For each development and/or commercialization agreement that result in revenues, the Company identifies all performance obligations, aside from those that are immaterial, which may include a license to intellectual property and know-how, development activities, and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes 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. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Development and Regulatory Milestone Payments
Depending on facts and circumstances, the Company may conclude that it is appropriate to include the milestone, representing variable consideration, in the estimated total transaction price, or that it is appropriate to fully constrain the milestone. The Company may include revenues from certain milestones in the total transaction price in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the total transaction price, including the amount of revenue that it has recorded, if necessary.
RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements
Accounting Pronouncements Adopted
In February 2016, FASB issued Accounting Standards Update (“ASU”)We adopted ASU No. 2016-02,2018-13, Leases (Topic 842)Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The adoption of the new standard as of January 1, 20192020. This standard modifies certain disclosure requirements on fair value measurements. The adoption of this guidance did not have a material impact on ourthe Company’s consolidated financial statements due to the short term nature of our leases.and related disclosures.
Accounting Pronouncements Not Yet Adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2023. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes. This standard removes certain exceptions to the general principles of ASC 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company is required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
Cash, Cash Equivalents, and Investments
Cash
equivalents include only securities having a maturity of 90 days or less at the time of purchase. Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents, and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit,
commercial paper, U.S. government agency bonds, municipal bonds, and corporate bonds. All investments are classified as held to maturity. As of
September 30, 2019March 31, 2020 and December 31,
2018,2019, the amortized cost of these investments was
$85.6$94.5 million and
$68.8$100.8 million, respectively. No unrealized gains or losses were recorded in either period.
Fair Value Measurements
Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents,
held to maturityheld-to-maturity investments, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the duration of those instruments. As of
September 30, 2019March 31, 2020 and December 31,
2018,2019, there were no recorded unrealized gains or losses on our investments as they are classified as
held to maturity.held-to-maturity. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, amortized cost basis of the investments approximated their fair value. Interest income for the threeAt March 31, 2020 and
nine months ended September 30,December 31, 2019,
was $0.5 million and $1.5 million, respectively as compared to $0.4 million and $0.9 million in the 2018 periods. For the nine months ended September 30, 2019 and 2018, the amortized net
premiumdiscount / (net
discount)premium) included in interest income was approximately
$56,000$134,000 and
($361,000),$32,000, respectively. At
September 30, 2019March 31, 2020 and December 31,
2018,2019, the remaining unamortized net premium / (net discount) was approximately
$198,000$221,000 and
($121,000),$285,000, respectively.
The following table presents the Company’s schedule of maturities at September 30, 2019March 31, 2020 and December 31, 2018:2019 are as follows:
| | | Maturities as of September 30, 2019 | | | Maturities as of December 31, 2018 | | | Maturities as of March 31, 2020 | | | Maturities as of December 31, 2019 | |
| | | 1 Year or Less | | | Greater than 1 Year | | | 1 Year or Less | | | Greater than 1 Year | | | 1 Year or Less | | | Greater than 1 Year | | | 1 Year or Less | | | Greater than 1 Year | |
| U.S Government agency | | $ | 4,234,076 | | | $ | 6,228,685 | | | $ | - | | | $ | - | | |
| Municipal bonds | | 6,593,224 | | | 545,265 | | | 1,295,350 | | | - | | | $ | 8,749,716 | | | $ | - | | | $ | 11,341,249 | | | $ | - | |
| Government agency bonds | | | 3,423,351 | | | 3,242,692 | | | 11,950,738 | | | 6,231,804 | |
| US Treasury bonds | | | 6,027,090 | | | - | | | - | | | -
| |
| Corporate bonds | | 56,061,185 | | | 5,948,250 | | | 61,321,162 | | | 1,099,834 | | | 62,633,006 | | | 3,636,086 | | | 57,321,784 | | | 6,675,958 | |
| Certificates of deposit | | | 2,201,239 | | | | 3,770,328 | | | | 5,090,631 | | | | - | | | | 4,251,488 | | | | 2,507,218 | | | | 3,626,147 | | | | 3,661,262 | |
| Total | | $ | 69,089,724 | | | $ | 16,492,528 | | | $ | 67,707,143 | | | $ | 1,099,834 | | | $ | 85,084,651 | | | $ | 9,385,996 | | | $ | 84,239,918 | | | $ | 16,569,024 | |
The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.
As of September 30, 2019,March 31, 2020, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
September 30, 2019 | Type of Instrument | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | | |
March 31, 2020 | | | Type of Instrument | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| Cash equivalents | Institutional Money Market | | $ | 2,433,542 | | | $ | 2,433,542 | | | $ | - | | | $ | - | | | Institutional Money Market | | $ | 8,456,598 | | | $ | 8,456,598 | | | $ | - | | | $ | - | |
Investments | | | Certificates of Deposit | | 6,758,706 | | | 6,758,706 | | | - | | | - | |
| Cash equivalents | U.S. Government Agency | | $ | 3,995,097 | | | $ | 3,995,097 | | | | | | | | | Municipal Bonds | | 1,003,616 | | | - | | | 1,003,616 | | | - | |
| Investments | U.S. Government Agency | | 10,462,761 | | | - | | | 10,462,761 | | | - | | | Municipal Bonds | | 8,749,716 | | | - | | | 8,749,716 | | | - | |
| Investments | Municipal Bonds | | 7,138,489 | | | - | | | 7,138,489 | | | - | | | Government Agency Bonds | | 6,666,043 | | | - | | | 6,666,043 | | | - | |
| Investments | Corporate Bonds | | 62,009,435 | | | - | | | 62,009,435 | | | - | | | US Treasury Bonds | | 6,027,090 | | | - | | | 6,027,090 | | | - | |
Cash equivalents | | | Corporate Bonds | | 5,075,742 | | | - | | | 5,075,742 | | | - | |
| Investments | Certificates of Deposit | | 5,971,567 | | | 5,971,567 | | | - | | | - | | | Corporate Bonds | | 66,269,092 | | | - | | | 66,269,092 | | | - | |
December 31, 2018 | Type of Instrument | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | |
December 31, 2019 | | | Type of Instrument | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| Cash equivalents | Institutional Money Market | | $ | 6,078,025 | | | $ | 6,078,025 | | | $ | - | | | $ | - | | | Institutional Money Market | | $ | 950,658 | | | $ | 950,658 | | | $ | - | | | $ | - | |
| Investments | Municipal Bonds | | | 1,295,350 | | | | - | | | | 1,295,350 | | | | - | | | Certificates of Deposit | | 7,287,409 | | | 7,287,409 | | | - | | | - | |
| Investments | Corporate Bonds | | | 62,420,996 | | | | - | | | | 62,420,996 | | | | - | | | Municipal Bonds | | 11,341,249 | | | - | | | 11,341,249 | | | - | |
| Investments | Certificates of Deposit | | | 5,090,631 | | | | 5,090,631 | | | | - | | | | - | | | Government Agency Bonds | | 18,182,542 | | | - | | | 18,182,542 | | | - | |
Investments | | | Corporate Bonds | | 63,997,742 | | | - | | | 63,997,742 | | | - | |
Concentration of Credit Risk and Major Customers
The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.
The Company maintains investments in FDIC insured certificates of deposits,
U.S. government agency bonds, municipal bonds, and corporate bonds.
