UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018March 31, 2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number001-31361
BioDelivery Sciences International, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 35-2089858 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4131 ParkLake Ave., Suite 225, Raleigh, NC | 27612 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number (including area code):919-582-9050
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company”, or “emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common stock, par value $0.001 | BDSI | The Nasdaq Capital Market |
As of November 8, 2018,May 6, 2019, there were 70,707,10987,418,253 shares of company Common Stock issued and 70,691,61887,402,762 shares of company Common Stock outstanding.
BioDelivery Sciences International, Inc. and Subsidiaries
Quarterly Report on Form10-Q
Certifications
We own various trademark registrations and applications, and unregistered trademarks, including BioDelivery Sciences International, Inc., BEMA, BELBUCA, BUNAVAIL, ONSOLIS and our corporate logo. We have an exclusive license to use and display the Symproic registered trademark in order to commercialize Symproic in the United States. All other trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
From time to time, we may use our website, our Facebook page atFacebook.com/BioDeliverySI and on Twitter at @BioDeliverySI to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available atwww.bdsi.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website, our Facebook page and our Twitter posts are not incorporated into, and does not form a part of, this Quarterly Report.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
September 30, 2018 | December 31, 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
ASSETS | ASSETS |
| ASSETS |
| ||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 49,482 | $ | 21,195 | $ | 41,329 | $ | 43,822 | ||||||||
Accounts receivable, net | 12,568 | 8,852 | 16,008 | 13,627 | ||||||||||||
Inventory, net | 5,434 | 6,091 | 7,259 | 5,406 | ||||||||||||
Prepaid expenses and other current assets | 4,155 | 3,610 | 2,970 | 3,188 | ||||||||||||
|
|
|
| |||||||||||||
Total current assets | 71,639 | 39,748 | 67,566 | 66,043 | ||||||||||||
Property and equipment, net | 3,170 | 3,778 | 3,952 | 3,072 | ||||||||||||
Goodwill | 2,715 | 2,715 | 2,715 | 2,715 | ||||||||||||
BELBUCA® license and distribution rights, net | 37,125 | 40,500 | ||||||||||||||
BELBUCA license and distribution rights, net | 34,875 | 36,000 | ||||||||||||||
Other intangible assets, net | 867 | 1,360 | 539 | 703 | ||||||||||||
|
|
|
| |||||||||||||
Total assets | $ | 115,516 | $ | 88,101 | $ | 109,647 | $ | 108,533 | ||||||||
|
|
|
| |||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| ||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 23,919 | $ | 26,149 | $ | 23,484 | $ | 21,539 | ||||||||
|
|
|
| |||||||||||||
Total current liabilities | 23,919 | 26,149 | 23,484 | 21,539 | ||||||||||||
Notes payable, net | 50,516 | 47,660 | 52,286 | 51,652 | ||||||||||||
Other long-term liabilities | 5,511 | 5,415 | 6,355 | 5,600 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities | 79,946 | 79,224 | 82,125 | 78,791 | ||||||||||||
Commitments and contingencies (Note 12) | ||||||||||||||||
Commitments and contingencies (Note 11) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred Stock, 5,000,000 shares authorized; Series ANon-Voting Convertible Preferred Stock. $.001 par value, 2,093,155 shares outstanding at both September 30, 2018 and December 31, 2017, respectively; Series BNon-Voting Convertible Preferred Stock, $.001 par value, 3,100 and 0 shares outstanding at September 30, 2018 and December 31, 2017, respectively. | 2 | 2 | ||||||||||||||
Common Stock, $.001 par value; 125,000,000 and 75,000,000 shares authorized at September 30, 2018 and December 31, 2017, respectively; 70,598,687 and 55,904,072 shares issued;70,583,196 and 55,888,581 shares outstanding at September 30, 2018 and December 31, 2017, respectively. | 71 | 56 | ||||||||||||||
Preferred Stock, 5,000,000 shares authorized; Series ANon-Voting Convertible Preferred Stock. $.001 par value, 2,093,155 shares outstanding at both March 31, 2019 and December 31, 2018, respectively; Series BNon-Voting Convertible Preferred Stock, $.001 par value, 2,400 and 3,100 shares outstanding at March 31, 2019 and December 31, 2018, respectively. | 2 | 2 | ||||||||||||||
Common Stock, $.001 par value; 125,000,000 shares authorized at March 31, 2019 and December 31, 2018, respectively; 75,333,254 and 75,793,725 shares issued;75,317,763 and 70,778,234 shares outstanding at March 31, 2019 and December 31, 2018, respectively. | 74 | 71 | ||||||||||||||
Additionalpaid-in capital | 379,824 | 313,922 | 382,614 | 381,004 | ||||||||||||
Treasury stock, at cost, 15,491 shares | (47 | ) | (47 | ) | (47 | ) | (47 | ) | ||||||||
Accumulated deficit | (344,280 | ) | (305,056 | ) | (355,121 | ) | (351,288 | ) | ||||||||
|
|
|
| |||||||||||||
Total stockholders’ equity | 35,570 | 8,877 | 27,522 | 29,742 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities and stockholders’ equity | $ | 115,516 | $ | 88,101 | $ | 109,647 | $ | 108,533 | ||||||||
|
|
|
|
See notes to condensed consolidated financial statements
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues: | ||||||||||||||||
Product sales | $ | 13,763 | $ | 8,118 | $ | 34,367 | $ | 23,798 | ||||||||
Product royalty revenues | 370 | 1,409 | 2,197 | 3,682 | ||||||||||||
Research and development reimbursements | — | 532 | — | 799 | ||||||||||||
Contract revenues | 23 | 1,194 | 1,047 | 21,194 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Revenues: | 14,156 | 11,253 | 37,611 | 49,473 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of sales | 3,779 | 4,445 | 11,760 | 14,261 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Expenses: | ||||||||||||||||
Research and development | 699 | 1,986 | 4,038 | 6,246 | ||||||||||||
Selling, general and administrative | 13,489 | 14,867 | 41,013 | 44,094 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Expenses: | 14,188 | 16,853 | 45,051 | 50,340 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Loss from operations | (3,811 | ) | (10,045 | ) | (19,200 | ) | (15,128 | ) | ||||||||
Interest expense | (2,567 | ) | (1,893 | ) | (7,598 | ) | (6,657 | ) | ||||||||
Other expense, net | (2 | ) | (13 | ) | (8 | ) | (28 | ) | ||||||||
Bargain purchase gain | — | — | — | 27,336 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) income before income taxes | $ | (6,380 | ) | $ | (11,951 | ) | $ | (26,806 | ) | $ | 5,523 | |||||
Income tax (expense) benefit | — | — | (53 | ) | 15,972 | |||||||||||
Net (loss) income | $ | (6,380 | ) | $ | (11,951 | ) | $ | (26,859 | ) | $ | 21,495 | |||||
|
|
|
|
|
|
|
| |||||||||
Beneficial conversion feature of convertible preferred stock | (12,500 | ) | — | (12,500 | ) | — | ||||||||||
Net (loss) income attributable to common stockholders | $ | (18,880 | ) | $ | (11,951 | ) | $ | (39,359 | ) | $ | 21,495 | |||||
|
|
|
|
|
|
|
| |||||||||
Basic | ||||||||||||||||
Basic (loss) income per share: | $ | (0.29 | ) | $ | (0.21 | ) | $ | (0.65 | ) | $ | 0.39 | |||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common stock shares outstanding: | 64,900,007 | 55,604,708 | 60,599,456 | 55,170,569 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | ||||||||||||||||
Diluted (loss) income per share: | $ | (0.29 | ) | $ | (0.21 | ) | $ | (0.65 | ) | $ | 0.38 | |||||
|
|
|
|
|
|
|
| |||||||||
Diluted weighted average common stock shares outstanding: | 64,900,007 | 55,604,708 | 60,599,456 | 56,204,358 | ||||||||||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Product sales | $ | 19,759 | $ | 9,838 | ||||
Product royalty revenues | 2 | 440 | ||||||
Contract revenue | 8 | 1,003 | ||||||
|
|
|
| |||||
Total revenues | 19,769 | 11,281 | ||||||
|
|
|
| |||||
