies to track and report payments, gifts and other benefits provided to physicians and other healthcare professionals and entities.
Foreign Corrupt Practices Act
We are subject to the Foreign Corrupt Practices Act of 1997 (FCPA). The FCPA and other similar anti-bribery laws in other jurisdictions, such as the U.K. Bribery Act, generally prohibit companies and their intermediaries from providing money or anythingtransfers of value to
officialshealth care professionals and entities.In Europe, the European Union General Data Protection Regulation (2016/679) (“GDPR”) contains provisions specifically directed at the processing of foreign governments, foreign political parties, or international organizations withhealth information. The GDPR provides for potentially significant sanctions and contains extraterritoriality measures intended to bring non-EU companies under the intentregulation. In addition to obtain or retain business or seek a business advantage. Recently, there has been a substantial increasethe GDPR, individual countries in anti-bribery law enforcement activity by U.S. regulators, with more frequentEurope and aggressive investigations and enforcement proceedings by both the Department of Justice and the SEC. A determination that our operations or activities are not, or were not, in compliance with U.S. or foreign laws or regulations could resultelsewhere in the imposition of substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence.
Patient Privacy and Data Security
We are required to comply, as applicable, with numerous federal and state laws, including state security breach notification laws, state health informationworld have enacted similar data privacy laws and federal and state consumer protection laws, and to govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who may prescribe products we may sell in the future and from whom we may obtain patient health information are subject to privacy and security requirements under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology and Clinical Health Act (HITECH), and its implementing regulations. We are not a HIPAA covered entity, do not currently intend to become one, and we do not operate as a business associate to any covered entities. Therefore, these privacy and security requirements do not apply to us. However, we could be subject to civil and criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. The legislativelegislation. This legislation imposes increased compliance obligations and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues withrisk, including the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business, and any failure to comply could result in harm to our reputation and potentialsignificant fines and penalties.
In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Environmental, Health and Safety Laws
Our operations and those of our third-party manufacturers are subject to complex and increasingly stringent environmental, health and safety laws and regulations. Further, in the future, we may open manufacturing facilities that would likely be subject to environmental and health and safety authorities in the relevant jurisdictions. These authorities typically administer laws which regulate, among other matters, the emission of pollutants into the air (including the workplace), the discharge of pollutants into bodies of water, the storage, use, handling and disposal of hazardous substances, the exposure of persons to hazardous substances, and the general health, safety and welfare of employees and members of the public. Violations of these laws could subject us to strict liability, fines, or liability to third parties.
for noncompliance.Other Laws
and RegulationsWe are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relating to the oversight activities of the SECU.S. Securities and Exchange Commission (“SEC”) and the regulations of Thethe Nasdaq Capital Market, on which our shares of common stock are traded. We are also subject to various laws regulations and recommendationsregulations relating to safe working conditions, laboratory practices and the experimental use of animals.
Employees
Human Capital
As of February 16, 2018,December 31, 2021, we employed 309 regular,had 66 employees, of which 61 were full-time employees, 147 of whom are engaged in research and clinical development activities, and 162 of whom are in sales and marketing, finance, information technology, human resources and administration. employees. None of our employees are represented by labor unions or covered by a collective bargaining agreement.
Company Information
agreements, and we consider our relations with our employees to be good. We also hire consultants and contract with third parties, as needed, to provide additional resources to support our business activities.Our key human capital management objectives are to identify, recruit, integrate, retain and motivate our new and existing employees. We believe that our compensation and benefit programs are appropriately designed to attract and retain qualified talent. Employees receive an annual base salary and are eligible to earn performance-based cash bonuses. To create and maintain a successful work environment, we offer a comprehensive package of additional benefits that support the physical and mental health and wellness of all of our employees and their families. Additionally, we grant equity awards in order to allow for directors, officers, employees and consultants of La Jolla was incorporatedto share in Delaware in 1989the performance of the Company.
Corporate and reincorporated in California in 2012. Other Information
Our principal executive offices are located at 201 Jones Road, Suite 400, Waltham, Massachusetts 02451. Our telephone number is (617) 715-3600. Shares of our common stock tradestrade on Thethe Nasdaq Capital Market under the symbol “LJPC.” Our principal office is located at 4550 Towne Centre Court, San Diego, CA 92121. Our telephone number is (858) 207-4264. Our website address is
www.ljpc.com. No portion ofwww.ljpc.com. Information contained on or accessible through our website is incorporated herein by reference.
Available Information
You are advised to readnot a part of this Annual Report on Form 10-K, and the inclusion of our website address in conjunction with other reports and documents that we filethis Annual Report on Form 10-K is an inactive textual reference only.On November 2, 2021, La Jolla consummated the change of its corporate domicile from timeCalifornia to timeDelaware, as described in more detail in La Jolla’s Definitive Proxy Statement on Schedule 14A filed with the SEC. In particular, please readSEC on June 4, 2021.
We file electronically with the SEC our definitive proxy statements, our Quarterly Reportsannual report on Form 10-K, quarterly reports on Form 10-Q, and any Current Reportscurrent reports on Form 8-K that we may file from timeand amendments to time. You may obtainthose reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on our website at www.ljpc.com, free of charge, copies of these reports after the date of this Annual Report directly from us or from the SEC at the SEC’s Public Reference Room at 100 F Street, N.E. Washington, D.C. 20549. In addition, the SEC maintains information for electronic filers (including us) at its website at
www.sec.gov. The public may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We make our periodic and current reports available on our internet website at www.ljpc.com, free of charge, as soon as reasonably practicable after such material isfiling or furnishing these reports with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically filed with or furnished to, the SEC.
FactorsAn investment in shares of our common stock involves a high degree of risk. You should carefully consider the material risks and uncertainties described below andbefore deciding whether to purchase shares of our common stock. In assessing these risks, you should also refer to the other information before deciding to investcontained in this Annual Report on Form 10-K, including our common stock. Theaudited financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations, cash flow, reputation and prospects could be materially and adversely affected by any of these risks described below areand uncertainties, including risks and uncertainties not the only ones facing our Company. Additional risks not presentlycurrently known to us or that we currently consider immaterial may also adversely affect our business. We have attempteddo not believe to identify below the major factors that could cause differences between actual and planned or expected results, but we cannot assure you that we have identified all of those factors.
Ifbe material. In any of the following risks actually happen, our business, financial condition and operating results could be materially adversely affected. In thissuch case, the trading price of shares of our common stock could decline, and you could lose all or part of your investment.
I. RISK FACTORS RELATINGRISKS RELATED TO THE COMPANY AND THE INDUSTRY IN WHICH WE OPERATE
OUR BUSINESSWe are substantially dependent on the commercial success of GIAPREZA
TM® (angiotensin II) and XERAVA® (eravacycline).
The near-term success of our business is largelysubstantially dependent on our ability to successfully commercialize our recently approved product, GIAPREZA
TM® (angiotensin II), our only commercial product. Although members of our management team have prior experience launching new products, GIAPREZA is the first product that the Company will have launched.
Even if our sales organization performs as expected, the revenue that we may receive from sales of GIAPREZA may be less than anticipated due to factors that are outside of our control. These factors that may impact revenue include:
the perception of physicians and other members of the healthcare community of the safety and efficacy and cost-competitiveness relative to that of competing products;
our ability to maintain successful sales, marketing and educational programs for certain physicians and other healthcare providers;
our ability to raise patient and physician awareness;
the cost-effectiveness of our product;
acceptance by institutional formulary committees;
patient and physician satisfaction with our product;
the size of the potentialXERAVA® (eravacycline). The market for our product;
our ability to obtain adequate reimbursement from government and third-party payors;
unfavorable publicity concerning our product or similar products;
the introduction, availability and acceptance of competing treatments;
adverse event information relating to our product or similar classes of drugs;
product liability litigation alleging injuries relating to the product or similar classes of drugs;
our ability to maintain and defend our patents for GIAPREZA;
our ability to have GIAPREZA manufactured at a commercial production level successfully and on a timely basis;
the availability of raw materials;
our ability to access third parties to manufacture and distribute our product on acceptable terms or at all;
regulatory developments related to the manufacture or continued use of our product;
any post-approval study requirements and the results thereof;
the extent and effectiveness ofeffective pharmaceutical sales and marketing professionals is competitive, and distribution support for our product;
our competitors’ activities, including decisions asmaintaining these capabilities is expensive and challenging. If we are unable to the timing of competing product launches, generic entrants, pricingmaintain an effective sales and discounting;marketing organization, GIAPREZA and
any other material adverse developments with respect to the potential commercialization of our product.
Our business will XERAVA sales could be adversely affected,
if, due to theseand our business may suffer.In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not directly reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other factors, our commercializationlike systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of GIAPREZA doesand XERAVA, our business may suffer.
Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used in the first line to treat distributive shock, while vasopressin, including Vasostrict® (Endo International plc) and Vasopressin (Eagle Pharmaceuticals, Inc.), is typically used in the second line. In the randomized, Phase 3 study ATHOS-3, GIAPREZA demonstrated clinical benefit in patients who were not achieveadequately responding to available vasopressors, including catecholamines and Vasostrict. GIAPREZA’s principal competition as a treatment in patients not adequately responding to available vasopressors is the acceptance and demand necessary to sustain revenue growth.use of these same vasopressors at increased doses. If we are unable to successfully commercializechange treatment practices, the commercial prospects for GIAPREZA will be limited, and our business may suffer.
XERAVA competes with a number of antibiotics that are currently marketed for the treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to successfully change treatment practices, the commercial prospects for XERAVA will be limited, and our business may suffer.
In an effort to remain competitive in the marketplace, we may determine, from time to time, to change our pricing, dosage forms and strengths, and other marketing strategies for GIAPREZA and XERAVA, including altering the amount or availability of discounts or rebates. Any such changes could have short-
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term or long-term negative impacts on our net sales, which would cause our business and results of operations willto suffer.
If we are unable Price increases or changes to developour marketing strategies may also negatively affect our reputation and our ability to secure and maintain sales, marketingreimbursement coverage for GIAPREZA and distribution capabilities to sellXERAVA, which could result in decreased demand and market GIAPREZA or any other products we may develop, our product sales may be hindered.
We are in the process of establishing an internal sales organization for the sale, marketing and distribution of GIAPREZA. In order to successfully commercialize any other product we may develop, we must increase our sales, marketing, distribution and other non-technical capabilities. The development of a sales organization to market GIAPREZA, or any other product we may develop, is expensive and time-consuming, and we cannot be certain that we will be able to successfully develop this capacity or that this function will execute as expected. If we are unable to establish adequate sales, marketing and distribution capabilities, we may not be able to generate product revenue andcause our business and results of operations willto suffer.
If we
failare unable to
complysuccessfully price or market GIAPREZA or XERAVA, the commercial prospects for GIAPREZA and XERAVA will be limited, and our business may suffer.Our estimates of the potential market sizes for GIAPREZA and XERAVA are based on prescription and sales data for relevant in-market products, the results of clinical studies, medical literature and other information. If the potential market sizes for GIAPREZA and XERAVA are smaller than our estimates, the commercial prospects for GIAPREZA and XERAVA may be limited, and our business may suffer.
The commercial success of GIAPREZA and XERAVA will depend on our ability to obtain an uninterrupted supply of GIAPREZA and XERAVA from our contract manufacturers.
We do not currently own or operate manufacturing facilities for the production of GIAPREZA or XERAVA. We rely on sole-source contract manufacturers to produce GIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs. In all of our manufacturing agreements, we require that contract manufacturers produce active pharmaceutical ingredients (“APIs”) and drug products in accordance with the U.S. Food and Drug Administration’s (“FDA’s”) current Good Manufacturing Practices (“cGMPs”) and all other applicable laws and regulations. The long-term commercial success of GIAPREZA and XERAVA will depend in part on the ability of our reportingcontract manufacturers to supply cGMP-compliant API and paymentdrug product without interruption. If there is an interruption in the supply of GIAPREZA and XERAVA from our contract manufacturers, our business may suffer.
Product liability or other lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales.
Patients suffering from distributive shock are gravely ill and have a high mortality rate. Although 28-day mortality in patients treated with GIAPREZA was lower than in patients treated with placebo in the randomized, Phase 3 study ATHOS-3, there was a higher incidence of arterial and venous thrombotic and thromboembolic events in patients treated with GIAPREZA in this study. Some patients who are treated with GIAPREZA will die due to their underlying illness or suffer adverse events (which may or may not be drug related). Additionally, patients suffering from cIAI may become gravely ill and may die due to underlying illness or suffer adverse events (which may or may not be drug related). As such, we may face product liability lawsuits. Although we carry product liability insurance, product liability lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales. Furthermore, any such lawsuits could impair our business reputation and result in the initiation of investigations by regulators.
Additionally, we may not have and may not be able to obtain insurance on acceptable terms or with adequate coverage against potential liabilities or other losses if any claim or lawsuit is brought against us, regardless of the success or failure of the claim or lawsuit. Even where claims are submitted to insurance carriers for defense and indemnity, there can be no assurance that the claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable to cover the cost of such claims. Any such claims or lawsuits could materially impact our financial condition, and our business may suffer.
Our ability to continue commercializing GIAPREZA is dependent on our fulfillment of contractual obligations under U.S. governmental pricingthe royalty financing agreement with HealthCare Royalty Partners.
In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the maximum
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royalty rate was 10%. Starting January 1, 2022, the maximum royalty rate increased by 4%, and contracting programs, we couldstarting January 1, 2024, the maximum royalty rate may increase by an additional 4% if an agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA. However, under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets.
The commercial success of GIAPREZA and XERAVA in certain ex-U.S. territories is dependent on the fulfillment of contractual obligations under the Company’s out-license agreements.
PAION License
In January 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase Pharmaceuticals, Inc., entered into an exclusive license agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla has received an upfront cash payment of $22.5 million, less a 15% refundable withholding tax, and is entitled to receive potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to additional reimbursement requirements, penaltiesreduction on account of generic competition and fines, which couldafter patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company has not received any payments from PAION related to either royalties or commercial milestones.
In July 2021, the Company entered into a commercial supply agreement with PAION whereby the Company will supply PAION a minimum quantity of GIAPREZA and XERAVA through July 13, 2024. The supply agreement will automatically renew until the earlier of July 13, 2027, or until a new supply agreement is executed. During the initial 3-year term of the supply agreement, the Company will be reimbursed for direct and certain indirect manufacturing costs at cost.
If the Company is held to not have a material adverse effect onmet its commercial supply obligations, or if PAION is unable to successfully develop and commercialize GIAPREZA or XERAVA in the PAION Territory, the commercial prospects for GIAPREZA and XERAVA in the PAION Territory will be limited, and our business financial condition,may suffer.
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Everest License
In February 2018, the Company entered into a license agreement with Everest, which was subsequently amended and resultsrestated (the “Everest License”). Pursuant to the Everest License, the Company granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of operations.
cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The
Medicare programCompany is eligible to receive an additional $8.0 million regulatory milestone payment and up to an aggregate of $20.0 million in sales milestone payments.The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (i) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (ii) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In March 2021, the Company received a $3.0 million milestone payment associated with the submission of an NDA with the China National Medical Products Administration (“NMPA”) for XERAVA for the treatment of cIAI in patients in China. XERAVA was approved in Singapore by the Health Science Authority in April 2020.In May 2021, the Company entered into a commercial supply agreement with Everest whereby the Company will supply Everest a minimum quantity of XERAVA through December 31, 2023 and will transfer to Everest certain XERAVA-related manufacturing know-how. Pursuant to the supply agreement: (i) the Company has received $6.8 million of upfront payments comprised of: (1) a $4.0 million upfront technology transfer payment; and (2) a $2.8 million partial prepayment for XERAVA that is expected to be delivered to Everest during 2022; (ii) the Company received an additional $1.0 million technology transfer payment in January 2022; and (iii) the Company will be reimbursed for direct and certain government pricing programs,indirect manufacturing costs at 110% of cost through December 31, 2023.
If the Company is held to not have met its commercial supply obligations, or if Everest is unable to successfully develop and commercialize XERAVA in the Everest Territory, the commercial prospects for XERAVA in the Everest Territory will be limited, and our business may suffer.
Our overall financial performance, including the Medicaid drug rebate program, the Public Health Services’ 340B drug pricing program,but not limited to, net product sales and the pricing program under the Veterans Health Care Actnet cash used for or provided by operating activities, may not meet our expectations.
Our overall financial performance, including but not limited to, net product sales and net cash used for or provided by operating activities, including any milestone, royalty and other payments resulting from La Jolla’s out-license agreements and commercial supply agreements, and any distributions received in connection with our non-voting profits interest, is difficult to predict and may fluctuate from quarter to quarter and year to year. Historical financial performance may not be indicative of 1992 impact the reimbursementfuture financial performance. For example, our net product sales may be below expectations, and our costs to operate our business, including cost of product sales, research and development expenses and selling, general and administrative expenses, could exceed our estimates. Furthermore, we may not receive from sales of GIAPREZA, or any other products that are approved for marketing. Pricing and rebate calculations vary among programs. The calculations are complex and are often subject to interpretation by manufacturers, governmental or regulatory agencies, and the courts. We are required to submit a number of different pricing calculations to government agencies on a quarterly basis. Failure to complyfuture distributions in connection with our reporting and payment obligations under U.S. governmental pricing and contracting programs may result in additional payments, penalties and fines due to government agencies, which may have a material adverse effect onnon-voting profits interest. If our overall financial performance does not meet our expectations, our business financial conditionmay suffer.
Our capital requirements and results of operations.
We have only limited assetsour potential need for, and will needability to raiseobtain, additional capital before we can expect to become profitable.
financing are uncertain.As of December 31, 2017,2021, we had minimal revenue sources and available cash and cash equivalents of $90.9$46.7 million. To fund future operations to the point where weGIAPREZA and XERAVA are able to generate positive cash flow from the sales or out-licensingour approved products and our only sources of ournet product and product candidates, we will need to raise significant additional capital.sales. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA the timing and results ofXERAVA, and our ongoing development efforts, the potential expansion of our current development programs, potential new development programs and related general and administrative support. We anticipate thatability to control expenses. If necessary, we will seek to fund our operationsraise additional capital through equity debt or royalty-baseddebt financings or other sources, such as potential collaboration agreements. We cannotcan provide no assurance that additional financing will be available to us on favorable terms, or at all. AlthoughIf we have previously been successful in obtaining financing through equity offerings, there can be no assurance that we will be able
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need to raise additional capital and are unable to do so, we may be forced to curtail or cease our operations.
Future utilization of net operating loss carryforwards or research and development credit carryforwards may be impaired due to changes in ownership.
Our net operating loss and research and development credit carryforwards may be subject to limitation under Section 382 of the Internal Revenue Code of 1986 (the “IRC”). As a result, our deferred tax assets and related valuation allowance may be reduced for the estimated impact of the net operating loss and research and development credit carryforwards that we estimate may expire unused. Utilization of our remaining net operating loss and research and development credit carryforwards may still be subject to substantial annual limitations due to ownership change limitations provided by the IRC and similar state provisions, including those that may come in conjunction with market trades by our stockholders or future equity financings.
Our ability to hire and retain key employees is uncertain.
The market for effective professionals in the future.pharmaceutical industry is competitive and hiring and retaining these professionals is expensive and challenging. If we are unable to raise additional capital to fund our clinical development, commercialization efforts,hire and other business activities, we could be forced to abandon one or more programs and curtail or cease our operations.
We have never generated any revenue from product sales and may never be profitable.
We have a single product approved for commercialization and have never generated any revenue from product sales. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully commercialize GIAPREZA and to complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize our other product candidates in development. Our ability to generate revenue from product sales depends heavily on our success in many areas, including but not limited to:
successfully completing research and nonclinical and clinical development of our product candidates;
obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;
launching and commercializing product candidates for which we obtain regulatory and marketing approval, either directly or with a collaborator or distributor;
obtaining market acceptance of our product candidates as viable treatment options;
addressing any competing technological and market developments;
identifying, assessing, acquiring or developing new product candidates;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
attracting, hiring and retaining qualified personnel.
We anticipate incurring significant costs associated with commercializing GIAPREZA and any other approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform additional clinical, nonclinical or other types of studies in addition to those that we currently anticipate. In cases such as GIAPREZA where we are successful in obtaining regulatory approvals to market our product candidates, our revenue will be dependent, in part, on the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines,retain key employees, we may be unable to
generate significant revenue fromeffectively execute on our operating plan, and our business may suffer.Our employees may engage in misconduct, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee misconduct, which could include intentional failures to comply with regulatory standards and requirements, such as FDA regulations, federal and state healthcare fraud and abuse laws and regulations, or similar laws and regulations established and enforced by comparable foreign regulatory authorities. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of approved products.
Results from any future clinical trialspricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements. It is not always possible to identify and deter employee misconduct, and the precautions we
may undertaketake to detect and prevent this activity may not be
sufficienteffective in protecting us from governmental actions or lawsuits. If any such actions are instituted against us, and we are not successful in defending ourselves, those actions, including the imposition of significant fines or other sanctions, could have a material adverse effect on our business and results of operations.Failure to obtain regulatory approvals to marketapproval in international jurisdictions would prevent our products, our product candidates or any other products the Company or its current or future out-licensees may develop from being marketed abroad.
In the event the Company or its current or future out-licensees pursue the right to market and sell our products, our product candidates or any other products we may develop in jurisdictions other than the U.S. or otherthe European Union, the Company or its current or future out-licensees would be required to obtain separate marketing approvals and comply with numerous and varying regulatory requirements in each country or jurisdiction. The approval procedures vary among countries and may involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA or European Commission (“EC”) approval. The regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country or jurisdiction. In the event the Company or its current or future out-licensees choose to pursue them, the Company or its current or future out-licensees may not obtain approvals from regulatory authorities in such countries on a timely basis, if at all.
Product candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization. In order to sell any product that is under development, we must first receive regulatory approval. To obtain regulatory Approval by the FDA or EC does not ensure approval we must conduct clinical trials and toxicology studies that demonstrate that our product candidates are safe and effective. The process of obtaining FDA and foreign regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays.
The FDA, EMA and other foreignby regulatory authorities
have substantial discretionin other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. If the Company or its current or future out-licensees are unable in the
approval process and may not agree that we have demonstrated that our product candidates are safe and effective. If our product candidates are ultimately not found to be safe and effective, we would be unable future28
to obtain regulatory approval to manufacture, market and sell them. We can provide no assurances that the FDA, EMAof a product or other foreignproduct candidate by regulatory authorities will approvein other countries or jurisdictions, the commercial prospects of that product or product candidate may be significantly diminished and our product candidates or, if approved, what the scope of the approved indication might be.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studiesbusiness may suffer.We may not be predictive of future study results.
Clinical testing is expensive and can take many yearssuccessful in our efforts to
complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of nonclinical studies and early clinical trialsout-license our product candidates.Although a substantial amount of our product candidates may not be predictiveeffort will focus on the commercialization of the results of later-stage clinical trials. Product candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent clinical trials. For example, the safety or efficacy results generatedGIAPREZA and XERAVA, we also intend to date in our clinical trials do not ensure that later clinical trials will demonstrate similar results. There is a high failure rateseek to out-license for drugs proceeding through clinical trials, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy, despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies. Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses. We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our product candidates.
Future clinical trials that we may undertake may be delayed or halted.
Any clinical trials of our product candidates that we may conduct in the future may be delayed or halted for various reasons, including:
we do not have sufficient financial resources;
supplies of drug product are not sufficient to treat the patients in the studies;
patients do not enroll in the studies at the rate we expect;
the product candidates are not effective;
patients experience negative side effects or other safety concerns are raised during treatment;
the trials are not conducted in accordance with applicable clinical practices;
there is political unrest at foreign clinical sites; or
there are natural disasters at any of our clinical sites.
If any future trials are delayed or halted, we may incur significant additional expenses, and our potential approval of our product candidates may be delayed, which could have a severe negative effect on our business.
We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We have agreements with third-party contract research organizations (CROs) to monitor and manage data for our preclinical and clinical programs. We rely heavily on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with current good clinical practices (cGCPs), which are regulations and guidelines enforced by the FDA, EMA and other foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these CROs fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA and other foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that on inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations and will require a large number of test subjects. Our or our CROs’ failureefforts to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, we may incur significant additional expenses, and our potential approval ofout-license our product candidates
maywill be
delayed, which could have a severe negative effectsuccessful.RISKS RELATED TO INTELLECTUAL PROPERTY
GIAPREZA’s and XERAVA’s market exclusivity periods will depend on our business.
If the third-party manufacturers on which we rely fail to produce the materials that we require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face commercial supply shortages, delays in the trials, regulatory submissions, required approvals or commercializationvalidity and enforceability of our productissued and product candidates.