The Company is currently dependent on one customer, Endo, which generates almost all
of the Company’s revenues. For the
threethree-month periods ended March 31, 2020 and
nine months ended September 30, 2019, licensing, sublicensing, milestones, and royalty revenues under the License Agreement with Endo were approximately
$9.4$9.7 million and
$26.4 million, respectively and for the three and nine months ended September 30, 2018, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $8.2 million and $23.1$8.1 million, respectively.
At
September 30, 2019March 31, 2020 and December 31,
2018,2019, our
accounts receivable balances from Endo were $17.8 million and
$16.5$19.1 million, respectively.
Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the ninethree months ended September 30, 2019 there were 6,209 sharesMarch 31, 2020, we repurchased at an average price of $57.54 compared to 43,7054,067 shares at an average price of $58.55 in$54.35 aggregating approximately $221,000. For the 2018 comparable period.three months ended March 31, 2019, there were no shares repurchased.
Stock Repurchase Plan
On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and various other factors.
Receivables and Doubtful Accounts
Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our accounts receivable balance is typically due from Endo, our
onesingle large specialty pharmaceutical customer.
Endo has historically paid timely and has been a financially stable organization. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal and therefore no allowance is recorded. If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required. We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At
September 30, 2019March 31, 2020 and December 31,
20182019, our accounts receivable balance was $17.8 million and
$16.5$19.1 million, respectively, and was from one customer, Endo.
Reimbursable Third-Party Patent Costs
We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and expense others. As of September 30, 2019 and December 31, 2018, our net reimbursable third party patent expense was $25,000 and $40,000, respectively, which was recorded as a reduction to our accounts receivable balance.
Third-Party Royalties
We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC.agreement. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that the net sales have occurred. For the three and nine monththree-month periods ended September 30,March 31, 2020 and 2019, and 2018, third-party royalty expenses were $0.2 million and $0.7 million, respectively. For the three and nine month periods ended September 30, 2018, third-party royalty expenses were $0.6 million and $1.7$0.4 million, respectively. As of March 1,31, 2019, we have no further third partythird-party royalties in connection with PD as the agreement expired in February 2019.has expired.
Royalty Buy-Down
On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of January 1, 2018.
In March 2019, royaltyRoyalty obligations
were terminated, which wasterminate five years after first commercial sale, which occurred in January 2014.
Accordingly, we ceased paying royalties in February 2019. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX® and Xiapex® for PD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three
and nine months ended
September 30,March 31, 2019, we amortized
zero and approximately $0.2 million related to this agreement
respectively. For the three and
nine months ended September 30, 2018 we amortized approximately $0.6 million and $1.6 million, respectively, related to this agreement. Royalty buy-down expenses areis recorded as part of general and administrative expenses. As of
September 30, 2019both March 31, 2020 and December 31,
2018, the2019, there were no remaining capitalized balances
were zero and $0.2 million, respectively.outstanding related to this agreement.Research and Development Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs, and overhead. R&D expenses also consist of third partythird-party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.
Clinical Trial Expenses
Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research consultants.organizations. In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.
Stock-Based Compensation
and 2019 Omnibus Incentive Compensation Plan
ASC 718,
Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock awards including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model.
The fair value of each service-based restricted stock unit granted is estimated on the day of grant based on the closing price of the Company’s common stock. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensed consolidated statements of operations.
On June 13, 2019, at the Company’s annual meeting of stockholders, the Company’s stockholders approved the 2019 Omnibus Incentive Compensation Plan (the “2019 Plan”). Upon the 2019 Plan’s approval, approximately 1,248,8481,247,598 shares of Company common stock were available for issuance thereunder, consisting of 1,100,000 shares authorized for issuance under the 2019 Plan and 148,848147,598 shares then remaining available for issuance under the Company’s 2001 Stock Option Plan (the “2001 Plan”). The 2019 Plan replaced the 2001 Plan. No new awards willmay be granted under the 2001 Plan; however, awards outstanding under the 2001 Plan upon approval of the 2019 Plan remain subject to and will be settled under the applicable 2001 Plan. As of March 31, 2020, options to purchase 61,687 shares of common stock were outstanding under the 2001 Plan.
Grants under the 2019 Plan may consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, or cash awards. Employees, key advisors, or non-employee directors are eligible to participate in the 2019 Plan. Grants under the 2019 Plan vest over periods ranging from one to four years and expire ten years from date of grant.As of March 31, 2020, options to purchase 120,000 shares of common stock and 9,450 restricted stock awards were outstanding under the 2019 Plan, and a total of 1,154,648 shares remain available for grant under the 2019 Plan.
2019 Omnibus Incentive Compensation Plan (2019 Plan)
A summary of the restricted stock awards activity during the ninethree months ended September 30, 2019March 31, 2020 is presented below:
| | |
| Restricted Stock | | | Weighted-Average Grant Date Fair Value Per Share | |
| Nonvested at December 31, 2018 | | | - | | | $ | - | |
| Issued | | | 9,950 | | | | 60.85 | |
| Vested | | | - | | | | - | |
| Forfeited | | | - | | | | - | |
| Nonvested at September 30, 2019 | | | 9,950 | | | $ | 60.85 | |
| | | Restricted Stock | | Weighted-Average Grant Date Fair Value Per Share | |
Nonvested at December 31, 2019 | | | 10,450 | | | $ | 60.47 | |
Granted | | | 1,000 | | | | 50.51 | |
Vested | | | (2,000 | ) | | | 53.69 | |
Forfeited | | | | | | | - | |
Nonvested at March 31, 2020 | | | 9,450 | | | $ | 60.85 | |
Stock-based compensation expense related to restricted stock awards recognized in general and administrative expense was approximately $146,000$144,000 and zero for the three and ninethree-month periods months ended September 30, 2019.March 31, 2020 and 2019, respectively.
As of September 30, 2019,March 31, 2020, there was approximately $460,000$144,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to restricted stock. This cost is expected to be recognized over the vesting periods of the restricted stock, with a weighted-average period of approximately 1.250.25 years.
Stock Option Activity under the 2001 Stock Option Plan (2001 Plan)
For the ninethree months ended September 30, 2019,March 31, 2020, we granted a total of 10,00030,000 stock options from the 2001 Plan with a weighted average grant date fair value of $27.97$22.70 per share.