Cost of sales | 4,052 | 3,415 | ||||||
|
|
|
| |||||
Expenses: | ||||||||
Research and development | — | 2,484 | ||||||
Selling, general and administrative | 16,989 | 13,505 | ||||||
|
|
|
| |||||
Total expenses | 16,989 | 15,989 | ||||||
|
|
|
| |||||
Loss from operations | (1,272 | ) | (8,123 | ) | ||||
|
|
|
| |||||
Interest expense, net | (2,561 | ) | (2,505 | ) | ||||
Other expense, net | — | (7 | ) | |||||
|
|
|
| |||||
Loss before income taxes | $ | (3,833 | ) | $ | (10,635 | ) | ||
|
|
|
| |||||
Income tax expense | — | (74 | ) | |||||
|
|
|
| |||||
Net loss attributable to common stockholders | $ | (3,833 | ) | $ | (10,709 | ) | ||
|
|
|
| |||||
Basic and diluted: | ||||||||
Weighted average common stock shares outstanding | 71,344,831 | 58,062,997 | ||||||
|
|
|
| |||||
Basic and diluted loss per share | $ | (0.05 | ) | $ | (0.18 | ) | ||
|
|
|
|
See notes to condensed consolidated financial statements
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
Preferred Stock Series A | Preferred Stock Series B | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2019 | 2,093,155 | $ | 2 | 3,100 | $ | — | 70,793,725 | $ | 71 | $ | 381,004 | $ | (47 | ) | $ | (351,288 | ) | $ | 29,742 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 1,141 | — | — | 1,141 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | — | — | — | — | 150,275 | — | 472 | — | — | 472 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | — | — | — | — | 500,366 | (1 | ) | 1 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B conversion to Common Stock | — | — | (700 | ) | — | 3,888,888 | 4 | (4 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (3,833 | ) | (3,833 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2019 | 2,093,155 | $ | 2 | 2,400 | $ | — | 75,333,254 | $ | 74 | $ | 382,614 | $ | (47 | ) | $ | (355,121 | ) | $ | 27,522 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock Series A | Preferred Stock Series B | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Equity | Preferred Stock Series A | Preferred Stock Series B | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2018 | 2,093,155 | $ | 2 | — | $ | — | 55,904,072 | $ | 56 | $ | 313,922 | $ | (47 | ) | $ | (305,056 | ) | $ | 8,877 | 2,093,155 | $ | 2 | — | $ | — | 55,904,072 | $ | 56 | $ | 313,922 | $ | (47 | ) | $ | (305,056 | ) | $ | 8,877 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 4,896 | — | — | 4,896 | — | — | — | — | — | — | 2,921 | — | — | 2,921 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | — | — | — | — | 285,403 | — | 528 | — | — | 528 | — | — | — | — | 63,295 | — | 130 | — | — | 130 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards | — | — | — | — | 1,733,731 | 2 | (2 | ) | — | — | — | — | — | — | — | 1,038,957 | 1 | (1 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issuance upon retirement | — | — | — | — | 2,119,925 | 2 | (2 | ) | — | — | — | — | — | — | — | 1,640,198 | 2 | (2 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B issuance, net of issuance costs | — | — | 5,000 | — | — | — | 47,993 | — | — | 47,993 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B conversion to Common Stock | — | — | (1,900 | ) | — | 10,555,556 | 11 | (11 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B beneficial conversion feature | — | — | — | — | — | — | 12,500 | — | (12,500 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative effect of accounting change | — | — | — | — | — | — | — | — | 135 | 135 | — | — | — | — | — | — | — | — | 135 | 135 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (26,859 | ) | (26,859 | ) | — | — | — | — | — | — | — | — | (10,709 | ) | (10,709 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2018 | 2,093,155 | $ | 2 | 3,100 | $ | — | 70,598,687 | $ | 71 | $ | 379,824 | $ | (47 | ) | $ | (344,280 | ) | $ | 35,570 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2018 | 2,093,155 | $ | 2 | — | $ | — | 58,646,522 | $ | 59 | $ | 316,970 | $ | (47 | ) | $ | (315,630 | ) | $ | 1,354 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS, IN THOUSANDS)
(Unaudited)
Nine months ended September 30, | Three months ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Operating activities: | ||||||||||||||||
Net (loss) income | $ | (26,859 | ) | $ | 21,495 | |||||||||||
Adjustments to reconcile net (loss) income to net cash flows from operating activities | ||||||||||||||||
Net loss | $ | (3,833 | ) | $ | (10,709 | ) | ||||||||||
Adjustments to reconcile net loss to net cash flows from operating activities | ||||||||||||||||
Depreciation | 685 | 465 | 85 | 230 | ||||||||||||
Accretion of debt discount and loan costs | 2,953 | 1,941 | 634 | 625 | ||||||||||||
Amortization of intangible assets | 3,868 | 4,103 | 1,289 | 1,289 | ||||||||||||
Impairment loss on equipment | 78 | — | ||||||||||||||
Provision for inventory obsolescence | 396 | — | ||||||||||||||
Provision (benefit) for inventory obsolescence | 149 | (66 | ) | |||||||||||||
Stock-based compensation expense | 4,896 | 10,223 | 1,141 | 2,921 | ||||||||||||
Deferred income taxes | — | (15,972 | ) | |||||||||||||
Bargain purchase gain | — | (27,336 | ) | |||||||||||||
Changes in assets and liabilities, net of effect of acquisition: | ||||||||||||||||
Accounts receivable | (3,581 | ) | (7,222 | ) | (2,381 | ) | 864 | |||||||||
Inventories | 261 | 2,314 | (2,002 | ) | 716 | |||||||||||
Prepaid expenses and other assets | (545 | ) | 1,826 | 218 | 782 | |||||||||||
Accounts payable and accrued liabilities | (427 | ) | 8,998 | |||||||||||||
Deferred revenue | — | (21,716 | ) | |||||||||||||
Accounts payable and accrued expenses | 1,814 | (3,413 | ) | |||||||||||||
|
|
|
| |||||||||||||
Net cash flows used in operating activities | (18,275 | ) | (20,881 | ) | ||||||||||||
Net cash flows from operating activities | (2,886 | ) | (6,761 | ) | ||||||||||||
|
|
|
| |||||||||||||
Investing activities: | ||||||||||||||||
BELBUCA® acquisition | (1,951 | ) | (3,902 | ) | ||||||||||||
BELBUCA acquisition | — | (1,951 | ) | |||||||||||||
Purchase of equipment | (155 | ) | (5 | ) | — | (73 | ) | |||||||||
Disposal of property and equipment | (79 | ) | — | |||||||||||||
|
|
|
| |||||||||||||
Net cash flows used in investing activities | (2,106 | ) | (3,907 | ) | ||||||||||||
Net cash flows from investing activities | (79 | ) | (2,024 | ) | ||||||||||||
|
|
|
| |||||||||||||
Financing activities: | ||||||||||||||||
Proceeds from issuance of Series B preferred stock | 50,000 | — | ||||||||||||||
Equity finance costs | (1,410 | ) | — | |||||||||||||
Proceeds from notes payable | — | 45,000 | ||||||||||||||
Proceeds from exercise of stock options | 528 | 313 | 472 | 130 | ||||||||||||
Payment on note payable | — | (30,000 | ) | |||||||||||||
Payment of deferred financing fees | (450 | ) | (2,798 | ) | — | (450 | ) | |||||||||
|
|
|
| |||||||||||||
Net cash flows provided by financing activities | 48,668 | 12,515 | ||||||||||||||
Net cash flows from (used in) financing activities | 472 | (320 | ) | |||||||||||||
|
|
|
| |||||||||||||
Net change in cash and cash equivalents | 28,287 | (12,273 | ) | (2,493 | ) | (9,105 | ) | |||||||||
Cash and cash equivalents at beginning of period | 21,195 | 32,019 | 43,822 | 21,195 | ||||||||||||
|
|
|
| |||||||||||||
Cash and cash equivalents at end of period | $ | 49,482 | $ | 19,746 | $ | 41,329 | $ | 12,090 | ||||||||
|
|
|
| |||||||||||||
Cash paid for interest | $ | 4,645 | $ | 3,816 | $ | 1,931 | $ | 1,880 | ||||||||
|
|
|
|
See notes to condensed consolidated financial statements
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Non-cash Operating, Financing and Investing Activities:
The Company recorded the intrinsic value related to the beneficial conversion feature of the Series BNon-Voting Convertible Preferred Stock during the nine months ended September 30, 2018 totaling $12.5 million to retained earnings and additionalpaid-in capital in accordance with accounting principles generally accepted in the United States (“GAAP”).