We do not manufacture GIAPREZA or any of our product candidates, nor do we plan to develop any capacity to do so. Instead, we contract with third-party manufacturers to manufacture and supplypending patents covering GIAPREZA and all of our product candidates. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, which include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. The third-party manufacturers we contract with may not perform as agreed or may terminate their agreements with us. Although we believe that we could identify and qualify alternate suppliers if necessary, the steps needed for a pharmaceutical manufacturer to implement a validated manufacturing process can be time-consuming and costly. As a result, and because we currently have only a single manufacturer for GIAPREZA, termination of this manufacturing relationship or a disruption in their manufacturing facilities could adversely affect the available commercial supply of GIAPREZA. Further, certain critical materials used in manufacturing GIAPREZA have historically been sourced from single suppliers. An interruption in the supply of a key material could also significantly impact our ability to meet the demand for GIAPREZA.
Any facilities in which our product or product candidates are manufactured or tested for their ability to meet required specifications must be inspected by and approved by the FDA and/or the EMA before a commercial product can be
manufactured. Failure of such a facility to be approved could delay the commercial sale or approval of one or more of our products or product candidates.
Any of these factors could cause us to delay or suspend any future commercial sales, clinical trials, regulatory submissions, required approvals or commercialization of one or more of our products or product candidates, entail higher costs and result in our being unable to effectively commercialize products.
Our success in developing and marketing our product and product candidates depends significantly on our ability to obtain patent protection and operate without infringing on the rights of others.
XERAVA.We depend on patents and other intellectual property rights to prevent others from improperly benefiting from our commercial products, GIAPREZA and XERAVA, and products or technologiesinventions that we sell, develop or acquire. OurFor details about our intellectual property portfolio protecting GIAPREZA and XERAVA, see the section titled “Business—Intellectual Property.”
We plan to file additional patent applications that, if issued, would provide further protection for GIAPREZA and XERAVA. Although we believe the bases for these patents and patent applications cover various technologies, productare sound, they are untested, and product candidates. The patent position of biotechnology firms like oursthere is highly uncertain and involves complex legal and factual questions, and no consistent policy has emerged regarding the breadth of claims covered in biotechnology patents or the protection afforded by these patents. Additionally, recent U.S. Supreme Court and Federal Circuit opinions further limit the scope of patentable inventions in the life sciences space and have added increased uncertainty around the validity of certain issued patents and the successful prosecution of certain pending patent applications. We intend to continue to file patent applications as we believe is appropriate to obtain patents covering both our products and processes. There can be no assurance however, that any additional patentsthey will not be issued, that the scope of any patent that has issued or may issue will be sufficient to protect our technology, or that any current or future issued patent will be held not invalid if subsequentlysuccessfully challenged. There is a substantial backlog of biotechnology patent applications at the U.S. Patent and Trademark Office (USPTO), which may delay the review and issuance of any patents.
Others, including our competitors, could have patents or patent applications pending that relate to compounds or processes that overlap or compete with our intellectual property or which may affect our freedom to operate.
There can be no assurance that third-party patentsany patent previously issued or any patent application will not ultimately be found to impact the sales ofprotect GIAPREZA or the advancement of our product candidates. While we intend to challenge the issuance and validity of this patent, we may not be successful. If the USPTO or any foreign counterpart issues or has issued any other patents containing competitive or conflicting claims, and if these claims are valid, the protection provided by our existing patents or any future patents that may be issued could be significantly reduced, and our ability to prevent competitorsXERAVA from developing products or technologies identical or similar to ours could be negatively affected. In addition,generic competition. Furthermore, there can be no guaranteeassurance that GIAPREZA or XERAVA will not be held to infringe valid patents held by others. If our owned and in-licensed intellectual property do not protect GIAPREZA or XERAVA from generic competition, GIAPREZA or XERAVA net product sales may decline, and/or we would be ablemay incur additional costs for patent protection, including patent infringement litigation costs arising out of ANDA submissions by generic companies to obtain licenses to these patents on commercially reasonable terms, if at all,manufacture and sell generic products or that we would be able to develop or obtain alternative technology. Our failure to obtain a license to a technology or process that may be required to develop or commercialize one or morearising out of our product candidates may505(b)(2) submissions, which could have a material adverse effect on our business.
We do not have complete patent protection forbusiness, results of operations and financial condition. If either GIAPREZA or our other product candidates, as the active pharmaceutical ingredients in GIAPREZAXERAVA is held to infringe valid patents held by others, we could be subject to liability, and our otherbusiness may suffer.On February 15, 2022, La Jolla Pharmaceutical Company (the “Company”) received a paragraph IV notice of certification (the “Notice Letter”) from Gland Pharma Limited (“Gland”) advising that Gland has submitted an Abbreviated New Drug Application (“ANDA”) to the U.S. Food and Drug Administration (“FDA”) seeking approval to manufacture, use or sell a generic version of GIAPREZA (angiotensin II) in the U.S. prior to the expiration of certain of the Company’s U.S. GIAPREZA Patents, which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”). The Notice Letter alleges that the GIAPREZA Patents are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the generic product candidates are known compounds that are not themselves covered by compositiondescribed in Gland’s ANDA. Although the Company intends to vigorously defend its intellectual property rights protecting GIAPREZA, we may incur significant patent litigation costs, and, if Gland is successful in the introduction of matter patents,the generic product described in Gland’s ANDA, then GIAPREZA net product sales may decline, which could have a material adverse effect on our business, results of operations and thus may only be protected by formulation or method-of-use patents (to the extent that such patents are granted and are enforceable) and/or regulatory exclusivity (to the extent available). Therefore, it is possible that a competitor could develop the same or similar technology iffinancial condition.
If we fail to comply with our obligations under our in-license agreements, we may lose rights to critical patents that are important to the commercialization and net sales potential of GIAPREZA and XERAVA.
We have licensed patent rights covering GIAPREZA from George Washington University (“GW”) and licensed patent rights covering XERAVA from Harvard University (“Harvard”) and Paratek Pharmaceuticals, Inc. (“Paratek”). If, for any reason, our in-license agreements with GW, Harvard or Paratek are terminated or we otherwise lose those rights, it would materially and adversely affect our business. Our in-license agreements with GW, Harvard and Paratek impose, and any future collaboration agreements or license agreements in which we enter are likely to impose, various development,
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commercialization, commercial supply, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement or other obligations on us. Failure to fulfill these obligations would pose a material risk to our patent protection and commercial prospects for GIAPREZA and XERAVA, and our business may suffer.
If our products or our product candidates infringe the rights of others, we could be subject to expensive litigation, become liable for substantial damages, be required to obtain protection of this type. Welicenses from others or be prohibited from selling our products or product candidates altogether.
Our competitors or others may have patent rights that they choose to assert against us or our licensors, licensees, suppliers, customers or potential marketing partners. Moreover, we may not know about patents or patent applications that our products or product candidates could infringe. Because patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our products or product candidates could infringe. In addition, if third parties file patent applications or obtain patents claiming inventions also claimed by us or our licensors in issued patents or pending applications, we may have to incur significant expenseparticipate in interference proceedings in the U.S. Patent and management timeTrademark Office (“USPTO”) to determine priority of invention. If third parties file oppositions in defending or enforcing our patents. If we cannot obtain and maintain effective patent rights and/or regulatory exclusivity for our product candidates,foreign countries, we may not be ablealso have to compete effectively andparticipate in opposition proceedings in foreign tribunals to defend the patentability of claims in our foreign patent applications.
If a third party claims that we infringe its proprietary rights, any of the following may occur:
| | |
| • | we may become involved in time-consuming and expensive litigation, even if the claim is without merit; |
| • | we may become liable for substantial damages for past infringement if a court decides that we have infringed a competitor’s patent; |
| | |
| • | a court may prohibit us from selling or licensing our products without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; or |
| • | we may have to redesign our products or product candidates so that they do not infringe patent rights of others, which may not be possible or commercially feasible and may require new regulatory approvals. |
Any of these events would have a material adverse effect on our business, and results of operations would be harmed.
and financial condition.Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation of the patent laws in the U.S. andor other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions.
Assuming the other requirements for patentability are met, in the U.S., prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while, outside the U.S., the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (Leahy-Smith Act)(“Leahy-Smith Act”), enacted on September 16, 2011, the
U.S. has moved to a first-to-file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will
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be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address any of these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, and financial condition.
If our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses from others to develop or market them.
Our competitors or others may have patent rights that they choose to assert against us or our licensees, suppliers, customers or potential collaborators. Moreover, we may not know about patents or patent applications that our products would infringe. For example, because patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our product candidates would infringe. In addition, if third parties file patent applications or obtain patents claiming technology also claimed by us or our licensors in issued patents or pending applications, we may have to participate in interference proceedings in the USPTO to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of our foreign patent applications.
If a third party claims that we infringe its proprietary rights, any of the following may occur:
we may become involved in time-consuming and expensive litigation, even if the claim is without merit;
we may become liable for substantial damages for past infringement if a court decides that our technology infringes a competitor’s patent;
a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our patents; and
we may have to redesign our product candidates or technology so that they do not infringe patent rights of others, which may not be possible or commercially feasible.
If any of these events occur, our business and prospects will suffer and the market price of our common stock will likely decline substantially.
The patent protection and patent prosecution for some of our product and product candidates is dependent on third parties.
While we normally seek and gain the right to fully prosecute the patents relating to our product and product candidates, there may be times when patents relating to our product candidates are controlled by our licensors. If any of our future licensing partners fail to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those product candidates may be materially adversely affected and we may not be able to prevent competitors from making, using, selling and importing competing products. In addition, even where we now have the right to control patent prosecution of patents and patent applications we have licensed from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel that took place prior to us assuming control over patent prosecution.
In addition to patent protection, we will need to successfully preserve our trade secrets. If we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not
have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.
If we fail to obtain orphan or other regulatory exclusivity for our product and product candidates, we may face greater commercial competition and our revenue will be reduced.
Regulatory authorities in some jurisdictions, including the U.S. and EU may designate drugs for relatively small patient populations as orphan drugs. Our business strategy for certain of our product and product candidates includes seeking orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the U.S., or a patient population greater than 200,000 in the U.S. where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the U.S. In the EU, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the EU. If orphan drug status is granted, we may be eligible for a period of commercial exclusivity, which would afford us additional protection from generic competition, beyond that protection that may be afforded by patents. Even if a particular disease has a small patient population that we believe may be eligible for orphan status, it is possible that the FDA or EMA may not grant orphan status. If we do not obtain orphan drug exclusivity for our drug products and biologic products, particularly for any products that do not have broad patent protection, our competitors may then sell the same drug to treat the same condition sooner than if we had obtained orphan drug exclusivity and our revenue could be reduced.
Because a number of companies compete with us, many of which have greater resources than we do, and because we face rapid changes in technology in our industry, we cannot be certain that our products will be accepted in the marketplace or capture market share.
Competition from domestic and foreign biotechnology companies, large pharmaceutical companies and other institutions is intense and is expected to increase. A number of companies and institutions are pursuing the development of pharmaceuticals in our targeted areas. Many of these companies are very large and have financial, technical, sales and distribution and other resources substantially greater than ours. The greater resources of these competitors could enable them to develop or market competing products more quickly or effectively, making it extremely difficult for us to develop a share of the market for our products. These competitors also include companies that are conducting clinical trials and preclinical studies in the field of cancer therapeutics. Our competitors may develop or obtain regulatory approval for products more rapidly than we do. Also, the biotechnology and pharmaceutical industries are subject to rapid changes in technology. Our competitors may develop and market technologies and products that are more effective or less costly than those we are developing or that would render our technology and proposed products obsolete or noncompetitive.
Our product and product candidates may cause undesirable side effects or have other properties that could delay or prevent their market acceptance or regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product or product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials and commercial sales and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our studies could reveal a high and unacceptable severity and prevalence of undesirable side effects. In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny or withdraw approval of our product or product candidates for any or all targeted indications.
The drug-related side effects could affect commercial sales, patient recruitment, the ability of enrolled patients to complete the study, or result in potential product liability claims. We carry product liability insurance in the amount of $10.0 million in the aggregate. We believe our product liability insurance coverage is sufficient in light of our clinical programs;
however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical trial participants, costs due to related litigation, distraction of management’s attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the inability to commercialize our product candidates and decreased demand for our product candidates, if approved for commercial sale.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including but not limited to:
regulatory authorities may withdraw approvals of such product;
regulatory authorities may require additional warnings on the label;
we may be required to create a Risk Evaluation and Mitigation Strategy (REMS) plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptancefinancial condition.Among some of the particular productother changes introduced by the Leahy-Smith Act are changes that limit where a patentee may file a patent infringement suit and could significantly harm our business, results of operations, and prospects.
Our product and product candidates are subjectprovide new opportunities for third parties to regulatory scrutiny.
As an approved product, GIAPREZA is subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, pharmacovigilance, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirementschallenge issued patents in the U.S. and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authorities, requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA, biologic license application (BLA), or market authorization application (MAA). Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we have received or may receive for our product and product candidates are andUSPTO. We may be subject to limitationsthe risk of third-party prior art submissions on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have approval. The holder of an approved NDA, BLA, or MAA must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing approval were obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
issue warning letters;
impose civil or criminal penalties;
suspend or withdraw regulatory approval;
suspend any of our ongoing clinical trials;
refuse to approve pending applications or supplementsbecome a party to approved applications submitted by us;
impose restrictions onopposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our operations, including closing our contract manufacturers’ facilities; or
seize or detain products, or require a product recall.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our Company and our operating results will be adversely affected.
We may not be successful in our efforts to identify, license, discover, develop, or commercialize additional product candidates.
Although a substantial amount of our effort will focus on the continued clinical testing, potential approval, and commercialization of our existing product candidates, the success of our business also depends on our ability to identify, license, discover, develop or commercialize additional product candidates. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:
our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
our product candidates may not succeed in preclinical or clinical testing;
our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
product candidates we develop may be covered by third parties’ patents or other exclusive rights;
the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license, discover, develop or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.
If the market opportunities for our products are smaller than we believe, our revenue may be adversely affected, and our business may suffer.
Our estimatesor product candidates. There is a lower standard of the potential market opportunity for each of our products include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. For example, GIAPREZA was approved for use in adult patients with septic or other distributive shock. However, determining the approximate number of hypotension patientsevidence necessary to invalidate a patent claim in a given market requires numerous estimatesUSPTO proceeding relative to the standard in U.S. federal courts. This could lead third parties to challenge and assumptions. While we believesuccessfully invalidate our patents that our internal assumptions are reasonable, no independent source has verified such assumptions. If any of these assumptions proves towould not otherwise be inaccurate, theninvalidated if challenged through the actual market for our product candidates could be smaller than our estimates of our potential market opportunity. If the actual market for our products is smaller than we estimate, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.
court system.RISKS RELATED TO OUR INDUSTRY
We are subject to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our operations are subject to various federal,
state and
state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal FCA and physician sunshineforeign laws and
regulations.regulations governing the health care industry that could result in substantial penalties for noncompliance.We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance. These laws and regulations may impact among other things,our ability to operate, including our sales and marketing and education programs.efforts. In addition, we aremay be subject to patient privacy regulation by both the federal, governmentstate and the statesforeign governments that govern jurisdictions in which we conduct our business. The laws and regulations that may affect our ability to operate include:
| | |
| • | The federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example gifts, cash payments, donations, the furnishing of supplies or equipment, waivers of payment, ownership interests, and providing any item, service or compensation for something other than fair market value. |
| • | Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs. |
| • | Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs. |
| • | Provisions of the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services. |
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; | | |
| • | The federal Physician Payment Sunshine Act requirements, under the Patient Protection and Affordable Care Act (“PPACA”), which require manufacturers of certain drugs and biologics to track and report to U.S. Centers for Medicare & Medicaid Services (“CMS”) payments and other transfers of value they make to U.S. physicians and teaching hospitals as well as physician ownership and investment interests in the manufacturer. |
| • | Various federal, state and foreign data privacy and security laws and regulations. These include provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations (“HITECH”), which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information in the U.S. and the General Data Protection Regulation (“GDPR”) in the European Union that became effective in May 2018. We may not be directly subject to certain of these laws and regulations, such as privacy and security requirements under HIPAA; however, we may be subject to criminal penalties for knowingly, aiding and embedding these violations. |
| • | Section 1927 of the Social Security Act, which requires that manufacturers of drugs and biological products covered by Medicaid report pricing information to CMS on a monthly and quarterly basis, including the best price available to any customer of the manufacturer, with certain exceptions for government programs, and pay prescription rebates to state Medicaid programs based on a statutory formula derived from reported pricing information. |
| • | Various state and/or foreign law equivalents of each of the above federal laws, such as the California Consumer Privacy Act, many of which differ from each other in significant ways and may not have the same effect, which complicates our compliance efforts. |
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;
HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
HIPAA, as amended by the federal Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
the federal physician sunshine requirements under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (Health Care Reform Laws) require manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these laws. For example, the Health Care Reform Laws, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Laws provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
If our operationswe are found to be in violation of any of the laws or regulations described above or any other governmentallaws or regulations that apply to us, we may be subject to substantial penalties, including civil and criminal penalties, damages, fines and possible exclusion from participation in government healthcare programs,Medicare, Medicaid and other federal health care programs. If we are subjected to substantial penalties, our business may suffer, and we may be forced to curtail or cease our operations.
Drugs approved by the FDA, EC and/or other regulatory agencies are subject to ongoing regulation.
Any products manufactured or distributed by us pursuant to FDA, EC and/or other regulatory agency approvals may be subject to continuing regulation by such agencies, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA, EC and/or other regulatory agencies and may be subject to periodic unannounced inspections by such agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on us and our third-party manufacturers. Even after regulatory approval is obtained, under certain circumstances, such as Medicare and Medicaid, imprisonment andlater discovery of previously unknown safety risks, the curtailment FDA, EC and/or restructuring of our operations, any of which could adversely affect our abilityother regulatory agencies can withdraw approval, recall the product or subject the drug to operate our business and our results of operations.
Current and future legislation may increase the difficulty and cost needed to obtain marketing approval, and the subsequent commercialization, of our product candidates and affect the prices we may obtain.
In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
For example, in 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, (collectively, the PPACA). Among the provisions of the PPACA of importance to our potential product candidates are the following:
an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices;
extension of manufacturers’ Medicaid rebate liability;
expansion of eligibility criteria for Medicaid programs;
new requirements to report financial arrangements with physicians and teaching hospitals;
a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
additional restrictions. In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductionsgovernments outside of Medicare payments to providers of up to 2% per fiscal year. Additionally, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Further, while the healthcare reform agenda and policies of the new Trump administration are not fully known, it is possible that additional regulatory changes, as well as the repeal (in whole or in part) of the PPACA, could negatively affect insurance coverage and drug prices. These new laws may result in additional reductions in Medicare and other healthcare funding.
We expect that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Additionally, legislation has been introduced to repeal the PPACA. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Governments outside the U.S. tend to impose strict price controls, which may adversely affect our revenues
or our royalty payments received from license agreements.Business interruptions resulting from geopolitical actions, natural disasters, public health crises or other catastrophic events could have an adverse impact on our business.
Business interruptions resulting from geopolitical actions, such as war and terrorism, natural disasters, public health crises, such as a pandemic, or other catastrophic events could have an adverse impact on our business. For example, if any.
In some countries, particularlyone of these events were to adversely affect one of our contract manufacturers, our supply of GIAPREZA and XERAVA could be interrupted. Furthermore, in the
countriescase of
a pandemic, the
European Union, the pricingability of
prescription pharmaceuticals is subjectour critical care specialists to
governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, weaccess hospitals and call on physicians may be
required to conduct a clinical trial that compares the cost-effectiveness ofcurtailed, which may adversely affect product sales.32
The ongoing COVID-19 pandemic may disrupt our product candidate to other available
therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
We rely on certain key employees,operations and the loss of their service could negatively impact our future success.
We have only a small number of employees, and we rely on the services of certain key employees, including George F. Tidmarsh, M.D. Ph.D., who serves as our President and Chief Executive Officer. The loss of the services of Dr. Tidmarsh or other key employees could negatively affect our ability to
executesell GIAPREZA and XERAVA.We are unable to accurately predict the full impact that the ongoing Coronavirus Disease 2019 (“COVID‑19”) pandemic will have on our results from operations, financial condition and our ability to sell GIAPREZA and XERAVA due to numerous factors that are not within our control, including its duration and severity of the outbreak. Stay-at-home orders, business planclosures, travel restrictions, supply chain disruptions and development activitiesemployee illness or quarantines could result in disruptions to our operations, which could adversely impact our results from operations and financial condition. In addition, the COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could causebe adversely impacted.
RISKS RELATED TO OWNERSHIP OF SHARES OF OUR COMMON STOCK
The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment.
The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment. These fluctuations could be based on various factors, including factors described elsewhere in this Annual Report on Form 10-K and below:
| |
• | changes in analyst estimates, ratings and price targets; |
• | negative press reports or other negative publicity, whether or not true, about our business; |
• | developments concerning the pharmaceutical and biotechnology industry in general; |
• | market sentiment towards pharmaceutical and biotechnology stocks; |
• | developments concerning the overall economy; and |
• | market sentiment toward equity securities. |
Any of these factors may result in large and sudden changes in the volume and trading price of shares of our common stock. In the past, following periods of volatility in the market price of a declinecompany’s securities, stockholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of management, result in negative press reports and, if adversely determined, have a material adverse effect on our results of operations and financial condition.
We have never paid a dividend on shares of our common stock, price.
II. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCK
and you should rely on price appreciation of shares of our common stock for return on your investment.We have never paid a dividend on shares of our common stock. Even if we decide to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations, financial condition, contractual restrictions and other factors. You should not rely on dividend income from shares of our common stock and should rely on price appreciation of shares of our common stock for a return, if any, on your investment.
Conversion of our convertible preferred stock would result in substantial dilution for our existing common stockholders.
As of December 31, 2017, we had2021, there were approximately 22.226.8 million shares of common stock outstanding and currentlyoutstanding. We may be required to issue up to a total of approximately 13.66.7 million additional shares of common stock upon conversion of existing convertible preferred stock and upon exercisestock. The issuance of outstanding stock option grants and warrants. Such an issuancethese additional shares would be significantly dilutiverepresent approximately 20% dilution to our existing common shareholders. Youstockholders.
33
If we need to obtain additional financing in the future, such financing could result in dilution to your investment, adversely affect the price per share of our common stock and/or create future operating and financial restrictions.
As of December 31, 2021, we had cash and cash equivalents of $46.7 million. GIAPREZA and XERAVA are our approved products and our only source of net product sales. The amount and timing of future funding requirements, if any, will experience further dilution ifdepend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we issue additional equity securities in future fundraising transactions.
or securities convertible into equity securities, you may suffer dilution to your investment, and such issuance may adversely affect the price per share of our common stock. Any new debt financing we enter into may involve covenants that restrict our operations, which may include limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens or pay dividends.Our directors, executive officers and principal stockholders have substantial control over the Company, which could limit your ability to influence the outcome of key transactions, including a change of control.
As of December 31, 2017, there were approximately 3,906 shares of Series C-1
2 Convertible Preferred StockFebruary 18, 2022, our current directors, officers and approximately 2,737 shares of Series F Convertible Preferred Stock issued and outstanding. In light of the conversion ratestockholders who own greater than 5% of our preferred stock (approximately 1,724outstanding shares of common stock, are issuable upontogether with their affiliates, beneficially own, in the conversionaggregate, approximately 52% of one shareour outstanding shares of Series C-12 Convertible Preferred Stock,common stock. As a result, these current directors, officers and approximately 286stockholders, if they act, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. In addition, our current directors, officers and stockholders, acting together, would have the ability to control the management and affairs of the Company. They may also have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their shares of common stock are issuable upon the conversionas part of one share of Series F Convertible Preferred Stock), the presence of such a large number of convertible preferred shares may dilute the ownership of our existing shareholders and provide the preferred investors with a sizeable interest in the Company.
Assuming the conversion of all preferred stock into common stock at the current conversion rates, and the exercise of all outstanding options and warrants, we would have approximately 35.8 million shares of common stock issued and outstanding following any such conversion and exercise, although the issuancesale of the
common stock uponCompany and could affect the
conversion of our preferred stock is limited by a 9.999% beneficial ownership cap for each preferred shareholder, which such cap may be amended or waived by each such holder with no less than 61 days’ notice to the Company. With approximately 22.2 million shares of common stock issued and outstanding as of December 31, 2017, the issuance of this numbermarket price of shares of
our common
stock.Anti-takeover provisions under Delaware law may make a potential acquisition of us more difficult.
Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) makes certain types of unfriendly or hostile corporate takeovers, or other non-board approved transactions involving a corporation and one or more of its significant stockholders, more difficult. It does so by generally prohibiting “business combinations,” including mergers, sales and leases of assets, issuances of securities and similar transactions, by a corporation or a subsidiary with an “interested stockholder” (generally defined as a person or entity who, together with their affiliates and associates, beneficially owns 15% or more of a corporation’s voting stock) within three years after the person or entity becomes an interested stockholder, unless certain conditions are satisfied, such as, in advance of the transaction that resulted in the person exceeding 15% ownership, Board approval of such transaction or the business combination or, following the time of such transaction, approval of the business combination by the Board and two-thirds of the outstanding voting stock, underlyingexcluding the convertible preferred stockinterested stockholder, voting at an annual or special meeting of stockholders. Although we believe that Section 203 will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, the requirements of Section 203 would apply even if the offer may be considered beneficial by some stockholders.
34
GENERAL RISK FACTORS
Our disclosure controls and outstanding stock optionsprocedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and warrants would represent approximately 38% dilutionprocedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
Disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our existing shareholders.
In addition, we may choose to raise additional capitalcontrol system, misstatements due to
market conditionserror or
strategic considerations, even iffraud may occur and not be detected.Our business and operations may be materially adversely affected in the event of computer system failures or security breaches.
Despite the implementation of security measures, our internal computer systems, and those of other third parties on which we believe we have sufficient funds forrely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and interrupt our current or future operating plans.operations, it could result in a material disruption of our development programs. To the extent that additional capital is raised through the saleany disruption or security breach results in a loss of equity or convertible debt securities, the issuance of these securities could result in further dilutiondamage to our shareholdersdata or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, access to our customer or clinical data or disruption of the manufacturing process, we could incur liability and the further development of our products or product candidates could be delayed. We may also be vulnerable to cyber-attacks or other malfeasance by hackers, employees and others. This type of breach of our cybersecurity may compromise our confidential information or our financial information and adversely affect our business or result in downward pressure on the price of our common stock.
The price of our common stock has been, and will be, volatile and may decline.
Our stock has historically experienced significant price and volume volatility and could continue to be volatile. Market prices for securities of biotechnology and pharmaceutical companies, including ours, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. The following factors, among others, can have a significant effect on the market price of our securities:
significant conversions of preferred stock into common stock and sales of those shares of common stock;
results from our preclinical studies and clinical trials;
limited financial resources;
announcements regarding financings, mergers or other strategic transactions;
future sales of significant amounts of our capital stock by us or our shareholders;
developments in patent or other proprietary rights;
developments concerning potential agreements with collaborators; and
general market conditions and comments by securities analysts.
The realization of any of the risks described in these “Risk Factors” could have a negative effect on the market price of our common stock. In addition, class action litigation is sometimes instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business, operating results and financial condition.
Because we do not expect to pay dividends on our common stock in the foreseeable future, you must rely on stock appreciation for any return on your investment.
We have paid no cash dividends on our common stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends on our common stock in the foreseeable future, and payment of cash dividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Accordingly, the success of your investment in our common stock will likely depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchased your shares, and you may not realize a return on your investment in our common stock.
legal proceedings.35
Item 1B. Unresolved Staff Comments.
None.
CommentsNot applicable.
Item 2. Properties.
On December 29, 2016, the Company entered into an agreement with BMR-Axiom LP to lease 83,008 square feet of office and laboratory space as the Company’s new corporate headquartersPropertiesOur principal executive offices are located at 4550 Towne Centre Court, San Diego, California (the Lease) for a period of ten years commencing on October 30, 2017. The Lease provides an option to extend the Lease for an additional 5 years at the end of the initial term. The annual rent is subject to escalation during the term. In addition to rent, the Lease requires the Company to pay certain taxes, insurance, and operating costs relating to the leased premises. The Lease contains customary default provisions, representations, warranties and covenants. The Company also leases a total of 3,713201 Jones Road, Suite 400, Waltham, Massachusetts 02451. We sublease approximately 7,388 square feet of office space with a lease term through March 2018.
in Waltham.For the year ended December 31, 2021, we also maintained offices at 4747 Executive Drive, Suite 240, San Diego, California 92121. For the year ended December 31, 2021, we subleased approximately 2,368 square feet of office space in San Diego.
Item 3. Legal Proceedings.
ProceedingsWe are not currently a party to any material legal proceedings.
Item 4. Mine Safety Disclosures.
None.
DisclosuresNot applicable.
36
PART II
Item 5. Market for Registrant’s Common Equity, Related ShareholderStockholder Matters and Issuer Purchases of Equity Securities.
Market Information about Our Common Stock
OurShares of our common stock tradesare traded on Thethe Nasdaq Capital Market under the symbol “LJPC.” Set forth below are the high and low sales prices for our common stock for each full quarterly period within the two most recent fiscal years.
|
| | | | | | | |
| | Prices |
| | High | | Low |
| Year Ended December 31, 2017 | | | |
| First Quarter | $ | 39.28 |
| | $ | 16.71 |
|
| Second Quarter | $ | 36.73 |
| | $ | 25.01 |
|
| Third Quarter | $ | 37.97 |
| | $ | 27.54 |
|
| Fourth Quarter | $ | 36.99 |
| | $ | 22.68 |
|
| Year Ended December 31, 2016 | | | |
| First Quarter | $ | 26.44 |
| | $ | 12.68 |
|
| Second Quarter | $ | 23.80 |
| | $ | 14.24 |
|
| Third Quarter | $ | 28.20 |
| | $ | 15.55 |
|
| Fourth Quarter | $ | 24.54 |
| | $ | 14.63 |
|
Stock Performance Graph
The graph below compares the cumulative total shareholder returns on our common stock for the last 5 fiscal years with the cumulative total shareholder returns on the Nasdaq Composite Index and the Nasdaq Biotechnology Index for the same period. The graph assumes that $100 was invested on December 31, 2012 in our common stock and in each index and that all dividends were reinvested. No cash dividends have been declared on our common stock. Shareholder returns over the indicated period should not be considered indicativeHolders of future shareholder returns.
Holders
RecordAs of February 16, 2018, the number18, 2022, we had 4 holders of record. Certain shares of common stock outstanding was 22,168,242,are held in “street” name, and, there were threeaccordingly, the number of beneficial owners of such shares of common stock is not known or included in the foregoing number. This number of holders of record. We have approximately 4,000 beneficial holders of our common stock.
Dividends
record also does not include stockholders whose shares may be held in trust by other entities.Dividend Policy
We have never paid dividends on shares of our common stock, and we do not anticipate payinghave any plans to pay dividends in the foreseeable future.
Item 6. Selected Financial Data.
Any determination to pay dividends to holders of shares of our common stock will be at the discretion of our board of directors (“Board”) and will depend on many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in the agreements governing any indebtedness we may enter into and other factors that our Board deems relevant.Issuer Purchases of Equity Securities
On November 17, 2021, La Jolla announced that it would commence a stock repurchase plan for up to $10 million of the Company’s common stock. On March 7, 2022, the Board approved an increase of the stock repurchase plan for up to $15 million of the Company’s common stock. The plan has no time limit and can be discontinued at any time.The following table sets forth selected historical consolidated financial data for each of our last 5 fiscal yearscontains information with respect to repurchases made by the Company during the year ended December 31, 2017. This information should be read2021:
Period | | (a) Total number of shares purchased | | | (b) Average price paid per share(1) | | | (c) Total number of shares purchased as part of publicly announced plans or programs | | | (d) Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands) | |
November 17, 2021 – November 30, 2021 | | | 181,163 | | | $ | 4.50 | | | | 181,163 | | | $ | 9,184 | |
December 1, 2021 – December 31, 2021 | | | 587,913 | | | $ | 4.36 | | | | 587,913 | | | $ | 6,620 | |
Total | | | 769,076 | | | | | | | | 769,076 | | | $ | 6,620 | |
The Company has entered into a Rule 10b5-1 stock repurchase plan for the purpose of establishing a trading plan to purchase the Company’s common stock in conjunctiona manner that complies with “Management’s Discussionthe requirements of Rule 10b5-1(c)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 6. Removed and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in Item 15 of this Annual Report on Form 10-K.
Reserved.
Statement of Operations Data
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (in thousands, except per share amounts) |
| Total revenue | $ | — |
| | $ | 616 |
| | $ | 1,057 |
| | $ | — |
| | $ | — |
|
| Loss from operations | $ | (115,427 | ) | | $ | (78,372 | ) | | $ | (41,969 | ) | | $ | (21,340 | ) | | $ | (17,941 | ) |
| Net loss | $ | (114,803 | ) | | $ | (78,185 | ) | | $ | (41,912 | ) | | $ | (21,313 | ) | | $ | (17,935 | ) |
| Net loss attributable to common shareholders | $ | (114,803 | ) | | $ | (78,185 | ) | | $ | (41,912 | ) | | $ | (21,313 | ) | | $ | (18,736 | ) |
| Basic and diluted net loss per share | $ | (5.41 | ) | | $ | (4.54 | ) | | $ | (2.68 | ) | | $ | (2.00 | ) | | $ | (12.16 | ) |
| Weighted-average common shares outstanding - basic and diluted | 21,215 |
| | 17,228 |
| | 15,651 |
| | 10,667 |
| | 1,540 |
|
Balance Sheet Data
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Cash and cash equivalents | $ | 90,915 |
| | $ | 65,726 |
| | $ | 126,467 |
| | $ | 48,555 |
| | $ | 8,629 |
|
| Working capital | $ | 75,510 |
| | $ | 57,673 |
| | $ | 122,725 |
| | $ | 48,177 |
| | $ | 7,615 |
|
| Total assets | $ | 119,539 |
| | $ | 70,795 |
| | $ | 129,347 |
| | $ | 50,536 |
| | $ | 8,747 |
|
| Total current liabilities | $ | 18,552 |
| | $ | 9,758 |
| | $ | 4,820 |
| | $ | 2,080 |
| | $ | 1,094 |
|
| Accumulated deficit | $ | (721,514 | ) | | $ | (606,711 | ) | | $ | (528,526 | ) | | $ | (486,614 | ) | | $ | (465,301 | ) |
| Total shareholders’ equity | $ | 88,202 |
| | $ | 61,037 |
| | $ | 124,527 |
| | $ | 48,456 |
| | $ | 7,653 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
Management’sYou should read the following discussion and analysis of our financial condition and results of operations is provided as a supplement to the accompanying consolidatedtogether with our audited financial statements and the related notes and other financial information included elsewhere in Item 15this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or elsewhere in this Annual Report on Form 10-K, including information with respect to help provide an understanding of our financial condition, the changes in our financial conditionplans and our results of operations. Our discussion is organized as follows:
Business Overview. This section provides a general description ofstrategy for our business, include forward-looking statements that involve risks and significant events and transactions that we believe are importantuncertainties. You should review the “Risk Factors” set forth in understanding our financial condition and results of operations.
Critical Accounting Policies and Estimates. This section provides a description of our significant accounting policies, including the critical accounting policies and estimates, which are summarized in Note 2 to the accompanying consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.
Results10-K for a discussion of Operations. This section provides an analysis ofimportant factors that could cause our actual results of operations presentedto differ materially from the results described in or implied by the forward-looking statements contained in the accompanying consolidated statements of operations by comparing the results for the year ended December 31, 2017 to the results for the year ended December 31, 2016following discussion and for the year ended December 31, 2016 to the results for the year ended December 31, 2015.
Liquidity and Capital Resources. This section provides an analysis of our historical cash flows, as well as our future capital requirements.
analysis.Business Overview
La Jolla Pharmaceutical Company is a biopharmaceutical company focused ondedicated to the discovery, development and commercialization of innovative therapies intended to significantlythat improve outcomes in patients suffering from life-threatening diseases.
GIAPREZATM® (angiotensin II), formerly known as LJPC-501, was injection is approved by the U.S. Food and Drug Administration (FDA) on December 21, 2017(“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA® (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. and its subsidiaries (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. La Jolla’s consolidated financial results exclude Tetraphase’s financial results prior to the acquisition closing date of July 28, 2020.
In January 2021, La Jolla and certain of its wholly owned subsidiaries entered into an exclusive license agreement with PAION AG to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland. Pursuant to the agreement: (i) the Company has received an upfront cash payment of $22.5 million, less a 15% refundable withholding tax; and (ii) the Company is entitled to receive potential commercial milestone payments of up to $109.5 million and royalties on net sales of GIAPREZA and XERAVA.
On November 2, 2021, La Jolla consummated the change of its corporate domicile from California to Delaware, as described in more detail in La Jolla’s Definitive Proxy Statement on Schedule 14A filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 4, 2021.
38
Results of Operations
The following table summarizes our results of operations for each of the periods below (in thousands):
| | Year Ended | |
| | December 31, | |
| | 2021 | | | 2020 | | | Change | |
Net product sales | | $ | 43,532 | | | $ | 33,419 | | | $ | 10,113 | |
License and other revenue | | | 32,188 | | | | - | | | | 32,188 | |
Cost of product sales | | | 8,976 | | | | 7,819 | | | | 1,157 | |
Cost of license and other revenue | | | 4,513 | | | | - | | | | 4,513 | |
Selling, general and administrative expense | | | 35,386 | | | | 38,428 | | | | (3,042 | ) |
Research and development expense | | | 5,014 | | | | 23,010 | | | | (17,996 | ) |
Other (expense) income, net | | | (2,122 | ) | | | (3,583 | ) | | | 1,461 | |
Provision for income taxes | | | 49 | | | | - | | | | 49 | |
Net income (loss) | | $ | 19,660 | | | $ | (39,421 | ) | | $ | 59,081 | |
La Jolla acquired Tetraphase, which commercialized XERAVA, on July 28, 2020. La Jolla’s consolidated financial results for the year ended December 31, 2020 exclude the financial results of Tetraphase prior to July 28, 2020.
Net Product Sales
Net product sales consist of revenue recognized from sales of GIAPREZA and XERAVA to hospitals and other healthcare organizations in the U.S., generally through a network of specialty and wholesale distributors. These specialty and wholesale distributors are considered our customers for accounting purposes.
La Jolla’s net product sales were $12.1 million and $43.5 million for the three and twelve months ended December 31, 2021, respectively, compared to $11.0 million and $33.4 million, respectively, for the same periods in 2020. La Jolla acquired Tetraphase, which commercialized XERAVA, on July 28, 2020. Net product sales for the year ended December 31, 2020 exclude XERAVA for the period prior to July 28, 2020.
GIAPREZA U.S. net sales were $9.2 million and $33.4 million for the three and twelve months ended December 31, 2021, respectively, compared to $8.7 million and $29.3 million, respectively, for the same periods in 2020.
XERAVA U.S. net sales were $2.9 million and $10.1 million for the three and twelve months ended December 31, 2021, respectively, compared to $2.3 and $4.2 million, respectively, for the same periods in 2020. XERAVA U.S. net sales were $8.2 million for the year ended December 31, 2020, including the period prior to the acquisition of Tetraphase.
La Jolla’s net product sales increased during the three and twelve months ended December 31, 2021, compared to the same periods in 2020 due to an increase in the number of vials sold to our customers.
License and Other Revenue
License and other revenue consists of revenue from out-license agreements with counterparties to develop and/or commercialize our products in territories outside of the U.S. in exchange for: (i) nonrefundable, upfront license fees; (ii) development, regulatory or commercial milestone payments; and/or (iii) sales-based royalties. License and other revenue also consists of revenue from commercial supply agreements with our out-licensees to supply a minimum quantity of our products in territories outside the U.S. in exchange for: (i) nonrefundable, upfront fees; and/or (ii) the reimbursement of manufacturing costs, plus a margin in certain cases.
La Jolla’s license and other revenue was $32.2 million for the year ended December 31, 2021, which consists of: (i) a $22.5 million upfront cash payment in connection with the PAION License; (ii) $5.0 million for the transfer of certain XERAVA-related manufacturing know-how to Everest in connection with the Everest commercial supply agreement; (iii) a $3.0 million regulatory milestone cash payment in connection with the Everest License; and (iv) $1.7 million for the reimbursement of manufacturing costs in connection with commercial supply agreements with our out-licensees. La Jolla did not record license and other revenue during the year ended December 31, 2020.
Cost of Product Sales
Cost of product sales consists primarily of expense associated with: (i) manufacturing; (ii) royalties payable to George Washington University, Harvard University and Paratek Pharmaceuticals, Inc.; (iii) the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase; and (iv) shipping and distribution.
La Jolla’s cost of product sales was $9.0 million for the year ended December 31, 2021, compared to $7.8 million, for the same period in 2020. Cost of product sales for the year ended December 31, 2020 exclude XERAVA prior to July 28, 2020. For the year ended December 31, 2021, cost of product sales includes $0.9 million of the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase, compared to $2.5 million for the same period in 2020.
Cost of License and Other Revenue
Cost of license and other revenue consists of amounts due under in-license agreements and commercial supply agreements in connection with license and other revenuefrom commercially approved product. Cost of license and other revenue recognized in connection with product that is not commercially approved is recorded as research and development expense.
La Jolla’s cost of license and other revenue was $4.5 million for the year ended December 31, 2021, which consists of: (i)$3.6 million for amounts due under the George Washington University and Harvard University license agreements in connection with the upfront cash payment received from the PAION License; and (ii) $0.9 million for manufacturing costs in connection with commercial supply agreements with our out-licensees. La Jolla did not record cost of license and other revenue during the year ended December 31, 2020.
Selling, General and Administrative Expense
Selling, general and administrative expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) sales and marketing costs such as speaker programs, advertising and promotion; (ii) professional fees for legal, patent, consulting, surveillance, regulatory filings and accounting; and (iii) amortization of intangible assets, information technology and facilities. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions. We expect our selling, general and administrative expense to increase modestly in 2022 to support growing net product sales of both GIAPREZA and XERAVA.
The following table summarizes these expenses for each of the periods below (in thousands):
| | Year Ended | |
| | December 31, | |
| | 2021 | | | 2020 | | | Change | |
Non-personnel expense: | | | | | | | | | | | | |
Sales and marketing | | $ | 5,619 | | | $ | 3,918 | | | $ | 1,701 | |
Professional fees | | | 5,314 | | | | 5,812 | | | | (498 | ) |
Facility | | | 347 | | | | 2,536 | | | | (2,189 | ) |
Other | | | 3,610 | | | | 2,861 | | | | 749 | |
Total non-personnel expense | | | 14,890 | | | | 15,127 | | | | (237 | ) |
Personnel expense: | | | | | | | | | | | | |
Salaries, bonuses and benefits | | | 16,720 | | | | 16,298 | | | | 422 | |
One-time charges for reductions in headcount | | | 143 | | | | 4,195 | | | | (4,052 | ) |
Share-based compensation expense | | | 3,633 | | | | 2,808 | | | | 825 | |
Total personnel expense | | | 20,496 | | | | 23,301 | | | | (2,805 | ) |
Total selling, general and administrative expense | | $ | 35,386 | | | $ | 38,428 | | | $ | (3,042 | ) |
During the year ended December 31, 2021, total selling, general and administrative non-personnel expense decreased compared to the same period in 2020 primarily as a result of: (i) decreases in facility-related expenses as a result of the termination of our lease for office and laboratory space in San Diego, California effective August 31, 2020; and (ii) decreases in professional fee-related expenses; partially offset by increases in expenses resulting from the inclusion of Tetraphase-related costs, which are excluded from La Jolla’s financial results for the year ended December 31, 2020 prior to July 28, 2020. During the year ended December 31, 2020, La Jolla incurred acquisition-related expenses of $0.9 million.
During the year ended December 31, 2021, total selling, general and administrative personnel expense decreased compared to the same period in 2020 primarily as a result of one-time charges in 2020 resulting from: (i) a reduction of headcount from a Company-wide realignment in May 2020; and (ii) a reduction of headcount combining La Jolla and Tetraphase personnel in July 2020; partially offset by an increase in headcount and the average cost per employee.
Research and Development Expense
Research and development expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) manufacturing development; (ii) amounts due under in-license agreements for drug product that is not commercially approved; (iii) facilities and information technology; and (iv) conducting clinical studies. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in research and development functions. We expect our research and development expense to decrease significantly.
The following table summarizes these expenses for each of the periods below (in thousands):
| | Year Ended | |
| | December 31, | |
| | 2021 | | | 2020 | | | Change | |
Non-personnel expense: | | | | | | | | | | | | |
GIAPREZA | | $ | 929 | | | $ | 4,036 | | | $ | (3,107 | ) |
XERAVA | | | 898 | | | | 866 | | | | 32 | |
LJPC-401 | | | 101 | | | | 1,683 | | | | (1,582 | ) |
LJPC-0118 | | | 16 | | | | 926 | | | | (910 | ) |
Facility | | | 9 | | | | 2,930 | | | | (2,921 | ) |
Other | | | 928 | | | | 1,196 | | | | (268 | ) |
Total non-personnel expense | | | 2,881 | | | | 11,637 | | | | (8,756 | ) |
Personnel expense: | | | | | | | | | | | | |
Salaries, bonuses and benefits | | | 1,289 | | | | 5,546 | | | | (4,257 | ) |
One-time charges for reductions in headcount | | | - | | | | 2,428 | | | | (2,428 | ) |
Share-based compensation expense | | | 844 | | | | 3,399 | | | | (2,555 | ) |
Total personnel expense | | | 2,133 | | | | 11,373 | | | | (9,240 | ) |
Total research and development expense | | $ | 5,014 | | | $ | 23,010 | | | $ | (17,996 | ) |
During the year ended December 31, 2021, total research and development non-personnel expense decreased compared to the same period in 2020 primarily as a result of decreases in: (i) program-related expenses as we de-prioritized our product candidates and focused on the commercialization of GIAPREZA and XERAVA; (ii) manufacturing development-related expenses for GIAPREZA; and (iii) facility-related expenses primarily as a result of the termination of our lease for office and laboratory space in San Diego, California effective August 31, 2020.
During the year ended December 31, 2021, total research and development personnel expense, including share-based compensation expense, decreased compared to the same period in 2020 as a result of: (i) reduced headcount; and (ii) one-time charges in 2020 resulting from: (1) a reduction of headcount from a Company-wide realignment in May 2020; and (2) a reduction of headcount combining La Jolla and Tetraphase personnel in July 2020.
Research and development expense for the year ended December 31, 2020 excludes Tetraphase-related costs prior to July 28, 2020.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of the following: (i) interest expense accrued for our deferred royalty obligation; (ii) income from distributions received in connection with our non-voting profits interest in a related party; (iii) gains and losses from changes in the fair value of contingent value rights (“CVRs”); (iv) interest income generated from cash held in savings accounts; and (v) gains and losses associated with the disposal of certain property and equipment.
During the year ended December 31, 2021, other (expense) income, net was $(2.1) million, compared to $(3.6) million for the same period in 2020. This $1.5 million decrease in other (expense) income, net was due to: (i) a $1.3 million increase in the receipt of distributions in connection with the Company’s non-voting profits interest in a related party; and (ii) a $0.8 million decrease in loss on short-term investments; partially offset by: (i) a $0.4 million increase in interest expense for our deferred royalty obligation; and (ii) a $0.2 million decrease in interest income generated from cash held in savings accounts.
Liquidity and Capital Resources
As of December 31, 2021 and 2020, La Jolla had cash and cash equivalents of $46.7 million and $21.2 million, respectively. Based on our current operating plans and projections, we believe that our existing cash and cash equivalents will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the SEC. The Company expects to fund future operations with existing cash or cash generated from operations.
La Jolla’s net cash provided by (used for) operating activities for the three and twelve months ended December 31, 2021 was $3.1 million and $28.2 million, respectively, compared to $(7.2) million and $(37.6) million, respectively, for the same periods in 2020.
La Jolla’s net cash provided by (used for) operating activities for the three and twelve months ended December 31, 2021, excluding upfront net receipts in connection with out-license agreements and commercial supply agreements, payments related to reductions in headcount, and transaction costs associated with the Tetraphase acquisition, was $3.1 million and $4.6 million, respectively, compared to $(5.6) million and $(27.2) million, respectively, for the same periods in 2020. The exclusions above are comprised of the following:
| • | Upfront net receipts in connection with out-license agreements were zero and $18.4 million for the three and twelve months ended December 31, 2021, respectively, and zero for the same periods in 2020. |
| • | Upfront net receipts in connection with commercial supply agreements were zero and $6.8 million for the three and twelve months ended December 31, 2021, respectively, and zero for the same periods in 2020. |
| • | Payments related to reductions in headcount were zero and $1.6 million for the three and twelve months ended December 31, 2021, respectively, and $1.6 million and $9.5 million, respectively, for the same periods in 2020. |
| • | Payments related to transaction costs associated with the Tetraphase acquisition were zero for the three and twelve months ended December 31, 2021, and zero and $0.9 million, respectively, for the same periods in 2020. |
The amount and timing of additional future funding needs, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA and our ability to control expenses. If necessary, we intend to raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all.