The assumptions used in the valuation of stock options granted during the ninethree months ended September 30, 2019March 31, 2020 were as follows:
| |
| | Nine Months Ended September 30, 2019 | |
| Risk-free interest rate | | | 2.18% |
|
| Expected term of option |
| | 6.25 years | |
| Expected stock price volatility | | | 39.5% |
|
| Expected dividend yield | | $ | 0.0 | |
| | Three Months Ended March 31, 2020 | |
| Risk-free interest rate | | 0.70% - 1.61% |
|
| Expected term of option | | 5.5 - 6.25 years | |
| Expected stock price volatility | | 39.5% - 40.6% |
|
| Expected dividend yield | $
| 0.0 | |
A summary of our stock option activity during the
ninethree months ended
September 30, 2019March 31, 2020 is presented below:
| | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2018 | | | 175,500 | | | $ | 37.73 | | | | 6.33 | | | $ | 4,014,235 | |
| Grants | | | 10,000 | | | | 66.40 | | | | - | | | | - | |
| Exercised | | | (73,063 | ) | | | 29.20 | | | | - | | | | 2,229,195 | |
| Forfeitures | | | (11,250 | ) | | | 41.82 | | | | - | | | | - | |
| Outstanding at September 30, 2019 | | | 101,187 | | | $ | 46.26 | | | | 7.63 | | | $ | 1,061,135 | |
| Exercisable at September 30, 2019 | | | 28,812 | | | $ | 21.74 | | | | 3.96 | | | $ | 915,593 | |
| | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2019 | | | 189,187 | | | $ | 46.79 | | | | 8.62 | | | $ | 1.920,684 | |
| Grants | | | 30,000 | | | | 56.11 | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Forfeited | | | (37,500 | ) | | | 57.48 | | | | - | | | | - | |
| Outstanding at March 31, 2020 | | | 181,687 | | | $ | 46.12 | | | | 7.49 | | | $ | 1,898,560 | |
| Exercisable at March 31, 2020 | | | 54,187 | | | $ | 39.74 | | | | 2.69 | | | $ | 911,735 | |
During the
ninethree-month periods months ended
September 30,March 31, 2020 and 2019,
and 2018, the Company received
approximately
$2.1 millionzero and
$2.6 million,$58,000, respectively, from stock options exercised by option holders.
Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of
$53.52$56.57 on
September 30, 2019,March 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately
$1.7$2.3 million in unrecognized compensation cost related to stock options outstanding as of
September 30, 2019,March 31, 2020, which we expect to recognize over the next
3.063.75 years.
Stock-based compensation expense related to stock options recognized in general and administrative expenses was approximately $114,000$166,000 and $374,000$142,000 for the three-month periods ended March 31, 2020 and March 31, 2019, respectively. In addition, stock compensation expense related to restructuring associated with the acceleration of vesting of certain stock options and restricted stock units was approximately $190,000 for the three and nine month periodsmonths ended September 30, 2019 and $64,000 and $160,000 for the three and nine month periods ended September 30, 2018, respectively.March 31, 2020 (see Note 7).
Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At eachMarch 31, 2020, total property and equipment consisted of September 30, 2019furniture and fixtures of approximately $68,000 with an expected useful life of five years. As of December 31, 2018,2019, all property and equipment were fully depreciated.
For each of the three and nine monththree-month periods ended September 30,March 31, 2020 and 2019, and 2018, we had no components of other comprehensive income other than net income itself.
Provision for Income Taxes
We use the asset and liability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.
Commitments and Contingencies16
Lease Obligation
We determine if an arrangement includes a lease at inception. Right-of-use lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The right-of-use lease asset includes any lease payments made and excludes lease incentives. Incremental borrowing rate is used in determining the present value of future payments. We apply a portfolio approach to the property leases to apply an incremental borrowing rate to leases with similar lease terms. The lease terms may include options to extend or terminate the lease. We recognize the options to extend the lease as part of the right-of-use lease assets and lease liabilities only if it is reasonably certain that the option would be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the non-cancelable lease term. The adoption of the new standard as of January 1, 2019 did not have a material impact on our consolidated financial statements for the three months ended March 31, 2019 due to the short-term nature of our existing lease in Lynbrook, New York.
In December 2019, we recorded a right-of-use lease asset of $243,000, a short-term lease liability of $76,000, and a long-term lease liability of $167,000 associated with the lease of our new headquarters in Wilmington, Delaware.
The following table summarizes the maturity of the Company’s lease obligations on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:
| | | March 31, 2020 | | | December 31, 2019 | |
| 2020 | | $ | 61,815 | | | $ | 75,352 | |
| 2021 | | | 84,893 | | | | 84,893 | |
| 2022 | | | 87,428 | | | | 87,428 | |
| Total lease payments | | | 234,136 | | | | 247,673 | |
| Less: interest | | | (9,784 | ) | | | (11,560 | ) |
| Total lease obligation | | $ | 224,352 | | | $ | 236,113 | |
On November 6, 2019,January 7, 2020, the Company entered into an agreement withprovided three months’ notice to 35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the Company’s intent to terminate the lease toagreement for our former corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional six month period (the “Extended Lease Agreement”). The six month extension will endNew York 11563. Accordingly, the lease terminated on May 31,April 7, 2020. Pursuant toAs the Extended Lease Agreement, the base rent is $12,075 per month andlease provided the Company maythe option to cancel the lease withby giving three months’ prior written notice, to the Landlord atCompany did not incur any time during the term.termination penalties.
Our rent expenseOperating lease expenses amounted to approximately $34,000$57,000 and $101,000$34,000 for the threethree-month periods ended March 31, 2020 and nine months ended September 30, 2019, respectively, and $32,000 and $97,000 for the three and nine months in the 2018 periods, respectively.
3. NET INCOME PER SHARE
In accordance with ASC 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and restricted stock awards using the treasury stock method. For the three and nine monththree-month periods ended September 30,March 31, 2020 and 2019, there were 24,01523,865 and 39,626,61,243, respectively of common equivalent shares attributable to stock options and 807 and 1,410 attributable to restricted stock awards that were included in the calculation of diluted net income per share. There were 60,000180,500 and 50,000 stock options in each period to purchase shares and 500 and zero restricted stock awards excluded from the calculation of diluted net income per share for the three and nine month periods ended September 30,March 31, 2020 and 2019, respectively, because their effects are anti-dilutive.
For the three and nine month periods ended September 30, 2018 there were 75,497 and 96,923, respectively, of common equivalent shares attributable to stock options that were included in the calculation of diluted net income per share. There were zero stock options to purchase shares excluded from the calculation of diluted net income per share for the three and nine month periods ended September 30, 2018, respectively, because their effects are anti-dilutive.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
| | | September 30, 2019 | | | December 31, 2018 | | | March 31, 2020 | | | December 31, 2019 | |
| Trade accounts payable | | $ | 87,446 | | | $ | 122,199 | | | $ | 216,453 | | | $ | 197,077 | |
| Accrued legal and other professional fees | | 450,300 | | | 308,725 | | | 333,558 | | | 330,787 | |
| Accrued payroll and related costs | | 94,205 | | | 173,123 | | | 18,293 | | | 209,330 | |
| Third party royalties | | 173,005 | | | 1,168,837 | | | 169,000 | | | 228,000 | |
Restructuring accrual (See Note 7) | | | 866,377 | | | - | |
| Other accruals | | | 72,272 | | | | 25,704 | | | | 24,834 | | | | 33,215 | |
| Total | | $ | 877,228 | | | $ | 1,798,588 | | | $ | 1,628,515 | | | $ | 998,409 | |
We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from
twoone to
tennine years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
We analyze our intangible assets, specifically, capitalized patent costs, on an annual basis for any indicator that an impairment exists. As of
September 30, 2019March 31, 2020 and December 31,
2018,2019, no impairment existed, and no adjustments were warranted.