The Company recorded the fair value of an accumulated total of 2,119,925 shares of common stock issued to officers who retired from the Company during the nine months ended September 30, 2018 totaling approximately $5.3 million to expense in accordance with GAAP.
The Company recorded $0.6 million of accrued financing expenses related to the Series BNon-Voting Convertible Preferred Stock offering during the nine months ended September 30, 2018. Such expense is recorded as accounts payable and accrued liabilities in the condensed consolidated balance sheet.
The Company recorded the fair value of the bargain purchase price of the BELBUCA® acquisition totaling $27.3 million to income during the nine months ended September 30, 2017 in accordance with GAAP.
See notes to consolidated financial statements
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Organization, basis of presentation and summary of significant policies:
Overview
BioDelivery Sciences International, Inc., together with its subsidiaries (collectively, the “Company”) is a rapidly growing commercial-stage specialty pharmaceutical company dedicated to patients living with chronic pain and associated conditions. The Company has built a portfolio of products that is developingincludes utilizing its novel and commercializing, either onproprietary BioErodible MucoAdhesive (BEMA) drug-delivery technology to develop and commercialize new applications of proven therapies aimed at addressing important unmet medical needs. The Company commercializes in the United States using its own orsales force while working in partnershipspartnership with third parties new applications of approved therapeutics to address important unmet medical needs using both proven and new drug delivery technologies. The Company is focusing on developingcommercialize its products to meet unmet patient needs inoutside the areas of pain management and addiction.United States.
The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of these financial statements. The condensed consolidated balance sheet at December 31, 20172018 has been derived from the Company’s audited consolidated financial statements included in its annual report on Form10-K for the year ended December 31, 2017.2018. Certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. It is suggestedrecommended that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report onForm 10-K for the year ended December 31, 2017.2018.
Operating results for the three and nine-month periodsthree-month period ended September 30, 2018March 31, 2019 are not necessarily indicative of results for the full year or any other future periods.
As used herein, the Company’s common stock, par value $0.001 per share, is referred to as the “Common Stock” and the Company’s preferred stock, par value $0.001 per share, is referred to as the “Preferred Stock”.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company, Arius Pharmaceuticals, Inc. (“Arius”), Arius Two, Inc. (“Arius Two”) and Bioral Nutrient Delivery, LLC (“BND”). For each period presented, BND has been an inactive subsidiary. All significant inter-company balances and transactions have been eliminated.
Use of estimates in financial statements
The preparation of the accompanying condensed consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Company reviews all significant estimates affecting the consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. Significant estimates of the Company include: revenue recognition, sales allowances such as returns of product sold, government program rebates, customer coupon redemptions, wholesaler/pharmacy discounts, product service fees, rebates and chargebacks, sales bonuses, stock-based compensation, determination of fair values of assets and liabilities in connection withrelating to business combinations, and deferred income taxes.
Inventory
Inventories are stated at the lower of cost or net realizable value with costs determined for each batch under thefirst-in,first-out method and specifically allocated to remaining inventory. Inventory consists of raw materials, work in process and finished goods. Raw materials include amounts of active pharmaceutical ingredient for a product to be manufactured, work in process includes the bulk inventory of laminate (the Company’s drug delivery film) prior to being packaged for sale, and finished goods include pharmaceutical products ready for commercial sale.
On a quarterly basis, the Company analyzes its inventory levels and records allowances for inventory that has become obsolete, inventory that has a cost basis in excess of the expected net realizable value and inventory that is in excess of expected demand based upon projected product sales. The Company reserved $0.6$0.3 million and $0.2 million for inventory obsolescence as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Organization, basis of presentation and summary of significant policies (continued):
Revenue recognition
Product salesThe main types of revenue contracts are:
As discussed further below in Note 2, effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”)2014-09, “Revenue from Contracts with Customers” (“Topic 606”) and began recognizing revenue under the new accounting guidance on that date. Under the new accounting guidance,
• | Product sales-Product sales amounts relate to sales of BELBUCA and BUNAVAIL. These sales are recognized as revenue when control is transferred to the wholesaler in an amount that reflects the consideration expected to be received. |
• | Product royalty revenues-Product royalty revenue amounts are based on sales revenue of the PAINKYL product under the Company’s license agreement with TTY and the BREAKYL product under the Company’s license agreement with Meda AB, which was acquired by Mylan N.V. (which we refer to herein as Mylan). Product royalty revenues are recognized when control of the product is transferred to the license partner in an amount that reflects the consideration expected to be received. Supplemental sales-based product royalty revenue may also be earned upon the subsequent sale of the product at agreed upon contractual rates. |
• | Contract revenue-Contract revenue amounts are related to milestone payments under the Company’s license agreements with its partners including any associated financing component. |
The Company recognizes revenue on product sales when control of the promised goods is transferred to its customers in an amount that reflects the consideration expected to be received in exchange for transferring those goods. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the customer has obtained control of the goods, the Company considers any future performance obligations. Generally, there is no post-shipment obligations on product sold.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606.customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales contracts have a single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company’s performance obligations are satisfied at a point in time. The multiple performance obligations are not allocated based off of the obligations but based off of standard selling price.
Adjustments to product sales
The Company recognizes product sales net of estimated allowances for rebates, price adjustments, returns, chargebacks, vouchers and prompt payment discounts. A significant majority of the Company’s adjustments to gross product revenues are the result of accruals for its commercial contracts, retail consumer subsidy programs, and Medicaid rebates.
The Company establishes allowances for estimated rebates, chargebacks and product returns based on numerous qualitative and quantitative factors, including:
the number of and specific contractual terms of agreements with customers;
estimated levels of inventory in the distribution channel;
historical rebates, chargebacks and returns of products;
direct communication with customers;
anticipated introduction of competitive products or generics;
anticipated pricing strategy changes by the Company and/or its competitors;
analysis of prescription data gathered by a third-party prescription data provider;
the impact of changes in state and federal regulations; and
the estimated remaining shelf life of products.
In its analyses, the
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Nature of business and summary of significant accounting policies (continued):
The Company uses prescription data purchased from a third-party data provider to develop estimates of historical inventory channel sell-through. The Company utilizes an internal analysis to compare historical net product shipments (shipments less returns) to estimated historical prescriptions written. Based on that analysis, management develops an estimate of the quantity of product in the channel which may be subject to various rebate, chargeback and product return exposures. To estimate months of ending inventory in the Company’s distribution channel, the Company divides estimated ending inventory in the distribution channel by the Company’s recent prescription data, not considering any future anticipated demand growth.growth beyond the succeeding quarter. Monthly for each product line, the Company prepares an internal estimate of ending inventory units in the distribution channel by adding estimated inventory in the channel at the beginning of the period, plus net product shipments for the period, less estimated prescriptions written for the period. This is done for each product line by applying a rate of historical activity for rebates, chargebacks and product returns,
adjusted for relevant quantitative and qualitative factors discussed above, to the potential exposed product estimated to be in the distribution channel. In addition, the Company receives daily information from the wholesalers regarding their sales and actual on hand inventory levels of the Company’s products. This enables the Company to execute accurate provisioning procedures.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Organization, basis of presentation and summary of significant policies (continued):
Product returns-Consistent with industry practice, the Company offers contractual return rights that allow its customers to return the products within an18-month period that begins six months prior to and ends twelve months after expiration of the products.
Rebates- The accrual to payment cycleliability for returns is longer and can take several years depending on the expiration of the related products.
Rebates-The liability forgovernment program rebates is calculated based on historical and current rebate redemption and utilization rates contractually submitted by each program’s administrator.
Price adjustments and chargebackschargebacks--TheThe Company’s estimates of price adjustments and chargebacks are based on its estimated mix of sales to various third-party payers, which are entitled either contractually or statutorily to discounts from the Company’s listed prices of its products. If the sales mix to third-party payers is different from the Company’s estimates, the Company willmay be required to pay higher or lower total price adjustments and/or chargebacks than it had estimated.estimated, and such differences may be significant.
The Company, from time to time, offers certain promotional product-related incentives to its customers. These programs include certain product incentives to pharmacy customers and other sales stocking allowances. The Company has voucher programs for BELBUCA and BUNAVAIL whereby the Company offers apoint-of-sale subsidy to retail consumers. The Company estimates its liabilities for these voucher programs based on the current utilization and historical redemption rates as reported to the Company by a third-party claims processing organization. The Company accounts for the costs of these special promotional programs as price adjustments, which are a reduction of gross revenue.
