UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 1-36282
LA JOLLA PHARMACEUTICAL COMPANY
(Exact name of registrantRegistrant as specified in its charter)
Delaware | 33-0361285 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification | |
201 Jones Road, Suite 400 Waltham, MA | 02451 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (858) 207-4264
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, | LJPC | The Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: Act: None
Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrantRegistrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
Indicate by check mark whether the registrant:Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13a13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting and non-voting common stockequity held by non-affiliates of the registrant asRegistrant, based on the closing price of the shares of common stock on the Nasdaq Capital Market on June 30, 2017 totaled approximately $512,864,000. 2021, was $73.3 million.
As of February 16, 2018,25, 2022, there were 22,168,24225,961,836 shares of the Company’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of this report is incorporated by reference from the registrant’s definitive Proxy Statementproxy statement for the 2018its 2022 Annual Meeting of Shareholders,Stockholders, which proxy statement is expectedthe registrant intends to be filed nofile pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of theregistrant’s fiscal year coveredended December 31, 2021, are incorporated by reference into Part III of this report.
Table of Contents
i
FORWARD-LOOKING STATEMENTS
This reportAnnual Report on Form 10-K contains forward-looking statements as that term is defined inwithin the meaning of the federal securities laws. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.1995 and other federal securities laws. Forward-looking statements can be identified by words such as “intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,” “suggests,” “may,” “should,” “potential,” “designed to,” “will” and similar references. In addition, any statementsexpressions that refer to expectations, intentions, projectionspredict or other characterizations ofindicate future events or circumstances are forward-looking statements. These statementsand trends that do not relate to future events or the Company’s anticipated future results of operations. Thesehistorical matters. You should not unduly rely on forward-looking statements are only predictions andbecause they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from these forward-looking statements. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they were made. Certain of these risks, uncertainties, and other factors are described in greater detail in the Company’s filings with the U.S. Securities and Exchange Commission (SEC), all of which are available free of charge on the SEC’s website
These risksforward-looking statements include, but are not limited to, statements regarding:
• | our ability to grow net sales of GIAPREZA® (angiotensin II) and XERAVA® (eravacycline); |
• | our ability to maintain an effective sales and marketing organization; |
• | the potential market size for GIAPREZA and XERAVA; |
• | our ability to obtain an uninterrupted supply of GIAPREZA and XERAVA from our contract manufacturers; |
• | GIAPREZA’s and XERAVA’s market exclusivity period as a result of the enforcement of regulatory exclusivity and the validity and enforceability of issued and pending patents covering GIAPREZA and XERAVA; |
• | our ability to comply with our obligations under our license agreements; |
• | our ability to hire and retain key employees; |
• | our overall financial performance, including but not limited to, net product sales, net cash provided by or used for 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; |
• | our capital requirements and our potential need for, and ability to obtain, additional financing; and |
• | our ability to maintain effective internal controls. |
These forward-looking statements involve known and unknown risks, relating to: our ability to successfully commercialize GIAPREZA
We caution you that the risks, uncertainties and other factors referred to above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will affect us or our business in other filings the Company periodically makes with the SEC.
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PART I
In addition, please see the “Risk Factors” section of this Annual Report on Form 10-K. These risk factors may be updated from time to time by our future filings under the Exchange Act.
Item 1. Business.
Overview
We are dedicated to the discovery, development and commercialization of innovative therapies intended to significantlythat improve outcomes in patients suffering from life-threatening diseases.
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 renin-angiotensin-aldosterone system (RAAS). The RAAS is oneacquisition closing date of three central regulatorsJuly 28, 2020.
In January 2021, La Jolla and certain of blood pressure.
On November 2, 2021, La Jolla consummated the change of its corporate domicile from California to Delaware, as described in adult patientsmore detail in La Jolla’s Definitive Proxy Statement on Schedule 14A filed with septic or other distributive shock who remain hypotensive despite fluid and vasopressor therapy, known as the ATHOS-3 (Angiotensin II for the Treatment of High-Output Shock) Phase 3 study. In ATHOS-3, patients were randomized in a 1:1 fashion to receive either: (i) GIAPREZA plus standard-of-care vasopressors; or (ii) placebo plus standard-of-care vasopressors. Randomized patients received their assigned treatment via continuous IV infusion for up to 7 days. The primary efficacy endpoint was the percentage of patients with a MAP ≥ 75 mmHg or a 10 mmHg increase from baseline MAP at three hours following the initiation of study treatment without an increase in standard-of-care vasopressors.