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Contractual Obligations
HealthCare Royalty Partners Royalty Agreement
In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the maximum royalty rate was 10%. Starting January 1, 2022, the maximum royalty rate increased by 4%, and starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if an agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.
In-license Agreements
George Washington University
In December 2014, the Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, La Jolla Pharma, LLC is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and royalties. The Company is obligated to pay a 6% royalty on net sales of GIAPREZA and 15% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA.
Harvard University
In August 2006, the Company entered into a license agreement with Harvard University (“Harvard”), which was subsequently amended and restated (the “Harvard License”). Pursuant to the Harvard License, Harvard exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA.
Paratek Pharmaceuticals, Inc.
In March 2019, the Company entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications
44
covering XERAVA. The Company is obligated to pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial product.
LJPC-401,sale of XERAVA and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023.Out-license Agreements
PAION AG
In January 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase Pharmaceuticals, Inc., entered into an exclusive license agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla has received an upfront cash payment of $22.5 million, less a clinical-stage investigational product,15% refundable withholding tax, and is our proprietary formulationentitled to receive potential commercial milestone payments of synthetic human hepcidin. LJPC-401 is being developedup to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. La Jolla recognized the upfront cash payment of $22.5 million as license and other revenue for the potentialyear ended December 31, 2021, and the 15% refundable withholding tax of $3.4 million was recorded as an other current asset as of December 31, 2021. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company has not received any payments from PAION related to either royalties or commercial milestones.
In July 2021, the Company entered into a commercial supply agreement with PAION whereby the Company will supply PAION a minimum quantity of GIAPREZA and XERAVA through July 13, 2024. The supply agreement will automatically renew until the earlier of July 13, 2027, or until a new supply agreement is executed. During the initial 3-year term of the supply agreement, the Company will be reimbursed for direct and certain indirect manufacturing costs at cost.
Everest Medicines Limited
In February 2018, the Company entered into a license agreement with Everest, which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, the Company granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of conditions characterizedcIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to receive an additional $8.0 million regulatory milestone payment and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (i) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (iii) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In March 2021, the Company received a $3.0 million milestone payment associated with the submission of an NDA with the China NMPA for XERAVA for the treatment of cIAI in patients in China. XERAVA was approved in Singapore by iron overload, suchthe Health Science Authority in April 2020.
In May 2021, the Company entered into a commercial supply agreement with Everest whereby the Company will supply Everest a minimum quantity of XERAVA through December 31, 2023 and will transfer to Everest certain XERAVA-related manufacturing know-how. Pursuant to the supply agreement: (i) the Company has received $6.8 million of upfront payments comprised of: (1) a $4.0 million upfront technology transfer payment; and (2) a $2.8 million partial prepayment for XERAVA that is expected to be delivered to Everest during 2022; (ii) the Company has received an additional $1.0 million technology
45
transfer payment in January 2022; and (iii) the Company will be reimbursed for direct and certain indirect manufacturing costs at 110% of cost through December 31, 2023. The Company recognized the $5.0 million of technology transfer-related payments as hereditary hemochromatosis, beta thalassemia, sickle cell diseaselicense and myelodysplastic syndrome.
other revenue during the year ended December 31, 2021 as Everest obtained control of the XERAVA-related manufacturing know-how prior to December 31, 2021. The Company recognized the $2.8 million partial prepayment for XERAVA that is expected to be delivered to Everest during 2022 as deferred revenue as of December 31, 2021 as the performance obligation to deliver XERAVA has not yet been satisfied.Off−Balance Sheet Arrangements
We have no off−balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP)(“GAAP”). The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
We believe the following criticalWhile our significant accounting policies involve significant judgments and estimates usedare more fully described in the preparation of our consolidated financial statements (see also Note 2notes to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K).
10-K, we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results.Revenue Recognition
In accordancePursuant to Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 606—Revenue from Contracts with GAAP, weCustomers (“ASC 606”), the Company recognizes revenue when its customers obtain control of the Company’s product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when all(or as) the entity satisfies the relevant performance obligations.
Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns, rebates and administrative fees. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items include:
| • | Chargebacks—Chargebacks are discounts the Company provides to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a |
46
| | sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Discounts—The Company offers customers various forms of incentives and consideration, including prompt-pay and other discounts. The Company estimates discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Returns—The Company offers customers a limited right of return, generally for damaged or expired product. The Company estimates returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Rebates—The Company participates in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, the Company pays a rebate to each participating state, generally within three months after the quarter in which product was sold. Additionally, the Company may offer customers incentives and consideration in the form of volume-based or other rebates. The estimates for rebates are recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Administrative Fees—The Company pays administrative fees to GPOs for services and access to data. Additionally, the Company pays an Industrial Funding Fee as part of the U.S. General Services Administration’s Federal Supply Schedules program. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the applicable GPO or government agency. Administrative fees are recorded as a reduction of revenue on delivery to customers. |
The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and will adjust these estimates accordingly.
Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla's financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the following criteriaacquisition date. Intangible assets acquired in a business combination are met: (1) persuasive evidencerecorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other (expense) income, net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
Intangible Assets
Intangible assets acquired in a business combination are initially recorded at fair value. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized.
The Company reviews its intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an arrangement exists; (2) deliveryasset may not be recoverable. If such
47
circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset.
Goodwill
Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill has occurredan indefinite useful life and is not amortized.
The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company has an option to bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.
Accrued Expenses
As part of the process of preparing the financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been rendered; (3)performed by service providers and estimating the seller’s price tolevel of service performed and the buyer is fixed or determinable; and (4) collectibility is reasonably assured. We recognized revenue from payments received under a services agreement with a related party. Under the terms of this services agreement, we receive payments from this related partyassociated cost incurred for research and development services that have not yet been invoiced. We make estimates of accrued expenses as of each balance sheet date in the Company providesfinancial statements based on facts and circumstances known at whatthat time. We periodically confirm the Company believes is a negotiated, arms-length rate.
Clinical Trial Expense
Payments in connectionaccuracy of recorded estimates with
the service providers and make adjustments, if necessary.We base our clinical trials are often made under contracts with multiple contract research organizations that conduct and manage clinical trialsaccrued expenses on our behalf.estimates of the services received and efforts expended pursuant to our contractual arrangements. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment accordingly. The financial terms of theseour contractual agreements aremay be subject to negotiationinterpretation, and varythe timing of payment relative to the timing of services rendered may vary.
Interest Expense
The deferred royalty obligation royalty from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. Payments under these contracts depend on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones. We amortize prepayments to expenseour financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners, which was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, is repaid based on estimates regarding work performed, including actual levelthe net sales of patient enrollment, completionGIAPREZA. Interest expense and the amortization of patient studies and progress of the clinical trials.
Expenses related to clinical trials are accrued based on estimates regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidentalissuance costs related to patient enrollment or treatmentthe deferred royalty obligation are recognized over the expected repayment term using the effective interest method. The assumptions used in determining the expected repayment term of the deferred royalty obligation require us to make estimates that could impact the effective interest rate. Each reporting period, we update our estimate of accrued when reasonably certain. Ifinterest expense under the contracted amountsRoyalty Agreement based on actual and forecasted net sales of GIAPREZA. Changes in interest expense resulting from changes in the effective interest rate, if any, are modified, the accruals are modified accordinglyrecorded on a prospective basis. Revisions in the scope of a contract are charged to research and development expense in the period in which the facts that give rise to the revision occur.
Share-based Compensation Expense
We generally grant share-based awards under our shareholder-approved, share-based compensation plan. We have granted, and may in the future grant, stock options and restricted stock awards to employees, directors, consultants and advisors under our 2013 Equity Incentive Plan.
We estimate the fair value of stock options granted using the Black-Scholes option pricing model (Black-Scholes model). This fair value is then amortized over the requisite service periods of the awards. The Black-Scholes model requires the input of subjective assumptions, including each option’s expected life and the price volatility of the underlying stock. Expected volatility is based on our historical stock price volatility. The expected life of employee stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under the “simplified” method.
Share-based compensation expense has been reduced for actual forfeitures as they occur. Changes in assumptions used under the Black-Scholes option pricing model could materially affect our net loss and net loss per share.
Recent Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 2 to the accompanying consolidated financial statements included in Item 15 of this Annual Report on form 10-K.
Results of Operations
The following summarizes the results of our operations for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Contract revenue - related party | $ | — |
| | $ | 616 |
| | $ | 1,057 |
|
| Research and development expense | (84,575 | ) | | (62,288 | ) | | (29,092 | ) |
| General and administrative expense | (30,852 | ) | | (16,700 | ) | | (13,934 | ) |
| Other income, net | 624 |
| | 187 |
| | 57 |
|
| Net loss attributable to common shareholders | $ | (114,803 | ) | | $ | (78,185 | ) | | $ | (41,912 | ) |
Contract Revenue - Related Party
During the year ended December 31, 2015, we entered into a services agreement with a related party. Pursuant to the services agreement, we provide certain services to this related party, including, but not limited to, research and development and clinical study design and management for projects undertaken. Contract revenue is a function of the availability of potential projects identified by our customer and our ability and willingness to take on such projects. As such, this revenue may be significantly reduced in future periods, as has happened for the years ended December 31, 2017 and 2016. In exchange for providing such services, we receive payments at a negotiated, arms-length rate. As a result, the consideration received by us for our services is considered to be no less favorable to us than comparable terms that we could obtain from an unaffiliated third party in an arms-length transaction. The services agreement may be canceled by either party upon 60-days’ written notice to the other party. In addition, we have a non-voting profit interest in the related party, which provides us with the potential to receive a portion of the future distributions of profits, if any.
Research and Development Expense
The following summarizes our research and development expense for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Clinical development costs | $ | 34,420 |
| | $ | 32,798 |
| | $ | 13,074 |
|
| Personnel and related costs | 26,735 |
| | 13,570 |
| | 6,630 |
|
| Share-based compensation expense | 11,980 |
| | 5,657 |
| | 4,084 |
|
| In-licensing and technology purchase costs | 2,097 |
| | 847 |
| | 754 |
|
| Other research and development costs | 9,343 |
| | 9,416 |
| | 4,550 |
|
| Total research and development expense | $ | 84,575 |
| | $ | 62,288 |
| | $ | 29,092 |
|
Years Ended December 31, 2017 and 2016
During the year ended December 31, 2017, we incurred $84.6 million in research and development expense compared to $62.3 million for the year ended December 31, 2016. The increase was primarily due to increased personnel and related costs and share-based compensation expense as a result of increased headcount associated with the development of GIAPREZA and LJPC-401. We anticipate research and development expense to increase throughout 2018, due to the continuation of our clinical development of LJPC-401, the initiation of additional clinical trials and ongoing development of our product candidates.
Years Ended December 31, 2016 and 2015
During the year ended December 31, 2016, we incurred $62.3 million in research and development expense compared to $29.1 million for the year ended December 31, 2015. The increase was primarily due to increased development activities associated with GIAPREZA, clinical development costs associated with LJPC-401 and preclinical costs associated with other programs. Increases in personnel and related costs and share-based compensation expense associated with the support of our increased development activities also contributed to the increase in research and development expense.
General and Administrative Expense
The following summarizes our general and administrative expense for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Personnel and related costs | $ | 9,367 |
| | $ | 4,020 |
| | $ | 2,458 |
|
| Share-based compensation expense | 9,815 |
| | 8,889 |
| | 8,988 |
|
| Other pre-commercialization activities | 5,033 |
| | — |
| | — |
|
| Other general and administrative | 6,637 |
| | 3,791 |
| | 2,488 |
|
| Total general and administrative expense | $ | 30,852 |
| | $ | 16,700 |
| | $ | 13,934 |
|
Years Ended December 31, 2017 and 2016
During the year ended December 31, 2017, we incurred $30.9 million in general and administrative expense compared to $16.7 million for the year ended December 31, 2016. The increase was primarily due to increased personnel costs and professional and outside service costs associated with our increased development and pre-commercialization activities. We anticipate general and administrative expense to increase throughout 2018 due to planned increases in personnel to support the product launch of GIAPREZA and the development of our product candidates.
Years Ended December 31, 2016 and 2015
During the year ended December 31, 2016, we incurred $16.7 million in general and administrative expense compared to $13.9 million for the year ended December 31, 2015. The increase was primarily due to increases in personnel costs and facilities costs associated with the support of our increased development activities. In addition, there were increased expenses for professional and outside service costs.
Sales and Marketing Expense
In 2018, we will begin to incur sales and marketing expenses to support the commercialization of GIAPREZA. The commercial launch process requires the expenditure of substantial resources. Sales and marketing expense will primarily consist of salaries and related costs, share-based compensation expense and other related costs for sales operations, marketing and market access. Other sales and marketing costs will include advertising, speaker programs, medical education and other consulting costs.
Liquidity and Capital Resources
Since January 2012, when the Company was effectively restarted with new assets and a new management team, through December 31, 2017, our cash used for operating activities was $188.5 million. From inception through December 31, 2017, we have incurred a cumulative net loss of $721.5 million and have financed our operations through public and private offerings of securities, revenues from collaborative agreements, equipment financings and interest income on invested cash balances. From inception through December 31, 2017, we have raised $706.3 million in net proceeds from sales of equity securities.
As of December 31, 2017, we had $90.9 million in cash and cash equivalents, compared to $65.7 million in cash and cash equivalents as of December 31, 2016. Cash used for operating activities for the year ended December 31, 2017 was $84.9 million, compared to $58.7 million for the same period in 2016. The increase in cash used for operating activities was a result of the increase in our net loss, primarily offset by changes in working capital and increases in share-based compensation and depreciation expense. For the year ended December 31, 2017, we used $9.2 million of cash for investing activities, compared to $2.2 million for the year ended December 31, 2016. The increase in cash used for investing activities was a result of purchases of property and equipment. Cash provided by financing activities for the year ended December 31, 2017 was $119.3 million, compared to $0.1 million for the same period in 2016. The increase in cash provided by financing activities was due to $117.5 million of proceeds from the March 2017 common stock offering and an increase of $2.7 million of proceeds from the exercise of stock options for common stock.
We have a history of incurring significant operating losses and negative cash flows from operations. We do not have sufficient capital to fund our planned operations during the twelve-month period subsequent to the issuance of the financial statements included in this Annual Report on Form 10-K. These factors raise substantial doubt about our ability to continue as a going concern within one year from the date this Annual Report on Form 10-K is filed with the SEC. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern. We anticipate that we will need to raise additional capital in order to fund these future operations. We will seek to fund our operations through equity, debt or royalty-based financings or other sources, such as potential collaboration agreements. We cannot be certain that additional funding will be available to us on acceptable terms, or at all.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
Contractual obligations represent future minimum cash commitments and liabilities under agreements with third parties. See Note 9 Commitments and Contingencies in the Notes toaudited consolidated financial statements included in Item 15 of this Annual Report on Form 10-K. The following table represents our contractual obligations as of December 31, 2017, aggregated by type (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| Contractual Obligations | | Total | | Less Than 1 Year | | 1 - 3 Years | | 3 - 5 Years | | More Than 5 Years |
| License agreements | | $ | 795 |
| | $ | 142 |
| | $ | 295 |
| | $ | 305 |
| | $ | 53 |
|
| Leases | | 41,231 |
| | 1,945 |
| | 8,021 |
| | 8,510 |
| | 22,755 |
|
| Purchase obligations | | 3,855 |
| | 1,092 |
| | 1,842 |
| | 921 |
| | — |
|
| Total | | $ | 45,881 |
|
| $ | 3,179 |
|
| $ | 10,158 |
|
| $ | 9,736 |
|
| $ | 22,808 |
|
48
Item 7A. Quantitative and Qualitative Disclosures Aboutabout Market Risk.
Our exposureRiskWe are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to market risk for changes in interest rates relates primarily to interest earned on our cash equivalents and investments. The primary objective of our investment activities is to preserve our capital to fund operations. A secondary objective is to maximize income from our investments without assuming significant risk. Our investment policy provides for investments in low-risk, investment-grade debt instruments. As of December 31, 2017, we had cash and cash equivalents of $90.9 million, which includes money market funds. A hypothetical 10% change in interest rates during any ofprovide the periods presented would not have had a material impact on our consolidated financial statements. To date, we have not experienced a loss of principal on any of our investments.
We face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. An adverse movement in foreign exchange rates could have an effect on payments made to foreign suppliers and for license agreements. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our financial statements.
information under this item.Item 8. Financial Statements and Supplementary Data.
DataThe financial statements required by this item are set forth at the end of this Annual Report on Form 10-K beginning on page F-3F-1 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
(a)Management’s Evaluation of our Disclosure Controls and Procedures; Changes in Internal Control Over Financial Reporting
ProceduresOur management, with the participation of our principal executive officer and our principal financial and accounting officer, has evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures (asas of December 31, 2021, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of December 31, 2017. Based on this evaluation,a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, concludedas appropriate to allow timely decisions regarding required disclosure. Management recognizes that our disclosureany controls and procedures, were effective asno matter how well designed and operated, can provide only reasonable assurance of December 31, 2017.
There was no changeachieving their objectives, and our management necessarily applies its judgment in our internal control over financial reporting duringevaluating the quarter ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
(b) Managementcost-benefit relationship of possible controls and procedures.Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Our management used the Committee of Sponsoring Organizations of the Treadway Commission Internal Control - Integrated Framework (2013) (COSO framework) to evaluate the effectiveness of
internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 and has concluded that such internal control over financial reporting was effective.
(c) Attestation report of the independent registered public accounting firm
The effectiveness of the Company’s internal control over financial reporting has been audited by Squar Milner LLP, an independent registered public accounting firm, as stated in their attestation report appearing below, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of La Jolla Pharmaceutical Company
Opinion on the Internal Control Over Financial Reporting
We have audited La Jolla Pharmaceutical Company's (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of La Jolla Pharmaceutical Company as of December 31, 2017 and 2016, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes to the consolidated financial statements of the Company and our report dated February 22, 2018 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed
under the supervision and with the participation of our management, including our principal executive and principal financial and accounting officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company'sGAAP.As of December 31, 2021, our management used the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (2013) (“COSO Framework”) to evaluate the effectiveness of internal control over financial reporting.
Management has assessed the effectiveness of our internal control over financial reporting includes those policiesas of December 31, 2021 and procedureshas concluded that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations,such internal control over financial reporting
may not preventwas effective.49
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent quarter that has materially affected, or detect misstatements. Also, projections of any evaluation of effectivenessis reasonably likely to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ SQUAR MILNER LLP
San Diego, California
February 22, 2018
materially affect, our internal control over financial reporting.Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
50
PART III
Item 10. Directors, Executive Officer and Corporate Governance.
GovernanceThe information required by this Item is expected to be contained in our definitiveDefinitive Proxy Statement for the 20182022 Annual Meeting of Shareholders,Stockholders (the “2022 Proxy Statement”), which we expect to be filed with the U.S. Securities and Exchange Commission (SEC)(the “SEC”) within 120 days of the end of our fiscal year ended December 31, 20172021 and is incorporated herein by reference.
reference, including the sections entitled “Director Nominees,” “Executive Officers” and “Corporate Governance.”We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website located at
www.ljpc.com in the Corporate GovernanceCompliance section under “Investor Relations”.“Corporate Resources.” We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, and waivers of the Code of Business Conduct and Ethics, granted to executive officers and directors, on theour website within 4 business days following the date of the amendment or waiver.
Item 11. Executive Compensation.
CompensationThe information required by this Item is expected to be in our definitive Proxy Statement for the 2018 Annual Meeting of Shareholders, which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2017 and is incorporated herein by reference.
reference to information in our 2022 Proxy Statement, including under the section entitled “Executive Compensation.”Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Stockholder MattersThe information required by this Item is expected to be in our definitive Proxy Statement for the 2018 Annual Meeting of Shareholders, which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2017 and is incorporated herein by reference.
reference to information in our 2022 Proxy Statement, including under the section entitled “Security Ownership of Certain Beneficial Owners and Management.”Item 13. Certain Relationships and Related Transactions, and Director Independence.
IndependenceThe information required by this Item is expected to be in our definitive Proxy Statement for the 2018 Annual Meeting of Shareholders, which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2017 and is incorporated herein by reference.
reference to information in our 2022 Proxy Statement, including under the sections entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance.”Item 14. Principal Accountant Fees and Services.
ServicesThe information required by this Item is expected to be in our definitive Proxy Statement for the 2018 Annual Meeting of Shareholders, which we expect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2017 and is incorporated herein by reference.
reference to information in our 2022 Proxy Statement, including under the section entitled “Independent Registered Public Accounting Firm Fees and Services.”51
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Schedules(a) Documents filed as part(1) Financial Statements
The response to this portion of this report.
| |
1. | The following financial statements of La Jolla Pharmaceutical Company are filed as part of this report under Item 8 — Financial Statements and Supplementary Data: |
| |
2. | Financial Statement Schedules. |
The followingItem 15 is set forth under Item 8 hereof.(a)(2) Financial Statement Schedules
No financial statement schedules of La Jolla Pharmaceutical Company are filed as part of this report under Item 8 — Financial Statements and Supplementary Data.
(a)(3) Exhibits
None.
List of Exhibit required by Item 601 of Regulation S-K. See part (b) below.