Prompt payment discounts-The Company typically offers its wholesale customers a prompt payment discount of 2% as an incentive to remit payments within a specifiedprescribed number of days after the invoice date depending on the agreementcustomer and the products purchased.
Gross to net accruals-A significant majority of the Company’s gross to net adjustments to gross product revenues are the result of accruals for its voucher program and rebates related to Medicare Part D, Part D Coverage Gap, Medicaid and commercial contracts, with most of those programs having an accrual to payment cycle of anywhere from one to three months. In addition to this relatively short accrual to payment cycle, the Company receives daily information from the wholesalers regarding their sales of the Company’s products and actual on hand inventory levels of its products. This enables the Company to execute accurate provisioning procedures. Consistent with the customer.pharmaceutical industry, the accrual to payment cycle for returns is longer and can take several years depending on the expiration of the related products.
Cost of sales
Cost of sales includes the direct costs attributable to the production of BELBUCA®and BUNAVAIL®.BUNAVAIL. It includes raw materials, production costs at the Company’s three contract manufacturing sites, quality testing directly related to the products, and depreciation on equipment that the Company has purchased to produce BELBUCA® and BUNAVAIL®.BUNAVAIL. It also includes any batches not meeting specifications and raw material yield losses. Yield losses whichand batches not meeting specifications are expensed as incurred. Cost of sales also includes royalty expenses that the Company owes to third parties.
Reclassification
Certain amounts were reclassified between Provision for inventory obsolescence, Accounts receivable, Inventories and Accounts payable and accrued expenses in the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 to conform to current year presentation. These reclassifications had no effect on the previously reported net cash flows from operations, activities or net losses.
Recent accounting pronouncements-adopted
The SEC has released SEC Final Rule ReleaseNo. 33-10532 Disclosure Update and Simplification, which adopts amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. The amendments also refer certain SEC disclosure requirements that overlap with but require information incremental to U.S. GAAPis recognized when sold to the Financial Accounting Standards Board (“FASB”) for potential incorporation into U.S. GAAP. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. These amendments are part of an initiative by the Division of Corporation Finance to review disclosure requirements applicable to issuers to consider ways to improve the requirements for the benefit of investors and issuers. The amendments became effective on November 5, 2018 and did not have a material impact to the Company.
Recent accounting pronouncements-issued, not yet adopted
Accounting Standards Update (“ASU”)2016-02, issued on February 25, 2016, is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arisingwholesaler from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.
However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases (i.e., operating and capital leases) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases. The new standard requires aour distribution center.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Organization, basis of presentation and summary of significant policies (continued):
modified-retrospective approachFor BREAKYL and PAINKYL (the Company’sout-licensed breakthrough cancer pain therapies), cost of sales includes all costs related to adoptioncreating the product at the Company’s contract manufacturing location in Germany. The Company’s contract manufacturer bills the Company for the final product, which includes materials, direct labor costs, and is effective for interimcertain overhead costs as outlined in applicable supply agreements.
Cost of sales also includes royalty expenses that the Company owes to third parties.
Research and annual periods beginning ondevelopment
As of January 1, 2019, but may be adopted earlier. The Company expects to adopt this standard beginning in 2019. The Company does not expect that this standard will have a material impact on its consolidated statements of operations, but the Company does expecthas focused entirely on commercialized products rather than research and development. As such, there were no expenses incurred in research and development during the three months ended March 31, 2019. Research and development expense for the three months ended March 31, 2018 was $2.5 million.
Recent accounting pronouncements-adopted
On January 1, 2019, the Company adopted Topic 842, which is intended to improve financial reporting about leasing transactions. Under the standard, organizations that upon adoption, this standard will impactlease assets, referred to as “Lessees” shall recognize on the carrying value of itsbalance sheet the assets and liabilities on its consolidated balance sheets as a result offor the requirement to record
right-of-use assetsrights and corresponding lease obligations for current operatingcreated by those leases. In addition, the standard will require that the Company update its systems, processes and controls it uses to track, record and account for its lease portfolio.
ASU2018-07, issued in June 2018, expands the scope of Topic 718, “Compensation – Stock Compensation”, to include share-based payment transactions for acquiring goods and services from nonemployees. The objective of the ASU is to maintain or improve the usefulness of the information provided to the users ofrequires disclosures including financial statements while reducing costto assess the amount, timing and complexity by simplifying several aspectsuncertainty of existing guidance. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year and early adoption is permitted. The Company is currently assessing the impact of adopting this ASU on its condensed consolidated financial statements.cash flows arising from leases.
2. Revenue from contracts with customers:
Effective January 1, 2018, the Company adopted Topic 606. The Company elected to applyuse the practical expedients permitted under the transition guidance within the new standard, usingwhich among other things, allows the modified retrospective method beginningCompany to carryforward the historical lease classification. The Company made an accounting policy election to account for leases with an initial term of 12 months or less similar to existing guidance for operating leases today. The Company recognized those lease payments in the condensed Consolidated Statements of Operations on a straight-line basis over the lease term. As of March 31, 2019, the Company has approximately $1.2 million in future minimum lease commitments. Under the new standard, the Company’s lease liability is based on the present value of such payments and the relatedright-of-use asset will generally be based on the lease liability.
Upon adoption, the Company recorded theright-of-use lease assets of $0.9 million and liabilities of $1.0 million which were recorded in the condensed consolidated balance sheet on January 1, 2018. as summarized below.
The Company applied this guidance only to those contracts that were not completed at the date of adoption. As a result of adoption, the cumulative impact to the Company’s retained earnings at January 1, 2018 was $0.135 million. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption of Topic 842 on the new standard on its existing contracts to be immaterial to the Company’s net income on an ongoing basis, howeveraccompanying condensed Consolidated Balance Sheet as of January 1, 2019 is as follows (in thousands):
December 31, 2018 | Adjustments Due to the Adoption of Topic 842 | January 1, 2019 | ||||||||||||||
| Right-of-use- asset | | | Lease liability | | |||||||||||
Property and equipment, net | $ | 3,072 | $ | 939 | — | $ | 4,011 | |||||||||
Current liabilities | $ | 21,539 | — | $ | 212 | $ | 21,751 | |||||||||
Other long-term liabilities | $ | 5,600 | — | $ | 822 | $ | 6,422 |
The components of lease expense were as follows:
Three Months Ended March 31 | ||||||||
2019 | 2018 | |||||||
Lease Cost | ||||||||
Operating lease cost | ||||||||
Operating lease | $ | 82 | $ | 81 | ||||
Variable lease costs | 5 | 1 | ||||||
|
|
|
| |||||
Total lease cost | $ | 87 | $ | 82 | ||||
|
|
|
|
The additional disclosures required by ASU2016-02have been addedincluded in accordance with the ASU.Note 2 Leases.
The Company does not anticipate any significant changes in the timing or amount of revenue recognized for the Company’s product sales and relatedgross-to-net adjustments under Topic 606. The Company’s net product sales continue to be recognized when delivery has occurred, and itsgross-to-net adjustments are estimated and recorded in the accounting period related to when sales occur in the manner fundamentally consistent with the Company’s prior accounting methodology.
Under the new standard, timing for recognition of certain contract revenue may be accelerated such that a portion of revenue will be estimated and recognized in revenue earlier than the previous accounting standards. During the nine months ended September 30, 2018, the Company recorded financing revenue for two milestones that are not due until 2020 and 2023, respectively.