Product Portfolio
(1) For U.S. and European approval (2) U.S.: GIAPREZA is a vasoconstrictor to increase blood pressure in adults with septic or other distributive shock European Union: GIAPREZA is indicated for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies (3) U.S.: XERAVA is a tetracycline class antibacterial indicated for the treatment of cIAIs in patients 18 years of age and older European Union: XERAVA is indicated for the treatment of cIAI in adults |
GIAPREZA® (angiotensin II)
GIAPREZA®(angiotensin levels and ACE effects in patients with vasodilatory shock treated with angiotensin II” was presented during the 30
3
Distributive shock is the most common genetic disease in Caucasians and causes liver cirrhosis, liver cancer, heart disease and/or failure, diabetes, arthritis and joint pain. The current standard treatment for HHform of shock (Vincent et al, New England Journal of Medicine 2013; 369(18):1726−1734).
Types of Shock(1)
(1) Vincent et al, New England Journal of Medicine 2013; 369(18):1726−1734 |
Distributive shock is a leading cause of death in hospitalized patients. Septic shock accounts for more than 90% of distributive shock (Vincent et al, New England Journal of Medicine 2013; 369(18):1726–1734). Shock affects one-third of patients in the intensive care unit (“ICU”) (Sakr et al, Critical Care Medicine 2006; 34:589–597). The mortality rate of distributive shock exceeds that of most acute conditions requiring hospitalization.
Mortality Rate
(1) Based on the 28-day mortality rates of: (i) 35% from the vasopressin arm of Russell et al, New England Journal of Medicine 2008; 358:877–87; (ii) 49% from the norepinephrine arm of De Backer et al, New England Journal of Medicine 2010; 362:779–89; and (iii) 54% from the placebo arm (high-dose norepinephrine or equivalent) of Khanna et al, New England Journal of Medicine 2017; 377:419–430 (2) 30-day mortality rate from Medicare.gov |
The RAAS is one of three systems that work in harmony to regulate blood removal procedure knownpressure. GIAPREZA regulates blood pressure through the RAAS. Other therapeutic options regulate blood pressure through the adrenal system and vasopressin system.
In Healthy Individuals, Three Systems Work in Harmony to Regulate Blood Pressure
Annually in the U.S., approximately 150,000−230,000 patients fail to respond to current vasopressor options.
Response to Current Vasopressor Options
(1) Annually in the U.S. (2) Year ended December 31, 2021 per Symphony Health Solutions (3) Estimate based on Russell et al, New England Journal of Medicine 2008; 358:877−87 and Asfar et al, New England Journal of Medicine 2014; 370:1583−93 (4) Annual sales per Endo International plc SEC filings, divided by price per vial per Wolters Kluwer PriceRx (5) Estimate based on Dunser et al, Circulation 2003; 107:2313−2319 and Gordon et al, Critical Care Medicine 2014; 42(6):1325−1333 (6) Year ended December 31, 2021 per Endo International plc SEC filings (7) $212.38 per vial per Wolters Kluwer PriceRx, multiplied by 10 vials per patient (8)Estimate based on: 35.4% 28-day mortality rate in vasopressin arm of Russell et al, New England Journal of Medicine 2008; 358:877–87; 48.5% 28-day mortality rate in norepinephrine arm of De Backer et al, New England Journal of Medicine 2010; 362:779–789; and 54.6% non-responder rate on vasopressin from Sacha et al, Annals of Intensive Care 2018; 8:35 |
Angiotensin II for the Treatment of High-Output Shock (“ATHOS-3”)
GIAPREZA was approved by the FDA and the EC based on the results of ATHOS-3, which were published in the New England Journal of Medicine in August 2017. ATHOS-3 was a multinational, randomized, double-blind, placebo-controlled study in which 321 adults with septic or other distributive shock who remained hypotensive despite fluid and vasopressor therapy received either GIAPREZA or placebo, both in addition to background vasopressor therapy. The primary endpoint was mean arterial pressure (“MAP”) response, defined as phlebotomy. Each phlebotomy procedure, which is usually conducteda MAP of 75 mm Hg or higher or an increase in MAP from baseline of at least 10 mm Hg without an increase in the dose of background vasopressors at Hour 3 (Khanna et al, New England Journal of Medicine 2017; 377:419–430).
ATHOS-3 Study Design(1)
MAP=mean arterial pressure (1) Khanna et al, New England Journal of Medicine 2017; 377:419–430 (2) Standard-of-care vasopressors included norepinephrine, epinephrine, dopamine and vasopressin |
GIAPREZA significantly improved blood pressure response. Specifically, the primary endpoint was achieved by 70% of GIAPREZA-treated patients compared to 23% of placebo-treated patients (p <0.0001).