WeAdditions to our capitalized
approximately $97,000 and $190,000 of patent costs
forduring the
three and ninethree-month periods months ended
September 30,March 31, 2020 and 2019
as compared towere approximately
$16,000$12,000 and
$95,000 for three and nine months ended September 30, 2018,zero, respectively. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:
| | | September 30, 2019 | | | December 31, 2018 | | | March 31, 2020 | | | December 31, 2019 | |
| Patents | | $ | 1,235,919 | | | $ | 1,046,216 | | | $ | 1,284,725 | | | $ | 1,272,625 | |
| Accumulated amortization | | | (673,416 | ) | | | (601,738 | ) | | | (720,424 | ) | | | (699,348 | ) |
| Total | | $ | 562,503 | | | $ | 444,478 | | |
| | | | $ | 564,301 | | | $ | 573,277 | |
The amortization expense for patents for the
three and ninethree-month periods months ended
September 30,March 31, 2020 and 2019 was approximately
$29,000$21,000 and
$72,000, respectively, and for the three and nine months ended September 30, 2018 was approximately $19,000,
and $54,000, respectively. The estimated aggregate amortization expense for the remaining
threenine months of
20192020 and each of the years below is approximately as follows:
October 1, 2019 – December 31, 2019 | | $ | 24,000 | | |
| | | 78,000 | | |
April 1, 2020 – December 31, 2020 | | | $ | 63,000 | |
| | | 61,000 | | | 66,500 | |
| | | 61,000 | | | 66,500 | |
| | | 61,000 | | | 66,500 | |
| | | 66,500 | |
| Thereafter | | | 278,000 | | | 235,000 | |
| Total | | $ | 563,000 | | |
6. PROVISION FOR INCOME TAXES
Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options
revenue recognized and other items.
The provision for income taxes is based on an estimated effective tax rate derived from our consolidated earnings before taxes, adjusted for nondeductible expenses and other permanent differences for the fiscal year. For the
three and ninethree-month periods months ended
September 30,March 31, 2020 and 2019,
ourthe provision for income taxes was
$1.6$1.2 million and
$3.7 million. Our net$1.1 million, respectively. As of March 31, 2020 and December 31, 2019, our remaining deferred tax liabilities
as of September 30, 2019 waswere approximately $0.5 million and $0.6
million. million, respectively.The estimated effective tax rate for the threethree-month periods ended March 31, 2020 and nine months ended September 30, 2019 was approximately 20%21.2% and 18% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the Tax Cuts and Jobs Act of 2017 (“TCJA”) allowing the Company to refine its calculations and current period stock option exercises.
For the three and nine months ended September 30, 2018, our provision for income taxes was $1.1 million and $3.3 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the three and nine months ended September 30, 2018 was approximately 18% and 19%20.0%, respectively, of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 20182020 and 2019 plus the effects, if any, of certain discrete items occurring in 2018. Our effective2020 and 2019.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax ratelaw changes including, among other things, (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest, (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid taxes. The income tax provisions of the CARES Act had limited applicability to the Company as of March 31, 2020, and therefore, the enactment of the CARES Act did not have a material impact on the Company’s consolidated financial statements as of, and for the three and nine months ended, September 30, 2018March 31, 2020. We will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretative guidance becomes available.
7. RESTRUCTURING COSTS
On January 7, 2020, we announced that we would be relocating our corporate headquarters from Lynbrook, New York to Wilmington, Delaware as of April 7, 2020. On January 6, 2020, in connection with this relocation, we notified five employees and one consultant that their services would no longer be required effective March 31, 2020. On March 23, 2020, the five employees and one consultant were given separation agreements detailing the termination benefits to which they would be entitled.
As a result, we recorded a restructuring charge of approximately $1.1 million in the first quarter of fiscal 2020. The restructuring charge is primarily associated with $0.9 million of one-time termination benefits that we expect to pay out in cash, $0.2 million of one-time non-cash termination expenses associated with the acceleration of vesting of certain stock options and restricted stock units, and facility exit expenses. We expect to pay the cash termination benefits over a period of six months beginning April 2020. The estimated liability for termination benefits which will be paid out over six months was impacted primarily byrecorded at fair value during the TCJA,first quarter of 2020 as a current liability in the consolidated balance sheet. These termination benefits consist of severance payments, reimbursement of benefits payments, and guaranteed consulting payments. Total charges and payments related to the restructuring plan recognized in the condensed consolidated statement of operations are as follows:
| | | March 31, | |
| | | 2020 | |
Restructuring accrual, January 1, 2020 | | $ | - | |
Termination costs | | | 1,070,024 | |
Facility exit costs | | | 76,020 | |
Payments | | | (89,235 | ) |
Stock compensation expense charged to additional paid-in-capital | | | (190,432 | ) |
Restructuring accrual, March 31, 2020 | | $ | 866,377 | |
8. SUBSEQUENT EVENTS
On April 6, 2020, the Company and Mr. J. Kevin Buchi mutually agreed that Mr. Buchi would step down as Chief Executive Officer and as a director of the Company, effective immediately. The Company and Mr. Buchi have entered into a separation agreement that details the termination benefits to which was enactedhe is entitled. The Company will pay approximately $0.6 million in termination benefits over the next 12 months related to this agreement.
In connection with Mr. Buchi’s separation from the Company, on December 22, 2017 and loweredApril 6, 2020, the U.S. corporate tax rate from 35%Board approved the appointment of Mr. Joseph Truitt to 21%, beginning in 2018. Our effective tax rateserve as the Company’s Chief Executive Officer on an interim basis. Mr. Truitt was also impacted byappointed as a Class I member of the discrete impactBoard. On May 11, 2020, the Company announced Mr. Truitt’s appointment as the permanent Chief Executive Officer, effective May 7, 2020.
Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensedconsolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and is qualified by reference to them.
Overview
We are a biopharmaceutical company involved in the development of an injectable
CCHcollagenase clostridium histolyticum (“CCH”) for multiple indications.
Collagenases are naturally occurring enzymes responsible for the breakdown of collagen, which is the main structural protein in the extracellular matrix in the various connective tissues of the body and is the most abundant protein in mammals. Local accumulations of excess collagen are associated with a number of medical conditions.We maintain intellectual property with respect to an injectable CCH that treats, among other indications, Dupuytren’s contracture (DC)(“DC”), Peyronie’s disease (PD)(“PD”), cellulite, frozen shoulder syndrome, plantar fibromatosis, and removal of adipose tissue.uterine fibroids. Injectable CCH currently is approved and marketed in the U.S. by our partner Endo Pharmaceuticals under the trademark XIAFLEX®XIAFLEX® for the treatment of both DC and PD. XIAFLEX® also is commercialized in Japan, Europe (where it is marketed as Xiapex®), Canada,the first and Australiaonly FDA-approved nonsurgical treatment for DC, and for PD in Canada, Europe and Australia.these two indications.. We generate revenue primarily from our license agreement with Endo, under which we receive license, sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX®.
On August 31, 2011, we entered intoWe have developed injectable CCH for 12 clinical indications to date. Under our license agreement with Endo, Endo has the Second Amended and Restated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”), an entity that was acquired by Endo in 2015. The License Agreement originally was entered into in June 2004right to obtain exclusive worldwide rights tofurther develop market, and sell certain products containing our enzyme CCH which Endo markets for approved indications under the trademark XIAFLEX®. Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, Dupuytren’s nodules, PD, frozen shoulder cellulite, canine and human lipomas, plantar fibromatosis, lateral hip fat,as well as certain other licensed indications. Endo has a right to opt-in for use of CCH in the treatment of uterine fibroids.