The main types of revenue contracts are:
|
|
|
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
2. Revenue from contracts with customers (continued):Leases:
Supplemental cash flow information related to leases were as follows:
Three Months Ended March 31 | ||||||||
2019 | 2018 | |||||||
Other Information | ||||||||
Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases | $ | 87 | $ | 82 | ||||
|
|
|
| |||||
Three Months Ended March 31 | ||||||||
2019 | 2018 | |||||||
Lease Term and Discount Rate | ||||||||
Weighted-average remaining lease term Operating leases | 3.3 years | 4.3 years | ||||||
Weighted-average discount rate Operating leases | 11.8 | % | 11.8 | % | ||||
|
|
|
|
The impactMaturity of adoption of Topic 606 on the Company’s condensed consolidated balance sheetLease Liabilities
Future minimum lease payments undernon-cancellable leases as of September 30, 2018 follows (in thousands):March 31, 2019 were as follows:
Condensed Consolidated Balance Sheet | ||||||||||||
September 30, 2018 | ||||||||||||
As reported | Balances without adoption of Topic 606 | Effect of Adoption | ||||||||||
Accounts receivable, net | $ | 12,568 | $ | 12,197 | $ | 371 | ||||||
Accumulated deficit | $ | (344,280 | ) | $ | (344,651 | ) | $ | 371 |
Maturity of Lease Liabilities | ||||
2019 | $ | 264 | ||
2020 | 360 | |||
2021 | 370 | |||
2022 | 219 | |||
|
| |||
Total lease payments | $ | 1,213 | ||
Less: Interest | (207 | ) | ||
|
| |||
Present value of lease liabilities | $ | 1,006 |
The impactComponents of adoption of Topic 606 on the Company’s condensed consolidated statement of operations for the threeLease Assets and nine months ended September 30, 2018 follows (in thousands):Liabilities
Condensed Consolidated Statement of Operations Three months ended September 30, 2018 | Condensed Consolidated Statement of Operations Nine months ended September 30, 2018 | |||||||||||||||||||||||
As reported | Balances without adoption of Topic 606 | Effect of Adoption | As reported | Balances without adoption of Topic 606 | Effect of Adoption | |||||||||||||||||||
Product sales | $ | 13,763 | $ | 13,763 | $ | — | $ | 34,367 | $ | 34,367 | $ | — | ||||||||||||
Product royalty revenues | 370 | 393 | — | 2,197 | 2,195 | — | ||||||||||||||||||
Contract revenues | 23 | — | 23 | 1,047 | 813 | 236 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total revenues | $ | 14,156 | $ | 14,133 | $ | 23 | $ | 37,611 | $ | 37,375 | $ | 236 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net loss | $ | (6,380 | ) | $ | (6,403 | ) | $ | 23 | $ | (26,859 | ) | $ | (27,096 | ) | $ | 236 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The beginning and ending balances of the Company’s accounts receivables with customers from contracts during the periods presented is as follows (in thousands):
Balance at January 1, 2018 | Nine months ended September 30, 2018 | Balance at September 30, 2018 | ||||||||||
Accounts receivable with customers | $ | 8,987 | $ | 3,581 | $ | 12,568 |
March 31, 2019 | ||||
Assets | ||||
Property and equipment, net Operating lease-right of use asset | $ | 887 | ||
Liabilities | ||||
Current liabilities Operating lease- current liability | $ | 251 | ||
Other long-term liabilities Operating lease- noncurrent liability | $ | 755 | ||
|
| |||
Total lease liabilities | $ | 1,006 | ||
|
|
3. Liquidity and management’s plans:
At September 30, 2018,March 31, 2019, the Company had cash of approximately $49.5$41.3 million. The Company used $18.3$2.9 million of cash in operations during the ninethree months ended September 30, 2018March 31, 2019 and had stockholders’ equity of $35.6$27.5 million, versus stockholders’ equity of $8.9$29.7 million at December 31, 2017.2018. The Company believes that it has sufficient current cash to manage the business as currently planned into the second quarter of 2020 which would provide sufficient capital necessary to support the continued commercialization of BELBUCA® and BUNAVAIL®.planned.
The Company’s cash on hand estimation assumes the availability of the foregoing capital sources and further assumes that the Company does not otherwise face unexpected events, costs or contingencies, any of which could affect the Company’s cash requirements from time to time. Available resources may be consumed more rapidly than currently anticipated, potentially resulting in the need for additional funding. Additional funding, capital or loans (including,
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
3. Liquidity and management’s plans (continued):
(including, without limitation, milestone or other payments from commercialization agreements) may be unavailable on favorable terms, if at all, which could leave the Company without adequate capital resources.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
4. Inventory:
The following table represents the components of inventory as of:
September 30, 2018 | December 31, 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
Raw materials & supplies | $ | 651 | $ | 1,338 | $ | 1,043 | $ | 645 | ||||||||
Work-in-process | 2,552 | 3,135 | 3,154 | 2,093 | ||||||||||||
Finished goods | 2,870 | 1,861 | 3,398 | 2,855 | ||||||||||||
Obsolescence reserve | (639 | ) | (243 | ) | (336 | ) | (187 | ) | ||||||||
|
|
|
| |||||||||||||
Total inventories | $ | 5,434 | $ | 6,091 | $ | 7,259 | $ | 5,406 | ||||||||
|
|
|
|
5. Accounts payable and accrued liabilities:
The following table represents the components of accounts payable and accrued liabilities as of:
September 30, 2018 | December 31, 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
Accounts payable | $ | 8,508 | $ | 12,236 | $ | 2,672 | $ | 3,166 | ||||||||
Accrued rebates | 9,296 | 5,648 | 14,524 | 12,261 | ||||||||||||
Accrued compensation and benefits | 2,770 | 3,472 | 3,106 | 3,814 | ||||||||||||
Accrued acquisition costs | 1,427 | 2,311 | — | 318 | ||||||||||||
Accrued returns | 658 | 915 | 677 | 715 | ||||||||||||
Accrued royalties | 562 | 488 | 562 | 159 | ||||||||||||
Accrued clinical trial costs | 348 | 234 | — | 464 | ||||||||||||
Accrued legal | 72 | 216 | 382 | 70 | ||||||||||||
Accrued regulatory expenses | 537 | — | ||||||||||||||
Accrued other | 278 | 629 | 1,024 | 572 | ||||||||||||
|
|
|
| |||||||||||||
Total accounts payable and accrued liabilities | $ | 23,919 | $ | 26,149 | $ | 23,484 | $ | 21,539 | ||||||||
|
|
|
|
6. Property and equipment:
Property and equipment, summarized by major category, consist of the following as of:
September 30, 2018 | December 31, 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
Machinery & equipment | $ | 5,623 | $ | 5,428 | $ | 5,635 | $ | 5,635 | ||||||||
Right of use, building lease | 886 | — | ||||||||||||||
Computer equipment & software | 446 | 399 | 406 | 406 | ||||||||||||
Office furniture & equipment | 169 | 169 | 155 | 155 | ||||||||||||
Leasehold improvements | 44 | 44 | 43 | 43 | ||||||||||||
Idle equipment | 679 | 766 | 679 | 679 | ||||||||||||
|
|
|
| |||||||||||||
Total | 6,961 | 6,806 | 7,804 | 6,918 | ||||||||||||
|
|
|
| |||||||||||||
Less accumulated depreciation and amortization | (3,791 | ) | (3,028 | ) | (3,852 | ) | (3,846 | ) | ||||||||
|
|
|
| |||||||||||||
Total property and equipment, net | $ | 3,170 | $ | 3,778 | $ | 3,952 | $ | 3,072 | ||||||||
|
|
|
|
Depreciation expense was $0.09 million and $0.2 million for each of the three-month periods ended September 30,March 31, 2019 and 2018, and September 30, 2017, respectively. Depreciation expense was $0.7 million and $0.5 million for the nine-month periods ended September 30, 2018 and September 30, 2017, respectively.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
7. License agreements and acquired product rights:
Purdue license and supply agreement:
On July 12, 2017, the Company, along with Purdue Pharma, an Ontario limited partnership (“Purdue”), announced that they had executed an exclusive agreement granting to Purdue the licensing, distribution, marketing and sale rights related to BELBUCA® in Canada. Financial terms of the Purdue agreement include: (i) total upfront and other cash milestone payments (ii) a low double digit percent royalty payable quarterly by Purdue to the Company based on Canadian net sales of BELBUCA® (iii) an annual royalty fee commencing a period of time after the commercial launch of BELBUCA® in Canada, which fee is creditable against royalties payable by Purdue and subject to reduction in certain circumstances; and (iv) payment by Purdue of certain costs incurred to obtain and transfer the marketing authorization for BELBUCA® in Canada.
On January 30, 2018, the Company and Purdue announced that BELBUCA® was now commercially available in Canada. The first commercial sale of BELBUCA® in Canada triggered a milestone payment to the Company from Purdue in the amount of CAD 1 million (US $0.8 million), which the Company received and recognized as revenue in March 2018.
TTY license and supply agreement
The Company has a license and supply agreement with TTY Biopharm Co., Ltd. (“TTY”) for the exclusive rights to develop and commercialize BEMA® Fentanyl in the Republic of China, Taiwan.