Primary Endpoint: Mean Arterial Pressure Response(1),(2)
(1) GIAPREZA FDA prescribing information (2) MAP response of 75 mm Hg or higher or an increase from baseline of at least 10 mm Hg at Hour 3 without an increase in the dose of background vasopressors |
GIAPREZA provides the ability to rapidly achieve and adjust therapeutic response. GIAPREZA rapidly increased MAP with a hospital, medical office or blood center, typically involves the removalmedian time to MAP response of approximately 5 minutes. The plasma half-life of GIAPREZA is less than 1 minute.
In addition, a pintpositive survival trend was observed. Mortality through Day 28 was 46% on GIAPREZA and 54% on placebo (hazard ratio 0.78; 95% confidence interval 0.57–1.07).
Positive Survival Trend Observed (N=321)(1),(2)
(2) Khanna et al, New England Journal of Medicine 2017; 377:419–430 (3) Patients were treated with either GIAPREZA or placebo, both in addition to background vasopressor therapy |
The most common adverse reactions that were reported in greater than 10% of blood. The required frequencyGIAPREZA-treated patients were thromboembolic events.
Adverse Reactions Occurring in ≥4% of procedures varies by patient but often ranges from one to two times per weekPatients Treated with GIAPREZA and ≥1.5% More Often than in Placebo-treated Patients(1)
(1) GIAPREZA FDA prescribing information (2) Including arterial and venous thrombotic events |
Note: There is a potential for an initial period after diagnosisvenous and once every one to three months for life. Since most of the body’s iron is stored in red blood cells, chronic removal of blood can effectively lower iron levels if a phlebotomy regimen is adhered to. However, phlebotomy procedures may causearterial thrombotic and may be associated with pain, bruising and scarring at the venous puncture site, fatigue and dizziness during and following the procedure and disruption of daily activities. Furthermore, phlebotomy is not appropriatethromboembolic events in patients with poor venous access, anemia or heart disease.
Percentage of Patients Experiencing ≥1 Adverse Event, ≥1 Serious Adverse Event and Discontinuing Treatment Due to an Adverse Event(1)
(1) Khanna et al, New England Journal of Medicine 2017; 377:419–430 |
XERAVA® (eravacycline)
XERAVA® (eravacycline) for injection is toxic to vital organs, suchapproved by the FDA as the liver and heart. In addition, the underlying anemia causes excessive iron accumulation independent of blood transfusions.
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)
(1) Brun-Buisson et al, JAMA 1995; 274(12):968–974 |
The 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)
(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
(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
(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)
(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)
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)
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)
(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
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.
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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.
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.
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.
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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.
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 |
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.
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.
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| 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.
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Government 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.
Regulation in the U.S.
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.
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. |
• | 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
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.
Other Laws
We 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.
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.
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
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
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Item 1A. Risk Factors.
An 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.
RISKS RELATED TO THE COMPANY AND THE INDUSTRY IN WHICH WE OPERATE
We are substantially dependent on the commercial success of GIAPREZA
The near-term success of our business is largelysubstantially dependent on our ability to successfully commercialize our recently approved product, GIAPREZA
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.
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.
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.
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.
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.
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.
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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.
We may not be predictive of future study results.
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.
RISKS RELATED TO INTELLECTUAL PROPERTY
GIAPREZA’s and XERAVA’s market exclusivity periods will depend on our business.
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.
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.
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
30
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.
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.
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.
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. |
31
• | 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. |
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.
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.
32
The ongoing COVID-19 pandemic may disrupt our product candidate to other available
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.
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.
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
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.
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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.
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.
35
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our 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.
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.
We are not currently a party to any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not 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
Shares 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 |
Holders of future shareholder returns.
As 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.
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.
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 |
|
(1) | Includes commissions |
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.
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 |
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.
You 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
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.
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.
43
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.
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.
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.
While 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).
Revenue Recognition
Pursuant 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.
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.
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.
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 | ) |
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 |
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 |
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.
We 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.
Item 8. Financial Statements and Supplementary Data.
The 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.
None.
Item 9A. Controls and Procedures.
Management’s Evaluation of our Disclosure Controls and Procedures; Changes in Internal Control Over Financial Reporting
Our 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.
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
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.
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.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
50
PART III
Item 10. Directors, Executive Officer and Corporate Governance.
The 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.
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
Item 11. Executive Compensation.