First Quarter Highlights and other potential aesthetic indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.Outlook
| • | XIAFLEX® royalty revenue increased by approximately 19% for the first quarter of 2020 as compared to the same period in 2019, which increase was attributable to royalties associated with higher net sales of XIAFLEX® by Endo in DC and PD. |
Pursuant to the License Agreement,
Endo currently is selling XIAFLEX® in the U.S.has filed a biologics license application for CCH for the treatment of DC and PD and is distributing XIAFLEX® in Canada through its operating company, Paladin Labs Inc. Additionally, Endo has entered into several non-affiliated sublicensee agreements (as permitted bycellulite with the License Agreement), including the following:
An agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rightsFDA. The Prescription Drug User Fee Act date for Xiapex®CCH for the treatment of DCcellulite is expected to be July 6, 2020, with a postponed commercial launch now anticipated to be in the first quarter of 2021. This delay decision was made as a result of the anticipated impact of COVID-19 on medical aesthetics physician office closures and PDa related decline in Europeconsumer spending.
Endo expects to initiate studies in adhesive capsulitis and certain Eurasian countries;plantar fibromatosis in the second half of 2020. Adhesive capsulitis, also known as frozen shoulder, is an inflammation and thickening of the shoulder capsule due to collagen which causes decreased motion in the shoulder. Plantar fibromatosis is a non-malignant thickening of the feet’s deep connective tissue or fascia. There are currently no FDA-approved pharmaceutical therapies available to treat either condition.
Impact of COVID-19
The outbreak of COVID-19 has adversely impacted the U.S. and global economies. Based on public disclosures made by Endo, we currently anticipate that revenues from our license agreement with Endo will decline in the second quarter of 2020 compared to the first-quarter of 2020, due to decreased demand for physician administered products because of office closures and a decline in patients electing to be treated. We also currently expect full year 2020 revenues to decline compared to full-year 2019 revenues.
An agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX® in Australia and New Zealand.
On February 1, 2016, we entered into the First Amendment (the “First Amendment”) to the License Agreement. Pursuant to the First Amendment, the Company and Endo Global Ventures mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.
Additionally, we agreed that Endo may opt-in early to indications, prior to our submission of a clinical trial report, with our consent, such consent not to be unreasonably withheld. For early opt-ins, Endo will be required to make an opt-in payment of $0.5 million on a per indication basis. For regular opt-ins, following our submission of a clinical trial report, Endo will be required to make an opt-in payment of $0.75 million on a per indication basis.
On February 26, 2019, we and Endo entered into the Second Amendment to the License Agreement (the “Second Amendment”) to amend certain provisions of the License Agreement. The Second Amendment has an effective date of January 1, 2019. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement bywith Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo. In addition, the Second Amendment amends certain provisions of the License Agreement to require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations.
The two marketed indications involving our injectable collagenase are DC and PD. In addition to DC and PD, Endo has opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo.
Endo presented positive results from two Phase 3 studies, RELEASE-1 and RELEASE-2, of CCH for the treatment of cellulite. Subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial’s primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a 2-level composite improvement in cellulite severity at Day 71 as compared to subjects receiving placebo. Statistically significant improvements with CCH versus placebo were observed for 8 of 8 (RELEASE-1) and 7 of 8 (RELEASE-2) secondary endpoints, in addition to patient-centric endpoints. These data were presented at 2019 American Academy of Dermatology Annual Meeting on March 2, 2019. On May 17, 2019, Endo announced that clinical data from a Phase 3 investigational study of CCH for the treatment of cellulite was presented at the annual meeting of the American Society for Aesthetic Plastic Surgery. On September 6, 2019, Endo announced that it had submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for CCH for the treatment of cellulite in the buttocks with an expected commercial launch in the second half of 2020 upon approval.
We presented data from the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66th Annual Meeting of the Society of Reproductive Investigation (SRI) on March 14, 2019 in Paris, France. In addition, on October 16, 2019, we presented data on patient-reported outcomes of a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the American Society for Reproductive Medicine conference in Philadelphia, Pennsylvania. The presentations follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.
Operational Highlights
On October 10, 2019, we announced that J. Kevin Buchi has been named chief executive officer of the Company. He will also serve on the Company’s board of directors.
On October 23, 2019, we announced that Jennifer Chao has been appointed chairperson of its board of directors, effective immediately. Ms. Chao has served on our board as an independent director since 2015, and also serves as chair of the compensation committee.
Outlook
We generatedgenerate revenue from primarily one source, the License Agreement. Under the License Agreement,our license agreement with Endo (the “License Agreement”), under which we receive license, sublicense income, royalties, milestones, and mark-up on cost of goods sold payments related to the sale, regulatory submissions, and approval of XIAFLEX® as described above. Currently, Endo’s licensed rights cover the indications of DC, PD, cellulite, frozen shoulder, plantar fibromatosis, and other potential indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.
Under the License Agreement, Endo is responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products. Endo has the option to license development and marketing rights to these indications based on a full analysis of the data from the clinical trials, which would transfer responsibility for the future development costs to Endo and trigger opt-in payments and potential future milestone and royalty payments to us.
Endo must pay us on a country-by-country and product-by-product basis a specified percentage, which typically is in the low double digits, of net sales for products covered by the License Agreement. This royalty applies to net sales by Endo or its sublicensees. Endo also is obligated to pay a percentage of any future regulatory or commercial milestone payments received from such sublicensees. In addition, Endo and its affiliates pay us an amount equal to a specified mark-up on certain cost of goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage of the cost of goods of XIAFLEX®) for products sold by Endo and its affiliates.
Endo had previously collaborated with partners to commercialize XIAFLEX® and Xiapex® outside of the United States; however, Endo is in the process of terminating third-party partnership agreements for markets outside of the United States, which will reduce the amount of royalty revenues received by us. We do not believe that this reduction will have a material effect on our future consolidated statements of operations.
We are dependent on third parties, and our licensee, Endo, may not be able to continue successfully commercializing XIAFLEX® for DC and PD, successfully develop XIAFLEX® for additional indications, obtain required regulatory approvals, manufacture XIAFLEX® at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired margins for products sold, and, as a result, we may not achieve sustained profitable operations. The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash. The Company maintains its investment in money market funds, certificates of deposit, commercial paper, U.S. government agency bonds, municipal bonds, and corporate bonds.
The Company is subject to risks and uncertainties as a result of the global COVID-19 pandemic. While we expect that COVID-19 will impact our business to some degree, the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, and other unforeseeable consequences.
For more information regarding the risks facing the Company, please see the risk factors discussed under the heading “Risk Factors” under Part II, Item 1A. herein and Item 1A. of Part 1 of our 2019 Annual Report.
Critical Accounting Policies, Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience,
interim data provided by Endo, and on various other assumptions that we believe are reasonable under the circumstances. The financial information at
September 30, 2019March 31, 2020 and for the
threethree-month periods ended March 31, 2020 and
nine months ended September 30, 2019
and 2018 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the financial information set forth herein. The December 31,
20182019 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31,
20182019 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31,
20182019 included in the Company’s
20182019 Annual
Report andwith the unaudited condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q for the first and second quarters of 2019 filed with the SEC.Report.