The Company received cumulative payments of $0.9$0.4 million from TTY during each of the ninethree month periods ended September 30,March 31, 2018 and 2017, respectively, related to royalties based on product purchased in Taiwan by TTY of PAINKYL™ which is recorded in the accompanying condensed consolidated statement of operations. There were no royalties received from TTY during the three months ended March 31, 2019.
8. Notes payable:
On February 21, 2017 (the “Closing Date”), the Company entered into a term loan agreement (the “Term Loan Agreement”) with CRG, as administrative agent and collateral agent, and the lenders named in the Term Loan Agreement (the “Lenders”).
Pursuant to the Term Loan Agreement, the Company borrowed $45.0 million from the Lenders as of the Closing Date, and on December 26, 2017 borrowed an additional $15.0 million (the “Second Draw”) that was contingently available upon achievement of certain conditions.
The original Term Loan Agreement hada six-year term with three years of interest-only payments, (from 2017-2019). On May 16, 2018, the Company entered into an amendment to its Term Loan Agreement with CRG. Pursuant to the amendment: (i) the interest only period of the Loan Agreement was extended by one year, and certain milestones previously required for the extended interest only period have been removed; (ii) the “PIK” period (under which a portion of the interest accrued under the Loan Agreement can be deferred to maturity) will also be extended for a year, (to 2020); (iii) amortization of the loan principal can be deferred until maturity (making the payment of the loan a “balloon” payment) if the Company achieves and maintains a market capitalization of $200 million prior to the conclusion of the interest only period (provided that if the Company achieves, and thereafter falls below a $200 million market capitalization, amortization of the loan principal will resume); and (iv) certain Company revenue targets, the failure of which would create an event of default under the loan, have been recalculated. Interest on the amounts borrowed under the Term Loan Agreement accrues at an annual fixed rate of 12.50%, 3.5% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount. On each borrowing date (including the Closing Date), the Company is required to pay CRG a financing fee based on the loan drawn on that date. The Company is also required to pay the Lenders a final payment fee equivalent to 9% of the original loan amount upon repayment of the loans in full, in addition to prepayment amounts described below.
The Company may prepay all or a portion of the outstanding principal and accrued unpaid interest under the Loan Agreement at any time upon prior notice to the Lenders subject to a certain prepayment fees during the first five years of the term (which fees are lowered over time) and no prepayment fee thereafter. In certain circumstances, including a change of control and certain asset sales or licensing transactions, the Company is required to prepay all or a portion of the loan, including the applicable prepayment premium of on the amount of the outstanding principal to be prepaid.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
8. Notes payable (continued):
The following table represents future maturities of the notes payable obligation as of September 30, 2018:March 31, 2019:
Years ending December 31, 2018 | $ | — | ||||||
2019 | — | — | ||||||
2020 | — | — | ||||||
2021 | 30,619 | 30,892 | ||||||
2022 | 30,619 | 30,892 | ||||||
|
| |||||||
Total maturities | $ | 61,238 | $ | 61,784 | ||||
Unamortized discount and loan costs | (10,722 | ) | (9,498 | ) | ||||
|
| |||||||
Total notes payable obligation | $ | 50,516 | $ | 52,286 | ||||
|
|
9. Net sales by product:
The Company’s business is classified as a single reportable segment.
However, the following table presents net sales by product:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
BELBUCA® | $ | 12,358 | $ | 6,437 | $ | 30,128 | $ | 17,554 | ||||||||
BUNAVAIL® | 1,405 | 1,681 | 4,239 | 6,244 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net product sales | $ | 13,763 | $ | 8,118 | $ | 34,367 | $ | 23,798 | ||||||||
|
|
|
|
|
|
|
|
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
BELBUCA | $ | 18,703 | $ | 8,024 | ||||
BUNAVAIL | 1,056 | 1,814 | ||||||
|
|
|
| |||||
Net product sales | $ | 19,759 | $ | 9,838 | ||||
|
|
|
|
10. Stockholders’ equity:
Stock-based compensation
During the ninethree months ended September 30, 2018,March 31, 2019, a total of 2,260,2112,031,033 options to purchase Common Stock, with an aggregate fair market value of approximately $3.3$4.1 million, were granted to Company employees and membersofficers of the Board of Directors.Company. Options have a term of 10 years from the grant date. Options granted to employees vest ratably over a three-year period and options granted to members of the Board of Directors vest ratably through 2022. The fair value of each option is amortized as compensation expense evenly through the vesting period.
The Company’s stock-based compensation expense is allocated between research and development and selling, general and administrative as follows:
Three months ended, | Nine months ended, | |||||||||||||||
Stock-based compensation expense | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Research and Development | $ | 0.02 | $ | 0.5 | $ | 1.1 | $ | 1.3 | ||||||||
Selling, General and Administrative | $ | 0.9 | $ | 3.7 | $ | 3.8 | $ | 8.9 |
The fair value of each option award is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on implied volatilities from historical volatility of the Common Stock, and other factors estimated over the expected term of the options.
Expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
10. Stockholders’ equity (continued):
The key assumptions used in determining the fair value of options granted during the ninethree months ended September 30, 2018March 31, 2019 follows:
Expected price volatility | ||
Risk-free interest rate | ||
Weighted average expected life in years | 6 years | |
Dividend yield | — |
Option activity during the ninethree months ended September 30, 2018March 31, 2019 was as follows:
Number of shares | Weighted average exercise price per share | Aggregate intrinsic value | Number of shares | Weighted average exercise price per share | Aggregate intrinsic value | |||||||||||||||||||
Outstanding at January 1, 2018 | 2,712,954 | $ | 2.98 | $ | 1,190 | |||||||||||||||||||
Outstanding at January 1, 2019 | 4,406,004 | $ | 3.19 | $ | 4,172 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Granted in 2018: | ||||||||||||||||||||||||
Granted in 2019: | ||||||||||||||||||||||||
Officers and Directors | 1,160,341 | 2.41 | 1,113,516 | 3.88 | ||||||||||||||||||||
Employees | 1,099,870 | 2.50 | 917,517 | 4.51 | ||||||||||||||||||||
Exercised | (285,403 | ) | 1.99 | (150,275 | ) | 3.14 | ||||||||||||||||||
Forfeitures | (375,785 | ) | 3.57 | (10,423 | ) | 2.18 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Outstanding at September 30, 2018 | 4,311,977 | $ | 3.17 | $ | 1,405 | |||||||||||||||||||
Outstanding at March 31, 2019 | 6,276,399 | $ | 3.50 | $ | 12,209 | |||||||||||||||||||
|
|
|
|
|
|
During the three months ended March 31, 2019, a cumulative total of 481,898 options were granted in excess of the Company’s 2011 Equity Incentive Plan, as amended (the “EIP”) available number of shares under the plan. These options are subject to shareholder approval at the Company’s 2019 Annual Shareholder’s Meeting.
As of September 30, 2018,March 31, 2019, options exercisable totaled 1,711,966.1,780,405. There wasare approximately $6.4$10.6 million of unrecognized compensation cost related tonon-vested share-based compensation awards, including options and restricted stock units (“RSUs”) granted. These costs will be expensed through 2022.
Restricted stock units
During the ninethree months ended September 30, 2018, 1,824,872March 31, 2019, a cumulative total of 270,250 RSUs were granted to the Company’s executive officers, employeesmembers of senior management and directors,a former officer with a fair market value of approximately $4.2$1.2 million. The fair value of restricted units is determined using quoted market prices of the Common Stock and the number of shares expected to vest. These RSUs were issued under the Company’s 2011 Equity Incentive Plan, as amended (the “EIP”).EIP.
RSU grants are either time-based, or performance-based, all of which generally vest over a three-year period. Performance-based RSUs vest if specified predetermined net revenue and operating income goals are achieved. Actual performance relativeThe RSU grant to the predetermined performance measures are evaluated independently at the end of each fiscal year and the number of awards that will vest will be based upon the percentage of the individual performance measure achieved relative to the predetermined target. This allows for partial vesting relative to separate performance measures.former officer vested on his retirement date April 30, 2019.