(b) Exhibits:
|
| | | | | | | | |
| | | | Incorporated by Reference | | |
| | | | Form | | | | |
| | | | | | | | |
| | | | S-8 | | 12/20/2013 | | |
| | | | | | | | |
| | | | 8-K | | 1/15/2014 | | |
| | | | | | | | |
| | | | 8-A12B/A | | 10/17/2014 | | |
| | | | | | | | |
| | | | 8-A12B/A | | 10/17/2014 | | |
| | | | | | | | |
| | | | 8-K | | 9/25/2013 | | |
| | | | | | | | |
| | | | 8-K | | 5/28/2010 | | |
| | | | | | | | |
| | | | 8-K | | 5/28/2010 | | |
| | | | | | | | |
| | | | 10-Q | | 11/17/2005 | | |
| | | | | | | | |
| | Employment Offer LetterMerger, effective November 2, 2021, by and between La Jolla Pharmaceutical Company, a California Corporation, and George F. Tidmarsh, M.D., Ph.D., dated as of January 19, 2012La Jolla Pharmaceutical Company, a Delaware Corporation | | 8-K8-K12B | | 1/20/201211/2/2021 | | |
| | | | | | | | |
| | | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
2.3 | | Agreement dated asand Plan of September 24, 2013,Merger by and among La Jolla, Merger Sub and Tetraphase, dated June 24, 2020 | | 8-K | | 6/24/2020 | | |
| | | | | | | | |
3.1 | | Amended and Restated Certificate of Incorporation of La Jolla Pharmaceutical Company, a Delaware Corporation | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
3.2 | | Bylaws of La Jolla Pharmaceutical Company, a Delaware Corporation | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
3.3 | | Specimen of Common Stock Certificate of La Jolla Pharmaceutical Company, a Delaware Corporation | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
4.1 | | Description of Securities | | | | | | X |
| | | | | | | | |
10.1+ | | Form of Indemnity Agreement of La Jolla Pharmaceutical Company, a Delaware Corporation | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
10.2+ | | La Jolla Pharmaceutical Company Amended and Restated 2013 Equity Incentive Plan | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
10.3+ | | La Jolla Pharmaceutical 2018 Employee Stock Purchase Plan | | 8-K12B | | 11/2/2021 | | |
| | | | | | | | |
10.4 | | The George Washington University Amended and Restated Patent License Agreement† | | 10-K | | 2/22/2018 | | |
| | | | | | | | |
10.5 | | Revenue Interest Agreement, dated May 10, 2018, among La Jolla Pharma, LLC and the Purchasers named thereinEntities Managed by HealthCare Royalty Management, LLC | | 8-K | | 9/25/20135/14/2018 | | |
| | | | | | | | |
| 6 | | | | 10-K | | 3/8/2021 | | |
| | | | | | | | |
10.7 | | License Agreement, dated as of September 24, 2013,August 3, 2006, by and among La Jolla Pharmaceutical Companybetween the Registrant and the parties theretoPresident and Fellows of Harvard College, as amended† | | 8-K10-K | | 9/25/20133/8/2021 | | |
| | | | | | | | |
| | | | 10-K | | 3/8/2021 | | |
| | | | | | | | |
10.9 | | Master Manufacturing Services Agreement, dated June 14, 2017, by and between the Registrant and Patheon UK Limited† | | 10-K | | 3/8/2021 | | |
| | | | | | | | |
10.10 | | License Agreement, dated February 20, 2018, by and between the Registrant and Everest Medicines Limited† | | 10-K | | 3/8/2021 | | |
10.11 | | Amendment No.1, dated July 29, 2019, to the License Agreement between Everest Medicines Limited and the Registrant | | 10-K | | 3/8/2021 | | |
| | | | | | | | |
10.12 | | Contingent Value Rights Agreement, dated as of September 25, 2013, by and among La Jolla Pharmaceutical Company and the parties thereto | | 8-K | | 9/25/2013 | | |
| | | | | | | | |
|
| | | | | | | | |
| | | | 8-K | | 9/25/2013 | | |
| | | | | | | | |
| | | | 10-K8-K | | 2/25/20167/29/2020 | | |
53
| | | | | | | | |
10.13 | | | | | | | | |
| | | | 8-K | | 4/10/2015 | | |
| | | | | | | | |
| | | | 10-K | | 2/25/2016 | | |
| | | | | | | | |
| | | | 10-K | | 2/23/20173/8/2021 | | |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
| | | | | | | | X |
| | | | | | | | |
101.INS32.2 | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | X |
| | | | | | | | |
101.INS | | XBRL Instance Document | | | | | | X |
| | | | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | X |
| | | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | X |
| | | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | X |
| | | | | | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | X |
| | | | | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | X |
|
| | | | | | | | |
*104 | This exhibit is | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | X |
| | | | | | | | |
+ Indicates a management contract or compensatory plan or arrangement. |
† | Confidential treatment has been requested with respect to certain Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the exhibit, whichidentified confidential portions have been omitted(i) are not material and filed separately with the Securities and Exchange Commission.(ii) would be competitively harmful if publicly disclosed. | |
Item 16. Form 10-K Summary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrantRegistrant has duly caused this reportReport to be signed on its behalf by the undersigned, hereuntothereunto duly authorized.
authorized. | | LA JOLLA PHARMACEUTICAL COMPANY |
| | | |
Date: March 9, 2022 | | La Jolla Pharmaceutical CompanyBy: | /s/ Larry Edwards |
| | | Larry Edwards |
Date: | February 22, 2018 | /s/ George F. Tidmarsh |
| | George F. Tidmarsh, M.D., Ph.D. |
| | Director, President and Chief Executive Officer and Secretary |
| | (Principal Executive Officer) |
KNOW ALL MENPERSONS BY THESE PRESENT,PRESENTS, that each personindividual whose signature appears below hereby constitutes and appoints Larry Edwards and Michael Hearne, and each of George F. Tidmarsh, M.D., Ph.D. and Dennis M. Mulroy as his or herthem, the true and lawful attorney-in-factattorneys-in-fact and agent,agents of the undersigned, with full power of substitution and resubstitution, for him or her, and in his or herthe name, place and stead of the undersigned, to sign in any and all capacities to sign any and all amendments(including, without limitation, the capacities listed below), with respect to this Annual Report on Form 10-K, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the U.S. Securities and Exchange Commission granting unto said attorney-in-fact(the “SEC”), and agenthereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite andanything necessary to be done therewith,to enable La Jolla Pharmaceutical Company to comply with the provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and all the requirements of the SEC, as fully to all intents and purposes as hethe undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-factattorneys-in-fact and agent,agents, or any of them, or their or his substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act, of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities set forth opposite their names and on the dates indicated.
indicated below.Name | | Title | | Date |
| | | | | |
Signature | | Title | | Date |
/s/ George F. TidmarshLarry Edwards | | Director, President and Chief Executive Officer and Secretary (Principal Executive Officer) | | February 22, 2018March 9, 2022 |
George F. Tidmarsh, M.D., Ph.D.Larry Edwards | | (principal executive officer) | | |
| | | | | |
/s/ Dennis M. MulroyMichael Hearne | | (Principal Financial and Accounting Officer)
| | February 22, 2018March 9, 2022 |
Dennis M. MulroyMichael Hearne | | (principal financial and accounting officer) | | |
| | | | | |
/s/ Kevin C. Tang | | Chairman of the Board and Director | | February 22, 2018March 9, 2022 |
Kevin C. Tang | | | | |
| | | | | |
/s/ Craig Johnson | | Director | | March 9, 2022 |
Craig Johnson | | | | |
| | | | |
/s/ Laura L. DouglassJohnson | | Director | | February 22, 2018March 9, 2022 |
Laura L. DouglassJohnson | | | | |
| | | | | |
/s/ Craig A. JohnsonDavid Ramsay | | Director | | February 22, 2018March 9, 2022 |
Craig A. JohnsonDavid Ramsay | | | | |
| | | | |
/s/ Robert H. Rosen | | Director | | March 9, 2022 |
Robert Rosen | Director | | February 22, 2018 | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the ShareholdersStockholders and the Board of Directors of La Jolla Pharmaceutical Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of La Jolla Pharmaceutical Company and its subsidiaries (the Company)“Company”) as of December 31, 20172021 and 2016,2020, the related consolidated statements of operations, shareholders’ equity,stockholders’ deficit and cash flows for each of the three years in the periodthen ended, December 31, 2017, and the related notes to the consolidated financial statements (collectively, the financial statements)“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172021 and 2016,2020, and the results of its operations and its cash flows for each of the three years in the periodthen ended, December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 22, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a history of significant recurring losses from operations through December 31, 2017 and does not have sufficient working capital at December 31, 2017 to fund its planned operations during the twelve-month period subsequent to the issuance of these financial statements. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the Company’s Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
FAIR VALUE REMEASUREMENT OF CONTINGENT CONSIDERATION LIABILITY
Critical Audit Matter Description
As discussed in Note 11 to the consolidated financial statements, during the year ended December 31, 2020, the Company recorded a contingent consideration liability in the amount of $2.6 million relating to the contingent value rights liability provisions (the “CVR liability”) included in the agreement for the acquisition of Tetraphase. The CVR liability was initially recorded based on its estimated acquisition date
F-2
fair value and is re-measured at fair value at each reporting period. As of December 31, 2021, the estimated fair value of the CVR liability was determined to be $1.1 million. The determination of the fair value of the CVR liability requires the Company to make significant estimates and assumptions. These estimates and assumptions include the future revenue growth rates, the amount and timing of product sales, revenue volatility and discount rates.
We identified remeasurement of the CVR liability as a critical audit matter because testing certain of the assumptions involved a high degree of subjectivity. In addition, auditing the Company’s simulation model which was used to determine the fair value of the CVR liability, involved complex and challenging auditor judgment as certain of the inputs to such model did not have directly observable market inputs.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included:
| • | Obtaining an understanding of the Company’s process for estimating the CVR liability. |
| • | Obtaining and reviewing the report from the Company’s valuation specialist and testing for mathematical accuracy. |
| • | Evaluating the revenue growth rate assumptions used in the Company’s simulation model for reasonableness by comparing the inputs to historical benchmarks and evaluating future expected volume growth and pricing. |
| • | Evaluating management’s sensitivity analyses over revenue projections used in the simulation model. |
| • | Engaging an auditor’s valuation specialist to assist in our testing of the CVR liability fair value, which included the following evaluations: |
| o | Assessing the appropriateness of the Company’s selection of the valuation method for the CVR liability fair value. |
| o | Assessing the reasonableness of the key assumptions inherent in the simulation model including the discount rate, revenue volatility, operating leverage ratio, risk-free rate and cost of debt. |
| o | Comparing the results of an independent estimate of fair value of the CVR liability using an independent simulation model to the Company’s fair value estimate. |
/s/ SQUAR MILNERBAKER TILLY US, LLP
We have served as the Company's auditor since 2012.
February 22, 2018
March 9, 2022
F-3
LA JOLLA PHARMACEUTICAL COMPANY
Consolidated Balance Sheets
(in thousands, except share and par value and share amounts)
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 46,668 | | | $ | 21,221 | |
Accounts receivable, net | | | 8,610 | | | | 5,834 | |
Inventory, net | | | 6,281 | | | | 6,013 | |
Prepaid expenses and other current assets | | | 5,756 | | | | 3,388 | |
Total current assets | | | 67,315 | | | | 36,456 | |
Goodwill | | | 20,123 | | | | 20,123 | |
Intangible assets, net | | | 13,321 | | | | 14,873 | |
Right-of-use lease assets | | | 318 | | | | 536 | |
Property and equipment, net | | | 113 | | | | 215 | |
Restricted cash | | | 40 | | | | 40 | |
Total assets | | $ | 101,230 | | | $ | 72,243 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 2,278 | | | $ | 2,762 | |
Accrued expenses | | | 4,866 | | | | 5,617 | |
Accrued interest expense on deferred royalty obligation, current portion | | | 5,163 | | | | 3,567 | |
Deferred revenue | | | 2,849 | | | | 188 | |
Paycheck Protection Program loan, current portion | | | 2,325 | | | | - | |
Lease liabilities, current portion | | | 154 | | | | 204 | |
Total current liabilities | | | 17,635 | | | | 12,338 | |
Deferred royalty obligation, net | | | 124,503 | | | | 124,437 | |
Accrued interest expense on deferred royalty obligation, less current portion | | | 24,590 | | | | 19,111 | |
Lease liabilities, less current portion | | | 164 | | | | 332 | |
Other noncurrent liabilities | | | 1,076 | | | | 4,112 | |
Total liabilities | | | 167,968 | | | | 160,330 | |
Commitments and contingencies (Note 6) | | | | | | | | |
Stockholders’ deficit: | | | | | | | | |
Common Stock, $0.0001 par value; 100,000,000 shares authorized, 26,783,544 and 27,402,648 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively | | | 3 | | | | 3 | |
Series C-12 Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 shares issued and outstanding at December 31, 2021 and December 31, 2020; and liquidation preference of $3,906 at December 31, 2021 and December 31, 2020 | | | 3,906 | | | | 3,906 | |
Additional paid-in capital | | | 986,445 | | | | 984,756 | |
Accumulated deficit | | | (1,057,092 | ) | | | (1,076,752 | ) |
Total stockholders’ deficit | | | (66,738 | ) | | | (88,087 | ) |
Total liabilities and stockholders’ deficit | | $ | 101,230 | | | $ | 72,243 | |
|
| | | | | | | |
| | December 31,
2017 | | December 31,
2016 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 90,915 |
| | $ | 65,726 |
|
| Restricted cash, current portion | — |
| | 200 |
|
| Prepaid expenses and other current assets | 3,147 |
| | 1,505 |
|
| Total current assets | 94,062 |
| | 67,431 |
|
| Property and equipment, net | 24,568 |
| | 3,145 |
|
| Restricted cash, less current portion | 909 |
| | — |
|
| Other assets | — |
| | 219 |
|
| Total assets | $ | 119,539 |
| | $ | 70,795 |
|
| | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 11,484 |
| | $ | 6,652 |
|
| Accrued clinical and other expenses | 703 |
| | 905 |
|
| Accrued payroll and related expenses | 4,995 |
| | 2,077 |
|
| Deferred rent, current portion | 1,370 |
| | 124 |
|
| Total current liabilities | 18,552 |
| | 9,758 |
|
| Deferred rent, less current portion | 12,785 |
| | — |
|
| Total liabilities | 31,337 |
| | 9,758 |
|
| Commitments and contingencies (Note 9) |
|
| |
|
|
| Shareholders’ equity: | | | |
Common Stock, $0.0001 par value; 100,000,000 shares authorized, 22,167,529 and 18,261,557 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 2 |
| | 2 |
|
Series C-12 Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 shares issued and outstanding at December 31, 2017 and December 31, 2016, and a liquidation preference of $3,906 at December 31, 2017 and 2016 | 3,906 |
| | 3,906 |
|
Series F Convertible Preferred Stock, $0.0001 par value; 10,000 shares authorized, 2,737 shares issued and outstanding at December 31, 2017 and December 31, 2016, and a liquidation preference of $2,737 at December 31, 2017 and 2016 | 2,737 |
| | 2,737 |
|
| Additional paid-in capital | 803,071 |
| | 661,103 |
|
| Accumulated deficit | (721,514 | ) | | (606,711 | ) |
| Total shareholders’ equity | 88,202 |
| | 61,037 |
|
| Total liabilities and shareholders’ equity | $ | 119,539 |
| | $ | 70,795 |
|
See accompanying notes to the consolidated financial statements.
.F-4
LA JOLLA PHARMACEUTICAL COMPANY
Consolidated Statements of Operations
(in thousands, except per share amounts)
| | Year Ended | |
| | December 31, | |
| | 2021 | | | 2020 | |
Revenue | | | | | | | | |
Net product sales | | $ | 43,532 | | | $ | 33,419 | |
License and other revenue | | | 32,188 | | | | - | |
Total revenue | | | 75,720 | | | | 33,419 | |
Operating expenses | | | | | | | | |
Cost of product sales | | | 8,976 | | | | 7,819 | |
Cost of license and other revenue | | | 4,513 | | | | - | |
Selling, general and administrative | | | 35,386 | | | | 38,428 | |
Research and development | | | 5,014 | | | | 23,010 | |
Total operating expenses | | | 53,889 | | | | 69,257 | |
Income (loss) from operations | | | 21,831 | | | | (35,838 | ) |
Other (expense) income | | | | | | | | |
Interest expense | | | (10,458 | ) | | | (10,051 | ) |
Interest income | | | 7 | | | | 235 | |
Other income—related party | | | 7,596 | | | | 6,279 | |
Other income (expense) | | | 733 | | | | (46 | ) |
Total other (expense) income, net | | | (2,122 | ) | | | (3,583 | ) |
Income (loss) before income taxes | | | 19,709 | | | | (39,421 | ) |
Provision for income taxes | | | 49 | | | | - | |
Net income (loss) | | $ | 19,660 | | | $ | (39,421 | ) |
Earnings (loss) per share | | | | | | | | |
Basic | | $ | 0.72 | | | $ | (1.44 | ) |
Diluted | | $ | 0.58 | | | $ | (1.44 | ) |
Shares used in computing earnings (loss) per share | | | | | | | | |
Basic | | | 27,436 | | | | 27,329 | |
Diluted | | | 34,179 | | | | 27,329 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Revenue | | | | | |
| Contract revenue - related party | $ | — |
| | $ | 616 |
| | $ | 1,057 |
|
| Total revenue | — |
| | 616 |
| | 1,057 |
|
| Operating expenses | | | | | |
| Research and development | 84,575 |
| | 62,288 |
| | 29,092 |
|
| General and administrative | 30,852 |
| | 16,700 |
| | 13,934 |
|
| Total operating expenses | 115,427 |
| | 78,988 |
| | 43,026 |
|
| Loss from operations | (115,427 | ) | | (78,372 | ) | | (41,969 | ) |
| Other income, net | 624 |
| | 187 |
| | 57 |
|
| Net loss | (114,803 | ) | | (78,185 | ) | | (41,912 | ) |
| Net loss attributable to common shareholders | $ | (114,803 | ) | | $ | (78,185 | ) | | $ | (41,912 | ) |
| Basic and diluted net loss per share | $ | (5.41 | ) | | $ | (4.54 | ) | | $ | (2.68 | ) |
| Weighted-average common shares outstanding - basic and diluted | 21,215 |
| | 17,228 |
| | 15,651 |
|
See accompanying notes to the consolidated financial statements.
La Jolla Pharmaceutical Company
Consolidated Statements of Shareholders’ Equity
For the Years Ended December 31, 2017, 2016 and 2015
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Series C-12 Convertible Preferred Stock | | Series F Convertible Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Shareholders’ Equity |
| | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| Balance at December 31, 2014 | | 4 |
| | $ | 3,917 |
| | 3 |
| | $ | 2,798 |
| | 15,226 |
| | $ | 2 |
| | $ | 528,353 |
| | $ | (486,614 | ) | | $ | 48,456 |
|
| Issuance of common stock for September 2015 financing | | — |
| | — |
| | — |
| | — |
| | 2,933 |
| | — |
| | 104,596 |
| | — |
| | 104,596 |
|
| Conversion of Series F Convertible Preferred Stock into common stock | | — |
| | — |
| | — |
| | (61 | ) | | 17 |
| | — |
| | 61 |
| | — |
| | — |
|
Conversion of Series C-12 Convertible Preferred Stock into common stock | | — |
| | (11 | ) | | — |
| | — |
| | 19 |
| | — |
| | 11 |
| | — |
| | — |
|
| Share-based compensation expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11,551 |
| | — |
| | 11,551 |
|
| Third party share-based compensation expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,521 |
| | — |
| | 1,521 |
|
| Exercise of stock options for common stock | | — |
| | — |
| | — |
| | — |
| | 45 |
| | — |
| | 315 |
| | — |
| | 315 |
|
| Issuance of restricted stock awards | | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (41,912 | ) | | (41,912 | ) |
| Balance at December 31, 2015 | | 4 |
| | 3,906 |
| | 3 |
| | 2,737 |
| | 18,244 |
| | 2 |
| | 646,408 |
| | (528,526 | ) | | 124,527 |
|
| Share-based compensation expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,349 |
| | — |
| | 14,349 |
|
| Third party share-based compensation expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 197 |
| | — |
| | 197 |
|
| Exercise of stock options for common stock | | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | 149 |
| | — |
| | 149 |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (78,185 | ) | | (78,185 | ) |
| Balance at December 31, 2016 | | 4 |
| | 3,906 |
|
| 3 |
|
| 2,737 |
|
| 18,261 |
|
| 2 |
|
| 661,103 |
|
| (606,711 | ) |
| 61,037 |
|
| Issuance of common stock for March 2017 financing | | — |
| | — |
| | — |
| | — |
| | 3,731 |
| | — |
| | 117,480 |
| | — |
| | 117,480 |
|
| Share-based compensation expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20,776 |
| | — |
| | 20,776 |
|
| Third party share-based compensation expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,019 |
| | — |
| | 1,019 |
|
| Exercise of stock options for common stock | | — |
| | — |
| | — |
| | — |
| | 175 |
| | — |
| | 2,693 |
| | — |
| | 2,693 |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (114,803 | ) | | (114,803 | ) |
| Balance at December 31, 2017 | | 4 |
|
| $ | 3,906 |
|
| 3 |
|
| $ | 2,737 |
|
| 22,167 |
|
| $ | 2 |
|
| $ | 803,071 |
|
| $ | (721,514 | ) |
| $ | 88,202 |
|
See accompanying notes to the consolidated financial statements.
LA JOLLA PHARMACEUTICAL COMPANY
Consolidated Statements of Stockholders’ Deficit
(in thousands)
| | Series C-12 Convertible Preferred Stock | | | Common Stock | | | Additional Paid-in | | | Accumulated | | | Total Stockholders’ | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Deficit | |
Balance at December 31, 2020 | | | 4 | | | $ | 3,906 | | | | 27,403 | | | $ | 3 | | | $ | 984,756 | | | $ | (1,076,752 | ) | | $ | (88,087 | ) |
Share-based compensation expense | | | - | | | | - | | | | - | | | | - | | | | 4,477 | | | | - | | | | 4,477 | |
Issuance of common stock under 2013 Equity Plan | | | - | | | | - | | | | 30 | | | | - | | | | 156 | | | | - | | | | 156 | |
Issuance of common stock under ESPP | | | - | | | | - | | | | 120 | | | | - | | | | 436 | | | | - | | | | 436 | |
Purchases of common stock under Stock Repurchase Plan | | | - | | | | - | | | | (769 | ) | | | - | | | | (3,380 | ) | | | - | | | | (3,380 | ) |
Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 19,660 | | | | 19,660 | |
Balance at December 31, 2021 | | | 4 | | | $ | 3,906 | | | | 26,784 | | | $ | 3 | | | $ | 986,445 | | | $ | (1,057,092 | ) | | $ | (66,738 | ) |
| | Series C-12 Convertible Preferred Stock | | | Common Stock | | | Additional Paid-in | | | Accumulated | | | Total Stockholders’ | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Deficit | |
Balance at December 31, 2019 | | | 4 | | | $ | 3,906 | | | | 27,195 | | | $ | 3 | | | $ | 977,432 | | | $ | (1,037,331 | ) | | $ | (55,990 | ) |
Share-based compensation expense | | | - | | | | - | | | | - | | | | - | | | | 6,207 | | | | - | | | | 6,207 | |
Issuance of common stock under 2013 Equity Plan | | | - | | | | - | | | | 94 | | | | - | | | | 605 | | | | - | | | | 605 | |
Issuance of common stock under ESPP | | | - | | | | - | | | | 114 | | | | - | | | | 512 | | | | - | | | | 512 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (39,421 | ) | | | (39,421 | ) |
Balance at December 31, 2020 | | | 4 | | | $ | 3,906 | | | | 27,403 | | | $ | 3 | | | $ | 984,756 | | | $ | (1,076,752 | ) | | $ | (88,087 | ) |
See accompanying notes.
LA JOLLA PHARMACEUTICAL COMPANY
Consolidated Statements of Cash Flows
(in thousands)
| | Year Ended | |
| | December 31, | |
| | 2021 | | | 2020 | |
Operating activities | | | | | | | | |
Net income (loss) | | $ | 19,660 | | | $ | (39,421 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | | | | | | | | |
Non-cash interest expense | | | 7,141 | | | | 6,379 | |
Share-based compensation expense | | | 4,477 | | | | 6,207 | |
Amortization of intangible assets | | | 1,552 | | | | 647 | |
Amortization of right-of-use lease assets | | | 218 | | | | 1,249 | |
Depreciation expense | | | 111 | | | | 2,188 | |
Inventory fair value step-up adjustment included in cost of product sales | | | 850 | | | | 2,458 | |
Gain on change in fair value of contingent value rights | | | (734 | ) | | | (800 | ) |
Loss on short-term investments | | | - | | | | 502 | |
Loss on disposal of property and equipment, net of gain on lease termination | | | - | | | | 10 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable, net | | | (2,776 | ) | | | (1,687 | ) |
Inventory, net | | | (1,118 | ) | | | (1,493 | ) |
Prepaid expenses and other current assets | | | (2,368 | ) | | | 2,297 | |
Accounts payable | | | (484 | ) | | | (2,815 | ) |
Accrued expenses | | | (728 | ) | | | (11,423 | ) |
Deferred revenue | | | 2,661 | | | | 188 | |
Lease liabilities | | | (218 | ) | | | (2,126 | ) |
Net cash provided by (used for) operating activities | | | 28,244 | | | | (37,640 | ) |
Investing activities | | | | | | | | |
Acquisition of Tetraphase, net of cash, cash equivalents and restricted cash acquired | | | - | | | | (33,513 | ) |
Proceeds from the sale of property and equipment | | | - | | | | 3,070 | |
Purchases of property and equipment | | | (9 | ) | | | - | |
Proceeds from the sale of short-term investments | | | - | | | | 2,497 | |
Purchases of short-term investments | | | - | | | | (2,999 | ) |
Net cash used for investing activities | | | (9 | ) | | | (30,945 | ) |
Financing activities | | | | | | | | |
Purchases of common stock under Stock Repurchase Plan | | | (3,380 | ) | | | - | |
Net proceeds from issuance of common stock under ESPP | | | 436 | | | | 512 | |
Net proceeds from issuance of common stock under 2013 Equity Plan | | | 156 | | | | 605 | |
Net cash (used for) provided by financing activities | | | (2,788 | ) | | | 1,117 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | 25,447 | | | | (67,468 | ) |
Cash, cash equivalents and restricted cash, beginning of period | | | 21,261 | | | | 88,729 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 46,708 | | | $ | 21,261 | |
Supplemental disclosure of non-cash investing and financing activities | | | | | | | | |
Initial recognition of right-of-use lease asset | | $ | - | | | $ | 536 | |
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets | | | | | | | | |
Cash and cash equivalents | | $ | 46,668 | | | $ | 21,221 | |
Restricted cash | | | 40 | | | | 40 | |
Total cash, cash equivalents and restricted cash | | $ | 46,708 | | | $ | 21,261 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Operating activities | | | | | |
| Net loss | $ | (114,803 | ) | | $ | (78,185 | ) | | $ | (41,912 | ) |
| Adjustments to reconcile net loss to net cash used for operating activities: | | | | | |
| Share-based compensation expense | 20,776 |
| | 14,349 |
| | 11,551 |
|
| Third party share-based compensation expense | 1,019 |
| | 197 |
| | 1,521 |
|
| Depreciation expense | 1,268 |
| | 730 |
| | 347 |
|
| Loss on disposal of property and equipment | 199 |
| | 75 |
| | 16 |
|
| Changes in operating assets and liabilities: | | | | | |
| Restricted cash, current portion | 200 |
| | 37 |
| | (200 | ) |
| Prepaid expenses and other current assets | (1,642 | ) | | (664 | ) | | 824 |
|
| Other assets | 219 |
| | (149 | ) | | (70 | ) |
| Accounts payable | 4,832 |
| | 3,600 |
| | 2,322 |
|
| Accrued clinical and other expenses | (202 | ) | | 227 |
| | (248 | ) |
| Accrued payroll and related expenses | 2,918 |
| | 987 |
| | 666 |
|
| Deferred rent | 335 |
| | 124 |
| | — |
|
| Net cash used for operating activities | (84,881 | ) | | (58,672 | ) | | (25,183 | ) |
| | | | | | |
| Investing activities | | | | | |
| Purchase of property and equipment | (9,194 | ) | | (2,218 | ) | | (1,816 | ) |
| Net cash used for investing activities | (9,194 | ) | | (2,218 | ) | | (1,816 | ) |
| | | | | | |
| Financing activities | | | | | |
| Net proceeds from the issuance of common stock | 117,480 |
| | — |
| | 104,596 |
|
| Net proceeds from the exercise of stock options for common stock | 2,693 |
| | 149 |
| | 315 |
|
| Restricted cash, long term | (909 | ) | | — |
| | — |
|
| Net cash provided by financing activities | 119,264 |
| | 149 |
| | 104,911 |
|
| | | | | | |
| Net increase (decrease) in cash and cash equivalents | 25,189 |
| | (60,741 | ) | | 77,912 |
|
| Cash and cash equivalents at beginning of period | 65,726 |
| | 126,467 |
| | 48,555 |
|
| Cash and cash equivalents at end of period | $ | 90,915 |
| | $ | 65,726 |
| | $ | 126,467 |
|
| | | | | | |
| Supplemental disclosure of cash flow information | | | | | |
| Non-cash investing and financing activity: | | | | | |
| Capitalized landlord funded tenant improvements | $ | 13,696 |
| | $ | — |
| | $ | — |
|
Conversion of Series C-12 Convertible Preferred Stock into common stock | $ | — |
| | $ | — |
| | $ | 11 |
|
| Conversion of Series F Convertible Preferred Stock into common stock | $ | — |
| | $ | — |
| | $ | 61 |
|
See accompanying notes.