As described in Note 2 to our accompanying Condensed Consolidated Financial Statements, there have been no significant changes to our critical accounting policies for the three
and nine months ended
September 30, 2019,March 31, 2020, compared to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our
20182019 Annual
Report and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019.Report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30, 2019MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2018MARCH 31, 2019
We generate revenue primarily from royalties under the License Agreement and, to a lesser degree, licensing fees, sublicensing fees, and milestones.
Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the
three monththree-month period ended
September 30, 2019March 31, 2020 were
$9.4$9.7 million as compared to
$8.2$8.1 million in the corresponding
20182019 period, an increase of
$1.2$1.6 million or
15%19%. The increase in total revenues for the quarterly period was primarily due to royalties associated with higher net sales of XIAFLEX® in
PDDC and
DC.PD.
Licensing Revenue
Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the three month periods ended September 30, 2019 and 2018, we recognized zero revenue related to nonrefundable upfront product license fees for product candidates.
Research and Development Activities and Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs, and overhead. R&D expenses also consist of
third partythird-party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the
three monththree-month periods ended
September 30,March 31, 2020 and 2019,
and 2018, R&D expenses were approximately
$143,000$122,000 and
$162,000, respectively and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs.$150,000, respectively. The decrease in the
20192020 period as compared to the
20182019 period was mainly due to
reduced costdecreases in the costs associated with
clinical and other R&D
programs and lower clinical costs.programs.
We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo. We presented data from the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66th Annual Meeting of the Society of Reproductive Investigation on March 14, 2019 in Paris, France. In addition, on October 16, 2019, we presented data on patient-reported outcomes of a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the American Society for Reproductive Medicine conference in Philadelphia, Pennsylvania. The presentationsThis presentation follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids. Costs related to the uterine fibroids program for the three months ended March 31, 2019 were approximately $60,000. There were no costs associated with the uterine fibroids program in the 2020 period.
The
following table summarizes our R&D expenses related to our development programs:
| | | Three Months Ended September 30, 2019 | | | Three Months Ended September 30, 2018 | |
Program | | | | | | |
| Uterine Fibroids | | $ | 42,819 | | | $ | 82,716 | |
| Pre-clinical/other research projects | | | 100,366 | | | | 79,909 | |
| Total R&D expenses | | $ | 143,185 | | | $ | 162,625 | |
The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX® and Xiapex®, to continue to commercialize these drug candidates.
There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
the nature, timing, and estimated costs of the efforts necessary to complete the development of our drug candidate projects;
the anticipated completion dates for oursuch drug candidate projects;
the scope, rate of progress, and cost of oursuch clinical trials that we are currently running or may commence in the future with respect to oursuch drug candidate projects;
the scope, rate of progress of our preclinical studies, and other R&D activities related to oursuch drug candidate projects;
clinical trial results for oursuch drug candidate projects;
the cost of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights relating to oursuch drug candidate projects;
the terms and timing of any strategic alliance, licensing, and other arrangements that we have or may establish in the future relating to our drug candidate projects;
costs relating to future product opportunities;
the cost and timing of regulatory approvals with respect to oursuch drug candidate projects;
the cost of establishing clinical supplies for our drug candidate projects;
costs and/or risks relating to future product opportunities.
We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, amortization of deferred royalty buy-down, consultant costs, legal fees, investor relations, professional fees, and overhead costs. General and administrative expenses for the
three monthsthree-month periods ended
September 30,March 31, 2020 and 2019
and 2018 were
$2.0$3.2 million and
$2.2$2.9 million, respectively.
The decreaseIncreases in general and administrative expenses was mainly due to
the higher personnel expenses, stock compensation expense, and consulting fees partially offset by lower
third partythird-party royalties associated with XIAFLEX® and the amortization associated with deferred royalty buy-down related to
PD, partially offset by legal fees, personnel expenses and stock compensation expense.PD.
TableOn January 7, 2020, we announced that we would be relocating our corporate headquarters from Lynbrook, New York to Wilmington, Delaware as of ContentsApril 7, 2020. On January 6, 2020, in connection with the relocation, we notified five employees and one consultant that their services would no longer be required effective March 31, 2020. On March 23, 2020, the five employees and one consultant were given separation agreements detailing the termination benefits to which they would be entitled. As a result, we recorded a one-time restructuring charge of $1.1 million in the first quarter of fiscal 2020. The restructuring charge is primarily associated with $0.9 million of one-time termination benefits that we expect to pay out in cash over the six-month period beginning April 2020 and $0.2 million of one-time non-cash termination expenses associated with the acceleration of vesting of certain stock options and restricted stock units.
Other Income
Other income for the three months ended September 30, 2019March 31, 2020 was approximately $505,000$480,000 compared to $360,000$449,000 in the corresponding 20182019 period. Other income consists of interest earned on our investments.
Provision for Income Taxes
Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business
R&D activities, vesting of nonqualified options,including stock-based compensation, revenue
recognized and
other items.leases. For the
three monththree-month period ended
September 30, 2019,March 31, 2020, our provision for income taxes was
$1.6$1.2 million. Our
net deferred tax liabilities as of
September 30, 2019 was $0.6 million. The estimated effective tax rate for the three months ended September 30, 2019 was approximately 20% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending DecemberMarch 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the Tax Cuts and Jobs Act of 2017 (“TCJA”) allowing the Company to refine its calculations and current period stock option exercises.For the three month period ended September 30, 2018, our provision for income taxes was $1.1 million. Our deferred tax assets as of September 30, 20182020 were $0.3$0.5 million. The estimated effective tax rate for the three months ended September 30, 2018March 31, 2020 was approximately 18%21.2% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 20182020 plus the effects of certain discrete items occurring in 2018.2020. For the three-month period ended March 31, 2019, our provision for income taxes was $1.1 million. Our deferred tax assets as of March 31, 2019 were $0.3 million. Our effective tax rate for the three months ended September 30, 2018March 31, 2019 was impacted primarily by the TCJA, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018.20.0%. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.
Net Income
For the three months ended September 30, 2019, we recorded net income of $6.3 million, or $0.86 per basic common share and $0.85 per diluted common share, compared to a net income of $5.0 million, or $0.69 per basic common share and per diluted common share, for the same period in 2018.
NINE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2018
Revenues
Royalties
Total royalty and mark-up on cost of goods sold for the nine month period ended September 30, 2019 were $26.4 million as compared to $23.1 million in the corresponding 2018 period, an increase of $3.3 million, or 14%. The increase in total revenues for the quarterly period was primarily due to royalties associated with higher net sales of XIAFLEX® in PD and DC, and higher mark-up on cost of goods sold revenue.
Licensing Revenue
For the nine month periods ended September 30, 2019, we recognized zero revenue related to nonrefundable upfront product license fees for product candidates as compared to approximately $40,000 in the 2018 period.
Research and Development Activities and Expenses
For the nine month periods ended September 30, 2019 and 2018, R&D expenses were approximately $0.5 million and $0.6 million, respectively, and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs. The decrease in the 2019 period as compared to the 2018 period was mainly due to reduced cost associated with other R&D programs and lower clinical costs.