Restricted stock activity during the ninethree months ended September 30, 2018March 31, 2019 was as follows:
Number of restricted shares | Weighted average fair market value per RSU | |||||||
Outstanding at January 1, 2018 | 4,706,895 | $ | 5.20 | |||||
Granted: | ||||||||
Executive officers | 1,038,434 | 2.23 | ||||||
Directors | 469,261 | 2.59 | ||||||
Employees | 317,177 | 2.10 | ||||||
Vested | (1,733,731 | ) | 2.50 | |||||
Forfeitures | (442,009 | ) | 2.63 | |||||
Conversions | (2,119,925 | ) | 2.72 | |||||
|
|
|
| |||||
Outstanding at September 30, 2018 | 2,236,102 | $ | 5.15 | |||||
|
|
|
|
Number of restricted shares | Weighted average fair market value per RSU | |||||||
Outstanding at January 1, 2019 | 2,166,102 | $ | 2.59 | |||||
Granted: | ||||||||
Executive officers | 223,250 | 4.44 | ||||||
Employees | 47,000 | 4.67 | ||||||
Vested | (500,366 | ) | 4.90 | |||||
|
|
|
| |||||
Outstanding at March 31, 2019 | 1,935,986 | $ | 2.98 | |||||
|
|
|
|
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
10. Stockholders’ equity (continued):
Series B Preferred Stock Financing
On May 17, 2018,During the Company entered into a placement agency agreement with William Blair & Company, L.L.C., as placement agent, relating to the Company’s registered direct offering, issuance and sale of an aggregate of 5,000 shares of the Company’s authorized preferred stock that the Board of Directors of the Company has designated asSeries B Non-Voting Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). All the shares were sold by the Company. The placement agency agreement contains customary representations, warranties and covenants of the Company and the Placement Agent. The closing of the offering was completed on May 21, 2018. The shares sold in the offering were issued pursuant to a shelf registration statement, as amended, that the Company filed with the SEC, which became effective on July 13, 2015.
Each share of Series B Preferred Stock is convertible into a number of shares of the Company’s common stock, par value $0.001 per share determined by dividing $10,000 by a conversion price of $1.80 per share (subject to adjustment for stock splits and stock dividends as provided in the Certificate of Designation). The outstandingthree months ended March 31, 2019, 700 shares of Series B Preferred Stock are convertible into an aggregate 27,777,778 shares of Common Stock. The (“Series B Preferred Stock does not contain any price-based anti-dilution protection. The Series B Preferred Stock is convertible at any time at the option of the holder, except that a holder will be prohibited from converting shares of Series B Preferred Stock into shares of Common Stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than 9.98% of the total number of shares of Common Stock then issued and outstanding, which percentage may be increased or decreasedon sixty-one (61) days’ notice from the holder of Series B Preferred Stock to the Company.
The Company has the right to deliver a notice to the holders of the Series B Preferred Stock to require conversion of the Series B Preferred Stock into Common Stock, provided that certain conditions with respect to the Common Stock are satisfied. Such forced conversion shall be subject to a holder’s beneficial ownership limitation of 9.98% of the total number of shares of Common Stock then issued and outstanding. Following an initial forced conversion of the Series B Preferred Stock, every ninety (90) days thereafter, the Company has the right to require the forced conversion of the still outstanding shares of Series B Preferred Stock up to the beneficial ownership limitation of 9.98% of the total number of shares of Common Stock then issued and outstanding.
During the nine months ended September 30, 2018, a cumulative total of 1,900 shares of Series B Preferred Stock from various holdersB”) were converted into 10,555,5563,888,888 shares of Common Stock. As of September 30, 2018, 3,100March 31, 2019, 2,400 shares of Series B are outstanding. As of March 31, 2019, 2,093,155 shares of Series A Preferred Stock (“Series A”) are outstanding.
The There were no conversions of Series B Preferred Stock issued in May 2018 contained a contingent beneficial conversion feature (“BCF”) that was recognizedA during the three and nine months ending September 30, 2018 upon the August 2018 stockholder approval, which eliminated the contingency. The conversion feature is not a separate unit of account requiring bifurcation. The Company evaluated its convertible preferred stock in accordance with provisions of ASC 815, Derivatives and Hedging, including consideration of embedded derivatives requiring bifurcation. The issuance of the Series B Preferred Stock generated a BCF, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. As a result, $12.5 million was recorded as a reduction to additionalpaid-in capital, increasing net loss attributable to the Company Common stockholders.
The Company recognized the BCF of the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the conversion price per share and the fair value of common stock per share on the commitment date, totaling $12.5 million, as after shareholder approval the convertible preferred stock may be converted immediately. Thisone-time,non-cash charge impacted net loss attributable to common stockholders and net loss per share for the three and nine month periods ended September 30, 2018.March 31, 2019.
Common StockEarnings Per Share
On August 2, 2018, in connection with the Company’s 2018 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, to amend the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 75,000,000 to 125,000,000.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
10. Stockholders’ equity (continued):
Warrants
The Company has granted warrants to purchase shares of Common Stock.
The fair value of each warrant grant is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on implied volatilities from historical volatility of the Common Stock, and other factors estimated over the expected term of the warrants.
Expected term of warrants granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. A cumulative total of 2,136,020 shares underlying warrants to purchase Common Stock are outstanding as of September 30, 2018 with a weighted average exercise price of $2.60 per share.
11. Earnings per common share:
The following table reconciles the numerators and denominators of the basic and diluted earnings per common share computations (in thousands, except share and per share data).
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Basic: | ||||||||||||||||
Net (loss) income | $ | (6,380 | ) | $ | (11,951 | ) | $ | (26,859 | ) | $ | 21,495 | |||||
Less deemed dividend related to beneficial conversion feature on Series B Preferred Stock | (12,500 | ) | — | (12,500 | ) | — | ||||||||||
Net (loss) income attributable to common stockholders, basic | $ | (18,880 | ) | $ | (11,951 | ) | $ | (39,359 | ) | $ | 21,495 | |||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding | 64,900,007 | 55,604,708 | 60,599,456 | 55,170,569 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic (loss) income per common share | $ | (0.29 | ) | $ | (0.21 | ) | $ | (0.65 | ) | $ | 0.39 | |||||
|
|
|
|
|
|
|
| |||||||||
Diluted: | ||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Net (loss) income attributable to common stockholders, diluted | $ | (18,880 | ) | $ | (11,951 | ) | $ | (39,359 | ) | $ | 21,495 | |||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding | 64,900,007 | 55,604,708 | 60,599,456 | 55,170,569 | ||||||||||||
Effect of dilutive options and warrants | — | — | — | 1,033,789 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted weighted average common shares outstanding | 64,900,007 | 55,604,708 | 60,599,456 | 56,204,358 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted (loss) income per common share | $ | (0.29 | ) | $ | (0.21 | ) | $ | (0.65 | ) | $ | 0.38 | |||||
|
|
|
|
|
|
|
|
Basic earnings per common share is calculated using the weighted average shares of Common Stock outstanding during the period. In addition to the weighted average shares of Common Stock outstanding, common equivalent shares from stock options, RSUs, warrants and preferred shares using the treasury stock method, are included in the diluted per share calculations unless the effect of inclusion would be antidilutive. During the three months ended September 30,March 31, 2019 and 2018, and 2017, outstanding stock options, RSUs, warrants and preferred shares of 25,745,10824,743,605 and 9,638,211,10,243,260 , respectively, were not included in the computation of diluted earnings per common share, because to do so would have had an antidilutive effect. During the nine months ended September 30, 2018 and 2017, outstanding stock options, RSUs, warrants and preferred shares of 18,917,774 and 5,230,179, respectively, were not included in the computation of diluted earnings per common share, because to do so would have had an antidilutive effect. Included in the three and nine months ended September 30, 2018 are the Series B shares as converted to common stock.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
12.11. Commitments and contingencies:
The Company is involved from time to time in routine legal matters incidental to our business. Based upon available information, the Company believes that the resolution of such matters will not have a material adverse effect on its condensed consolidated financial position or results of operations. Except as discussed below, the Company is not the subject of any pending legal proceedings and, to the knowledge of management, no proceedings are presently contemplated against the Company by any federal, state or local governmental agency.
Indivior (formerly RB Pharmaceuticals Ltd.) and Aquestive Therapeutics (formerly MonoSol Rx)
The following disclosure regarding the Company’s ongoing litigations with Aquestive Therapeutics, Inc. (formerly MonoSol Rx, “Aquestive”) and Indivior PLC (formerly RB Pharmaceuticals Limited, “Indivior”) is intended to provide some background and an update on the matter as required by the rules of the SEC. Additional details regarding the past procedural history of the matter can be found in the Company’s previously filed periodic filings with the SEC.