LA JOLLA PHARMACEUTICAL COMPANY
Notes to the consolidated financial statements.
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
La Jolla Pharmaceutical Company (collectively with its wholly owned subsidiaries, “La Jolla” or the Company)“Company”) is a biopharmaceutical company focused ondedicated to the discovery, development and commercialization of innovative therapies intended to significantlythat improve outcomes in patients suffering from life-threatening diseases. The Company was incorporated in 1989 as a Delaware corporation and reincorporated in California in 2012.
GIAPREZATM® (angiotensin II), formerly known as LJPC-501, was injection is approved by the U.S. Food and Drug Administration (FDA) on December 21, 2017(“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. GIAPREZAXERAVA® (eravacycline) for injection is approved by the Company’s first commercial product.
LJPC-401,FDA as a clinical stage investigational product, is our proprietary formulation of synthetic human hepcidin. LJPC-401 is being developedtetracycline class antibacterial indicated for the potential treatment of conditions characterized by iron overload, such as hereditary hemochromatosis, beta thalassemia, sickle cell diseasecomplicated intra-abdominal infections (“cIAI”) in patients 18 years of age and myelodysplastic syndrome.
older.On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. and its subsidiaries (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. The Company’s consolidated financial results exclude Tetraphase’s financial results prior to the acquisition closing date of July 28, 2020 (see Note 11).
In January 2021, La Jolla and certain of its wholly owned subsidiaries entered into an exclusive license agreement with PAION AG to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland. Pursuant to the agreement: (i) the Company has received an upfront cash payment of $22.5 million, less a 15% refundable withholding tax; and (ii) the Company is entitled to receive potential commercial milestone payments of up to $109.5 million and royalties on net sales of GIAPREZA and XERAVA.
As of December 31, 2017,2021 and 2020, the Company had $90.9 million in cash and cash equivalents compared to $65.7of $46.7 million inand $21.2 million, respectively. Based on the Company’s current operating plans and projections, the Company expects that its existing cash and cash equivalents at December 31, 2016. The Company has a history of incurring significant operating losses and negative cash flows from operations. As of December 31, 2017, the Company does not havewill be sufficient capital to fund its planned operations during the twelve-month period subsequent to the issuance of these financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern withinfor at least one year from the date this Annual Report on Form 10-K is filed with the U.S. Securities and Exchange Commission (SEC)(the “SEC”). The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company anticipates that it will need to raise additional capital in orderexpects to fund these future operations. The Company will seek to fund its operations through equity, debtwith existing cash or royalty-based financings or other sources, such as potential collaboration agreements. The Company cannot be certain that additional funding will be available to us on acceptable terms, or at all.
cash generated from operations.2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The Company’s consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP)(“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompanyinter-company transactions and balances have been eliminated in consolidation. The preparation of the Company’s consolidated financial statements requires that management to make estimates and assumptions that affectimpact the reported amounts of assets, liabilities, revenues,revenue and expenses and related disclosures.the disclosure of contingent assets and liabilities in its consolidated financial statements and the accompanying notes. Actual results couldmay differ materially from thosethese estimates.
Certain amounts previously reported in the financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not affect net loss, shareholders’ equityincome (loss), stockholders’ deficit or cash flows.
Summary of Significant Accounting Policies
Cash, and Cash Equivalents
and Restricted CashThe Company considers all highly liquid investments with a maturity from the datematurities of purchase of less than three months to beor less when purchased as cash equivalents. The Company maintains its cash in checking and savings accounts. Income generated from cash held in savings accounts is recorded as interest income. The carrying value of the Company’s money market fundssavings accounts is included in cash equivalents and approximates the fair value.
Restricted Cash
Cash is classified as restricted cash when certain funds are reserved for a specific purpose and are not available for immediate or general business use.
Under the termsAs of
the Company’s building lease,December 31, 2021 and 2020, the Company
has provided a standby letterhad $0.6 million of
creditcash equivalents.
Accounts Receivable, Net
Accounts receivable, net are recorded net of $0.9 million in lieucustomers’ allowances for prompt-pay discounts, chargebacks and doubtful accounts. Allowances for prompt-pay discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of a security deposit duringits customers and individual customer circumstances. As of December 31, 2021 and 2020, the term of such lease, subject to periodic decreases during the first 5 years of the lease. There is a requirement to maintain a $0.9 million collateral cash account pledged as securityCompany did 0t record an allowance for such letter of credit. Previously under the terms of the Company’s credit card arrangements, there was a requirement to maintain a $0.2 million collateral cash account pledged as security for such credit cards.
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
Concentrationsdoubtful accounts.Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrationsconcentration of credit risk consist primarily of cash equivalents.cash. The Company invests excessmaintains its cash in money market accounts. This investment strategy is consistent withchecking and savings accounts at federally insured financial institutions in excess of federally insured limits.
During the year ended December 31, 2021, 492hospitals in the U.S. purchased GIAPREZA,
and929hospitals and other healthcare organizations in the U.S. purchased XERAVA. Hospitals and other healthcare organizations generally purchase our products through a network of specialty and wholesale distributors. These specialty and wholesale distributors are considered our customers for accounting purposes. The Company does not believe that the loss of one of these distributors would significantly impact the ability to distribute our products, as the Company expects that sales volume would be absorbed by the remaining distributors. The following table includes the percentage of U.S. net product sales and accounts receivable balances for the Company’s policy3 major customers, each of which comprised 10% or more of its U.S. net product sales:
| | U.S. Net Product Sales | | | Accounts Receivable | |
| | Year Ended December 31, 2021 | | | As of December 31, 2021 | |
Customer A | | | 33 | % | | | 38 | % |
Customer B | | | 33 | % | | | 33 | % |
Customer C | | | 26 | % | | | 16 | % |
Total | | | 92 | % | | | 87 | % |
Inventory, Net
Inventory, net is stated at the lower of cost or estimated net realizable value on a first-in, first-out basis. The Company periodically analyzes inventory levels and writes down inventory as cost of product sales when: inventory has become obsolete; inventory has a cost basis in excess of its estimated net realizable value; or inventory quantities are in excess of expected product sales.
Fair Value Measurements
The Company follows the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Fair value is defined as an exit price, representing the amount that would be received to ensure safetysell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 observable inputs such as quoted prices in active markets; Level 2 inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and Level 3 unobservable inputs for which there are little or no market data, which require the Company to develop its own assumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of principalunobservable inputs when determining fair value.
The Company’s financial instruments include cash and maintain liquidity.
Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla’s financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other (expense) income, net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
Intangible Assets, Net
Intangible assets, net acquired in a business combination are initially recorded at fair value. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized.
The Company reviews its intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset.
The Company recognized 0 impairment charge for the years ended December 31, 2021 and 2020.
Goodwill
Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized.
The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will
recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company has an option to bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.
The Company recognized 0 impairment charge for the years ended December 31, 2021 and 2020.
Property and Equipment,
NetProperty and equipment, net is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from two to seven years.years. Amortization of leasehold improvements is recordedcomputed using the straight-line method over the shorter of the lease term or the estimated useful life of the related assets. Maintenance and repairs are charged to operating expense as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in other (expense) income, net.
Leases
For operating expense.
Leaseleases other than short-term leases, at lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. The Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives
received and any initial direct costs paid to the lessor prior to the lease commencement date.After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement; and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term asterm. Rent expense is recorded on a reduction to rent expense. Leasehold improvements are capitalized and amortizedstraight-line basis over the shorterexpected lease term.
Revenue Recognition
Pursuant to FASB ASC Topic 606—Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when its customers obtain control of the lease term or expected useful lives.
Product Sales
Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns, rebates and administrative fees. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will
adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items include:
| • | Chargebacks—Chargebacks are discounts the Company provides to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Discounts—The Company offers customers various forms of incentives and consideration, including prompt-pay and other discounts. The Company estimates discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Returns—The Company offers customers a limited right of return, generally for damaged or expired product. The Company estimates returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which product was sold. Additionally, the Company may offer customers incentives and consideration in the form of volume-based or other rebates. The estimates for rebates are recorded as a reduction of revenue on delivery to the Company’s customers. |
| • | Administrative Fees—The Company pays administrative fees to GPOs for services and access to data. Additionally, the Company pays an Industrial Funding Fee as part of the U.S. General Services Administration’s Federal Supply Schedules program. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the applicable GPO or government agency. Administrative fees are recorded as a reduction of revenue on delivery to customers. |
The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and will adjust these estimates accordingly.
License and Other Revenue Recognition
We enter into out-license agreements with counterparties to develop and/or commercialize our products in territories outside of the U.S. in exchange for: (i) nonrefundable, upfront license fees; (ii) development and regulatory milestone payments; and/or (iii) sales-based royalties and milestones.
If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from nonrefundable, upfront fees allocated to the license when the license is transferred to the customer and the customer can benefit from the license. For licenses that are bundled with other performance obligations, management uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of progress and related revenue recognition.
At the inception of each arrangement that includes milestone and other payments, other than sales-based milestone payments and nonrefundable, upfront license fees, we evaluate whether achieving each milestone payment or other payment is considered probable and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within our control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs.
For arrangements that include sales-based royalties and milestone payments, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of: (i) when the related sales occur; or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.
We enter into commercial supply agreements with our out-licensees to supply our products in territories outside the U.S. in exchange for: (i) nonrefundable, upfront fees; and/or (ii) the reimbursement of manufacturing costs, plus a margin in certain cases. The Company is considered the principal in these arrangements for accounting purposes as it controls the promised goods before transferring these goods to the out-licensee. The Company recognizes revenue when allout-licensees obtain control of the following criteria are met: (1) persuasive evidenceCompany’s product, which typically occurs on delivery.
Shipping and Handling Expense
Shipping and handling expense is included in cost of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured. The Company has recognized revenue from payments received under a services agreement with a related party. Under the terms of this services agreement, the Company receives payments from this related party for research and development services that the Company provides at a negotiated, arms-length rate.
product sales.Research and Development Expense
Research and development expense includes salaries and benefits, facilities and other overhead costs, research-related manufacturing costs, contract service and clinical and preclinical-relatedclinical-related service costs performed by clinical research organizations, research institutions and other outside service providers. Research and development expense is expensedcharged to operations as incurred when thesethe expenditures relate to the Company’s research and development efforts and have no alternative future uses.
In accordance with certain research and development agreements, the Company is obligated to make certain upfront payments upon execution of the agreement. Advance payments, including nonrefundable amounts, for materials or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the related services are performed.
Acquisition or milestone payments that the Company makes in connection with in-licensed technology are expensed as incurred when there is uncertainty in receiving future economic benefits from the licensed technology. The Company considers the future economic benefits from the licensed technology to be uncertain until such licensed technology is incorporated into products that are approved for marketing by the FDA or when other significant risk factors are abated. For accounting purposes, management has viewed future economic benefits for all of the Company’s licensed technology to be uncertain.
Clinical Trial Expenses
Payments in connection with the Company’s clinical trials are often made under contracts with multiple contract research organizations that conduct and manage clinical trials on the Company’s behalf. The financial terms of these contracts are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Generally, these contracts set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. Payments under these contracts depend on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones. The Company amortizes prepaid clinical trial costs to expense based on estimates regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials.
Expenses related to clinical trials are accrued based on estimates regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the contracted amounts are modified, the accruals are modified accordingly on a prospective basis. Revisions in the scope of a contract are charged to research and development expense in the period in which the facts that give rise to the revision occur.
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
Legal costs in connection with approved patents and patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These costs are recorded in selling, general and administrative expense in the consolidated statements of operations.
ExpenseThe Company accounts for share-based payment arrangements in accordance with Accounting Standards Codification (ASC) 718, Compensation - Stock Compensationissues stock options to directors, officers, employees and ASC 505-50, Equity - Equity Based Payments to Non-Employees
, which requires the recognition ofcertain consultants. Share-based compensation expense using a fair-value based method, for all costs relatedrepresents the estimated fair value of equity awards, which are comprised of stock options, expected to share-based payments, including stock options and restricted stock awards. These standards require companies to estimatevest. The Company estimates the fair value of share-based payment awardseach equity award on the date of the grant using anthe Black-Scholes option-pricing model.model and recognizes share-based compensation expense over the requisite service period of the equity awards (usually the vesting period) on a straight-line basis. For stock options with a performance condition, the Company recognizes expense in accordance with FASB ASC 718-10-25-20.
Interest Expense
Interest expense and the amortization of issuance costs related to the deferred royalty obligation (see Note 5) are recognized over the expected repayment term of the deferred royalty obligation using the effective interest method. The assumptions used in determining the expected repayment term of the deferred royalty obligation require the Company has elected to account for forfeitures as they occur.
make estimates that could impact the effective interest rate. Each reporting period, the Company estimates the expected repayment term of the deferred royalty obligation based on forecasted net sales of GIAPREZA. Changes in interest expense resulting from changes in the effective interest rate, if any, are recorded on a prospective basis.Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax ratesrate is recognized in income in the period that includes the enactment date. A valuation allowance is applied against any deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in its provision for income tax expensetaxes in the consolidated statements of operations.
Net Loss PerEarnings (Loss) per Share
Basic net lossearnings (loss) per share is calculated based onby dividing net income (loss) by the weighted-average number of common shares outstanding excluding unvested restricted stock awards.during the period, without consideration of potential common shares. Diluted net lossearnings (loss) per share is calculated usingby dividing net income (loss) by the weighted-average number of common shares outstanding plus potential common stock equivalents.shares. Convertible preferred stock and stock options warrants and unvested restricted stock awards are considered potential common stock equivalentsshares and are included in the calculation of diluted net lossearnings (loss) per share using the if-converted method and treasury stock method, respectively, when their effect is dilutive. Common stock equivalentsPotential common shares are excluded from the calculation of diluted net lossearnings (loss) per share when their effect is anti-dilutive. As of December 31, 2017, 2016 and 2015, there were common stock equivalents of 13.6 million shares, 10.7 million shares and 10.0 million shares, respectively, which were excluded from the calculation of diluted net loss per share because their effect was anti-dilutive.
Income (Loss)Comprehensive lossincome (loss) is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. There have been no items qualifying as other comprehensive loss,income (loss), and, therefore, comprehensive lossincome (loss) for the periods reported was comprised solely of the Company’s net loss.
income (loss).Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. ManagementThe Company views its operations and manages its business in one1 operating segment.
Fair Value Measurements
The Company follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Broadly, the ASC 820-10 framework clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1) observable inputs such as quoted prices in active markets; Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Cash equivalents consist of money market accounts with maturities of 90 days or less. Due to the high ratings and short-term nature of these funds, the Company considers the inputs to the value of all cash and cash equivalents as Level 1.
The Company’s consolidated financial instruments include cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses. The carrying amounts reported in the balance sheets for cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate fair values because of the short-term nature of these instruments.
Recent Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. The new standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 will be effective for the Company in the first quarter of 2018. Early adoption is permitted, including adoption in an interim period for which financial statements have not yet been issued. The Company plans to adopt the ASU in the first quarter of 2018has considered all recently issued accounting pronouncements and expects the standardhas concluded that there are no recently issued accounting pronouncements that are expected to have noa material impact on the Company’s financial position or results of operations.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard update clarifies the presentation of restricted cash and cash equivalents, and requires companies to include restricted cash and cash equivalents in the beginning and ending cash and cash equivalents on the statement of cash flows. Additional disclosures will be required to describe the amount and detail of the restriction by balance sheet line item. ASU 2016-18 will be effective for the Company in the first quarter of 2018. The Company plans to adopt the ASU in the first quarter of 2018, which will require inclusion of the Company’s restricted cash balances in cash and cash equivalents on the statement of cash flows with retrospective application of each prior period presented.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets and eliminates certain real estate-specific provisions. ASU 2016-02 will be effective for the Company in the first quarter of 2019 and will be adopted with modified retrospective application for the Company's new 10-year lease agreement for its corporate headquarters, which commenced October 30, 2017. This lease will be recognized on the balance sheet as a lease liability with a corresponding right-of-use asset, which will require modified retrospective application back to the fourth quarter of 2017 and for all of 2018. By 2019, all of the Company’s prior existing leases will have ended. Those leases will not require modified retrospective disclosures applied within the consolidated financial statements upon adoption in 2019.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since its initial release, the FASB has issued several amendments to the standard, which include clarification of accounting guidance related to identification of performance obligations and principal versus agent considerations. Topic 606 will be effective for the Company in the first quarter of 2018 and allows for a full retrospective or a modified retrospective adoption approach. The Company currently does not have, and has never had any, contracts that are within the scope of Topic 606 or its predecessor guidance, ASC 605 Revenue Recognition. Accordingly, there will not be any retrospective impact to the financial statements upon the adoption of Topic 606, which the Company will implement when it has contracts within its scope. The Company anticipates that initial sales subject to Topic 606 will begin in the first quarter of 2018, and that such sales will be to a limited number of customers, which are pharmaceutical specialty distributors. The Contract Revenue - Related Party reported in our results of operations,
for 2015 and 2016, which represents expense reimbursements from a related party, will not be impactedfinancial condition or cash flows based on current information.
3. Earnings (Loss) per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the adoptionweighted-average number of common shares outstanding during the new guidance.
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
3.period, without consideration of potential common shares. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding plus potential common shares. Convertible preferred stock and stock options are considered potential common shares and are included in the calculation of diluted earnings (loss) per share using the if-converted method and treasury stock method, respectively, when their effect is dilutive. Potential common shares are excluded from the calculation of diluted earnings (loss) per share when their effect is anti-dilutive.For the year ended December 31, 2021, there were 6.7 million potential common shares that were included in the calculation of diluted earnings per share, which consists of: (i) 6.7 million shares of common stock issuable upon conversion of existing convertible preferred stock; and (ii) 8,000 stock options. For the years ended December 31, 2021 and 2020, there were 4.1 million and 10.9 million of potential common shares, respectively, that were excluded from the calculation of diluted earnings (loss) per share because their effect was anti-dilutive.
4. Balance Sheet Account Details
PropertyRestricted Cash
Restricted cash as of December 31, 2021 and Equipment
Property and equipment,2020 consisted of a $40,000 security deposit for the Company’s corporate purchasing credit card.Inventory, Net
Inventory, net consistsconsisted of the following (in thousands):
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
Raw materials | | $ | 802 | | | $ | 802 | |
Work-in-process | | | 4,501 | | | | 3,213 | |
Finished goods | | | 978 | | | | 1,998 | |
Total inventory, net | | $ | 6,281 | | | $ | 6,013 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Lab equipment | $ | 7,812 |
| | $ | 2,610 |
|
| Furniture and fixtures | 2,282 |
| | 389 |
|
| Computer hardware | 1,238 |
| | 457 |
|
| Software | 619 |
| | 309 |
|
| Leasehold improvements | 14,852 |
| | 464 |
|
| Total property and equipment, gross | 26,803 |
| | 4,229 |
|
| Accumulated depreciation and amortization | (2,235 | ) | | (1,084 | ) |
| Total property and equipment, net | $ | 24,568 |
| | $ | 3,145 |
|
Accrued ClinicalAs of December 31, 2021 and 2020, inventory, net included 0 and $0.9 million, respectively, of the fair value step-up adjustment to Tetraphase’s inventory recorded in connection with the acquisition of Tetraphase (see Note 11). As of December 31, 2021 and 2020, total inventory is recorded net of inventory reserves of $0.8 million and $0.9 million, respectively.
Prepaid Expenses and Other Expenses
Accrued clinicalCurrent AssetsPrepaid expenses and other expenses consistcurrent assetsconsisted of the following (in thousands):
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Accrued clinical trials | $ | 577 |
| | $ | 828 |
|
| Accrued other | 126 |
| | 77 |
|
| Total accrued clinical and other expenses | $ | 703 |
| | $ | 905 |
|
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
Refundable withholding tax | | $ | 3,375 | | | $ | - | |
Prepaid insurance | | | 473 | | | | 505 | |
Prepaid clinical costs | | | 188 | | | | 820 | |
Prepaid manufacturing costs | | | 113 | | | | 930 | |
Other prepaid expenses and current assets | | | 1,607 | | | | 1,133 | |
Total prepaid expenses and other current assets | | $ | 5,756 | | | $ | 3,388 | |
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
4. Licensed Technology | | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
Computer hardware | | $ | 319 | | | $ | 310 | |
Furniture and fixtures | | | 309 | | | | 309 | |
Software | | | 203 | | | | 733 | |
Total property and equipment, gross | | | 831 | | | | 1,352 | |
Accumulated depreciation and amortization | | | (718 | ) | | | (1,137 | ) |
Total property and equipment, net | | $ | 113 | | | $ | 215 | |
Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
| | Useful Life | | December 31, | | | December 31, | |
| | (years) | | 2021 | | | 2020 | |
Technology | | 10 | | $ | 14,000 | | | $ | 14,000 | |
Trade name | | 10 | | | 1,520 | | | | 1,520 | |
Total intangible assets, gross | | | | | 15,520 | | | | 15,520 | |
Accumulated amortization | | | | | (2,199 | ) | | | (647 | ) |
Total intangible assets, net | | | | $ | 13,321 | | | $ | 14,873 | |
The George Washington University
In December 2014, the Company entered into a patent license agreementintangible assets were recorded in connection with the George Washington University (GW), which the parties amended and restated on March 1, 2016. Pursuant to this license agreement, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under this license agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. acquisition of Tetraphase (see Note 11).The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee and additional payments following the achievement of certain development and regulatory milestones including FDA approval. The Company may be obligated to make additional milestone payments of up to $0.5 million in the aggregate. Following the commencement of commercial sales of GIAPREZA, the Company is obligated to pay tiered royalties in the low- to mid- single digits on products covered by the licensed rights. The patents and patent applications covered by the GW license agreement expire between 2029 and 2038, and the obligation to pay royalties under this agreement extend through the last-to-expire patent covering GIAPREZA.
Inserm Transfert SA
In February 2014, the Company entered into a license agreement with Inserm Transfert SA (Inserm). Pursuant to this license agreement, Inserm exclusively licensed to the Company certain intellectual property rights relating to LJPC-401. Under this license agreement, the Company has paid a one-time license initiation fee, annual maintenance fees and additional payments following the achievement of certain development milestones. The Company may be obligated to make additional payments of up to $4.1 million upon the achievement of certain development milestones and regulatory approval on products covered by the licensed patent rights. Following the commencement of commercial sales of a product covered by the licensed intellectual property, the Company will be obligated to pay tiered royalties in the low- to mid- single digits on products covered by the licensed rights. The patents and patent applications covered by the Inserm license agreement expire between 2022 and
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
2038, and the obligation to pay royalties under this agreement extend through the last-to-expire patent covering a licensed product.
Other In-Licensed Technology
The Company continues to seek additional technology for potential new development programs and, as a result, has entered into various licensing agreements for intellectual property rights. In 2015, the Company formed foreign subsidiaries to acquire and in-license various early-stage technology from Indiana University Research and Technology Corporation, Vanderbilt University and the Board of Trustees of the Leland Stanford Junior University.