The following table summarizes our R&D expenses related to our development programs during the nine months ended September 30, 2019 and September 30, 2018, respectively:
| | Nine Months Ended September 30, 2019 | | | Nine Months Ended September 30, 2018 | |
| Program | | | | | | | | |
| Uterine Fibroids | | $ | 169,231 | | | $ | 210,250 | |
| Pre-clinical/other research projects | | | 284,811 | | | | 359,398 | |
| Total R&D expenses | | $ | 454,042 | | | $ | 569,648 | |
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2019 and 2018 were $6.6 million and $6.3 million, respectively. The increase in general and administrative expenses was mainly due to increased legal fees, personnel expenses, stock compensation expense and professional fees, partially offset by lower third party royalties associated with XIAFLEX® and the amortization associated with the deferred royalty buy-down related to PD.
Other Income
Other income for the nine months ended September 30, 2019 was approximately $1.5 million compared to $0.9 million in the corresponding 2018 period. Other income consists of interest earned on our investments and, in the 2018 period, limited product sales of collagenase for laboratory use.
Provision for Income Taxes
For the nine month period ended September 30, 2019, our provision for income taxes was $3.7 million. Our net deferred tax liabilities as of September 30, 2019 was $0.6 million. The estimated effective tax rate for the nine months ended September 30, 2019 was approximately 18% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the TCJA allowing the Company to refine its calculations and current period stock option exercises.
For the nine month period ended September 30, 2018, our provision for income taxes was $3.3 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the nine months ended September 30, 2018 was approximately 19% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2018 plus the effects of certain discrete items occurring in 2018. Our effective tax rate for the nine months ended June 30, 2018 was impacted primarily by the TCJA, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.
Net Income
For the ninethree months ended September 30, 2019,March 31, 2020, we recorded net income of $17.1$4.5 million, or $2.34$0.61 per basic common share and $2.33 per diluted common share, compared to a net income of $13.9$4.4 million, or $1.92$0.61 per basic common share and $1.89$0.60 per diluted common share, for the same period in 2018.2019.
Liquidity and Capital Resources
To date, we have financed our operations primarily through product sales, licensing revenues and royalties under agreements with third parties licensing revenues, limited product sales, and sales of our common stock. At September 30, 2019As of March 31, 2020 and December 31, 2018,2019, we had cash and cash equivalents and investments in the aggregate of approximately $98.4$113.6 million and $82.0$105.8 million, respectively. We currently anticipate that our available funds and cash flow from operations will be sufficient to meet our operational cash needs for at least the next 12 months from the date of this filing.
Net cash provided by operating activities for the
ninethree months ended
September 30, 2019March 31, 2020 was
$14.5$8.2 million as compared to
$12.3net cash provided by operating activities of $6.0 million in the
20182019 period.
Net cash provided by operating activities in the 2020 period was primarily attributable to our net income, accrued tax liability of $1.3 million, and accrued restructuring charges of $0.9 million. Non-cash items used to reconcile net income to net cash provided by operating activities of $0.6 million was due primarily to stock-based compensation expense. Net cash provided by operating activities in the 2019 period was primarily attributable to our net income
partially offset by a reduction in accounts payable,and accrued
expenses and income taxes payabletax liability of
$1.9 million and an increase in prepaid expenses and other current assets of $0.2$1.1 million. Non-cash items used to reconcile net income to net cash provided by operating activities of
$0.9$0.3 million included amortization of patent costs
and bond premiums and discounts
and stock-based compensation
expense and deferred tax expense.
Net cash provided by operatinginvesting activities infor the 2018 periodthree months ended March 31, 2020 was primarily attributable$6.1 million as compared to our net income partially offset by an increase in accounts receivable of $2.2 million due to an increase in XIAFLEX® net sales and accrued tax liability of $0.8 million. Non-cash items included amortization, stock-based compensation expense, and deferred taxes which was reduced by adjustments to reconcile net income to net cash provided by operating activities of $2.2 million.
Net cash used in investing activities for the nine months ended September 30, 2019 was $16.7 million as compared to $6.2of $1.7 million for the corresponding 20182019 period. The net cash provided by investing activities in the 2020 period primarily reflects the investment of $29.1 million and the maturing of $35.3 million in marketable securities. The net cash provided by investing activities in the 2020 period also includes $70,000 of purchases of property and equipment. The net cash used in investing activities in the 2019 period reflects the investment of $93.4$21.8 million and the maturing of $76.6 million in marketable securities. The net cash used in investing activities in the 2018 period reflects the investment of $64.6 million and the maturing of $58.4$20.2 million in marketable securities.
Net
cash used in financing activities for the three months ended March 31, 2020 was approximately $221,000 as compared to net cash provided by financing activities
for the nine months ended September 30, 2019 was approximately $1.8 million as compared to $12,000of $58,000 in the corresponding
20182019 period.
In the 2020 period, net cash used in financing activities was due to payments for the repurchase of common stock. In the 2019 period, net cash provided by financing activities was due to proceeds received from stock option
exercises of approximately $2.1 million partially offset by the repurchase of approximately $0.4 million of our common stock under our stock repurchase program. In the 2018 period, net cash provided by financing activities of $2.6 million was due to proceeds received from stock option exercises offset by the repurchase of approximately $2.6 million of our common stock under our stock repurchase program.exercises.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
| Quantitative and Qualitative Disclosures About Market Risk
|
We are subject to market risks in the normal course of our business, including changes in interest rates. There have been no significant changes in our exposure to market risks since December 31, 2018.Not applicable.
Item 4:4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of the Company (the “Management”), including our
chief executive officer and principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
The Company, under the supervision and with the participation of our chief executive officer and principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our chief executive officer and principal executive officer and principal financial officer concluded, as of the end of the period covered by this Quarterly Report, that the Company’s disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our chief executive officer and principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our chief executive officer and principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in our internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during the three months ended September 30, 2019March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Our business may be adversely affected by the ongoing coronavirus pandemic.
In December 2019, a novel strain of the coronavirus (COVID-19) emerged in China and the virus has now spread to other countries, including the U.S., and infections have been reported globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has resulted in global business and economic disruption and extreme volatility in the financial markets as many jurisdictions have placed restrictions on travel and non-essential business operations and implemented social distancing, shelter-in-place, quarantine, and other similar measures for their residents to contain the spread of the virus. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity, and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak.
The continued spread of COVID-19 globally could materially and adversely impact our operations including without limitation, future clinical trial operations, regulatory approval and the timing thereof, the operations of our collaboration partners, travel, and employee health and availability which may have a material and adverse effect on our business, financial condition, and results of operations. Specifically, depending upon the length and severity of the pandemic, COVID-19 could impact:
Our future clinical trial plans, specifically with respect to uterine fibroids;
Endo’s development programs for the CCH treatment of plantar fibromatosis and adhesive capsulitis;
Endo’s commercialization and launch of CCH treatment for cellulite; and
Endo’s ability to manufacture, market, and sell XIAFLEX® with respect to DC and PD.
In addition, a recession, depression or other sustained adverse market event could materially and adversely affect the financial markets, our business, the value of our common stock and our ability to obtain on favorable terms, or at all, or the monetization of our royalty streams. The coronavirus pandemic continues to rapidly evolve. The ultimate impact of the coronavirus pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted.