The 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The 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.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The 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.
Item 14. Principal Accountant Fees and Services.
The 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.
51
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Documents filed as part(1) Financial Statements
The response to this portion of this report.
(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
Incorporated by Reference | |||||||||||
Exhibit No. | Exhibit Description | Form | Date Filed | Filed Herewith | |||||||
8-K12B | 11/2/2021 | ||||||||||
8-K12B | 11/2/2021 | ||||||||||
8-K | 6/24/2020 | ||||||||||
8-K12B | 11/2/2021 | ||||||||||
Bylaws of La Jolla Pharmaceutical Company, a Delaware Corporation | 8-K12B | 11/2/2021 | |||||||||
Specimen of Common Stock Certificate of La Jolla Pharmaceutical Company, a Delaware Corporation | 8-K12B | 11/2/2021 | |||||||||
X | |||||||||||
Form of Indemnity Agreement of La Jolla Pharmaceutical Company, a Delaware Corporation | 8-K12B | 11/2/2021 | |||||||||
La Jolla Pharmaceutical Company Amended and Restated 2013 Equity Incentive Plan | 8-K12B | 11/2/2021 | |||||||||
8-K12B | 11/2/2021 | ||||||||||
The George Washington University Amended and Restated Patent License Agreement† | 10-K | 2/22/2018 | |||||||||
8-K | 5/14/2018 | ||||||||||
6 | 10-K | 3/8/2021 | |||||||||
10-K | 3/8/2021 | ||||||||||
10-K | 3/8/2021 | ||||||||||
10-K | 3/8/2021 | ||||||||||
10-K | 3/8/2021 | ||||||||||
10-K | 3/8/2021 | ||||||||||
8-K | 7/29/2020 |
53
10-K | 3/8/2021 | |||||||||
X | ||||||||||
X | ||||||||||
X | ||||||||||
X | ||||||||||
X | ||||||||||
X | ||||||||||
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 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | |||||||||
+ Indicates a management contract or compensatory plan or arrangement. | |||||||||||
† |
Item 16. Form 10-K Summary.
None.
54
SIGNATURES
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.
LA JOLLA PHARMACEUTICAL COMPANY | |||
Date: March 9, 2022 | By: | /s/ Larry Edwards | |
Larry Edwards | |||
Director, President and Chief Executive Officer | |||
POWER OF ATTORNEY
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.
Name | Title | Date | |||
/s/ | Director, President and Chief Executive Officer | March 9, 2022 | |||
Larry Edwards | (principal executive officer) | ||||
/s/ | Chief Financial Officer | March 9, 2022 | |||
Michael Hearne | (principal financial and accounting officer) | ||||
/s/ Kevin | Chairman | March 9, 2022 | |||
Kevin | |||||
/s/ Craig Johnson | Director | March 9, 2022 | |||
Craig Johnson | |||||
/s/ Laura | Director | March 9, 2022 | |||
Laura | |||||
/s/ | Director | March 9, 2022 | |||
David Ramsay | |||||
/s/ Robert | Director | March 9, 2022 | |||
Robert Rosen |
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.
Basis for Opinion
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.
San Diego, California
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.
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 |
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.
1.Business
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.
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.
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
The 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.
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.
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,
Property 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.
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.
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.
Patent Costs
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.
Share-based Compensation
The 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
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.
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.
Earnings (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.
Comprehensive 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.
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.
Recent Accounting Pronouncements
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.
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.
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
Restricted Cash
Restricted cash as of December 31, 2021 and Equipment
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 |
As 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
Prepaid 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):
|
| 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
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 |
|
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
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.
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.
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.
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
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
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.
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.
2018 Employee Stock Purchase Plan
In July 2018, the Company
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 |
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.
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 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
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 | — | — |
|
| 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.
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 | — | — | — |
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 |
Under 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.
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.
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.
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):
|
| 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
La 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.
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.
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.
|
| 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 |
|
| $ | - |
|
Deferred 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 | $ | — | $ | — | $ | — |
As 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 | $ | — | $ | — | $ | — |
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, 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.
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.
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
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 |
2018 | $ | 142 | |
2019 | 147 | ||
2020 | 148 | ||
2021 | 147 | ||
2022 | 158 | ||
Thereafter | 53 | ||
Total future minimum license payments | $ | 795 |
2018 | $ | 1,092 | |
2019 | 921 | ||
2020 | 921 | ||
2021 | 921 | ||
Total future minimum manufacturing and supply agreement payments | $ | 3,855 |
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 |
F-27