The Company has incurred licensing and milestone feesrecorded amortization expense of $1.6 million $0.5and $0.6 million and $0.8 million recorded in research and development expense in connection with its licensing agreements for the years ended December 31, 2017, 20162021 and 2015,2020, respectively. See Note 9The estimated aggregate amortization expense for future minimum licensing payment commitments.each of the 5 succeeding years is $1.6 million.Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
Accrued payroll and related expenses | | $ | 1,991 | | | $ | 2,878 | |
Accrued royalties and in-license fees | | | 1,299 | | | | 685 | |
Accrued professional fees | | | 410 | | | | 660 | |
Accrued manufacturing costs | | | 232 | | | | 627 | |
Accrued other | | | 934 | | | | 767 | |
Total accrued expenses | | $ | 4,866 | | | $ | 5,617 | |
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following (in thousands):
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
Fair value of contingent value rights (see Note 11) | | $ | 1,076 | | | $ | 1,810 | |
Paycheck Protection Program loan, less current portion | | | - | | | | 2,302 | |
Total other noncurrent liabilities | | $ | 1,076 | | | $ | 4,112 | |
5. Contract Revenue - Related Party
During the year ended December 31, 2015,On April 22, 2020, the Company entered into a services agreement with a related party. Pursuantpromissory note for $2.3 million under the Paycheck Protection Program (the “PPP Loan”). The interest rate on the PPP Loan is 1.0% per annum. The PPP Loan is unsecured and guaranteed by the U.S. Small Business Administration (the “SBA”). The principal amount of the PPP Loan may be forgiven under the Paycheck Protection Program, subject to certain requirements and to the services agreement,extent that the PPP Loan proceeds are used to pay permitted expenses, including certain payroll, rent and utility payments. The Company applied for 100% forgiveness of the PPP Loan with the SBA on October 5, 2021. The Company will be obligated to make payment of principal and interest with respect to any unforgiven portion of the PPP Loan by April 22, 2022. The obligation to repay the PPP Loan may be accelerated upon the occurrence of an event of default.
5. Deferred Royalty Obligation
In May 2018, the Company provides certain services to this related party, including, but not limited to, research and development and clinical study design and management for projects undertaken. Inclosed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, the Company received $125.0 million in exchange for providing such services,tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the maximum royalty rate was 10%. Starting January 1, 2022, the maximum royalty rate increased by 4%, and starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if an agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by the Company’s wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.
On receipt of the $125.0 million payment from HCR, the Company receives payments atrecorded a negotiated, arms-length rate. As a result,deferred royalty obligation of $125.0 million, net of issuance costs of $0.7 million. For the consideration received by the Company for its services is considered to be no less favorable to the Company than comparable terms that the Company could
obtain from an unaffiliated third party in an arms-length transaction. The services agreement may be canceled by either party upon 60-days’ written notice to the other party.
The Company had no contract revenue during the yearyears ended December 31,
2017.2021 and 2020, the Company recognized interest expense, including amortization of the obligation discount, of $10.4 million and $10.0 million, respectively. The carrying value of the deferred royalty obligation as of December 31, 2021 and 2020 was $124.5 million and $124.4 million, respectively, net of unamortized obligation discount of $0.5 million and $0.6 million, respectively, which was classified as a noncurrent liability. The related accrued interest expense as of December 31, 2021 and 2020 was $29.8 million and $22.7 million, respectively, of which $24.6 million and $19.1 million was classified as noncurrent liabilities, respectively. During the years ended December 31,
20162021 and
2015,2020, the Company
recognized approximately $0.6made royalty payments to HCR of $3.3 million and
$1.1$2.8 million,
respectively. As of
December 31, 2021 and 2020, the Company recorded royalty obligations payable of $0.9 million in accrued expenses. The deferred royalty obligation is classified as Level 3 in the FASB ASC Topic 820-10, three-tier fair value hierarchy, and its carrying value approximates fair value.Under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets. The Company concluded that certain of these contract revenue for services and costs providedprovisions that could result in an acceleration of amounts due under the servicesRoyalty Agreement are embedded derivatives that require bifurcation from the deferred royalty obligation and fair value recognition. The Company determined the fair value of each derivative by assessing the probability of each event occurring, as well as the potential repayment amounts and timing of such repayments that would result under various scenarios. As a result of this assessment, the Company determined that the fair value of the embedded derivatives is immaterial as of December 31, 2021 and 2020. Each reporting period, the Company estimates the fair value of the embedded derivatives until the features lapse and/or the termination of the Royalty Agreement. Any material change in the fair value of the embedded derivatives will be recorded as either a gain or loss on the consolidated statements of operations.
6. Commitments and Contingencies
Lease Commitments
Future minimum lease payments, excluding Lease Operating Costs (defined below), as of December 31, 2021 are as follows (in thousands):
2022 | | $ | 181 | |
2023 | | | 166 | |
Thereafter | | | - | |
Total future minimum lease payments | | | 347 | |
Less: discount | | | (29 | ) |
Total lease liabilities | | $ | 318 | |
Lease expense under current and former leases was $0.3 million and $2.3 million for the years ended December 31, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities was $0.2 million and $3.0 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the weighted-average remaining lease term and the weighted-average discount rate for the Company’s only operating lease, the Waltham Sublease, was 1.9 years and 3.3%, respectively.
Waltham Sublease
In December 2020, the Company entered into a sublease agreement respectively.
for office space in Waltham, Massachusetts (the “Waltham Sublease”). The Waltham Sublease commenced on December 21, 2020 and expires on November 30, 2023. In addition
to rent of approximately $15,000 per month, the Waltham Sublease requires the Company
has a non-voting profit interestto pay certain taxes, insurance and operating costs relating to the leased premises (collectively, “Lease Operating Costs”). The Waltham Sublease contains customary default provisions, representations, warranties and covenants. The Waltham Sublease is classified as an operating lease. The Company recognizes the Waltham Sublease expense in the
related party, which providesconsolidated statements of operations and records a lease liability and right-of-use asset for this lease. The option to extend the Waltham Sublease was not recognized as part of the Company’s lease liabilities and right-of-use lease assets. San Diego Sublease
In September 2020, the Company entered into a sublease agreement for office space in San Diego, California with the potential to receive a portionan entity of the future distributions of profits, if any. Investment funds affiliated withwhich the Chairman of the Company’s board of directors have a controlling interest in,is also the chairman and chief executive officer (the “San Diego Sublease”). The San Diego Sublease term was approximately 7 years, and the Company’s Chief Executive Officer (CEO) hasrent was approximately $12,000 per month. The San Diego Sublease was cancellable without penalty by either party with 30-days’ written notice. The San Diego Sublease was a non-voting profit interestshort-term lease for accounting purposes. The Company made payments of approximately $0.2 million and $64,000 under the San Diego Sublease during the years ended December 31, 2021 and 2020, respectively. The Company recognized the San Diego Sublease payments in the related party.
6. Shareholders’ Equity
Common Stock
2015 Common Stock Offering
In September 2015,consolidated statements of operations and did not record a lease liability or right-of-use asset for this lease. Effective December 31, 2021, the Company
offeredterminated the San Diego Sublease without penalty. In connection with the termination, La Jolla will have no further obligations under the San Diego Sublease.Contingencies
From time to time, the Company may become subject to claims and sold an aggregatelitigation arising in the ordinary course of 2,932,500 shares of common stock in an underwritten offering at a public offering price of $38.00 per share, with gross proceeds of approximately $111.4 million.business. The Company received net proceedsis not a party to any material legal proceedings, nor is it aware of approximately $104.6 million, net of approximately $6.8 million in underwriting commissions, discounts and other issuance costs.
2017 Common Stock Offering
In March 2017, the Company offered and sold an aggregate of 3,731,344 shares of common stock in an underwritten public offering at a price of $33.50 per share, with gross proceeds of approximately $125.0 million. The Company received net proceeds of approximately $117.5 million, net of approximately $7.5 million in underwriting commissions, discounts and other issuance costs.
7. Stockholders’ Deficit
Preferred Stock
As of December 31, 2017, the Company is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share, in one or more series, of which 11,000 are designated as Series C-1
2 Convertible Preferred Stock (Series C-12 Preferred)2021 and 10,000 are designated as Series F Convertible Preferred Stock (Series F Preferred). During the year ended December 31, 2015, the Company issued 19,134 and 17,360 shares of common stock upon the conversion of Series C-12 Preferred and Series F Preferred, respectively. The Series C-12 Preferred is convertible into common stock at a rate ofLa Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
approximately 1,724 shares of common stock for each share of Series C-12 Preferred, and the Series F Preferred is convertible into common stock at a rate of approximately 286 shares of common stock for each share of Series F Preferred.
As of December 31, 2017 and 2016, there were2020, 3,906 shares of Series C-12 Convertible Preferred Stock (“Series C-12 Preferred”) were issued and 2,737outstanding, and convertible into 6,735,378 shares of Series F Preferred issued and outstanding.common stock. As such, as of December 31, 20172021 and 2016,2020, the issued and outstanding Series C-12 Preferred andliquidation preference was approximately $3.9 million. The Series FC-12 Preferred were convertible into 6,735,378 and 782,032 shares of common stock, respectively.
does not pay a dividend. The holders of preferred stockthe Series C-12 Preferred do not have voting rights, other than for general protective rights required by the CaliforniaDelaware General Corporation Law.Stock Repurchase Plan
On November 17, 2021, the Company announced that it would commence a stock repurchase plan for up to $10 million of the Company’s common stock. On March 7, 2022, the Board approved an increase of the stock repurchase plan for up to $15 million of the Company’s common stock. The Series C-1
2 Preferredplan has no time limit and can be discontinued at any time. For the Series F Preferred do not have dividends. The Series C-12 Preferred and the Series F Preferred have a liquidation preference in an amount equal to $1,000 per share. As ofyear ended December 31, 2017 and 2016,2021, the aggregate liquidation preference wasCompany repurchased approximately $3.90.8 million and $2.7shares of its common stock for $3.4 million, on the Series C-12 Preferred and Series F Preferred, respectively.
Share-based Compensation Expense
Stock Options
including commissions.8. Equity Incentive Plans
2013 Equity Incentive Plan
In September 2013, the Company adopted an equity compensation plan entitled the 2013 Equity Incentive Plan, (2013which was subsequently amended and restated (the “2013 Equity Plan)Plan”). The 2013 Equity Plan is an omnibus equity compensation plan that permits the issuance of various types of equity-basedshare-based compensation awards, including stock options, restricted stock awards, stock appreciation rights and restricted stock units, as well as cash awards, to directors, officers, employees directors and eligible consultants of the Company.consultants. The 2013 Equity Plan has a ten-year10-year term and permits the issuance of incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (IRC)(“IRC”). The administrator under the plan has broad discretion to establish the terms of awards, including the size, term, exercise price and vesting conditions. Generally, grants to employees vest over four years, with 25% vesting on the one-year anniversary and the remainder vesting either quarterly or monthly thereafter; grants to non-employee directors generally vest over one yearin full on the one-year anniversary.
At anniversary of the
2015, 2016 and 2017 annual meetingsgrant date.A total of shareholders, the Company’s shareholders approved and adopted an amendment to the 2013 Equity Plan to increase the number of9,600,000 shares of common stock authorizedhave been reserved for issuance up to a total of 3,100,000, 4,600,000 and 8,100,000 shares, respectively.
under the La Jolla Pharmaceutical Company 2013 Equity Incentive Plan (the “2013 Equity Plan”). As of December 31, 2017, there were 1,875,7322021 and 2020, 5,503,796 and 5,478,334 shares of common stock, respectively, remained available for future grants under the 2013 Equity Plan.
La Jolla Pharmaceutical2018 Employee Stock Purchase Plan
In July 2018, the Company
Notes to Consolidated Financial Statements
adopted the 2018 Employee Stock Option Activity
The Company’s 2013 EquityPurchase Plan stock option activity for(the “ESPP”). Under the years ended December 31, 2017, 2016 and 2015 was comprisedESPP, eligible employees may purchase shares of the following:
|
| | | | | | | | | | | | |
| | Outstanding Stock Options and 2013 Equity Plans |
| | Shares Underlying Stock Options | | Weighted- Average Exercise Price per Share | | Weighted- Average Remaining Contractual Term | | Aggregate
Intrinsic
Value |
| Outstanding at December 31, 2014 | 618,900 |
| | $ | 9.54 |
| | | | |
| Granted | 1,769,785 |
| | $ | 25.89 |
| | | | |
| Exercised | (51,814 | ) | | $ | 10.81 |
| | | | |
| Forfeited | (18,186 | ) | | $ | 7.80 |
| | | | |
| Outstanding at December 31, 2015 | 2,318,685 |
| | $ | 22.01 |
| | | | |
| Granted | 483,200 |
| | $ | 17.83 |
| | | | |
| Exercised | (17,548 | ) | | $ | 8.52 |
| | | | |
| Forfeited | (156,875 | ) | | $ | 26.35 |
| | | | |
| Outstanding at December 31, 2016 | 2,627,462 |
| | $ | 21.07 |
| | | | |
| Granted | 3,704,725 |
| | $ | 25.94 |
| | | | |
| Exercised | (174,628 | ) | | $ | 15.42 |
| | | | |
| Forfeited | (120,257 | ) | | $ | 22.82 |
| | | | |
| Outstanding at December 31, 2017 | 6,037,302 |
| | $ | 24.19 |
| | 8.76 years | | $ | 49,399,882 |
|
| Vested and expected to vest at December 31, 2017 | 6,037,302 |
| | $ | 24.19 |
| | 8.76 years | | $ | 49,399,882 |
|
| Exercisable at December 31, 2017 | 1,536,369 |
| | $ | 20.94 |
| | 7.36 years | | $ | 17,799,721 |
|
In April 2015, the Company made a stock option grant to the Company’s
Chief Financial Officer upon his hiring to purchase 60,000 shares of common stock
twice per month at
an exercisea price equal to
85% of the
fair market valueclosing price of shares of the Company’s common stock on the
grant date. This grant was awarded as an Inducement Grant outsidedate of each purchase. Eligible employees purchasing shares of the
2013 Equity Plan and is included inCompany’s common stock under the
table above. The stock option vests and becomes exercisable with respectESPP are subject to
25%an annual cap equal to the lesser of $25,000 or 10% of the
underlyingemployee’s annual cash compensation. Shares purchased under the ESPP cannot be sold for a period of one year following the purchase date (or such shorter period of time if the participating employee’s employment terminates before this one-year anniversary).A total of 750,000 shares onof common stock have been reserved for issuance under the first anniversary of the grant date, and then with respect to the remaining shares, on a quarterly basis over the next three years, subject to continued service during that time.
La Jolla Pharmaceutical Company 2018 Employee Stock Purchase Plan (the “ESPP”). As of December 31,
2017, the Company has reserved 7,853,0342021 and 2020, 335,473 and 455,768 shares of common stock,
respectively, remained available for future
issuance upon exercisegrants under the ESPP.
Equity Awards
The activity related to equity awards, which are comprised of all outstanding stock options, granted or to be granted underduring the 2013 Equity Plan, which excludesyear ended December 31, 2021 is summarized as follows:
| | Equity Awards | | | Weighted- average Exercise Price per Share | | | Weighted- average Remaining Contractual Term(1) (years) | | | Aggregate Intrinsic Value(2) (millions) | |
Outstanding at December 31, 2020 | | | 4,121,666 | | | $ | 8.67 | | | | | | | | | |
Granted | | | 962,140 | | | $ | 4.60 | | | | | | | | | |
Exercised | | | (29,677 | ) | | $ | 5.21 | | | | | | | | | |
Cancelled/forfeited | | | (957,925 | ) | | $ | 10.18 | | | | | | | | | |
Outstanding at December 31, 2021 | | | 4,096,204 | | | $ | 7.22 | | | | 8.2 | | | $ | 1.0 | |
Exercisable at December 31, 2021 | | | 1,738,026 | | | $ | 10.74 | | | | 7.1 | | | $ | 0.3 | |
(1)Represents the 60,000 shares underlyingweighted-average remaining contractual term of stock options.
(2) Aggregate intrinsic value represents the stock option discussed above that was issued in April 2015.
The weighted-average grant date fair valuesproduct of the number of equity awards outstanding or equity awards exercisable multiplied by the difference between the Company’s closing stock options grantedprice per share on the last trading day of the period, which was $23.80, $15.33$4.65 as of December 31, 2021, and $22.56 per underlying share forthe exercise price.The total intrinsic value of equity awards exercised during the years ended December 31, 2017, 20162021 and 2015, respectively. As of December 31, 2017, $96.0 million of total unrecognized share-based compensation expense related to non-vested stock options remains and is expected to be recognized over a weighted-average period of approximately 3.3 years. During the year ended December 31, 2017, stock options to purchase 174,628 shares of common stock were exercised with an intrinsic value of $3.3 million. During the year ended December 31, 2016, stock options to purchase 17,548 shares of common stock were exercised with an intrinsic value of2020 was $0.1 million. During the
year ended December 31, 2015, stock options to purchase 51,814 shares of common stock were exercised with an intrinsic value of $0.9 million.
Restricted Stock Award Activity
Restricted stock awards (RSAs) are grants that entitle the holder to acquire shares of common stock for no cash consideration or at a fixed price, which is typically nominal. The Company accounts for RSAs as issued and outstanding common stock, even though: (a) shares covered by an RSA cannot be sold, pledged or otherwise disposed of until the award vests; and (b) any unvested shares may be reacquired by the Company for the original purchase price following the awardee’s termination of service. The valuation of RSAs is based on the fair market value of the underlying shares on the grant date.
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
In September 2013, the Company issued RSAs consisting of 1,327,048 shares to the Company’s CEO, 79,622 shares to a director and an aggregate of 336,185 shares to three non-officer employees. The RSA grants to the CEO, director and one of the employees were for the replacement of canceled stock options and restricted stock units granted in April 2012, which was done in order to complete the capital restructuring that took place in September 2013. These RSAs were granted outside of the 2013 Equity Plan, but are governed in all respects by the 2013 Equity Plan. These RSAs were granted with a combination of performance-based and time-based vesting components. As of December 31, 2017, all performance-based and time-based vesting conditions had been satisfied. In July 2015, the vesting conditions for 1,042,680 shares of unvested and outstanding RSAs awarded to the CEO were amended to provide that vesting and delivery of the shares were deferred until March 15, 2017, subject to the CEO’s continued service with the Company through such date. In December 2016, vesting and delivery was accelerated for 500,000 shares of the RSAs that had been deferred until March 15, 2017. As of December 31, 2017, the remaining 542,680 shares of the RSAs had vested and been delivered.
In August 2015, the Company issued a fully vested RSA representing the right to acquire 4,000 shares of common stock with a grant datetotal grant-date fair value of approximately $0.1 million.
The Company’s RSA activity forequity awards vested during the years ended December 31,
2017, 20162021 and
20152020 was
comprised of$5.0 million and $8.4 million, respectively.Share-based Compensation Expense
For the following:
|
| | | | | | |
| | Number of Shares | | Weighted- Average Grant Date Fair Market Value |
| Unvested at December 31, 2014 | 1,279,007 |
| | $ | 12.86 |
|
| Granted | 4,000 |
| | $ | 23.12 |
|
| Vested | (210,108 | ) | | $ | 12.41 |
|
| Unvested at December 31, 2015 | 1,072,899 |
| | $ | 13.00 |
|
| Vested | (530,219 | ) | | $ | 12.78 |
|
| Unvested at December 31, 2016 | 542,680 |
| | $ | 13.22 |
|
| Vested | (542,680 | ) | | $ | 13.22 |
|
| Unvested at December 31, 2017 | — |
| | — |
|
Stock Option Valuation
years ended December 31, 2021 and 2020, the weighted-average grant date fair value per stock option was $3.47 and $3.48, respectively. The
Company estimates the fair value of each stock option
award is estimatedgrant on the grant date using
athe Black-Scholes
option pricingoption-pricing model
(Black-Scholes model), which uses the assumptions noted in(the “Black-Scholes model”) with the following
table. assumptions: | | Year Ended December 31, | | |
| | 2021 | | | | 2020 | | |
Expected volatility | | | 92.9 | | % | | | 93.5 | | % |
Expected term (years) | | | 6.08 | | | | | 6.07 | | |
Risk-free interest rate | | | 0.9 | | % | | | 0.7 | | % |
Dividend yield | | - | | | | - | | |
Expected volatility is based on the historical volatility of shares of the Company’s common stock. In determining the expected lifeterm of employee stock options, the Company uses the “simplified” method. TheUnder this method, the expected life assumptions for non-employees’ options are based uponterm is presumed to be the midpoint between the average vesting date and the end of the contractual term of the stock options.term. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the stock options in effect at the time of the grants. The dividend yield assumption is based on the expectation of no future dividend payments by the Company.
The Company estimated the fair value of each stock option grant on the grant date using In addition to assumptions used in the Black-Scholes model, with the following weighted-average assumptions: |
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Volatility | 139 | % | | 143 | % | | 149 | % |
| Expected life (years) | 6.12 |
| | 5.80 |
| | 5.28 |
|
| Risk-free interest rate | 2.1 | % | | 1.4 | % | | 1.5 | % |
| Dividend yield | — |
| | — |
| | — |
|
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
Share-Based Compensation Expense
Total reduces share-based compensation expense related to all share-based awards for the years ended December 31, 2017, 2016 and 2015 was comprised of the following (in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Research and development: | | | | | |
| Stock options | $ | 11,904 |
| | $ | 5,599 |
| | $ | 2,428 |
|
| Restricted stock | — |
| | 30 |
| | 1,600 |
|
| Warrants | 76 |
| | 28 |
| | 56 |
|
| Research and development share-based compensation expense | 11,980 |
|
| 5,657 |
|
| 4,084 |
|
| General and administrative: | | | | | |
| Stock options | 8,837 |
| | 6,539 |
| | 3,693 |
|
| Restricted stock | 409 |
| | 2,161 |
| | 4,265 |
|
| Warrants | 569 |
| | 189 |
| | 1,030 |
|
| General and administrative share-based compensation expense | 9,815 |
|
| 8,889 |
|
| 8,988 |
|
| Total share-based compensation expense included in expenses | $ | 21,795 |
|
| $ | 14,546 |
|
| $ | 13,072 |
|
Share-based compensation expense recognized for the years ended December 31, 2017, 2016 and 2015 is reduced bybased on actual forfeitures in the period that theeach forfeiture occurs.
Third Party Share-based Compensation Expense
The Company initially estimatesUnder the fair value of stock options and warrants issued to non-employees, other than non-employee directors, on the grant date using the Black-Scholes model. Thereafter, the Company re-measures the fair value using the Black-Scholes model as of each balance sheet date as the stock options and warrants vest.
In December 2014, the Company granted warrants toESPP, eligible employees may purchase 51,000 shares of the Company’s common stock to two outside third partiestwice per month at an exercisea price equal to the fair market value85% of the stock on the grant dates. One grant vests 25% on each anniversary date over four years. The other grant vested 100% on the one-year anniversaryclosing price of the grant. In January 2016, the Company granted a warrant to purchase 17,000 shares of common stock to an outside third party at an exercise price equal to the fair market value of the stock on the date of each grant. The grant vested 100% on the one-year anniversary of the grant. In January 2017, the Company granted a warrant to purchase 25,013 shares of common stock to an outside third party at an exercise price equal to the fair market value of the stock on the date of each grant. The grant vests 100% on the one-year anniversary of the grant. The Company recognized compensation expense for these warrant grants of approximately $0.6 million, $0.2 million and $1.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
In February 2015, the Company granted a stock option to purchase 60,000 shares of common stock to a consultant at an exercise price equal to the fair market value of the Company’s common stock on the
grant date. This grantdate of each purchase. The benefit received by the employees, which is equal to a 15% discount on the shares of the Company’s common stock purchased, is recognized as share-based compensation expense on the date of each purchase. For the years ended December 31, 2021 and 2020, the Company recorded $0.1 million of share-based compensation expense related to shares of common stock issued under the ESPP.
The classification of share-based compensation expense is summarized as follows (in thousands):
| | Year Ended | |
| | December 31, | |
| | 2021 | | | 2020 | |
Selling, general and administrative | | $ | 3,633 | | | $ | 2,808 | |
Research and development | | | 844 | | | | 3,399 | |
Total share-based compensation expense | | $ | 4,477 | | | $ | 6,207 | |
As of December 31, 2021, total unrecognized share-based compensation expense related to unvested equity awards was $7.1 million, which is expected to be recognized over a weighted-average period of 2.9 years. As of December 31, 2021, there was 0 unrecognized share-based compensation expense related to shares of common stock issued under the ESPP.
9. Other Income—Related Party
The Company has a non-voting profits interest in a related party, which provides the Company with the potential to receive a portion of the future distributions of profits, if any. Investment funds affiliated with the Chairman of the Company’s board of directors have a controlling interest in the related party. During the years ended December 31, 2021 and 2020, the Company received distributions of $7.6 million and $6.3 million, respectively, in connection with this profits interest.