COVID-19 could material and adversely affect Endo’s business, which in turn would impact our business.
As we are dependent upon revenue from Endo, Endo’s operating success or failure has a significant impact on our potential royalty stream and other payment rights. Accordingly, the following impacts of COVID-19 on Endo’s business, could materially affect our business.
In response to public health directives and orders, Endo has implemented alternative working practices and mandatory work-from-home requirements for appropriate employees, as well as social distancing, modified schedules, shift rotation, and other similar policies at its manufacturing facilities, and has transitioned to a “virtual” engagement model to continue supporting healthcare professionals, patient care, and access to medicines. Endo has also suspended international and domestic travel. The effects of COVID-19, including these public health directives and orders, have had an impact on Endo’s business and may in the future materially disrupt its business, including its manufacturing and supply chain operations by significantly reducing its output, negatively impacting its productivity, and delaying its product development programs.
PART II: OTHER INFORMATION
Endo has experienced, and may continue to experience, changes in customer demand as the COVID-19 pandemic evolves. The current economic crisis and rising unemployment rates resulting from COVID-19 have the potential to significantly reduce individual disposable income and depress consumer confidence, which could limit the ability of some consumers to purchase certain pharmaceutical products and reduce consumer spend on certain medical procedures in both the short- and medium-term. Additionally, as part of the measures to address COVID-19, certain healthcare providers are not currently performing various medical procedures, including those that use XIAFLEX®. For example, during the last two weeks of the first quarter of 2020, Endo experienced decreased demand for XIAFLEX®.
None.Additionally, Endo’s product development programs may be adversely affected by the global pandemic and the prioritization of production during this pandemic. The public health directives in response to COVID-19 requiring social distancing and restricting non-essential business operations have in certain cases caused and may continue to cause delays, increased costs, and additional challenges in Endo’s product development programs, including obtaining adequate patient enrollment and successfully bringing product candidates to market. In addition, Endo may face additional challenges receiving regulatory approvals as previously scheduled dates or anticipated deadlines for action by the FDA on its applications and products in development, including dates scheduled for 2020, could be subject to delays beyond Endo’s control as regulators such as the FDA focus on COVID-19. For example, as a result of COVID-19 and its impact on medical aesthetics physician office closures and consumer spending, Endo is planning on changing the anticipated product launch of CCH for the treatment of cellulite in the buttocks, if approved, to 2021. In addition, Endo has assessed and expects to continue to assess the timeline for the development and commercialization of other products, which could include CCH treatment for frozen shoulder and plantar fibromatosis.
The magnitude of the effect of COVID-19 on Endo’s business will depend, in part, on the length and severity of the restrictions (including the effects of recently announced “re-opening” plans following a recent slowdown of the virus infection rate in certain countries and localities) and other limitations on Endo’s ability to conduct its business in the ordinary course. The extent, length and consequences of the pandemic are uncertain and impossible to predict, but could be material.
In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” in our 20182019 Annual Report, which could materially affect our business, financial condition or future results.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the
nine monththree-month period ended
September 30, 2019,March 31, 2020, we did not issue any unregistered shares of securities.
Issuer Purchases of Equity Securities
On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4$4.0 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Exchange Act, and various other factors.
The following table presents a summary of share repurchases made by us during the quarter ended September 30, 2019March 31, 2020.
Period | | Total Number of Shares Purchased(1) | | | Average Price Paid Per Share(2) | | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | | Maximum Number (or Dollar Value) of Shares that May Yet be Purchased under the Plan(3) | |
| Remaining balance as of June 30, 2019 | | | | | | | | | | | $ | 3,881,433 | |
| July 1, 2019 – July 30, 2019 | | | 1,033 | | | $ | 60.27 | | | | 3,081 | | | | 3,819,170 | |
| August 1, 2019 – August 31, 2019 | | | 1,717 | | | | 56.39 | | | | 4,798 | | | | 3,722,346 | |
| September 1, 2019 – September 30, 2019 | | | 1,411 | | | $ | 56.44 | | | | 6,209 | | | $ | 3,642,711 | |
| Total | | | 4,161 | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | | Average Price Paid Per Share (2) | | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | | Maximum Number (or Dollar Value) of Shares that May Yet be Purchased under the Plan(3) | |
| Remaining balance as of December 31, 2019 | | | | | | | | | | | $ | 3,379,349 | |
| January 1, 2020 – January 31, 2020 | | 1,709 | | | $ | 56.66 | | | | 13,096 | | | | 3,282,509 | |
| February 1, 2020 – February 29, 2020 | | 848 | | | $ | 61.39 | | | | 13,944 | | | | 3,230,446 | |
| March 1, 2020 – March 31, 2020 | | 1,510 | | | $ | 47.77 | | | | 15,454 | | | $ | 3,158,318 | |
| Total | | 4,067 | | | | | | | | | | | | | |
| (1) | The purchases were made in open-market transactions in compliance with Exchange Act Rule 10b-18 or under the company’s 10b-18 plan. |
| (2) | Includes commissions paid, if any, related to the stock repurchase transactions. |
| (3) | On May 23, 2019, we announced that our Board of Directors had authorized the repurchase of up to $4.0 million of our common stock under the stock repurchase program, which program is not subject to an expiration date. |
On November 6, 2019, the Company entered into an agreement with 35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the lease to our corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional six month period (the “Extended Lease Agreement”). The six month extension will end on May 31, 2020. Pursuant to the Extended Lease Agreement, the base rent is $12,075 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term.
| | | Certificate of Designation of Series C Junior Participating Preferred Stock of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed April 10, 2020 (File No. 001-34236)) |
| | Rights Agreement, dated as of April 10, 2020, by and between the Company and Worldwide Stock Transfer, LLC, as rights agent (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed April 10, 2020 (File No. 001-34236)) |
| | Employment Letter Agreement, dated January 6, 2020, by and between BioSpecifics Technology Corp., Advance Biofactures Corporation,the Company and Patrick Hutchison (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K filed March 16, 2020 (File No. 001-34236)) |
| | Separation of Employment Agreement and General Release, dated March 31, 2020, by and between the Company and Patrick Caldwell |
| | Separation of Employment Agreement and General Release, dated April 6, 2020, by and between the Company and J. Kevin Buchi |
| | | Form of Non-Qualified Stock Option AwardLetter Agreement, dated April 6, 2020, by and between the Company and Joseph Truitt
|
| | | AmendedEmployment Agreement, of Lease, dated as of November 6, 2019, amongMay 7, 2020, by and between the Company ABC-NY and 35 Wilbur Street AssociatesJoseph Truitt
|
| 10.6*
| Confidentiality and Inventions Assignment Agreement, dated April 1, 2020, by and between the Company and Joseph Truitt
|
| | | Certification of Chief Executive Officer and Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | Certification of Chief Executive Officer and Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 |
* filed herewith
+ Denotes management contracts and compensatory arrangements in which any director or any named executive officer participates.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| | BIOSPECIFICS TECHNOLOGIES CORP. | |
| | |
| | (Registrant) |
| |
Date: November 12, 2019May 11, 2020 | /s/ J. Kevin BuchiJoseph Truitt | |
| | J. Kevin BuchiJoseph Truitt
| |
| | Chief Executive Officer and Principal Executive Officer | |
30