10. License Agreements
In-license Agreements
George Washington University
In December 2014, the Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, La Jolla Pharma, LLC is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and royalties. The Company is obligated to pay a 6% royalty on net sales of GIAPREZA and 15% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA. During the years ended December 31, 2021 and 2020, the Company made payments to GW of $4.3 million and $1.7 million, respectively.
Harvard University
In August 2006, the Company entered into a license agreement with Harvard University (“Harvard”), which was subsequently amended and restated (the “Harvard License”). Pursuant to the Harvard License, Harvard exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the 2013 Equity Plan.last-to-expire patent covering tetracycline-based products, including XERAVA. During the year ended December 31, 2021, the
Company made payments to Harvard of $1.8 million, 0ne of which related to clinical development and regulatory milestones. Subsequent to July 28, 2020 and through December 31, 2020, the Company made payments to Harvard of $0.2 million, 0ne of which related to clinical development and regulatory milestones.
Paratek Pharmaceuticals, Inc.
In March 2019, the Company entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications covering XERAVA. The stock option vestedCompany is obligated to pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to 25%the licensed product is retroactive to the date of the underlying shares onfirst commercial sale of XERAVA and shall continue until there are no longer any valid claims of the grant dateParatek patents, which will expire in October 2023. During the year ended December 31, 2021, the Company made royalty payments to Paratek of $0.2 million. Subsequent to July 28, 2020 and through December 31, 2020, the Company made royalty payments to Paratek of $0.1 million.
Out-license Agreements
PAION AG
In January 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase Pharmaceuticals, Inc., entered into an exclusive license agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”). Pursuant to the remainderPAION License, La Jolla granted PAION an exclusive license to vest quarterly over three years. The Companycommercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla has received an upfront cash payment of $22.5 million, less a 15% refundable withholding tax, and is entitled to receive potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. La Jolla recognized third-party compensation expense for this stock option grantthe upfront cash payment of approximately $0.4$22.5 million as license and other revenue for the year ended December 31, 2015. 2021, and the 15% refundable withholding tax of $3.4 million was recorded as an other current asset as of December 31, 2021. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company has not received any payments from PAION related to either royalties or commercial milestones.
In July 2015, this consultant became an employee2021, the Company entered into a commercial supply agreement with PAION whereby the Company will supply PAION a minimum quantity of GIAPREZA and XERAVA through July 13, 2024.The supply agreement will automatically renew until the earlier of July 13, 2027, or until a new supply agreement is executed. During the initial 3-year term of the Company.
supply agreement, the Company will be reimbursed for direct and certain indirect manufacturing costs at cost.Everest Medicines Limited
In AugustFebruary 2018, the Company entered into a license agreement with Everest, which was subsequently amended and November 2015,restated (the “Everest License”). Pursuant to the Everest License, the Company granted stock optionsEverest an exclusive license to purchase 50,000 sharesdevelop and commercialize XERAVA for the treatment of common stockcIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to two consultantsreceive an additional $8.0 million regulatory milestone payment and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at exercise prices equalpercentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (i) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (iii) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In March 2021, the Company received a $3.0 million milestone payment associated with the submission of an NDA with the China National Medical Products Administration (“NMPA”) for XERAVA for the treatment of cIAI in patients in China. Amounts due under the Harvard License for this milestone payment were included as research and development expense on the consolidated statements of operations.
XERAVA was approved in Singapore by the Health Science Authority in April 2020.
In May 2021, the Company entered into a commercial supply agreement with Everest whereby the Company will supply Everest a minimum quantity of XERAVA through December 31, 2023 and will transfer to Everest certain XERAVA-related manufacturing know-how. Pursuant to the fair market valuesupply agreement: (i) the Company has received $6.8 million of upfront payments comprised of: (1) a $4.0 million upfront technology transfer payment; and (2) a $2.8 million partial prepayment for XERAVA that is expected to be delivered to Everest during 2022; (ii) the Company’s common stock onCompany received an additional $1.0 million technology transfer payment in January 2022; and (iii) the grant dates. These grants were made from the 2013 Equity Plan. The vestingCompany will be reimbursed for direct and certain indirect manufacturing costs at 110% of these stock options was contingent on the achievement of a performance milestone by the end of 2016, at which time any unvested shares underlying the options would be canceled. The milestone was achieved in the fourth quarter of 2016 at a 75% achievement level, with 25% of the options canceling.cost through December 31, 2023. The Company recognized compensation (benefit) expense for these stock option grantsthe $5.0 million of approximately $(0.1) milliontechnology transfer-related payments as license and $0.1 million for the years ended December 31, 2016 and 2015, respectively.
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
In September 2016, the Company granted a stock option to purchase 35,000 shares of common stock to a consultant at an exercise price equal to the fair market value of the Company’s common stock on the grant date. This grant was made from the 2013 Equity Plan. The stock option will vest with respect to 25% of the underlying shares on the one-year anniversary of the grant, with the remainder to vest monthly over the next three years, subject to continued serviceother revenue during that time. In January 2017, this consultant became an employee of the Company.
In February 2017, the Company granted stock options to purchase 42,000 shares of common stock to three consultants at exercise prices equal to the fair market value of the Company’s common stock on the grant dates. These grants were made from the 2013 Equity Plan. Two of the stock options will vest with respect to 25% of the underlying shares on the one-year anniversary of the grant, with the remainder to vest monthly over the next three years, subject to continued service during that time. The other stock option will vest with respect to 25% of the underlying shares on the one-year anniversary of the grant, with the remainder to vest monthly over the next two years, subject to continued service during that time. In addition, an employee converted to a consultant during April 2017. Two of his options were modified and are continuing to vest over the next two years. The Company recognized third-party compensation expense for these stock option grants of approximately $0.4 million for the year ended December 31, 2017.
2021 as Everest obtained control of the XERAVA-related manufacturing know-how prior to December 31, 2021. The Company recognized the $2.8 million partial prepayment for XERAVA that is expected to be delivered to Everest during 2022 as deferred revenue as of December 31, 2021 as the performance obligation to deliver XERAVA has not yet been satisfied.
11. Acquisition of Tetraphase Pharmaceuticals, Inc.
On June 24, 2020, La Jolla entered into an Agreement and Plan of Merger with Tetraphase, a biopharmaceutical company focused on commercializing its novel tetracycline XERAVA to treat serious and life‑threatening infections, and TTP Merger Sub, Inc., a wholly owned subsidiary of La Jolla. On July 28, 2020, La Jolla completed its acquisition of Tetraphase for $43 million in upfront cash plus potential future cash payments of up to $16 million pursuant to contingent value rights (“CVRs”). The holders of the CVRs are entitled to receive potential future cash payments of up to $16 million in the aggregate upon the achievement of certain net sales of XERAVA in the U.S. as follows: (i) $2.5 million if 2021 XERAVA U.S. net sales are at least $20 million; (ii) $4.5 million if XERAVA U.S. net sales are at least $35 million during any calendar year ending on or prior to December 31, 2024; and (iii) $9 million if XERAVA U.S. net sales are at least $55 million during any calendar year ending on or prior to December 31, 2024. Following the acquisition, Tetraphase became a wholly owned subsidiary of La Jolla.
The acquisition of Tetraphase was accounted for as a business combination using the acquisition method pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, La Jolla has estimated the Purchase Price, assets acquired and liabilities assumed as of the acquisition date, with the excess of the Purchase Price over the fair value of net assets acquired recognized as goodwill.
The Purchase Price is comprised of the upfront cash of $43 million and the estimated fair value of potential future cash payments pursuant to the CVRs. The estimated fair value of assets acquired was $54.7 million, and the estimated fair value of liabilities assumed was $9.1 million.
The Purchase Price allocation as of the acquisition date is presented as follows (in thousands):
7. | | July 28, | |
| | 2020 | |
Cash | | $ | 42,990 | |
Fair value of CVRs | | | 2,610 | |
Total Purchase Price | | $ | 45,600 | |
| | | | |
Cash and cash equivalents | | $ | 8,778 | |
Accounts receivable | | | 1,187 | |
Inventory | | | 4,767 | |
Prepaid expenses and other current assets | | | 1,218 | |
Property and equipment | | | 58 | |
Right-of-use lease assets | | | 2,302 | |
Restricted cash | | | 699 | |
Identifiable intangible assets | | | 15,520 | |
Goodwill | | | 20,123 | |
Accounts payable | | | (1,400 | ) |
Accrued expenses | | | (2,979 | ) |
Lease liabilities, current portion | | | (967 | ) |
Lease liabilities, less current portion | | | (1,420 | ) |
Other noncurrent liabilities | | | (2,286 | ) |
Total Purchase Price | | $ | 45,600 | |
The estimated fair value of potential future cash payments pursuant to the CVRs was based on a Monte Carlo simulation and is classified as Level 3 in the ASC Topic 820-10, three-tier fair value hierarchy. CVRs are measured at fair value on a recurring basis. During the year ended December 31, 2021, the Company recorded a gainresulting from the change in fair value of CVRs of $0.7 million in other (expense) income, net. Subsequent to July 28, 2020 and through December 31, 2020, the Company recorded a gain resulting from the change in fair value of CVRs of $0.8 million in other (expense) income, net.
The Company recorded a $3.3 million fair value step-up adjustment to Tetraphase’s inventory as of the acquisition date. Raw material components and active pharmaceutical ingredients were recorded based on estimated replacement cost. Finished drug product was valued at estimated selling cost, adjusted for costs of selling effort and a reasonable profit allowance for such selling effort from the viewpoint of a market participant. This fair value step-up adjustment is recorded as cost of product sales when the inventory is sold to customers, approximately $0.9 million of which was included in cost of product sales during the year ended December 31, 2021, compared to $2.5 million for the period subsequent to July 28, 2020 and through the year ended December 31, 2020.
Identifiable intangible assets consist of certain technology and trade names acquired from Tetraphase, and include the value of the Harvard, Paratek and Everest Licenses (see Note 10). The acquired intangible assets have definite useful lives and are being amortized on a straight-line basis over an estimated useful life of 10 years.
Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill represents the value of the stronger platform to increase patient access to the Company’s commercial products and the operational synergies of the combined Company. Goodwill has an indefinite useful life and is not amortized. The goodwill is only deductible for tax purposes if the Company makes a U.S. Internal Revenue Code Section 338 (“Section 338”) election. The Company did not make a Section 338 election.
12. Company-wide Realignments
In May 2020, the Board of Directors of the Company approved a restructuring plan (the “2020 Realignment”) to align its organization with the Company’s sole focus on the commercialization of its products. The 2020 Realignment reduced the Company’s headcount. For the year ended December 31, 2020, total expense was comprised of $4.1 million for one-time termination benefits to the affected employees, including severance and health care benefits, offset by a $0.4 million reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. As of December 31, 2021, the Company had made all of the payments related to the 2020 Realignment.
In July 2020, following the acquisition of Tetraphase, the Company incurred one-time charges related to a reduction in the combined Company’s headcount. For the year ended December 31, 2020, total expense was comprised of $3.1 million for one-time termination benefits to the affected employees, including severance and health care benefits. As of December 31, 2021, the Company had made all of the payments related to this reduction in headcount.
13. Defined Contribution Plan
The CompanyLa Jolla has a defined contribution plan (401k Plan)(the “La Jolla 401(k) Plan”) covering substantially all of the Company’s employees. The 401kLa Jolla 401(k) Plan was establishedis a tax-qualified retirement saving plan, pursuant to provide retirement benefits for employees and is employee funded up to the elective annual deferral limits.
Effective January 1, 2015, the 401k Plan was amended. As a result,which all employees are
able to contribute the lesser of 50% of their eligible
annual compensation (as defined) or the limit prescribed by the Internal Revenue Service (the “IRS”) to
participate withthe La Jolla 401(k) Plan on a before-tax basis. The Company matches employee contributions to the La Jolla 401(k) Plan based on each participant’s contribution during the plan year, up to 3.5% of each participant’s annual compensation.Tetraphase had a defined contribution plan (the “Tetraphase 401(k) Plan”) covering substantially all of the former Tetraphase employees through December 31, 2020. The Tetraphase 401(k) Plan was a tax-qualified retirement saving plan, pursuant to which all employees were able to contribute the lesser of 92% of their eligible annual compensation (as defined) or the limit prescribed by the IRS to the Tetraphase 401(k) Plan on a before-tax basis. The Company matched employee contributions to the 401(k) Plan based on each participant’s contribution during the plan year, up to 3.5% of each participant’s annual compensation. Subsequent to December 31, 2020, the Tetraphase 401(k) Plan was terminated, there were no minimum service requirement,further employee contributions and all underlying assets were transferred to the La Jolla 401(k) Plan.
For the year ended December 31, 2021, the Company made matching contributions to the La Jolla 401(k) Plan of $0.7 million, $0.4 millionmillion. For the year ended December 31, 2020, the Company made total matching contributions to the La Jolla and $0.2 million forTetraphase 401(k) Plans of $0.5 million.
14. Income Taxes
For the years ended December 31, 2017, 20162021 and 2015, respectively.
8. Income Taxes
The2020, the Company did not recordrecognized a provision for income taxes for the years ended December 2017, 2016of $49,000 and 2015 due to a full valuation allowance against its deferred tax assets.
On December 22, 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was enacted. 0, respectively.The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction ofdifference between income taxes computed using the U.S. corporatefederal income effective tax rate from 34% to 21%,and the provision for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for the implementation of a territorial tax system, a one-time transition tax on certain foreign earnings, the acceleration of depreciation for certain assets placed into service after September 27, 2017 and other prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.
Pursuant to the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company has not finalized its accounting for the income
tax effects of the 2017 Tax Act. This includes a provisional amount related to the re-measurement of deferred tax assets based on the rates at which they are expected to reverse in the future, whichtaxes is
generally 21% plus the applicable state tax rate, with a corresponding change to the valuation allowance as
of December 31, 2017. The impact of the 2017 Tax Act may differ from this estimate during the one-year measurement period due to, among other things, further refinement of the Company’s calculation, changes in interpretations and assumptions the Company has made, additional guidance that may be issued and actions the Company may take as a result of the 2017 Tax Act.follows (in thousands): | | Year Ended December 31, | |
| | 2021 | | | 2020 | |
Federal statutory rate | | $ | 4,139 | | | $ | (8,278 | ) |
State tax benefit | | | 812 | | | | (1,740 | ) |
Change in valuation allowance | | | (288 | ) | | | 787 | |
Tetraphase net operating losses and other adjustments | | | (4,670 | ) | | | - | |
Share-based compensation expense | | | 565 | | | | 9,072 | |
State rate true-up | | | (369 | ) | | | 291 | |
Research and development credits | | | - | | | | (173 | ) |
Other permanent differences | | | (140 | ) | | | 41 | |
Provision for income taxes | | $ | 49 | | | $ | - | |
Significant components of the Company’s deferredDeferred tax assets are as follows (in thousands):
| | December 31, | |
| | 2021 | | | 2020 | |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 84,571 | | | $ | 84,827 | |
Research and development credits | | | 24,015 | | | | 24,179 | |
Deferred royalty obligation | | | 36,687 | | | | 36,265 | |
Share-based compensation expense | | | 2,742 | | | | 2,497 | |
Depreciation and amortization expense | | | 482 | | | | 1,044 | |
Lease liability | | | 80 | | | | 136 | |
Capital loss carryforward | | | 126 | | | | - | |
Other | | | 337 | | | | 436 | |
Total gross deferred tax assets | | | 149,040 | | | | 149,384 | |
Deferred tax liabilities: | | | | | | | | |
Right-of-use lease asset | | | (80 | ) | | | (136 | ) |
Valuation allowance | | | (148,960 | ) | | | (149,248 | ) |
Net deferred tax assets | | $ | - | | | $ | - | |
|
| | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| Deferred tax assets: | | | | | |
| Capitalized research and development and other | $ | 7,379 |
| | $ | 9,380 |
| | $ | 33,894 |
|
| Valuation allowance | (7,379 | ) | | (9,380 | ) | | (33,894 | ) |
| Net deferred tax assets | $ | — |
| | $ | — |
| | $ | — |
|
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
The difference betweenAs of December 31, 2021 and 2020, the provision for income taxes and income taxes computed using the effective U.S. federal statutory rate is as follows (in thousands):
|
| | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
| Income tax benefit at statutory federal rate | $ | (39,033 | ) | | $ | (26,583 | ) | | $ | (14,250 | ) |
| Research and development credits | (2,691 | ) | | (1,240 | ) | | 1,128 |
|
| Foreign rate differential | 1,249 |
| | — |
| | — |
|
| Expired tax attributes | 2,228 |
| | (5 | ) | | 31 |
|
| Impact of the 2017 Tax Act | 71,199 |
| | — |
| | — |
|
| Stock-based compensation | 2,253 |
| | — |
| | — |
|
| Change in valuation allowance | (35,246 | ) | | 25,091 |
| | 12,042 |
|
| Other permanent differences | 41 |
| | 2,737 |
| | 1,049 |
|
| Provision for income taxes | $ | — |
| | $ | — |
| | $ | — |
|
The Company has established a full valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced accordingly and recorded as a tax benefit.
Pursuant to Section 382 and 383 of the IRC, utilization of the Company’s federal net operating loss (“NOL”) carryforwards and research and development credit carryforwards may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating loss carryforwards and research and development credit carryforwards, prior to utilization.unless utilized. The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. The Company does not presently plan to complete an IRC Section 382 and 383 analysis; and until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses and research and development credits generated through 2017 from its deferred tax assets and has recorded a corresponding increase to its valuation allowance.
As of December 31, 2017, the Company has estimated federal and
California net operating loss carryforwards of approximately $537.1 million and $323.5 million, respectively. The difference between the federal and California tax net operating loss carryforwards is primarily attributable to the capitalization of research and development expenses for California income tax purposes. In addition, the Company has estimated federal and California research and development tax credit carryforwards of approximately $21.0 million and $13.4 million, respectively. The federal net operating loss carryforwards, federal research tax credit carryforwards and California net operating loss carryforwards will begin to expire in 2018, if not utilized. California research and development credit carryforwards will carry forward indefinitely until utilized. The Company believes that, in May 2010 and February 2009, it experienced ownership changes at times when its enterprise value was minimal. As a result of the ownership changes and low enterprise values at such times, the Company’s federal and Californiastate net operating loss carryforwards and federal
and state research and development
credit carryforwards
ashave been adjusted to reflect the Company’s estimate of
December 31, 2017 will likely be subject tothe annual limitations under IRC Section 382 and
383383.
As of December 31, 2021, the Company had federal and more likely than not,state net operating loss carryforwards of $327.2 million and $245.1 million, respectively. In addition, the Company had estimated federal and state research and development credit carryforwards of $10.8 million and $16.7 million, respectively. Federal net operating loss carryforwards of $158.7 million, state net operating loss carryforwards of $210.6 million, federal research and development credit carryforwards of $10.8 million will begin to expire unused.
in 2026, unless utilized. Federal net operating loss carryforwards of $168.5 million, state net operating loss carryforwards of $34.5 million and California research and development credit carryforwards of $16.7 million will carry forward indefinitely, unless utilized.There were no0 unrecognized tax benefits as of the December 31, 20172021 and 2016.2020. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.
The Company had no0 accrual for interest or penalties related to income taxes on the Company’s consolidated balance sheets as of December 31, 20172021 or December 31, 2016,2020, and has not recognized interest and/or penalties related to income taxes in the consolidated statements of operations for the years ended December 31, 2017, 20162021 and 2015.
2020.The Company is subject to taxation in the U.S. and various state jurisdictions. The Company’s tax returns since inception are subject to examination by the U.S. and various state tax authorities. The Company is not currently undergoing a tax audit in any federal or state jurisdiction.
15. Subsequent Event
In January 2022, AcelRx Pharmaceuticals, Inc. (“AcelRx”) closed its acquisition of Lowell Therapeutics, Inc. (“Lowell”), a privately held company in which La Jolla Pharmaceutical Company
Notesheld an approximately 15% non-controlling equity interest. Through December 31, 2021, La Jolla’s investment in Lowell was measured at its contributed cost of 0 in the consolidated balance sheets in accordance with the measurement alternative pursuant to Consolidated Financial Statements
9. CommitmentsFASB ASC 321, Investments—Equity Securities. In connection with AcelRx’s acquisition of Lowell, La Jolla received: (i) approximately 1.4 million shares of AcelRx common stock; and Contingencies
Leases
On December 29, 2016,(ii) contingent value rights (“CVRs”) that entitle La Jolla to receive up to approximately $3.9 million on the Company entered into an agreement with BMR-Axiom LP to lease officeachievement of certain regulatory and laboratory space as the Company’s new corporate headquarters located at 4550 Towne Centre Court, San Diego, California (Lease) for a period of ten years commencing on October 30, 2017.
sales-based milestones. The Lease provides an option to extend the Lease for an additional 5.0 yearsCVRs will be paid in AcelRx common stock or cash at the enddiscretion of AcelRx. La Jolla is also entitled to receive up to approximately 0.2 million shares of AcelRx common stock, if such shares are not used to satisfy certain obligations of Lowell and its security holders made in connection with the initial term.acquisition. The Company has provided a standby letter of credit for $0.9 million in lieu of a security deposit. This amountAcelRx common stock and CVRs will decrease to $0.6 million after year two of the lease and decrease to $0.3 million after year 5 of the lease term. The Lease provided an allowance for tenant improvements of $13.7 million, which wasbe classified as deferred rent onLevel 1 and Level 3, respectively, in the Company’s balance sheetASC 820-10 three-tier fair value hierarchy and will be amortized as an offset to rent expense with a corresponding charge to depreciation expense on a straight-line basis over the term of the lease. The annual rent under the Lease is subject to escalation during the term. In addition to rent, the Lease requires the Company to pay certain taxes, insurance and operating costs relating to the leased premises. The Lease contains customary default provisions, representations, warranties and covenants.
Annual future minimum payments under operating leases as of December 31, 2017 are as follows (in thousands):
|
| | | |
| 2018 | $ | 1,945 |
|
| 2019 | 3,951 |
|
| 2020 | 4,070 |
|
| 2021 | 4,192 |
|
| 2022 | 4,318 |
|
| Thereafter | 22,755 |
|
| Total future minimum lease payments | $ | 41,231 |
|
Rent expense was $1.7 million, $1.1 million and $0.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Licensing Agreements
In the normal course of business, the Company enters into licensing agreements under which the Company commits to certain annual maintenance payments. Annual future minimum licensing payments under the Company’s agreements as of December 31, 2017 are as follows (in thousands):
|
| | | |
| 2018 | $ | 142 |
|
| 2019 | 147 |
|
| 2020 | 148 |
|
| 2021 | 147 |
|
| 2022 | 158 |
|
| Thereafter | 53 |
|
| Total future minimum license payments | $ | 795 |
|
La Jolla Pharmaceutical Company
Notes to Consolidated Financial Statements
Supply Agreements
In the normal course of business, the Company enters into agreements for the manufacturing and supply of its clinical and commercial products. In 2017, the Company entered into agreements arranging for the manufacture and supply of GIAPREZA through 2022. During this time, the Company will be obligated to make certain minimum purchases. Annual future minimum payments for manufacturing and supply agreements as of December 31, 2017 are as follows (in thousands):
|
| | | |
| 2018 | $ | 1,092 |
|
| 2019 | 921 |
|
| 2020 | 921 |
|
| 2021 | 921 |
|
| Total future minimum manufacturing and supply agreement payments | $ | 3,855 |
|
10. Quarterly Financial Information (unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2017 and 2016 (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| 2017 | | | | | | | |
| Total revenue | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Loss from operations | $ | (23,268 | ) | | $ | (26,830 | ) | | $ | (26,483 | ) | | $ | (38,846 | ) |
| Net loss | $ | (23,240 | ) | | $ | (26,729 | ) | | $ | (26,288 | ) | | $ | (38,546 | ) |
| Basic and diluted net loss per share | $ | (1.26 | ) | | $ | (1.21 | ) | | $ | (1.19 | ) | | $ | (1.74 | ) |
| Weighted-average common shares outstanding - basic and diluted | 18,410 |
| | 22,123 |
| | 22,125 |
| | 22,151 |
|
| 2016 | | | | | | | |
| Total revenue | $ | 234 |
| | $ | 253 |
| | $ | 44 |
| | $ | 85 |
|
| Loss from operations | $ | (16,534 | ) | | $ | (15,617 | ) | | $ | (21,297 | ) | | $ | (24,924 | ) |
| Net loss | $ | (16,481 | ) | | $ | (15,566 | ) | | $ | (21,251 | ) | | $ | (24,887 | ) |
| Basic and diluted net loss per share | $ | (0.96 | ) | | $ | (0.90 | ) | | $ | (1.23 | ) | | $ | (1.44 | ) |
| Weighted-average common shares outstanding - basic and diluted | 17,210 |
| | 17,211 |
| | 17,211 |
| | 17,280 |
|
measured at fair value.F-27