Litigation related to BUNAVAIL®
On October 29, 2013, Reckitt Benckiser, Inc., Indivior, and Aquestive (collectively, the “RB Plaintiffs”) filed an action against the Company relating to its BUNAVAIL product in the United States District Court for the Eastern District of North Carolina (“EDNC”) for alleged patent infringement. BUNAVAIL is a drug approved for the maintenance treatment of opioid dependence. The RB Plaintiffs claim that the formulation for BUNAVAIL, which has never been disclosed publicly, infringes its US Patent No. 8,475,832 (the “‘832 Patent”). On May 21, 2014, the Court granted the Company’s motion to dismiss.
On January 22, 2014, Aquestive initiated an inter partes review (“IPR”) on U.S. Patent No. 7,579,019, the (“‘019 Patent”). The PTAB upheld all claims of the Company’s ‘019 Patent in 2015 and this decision was not appealed by Aquestive.
On September 20, 2014, the Company proactively filed a declaratory judgment action in the United States District Court for the EDNC requesting the Court to make a determination that the Company’s BUNAVAIL product does not infringe the ‘832 Patent, US Patent No. 7,897,080 (the “‘080 Patent”) and US Patent No. 8,652,378 (the “‘378 Patent”). The Company invalidated the “‘080 Patent” in its entirety in an inter partes reexamination proceeding. The Company invalidated all relevant claims of the ‘832 Patent in an IPR proceeding. And, in an IPR proceeding for the ‘378 Patent, in its decision not to institute the IPR proceeding, the PTAB construed the claims of the ‘378 Patent narrowly. Shortly thereafter, by joint motion of the parties, the ‘378 Patent was subsequently removed from the action.
On June 6, 2016, in an unrelated case in which Indivior and Aquestive asserted the ‘832 Patent against other parties, the Delaware District Court entered an order invalidating other claims in the ‘832 Patent. Indivior and Aquestive cross-appealed all adverse findings in that decision to the Court of Appeals for the Federal Circuit in CaseNo. 17-2587. The Company’s declaratory judgment action remains stayed pending the outcome of that cross-appeal by Indivior and Aquestive.
On September 22, 2014, Reckitt Benckiser, Inc., RB Pharmaceuticals Limited, and Aquestive Therapeutics, Inc. (“Aquestive”) (collectively, the “RB Plaintiffs”) the RB Plaintiffs filed an action against the Company (and the Company’s commercial partner) relating to the Company’s BUNAVAIL®product in the United States District Court for the District of New Jersey for alleged patent infringement. The RB Plaintiffs claim that BUNAVAIL,®, whose formulation and manufacturing processes have never been disclosed publicly, infringes its patent U.S. Patent No. 8,765,167 (the “‘167 Patent”). The Company believes this is an anticompetitive attempt by the RB Plaintiffs
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
11. Commitments and contingencies (continued):
to distract the Company’s efforts from commercializing BUNAVAIL®.BUNAVAIL. On December 12, 2014, the Company filed a motion to transfer the case from New Jersey to North Carolina and a motion to dismiss the case against its commercial partner. The Court issued an opinion on July 21, 2015 granting the Company’s motion to transfer the venue to the United States District for the Eastern District of North Carolina (“EDNC”) but denying the Company’s motion to dismiss the case against the Company’s commercial partner as moot. The Company has also filed a Joint Motion to Stay the case in the EDNC at the end of April 2016, which was granted by the court on May 5, 2016. Thus, the case is now stayed until a final resolution of the ‘167 Patentinter partesreview (“IPR”) in the United States Patent and Trademark Office (“USPTO”).
In a related matter, onOn October 28, 2014, the Company filed multiple IPR petitions on certain claims of the ‘167 Patent. The USPTO instituted three of the four IPR petitions. The PTAB upheld the claims and denied collateral estoppel applied to the PTAB decisions in March 2016. The Company appealed to Court of Appeals for the Federal Circuit. The USPTO intervened with respect to whether collateral estoppel applied to the PTAB. On June 19, 2018, the Company filed a motion to remand the case for further consideration by the PTAB in view of intervening authority. On July 31, 2018, the Federal Circuit vacated the decisions, and remanded the ‘167 Patent IPRs for further consideration on the merits. On February 7, 2019, the PTAB issued three decisions on remand purporting to deny institution of the three previously instituted IPRs of the ‘167 patent. On March 11, 2019, the Company timely appealed the PTAB decisions on remand to U.S. Court of Appeal for the Federal Circuit. On March 20, 2019, Aquestive and Indivior moved to dismiss the appeal, and the Company opposed that motion.
Litigation related to BELBUCA®
On January 13, 2017, Aquestive filed a complaint in the United States District Court for the District of New Jersey alleging BELBUCA® infringes the ‘167 Patent. In lieu of answering the complaint, the Company filed motions to dismiss the complaint and, in the alternative, to transfer the case to the EDNC. On July 25, 2017, the New Jersey Court administratively terminated the case pending the parties submission of a joint stipulation of transfer because the District of New Jersey was an inappropriate venue. This case was later transferred to the Delaware District Court. On October 31, 2017, the Company filed motions to dismiss the complaint and, in the alternative, to transfer the case to the EDNC. On October 16, 2018, denying the motion to dismiss as moot, the Delaware District Court granted the Company’s motion to transfer the case to the EDNC. The case is now pending in the EDNC. The Company strongly refutes as without merit Aquestive’s assertion of patent infringement and will vigorously defend the lawsuit.
Teva Pharmaceuticals USA (formerly Actavis)
On February 8, 2016, the Company received a notice relating to a Paragraph IV certification from Teva Pharmaceuticals USA, or (formerly Actavis, “Teva”) seeking to find invalid three Orange Book listed patents relating specifically to BUNAVAIL. The Paragraph IV certification related to an ANDA filed by Teva with the FDA for a generic formulation of BUNAVAIL. The patents subject to Teva’s certification were the ‘019 Patent, U.S. Patent No. 8,147,866 (the “‘866 Patent”) and 8,703,177 (the “‘177 Patent”).
On March 18, 2016, the Company asserted three different patents against Teva, the ‘019 Patent, the ‘866 Patent, and the ‘177 Patent. Teva did not raisenon-infringement positions about the ‘019 and the ‘866 Patents in its Paragraph IV certification. Teva did raise anon-infringement position on the ‘177 Patent but the Company asserted in its complaint that Teva infringed the ‘177 Patent either literally or under the doctrine of equivalents.
On December 20, 2016 the USPTO issued U.S. Patent No. 9,522,188 (“the “‘188 Patent””), and this patent was properly listed in the Orange Book as covering the BUNAVAIL product. On February 23, 2017 Teva sent a Paragraph IV certification adding the 9,522,188 to its ANDA. An amended Complaint was filed, adding the ‘188 Patent to the litigation.
On January 31, 2017, the Company received a notice relating to a Paragraph IV certification from Teva relating to Teva’s ANDA on additional strengths of BUNAVAIL and on March 16, 2017, the Company brought suit against Teva and its parent company on these additional strengths. On June 20, 2017, the Court entered orders staying both BUNAVAIL suits at the request of the parties.
On May 23, 2017, the USPTO issued U.S. Patent 9,655,843 (the “‘843 Patent”) relating to the BEMA technology, and this patent was properly listed in the Orange Book as covering the BUNAVAIL product.
Finally, on October 12, 2017, the Company announced that it had entered into a settlement agreement with Teva that resolved the Company’s BUNAVAIL patent litigation against Teva pending in the U.S. District Court for the District of Delaware. As part of the Settlement Agreement, which is subject to review by the U.S. Federal Trade Commission and the U.S. Department of Justice, the Company has entered into anon-exclusive license agreement with Teva that permits Teva to first begin selling its generic version of BUNAVAIL in the U.S. on July 23, 2028 or earlier under certain circumstances. Other terms of the agreement are confidential.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
11. Commitments and contingencies (continued):
The Company received notices regarding Paragraph IV certifications from Teva on November 8, 2016, November 10, 2016, and December 22, 2016, seeking to find invalid two Orange Book listed patents relating specifically to BELBUCA®.BELBUCA. The Paragraph IV certifications relatedrelate to three ANDAs filed by Teva with the FDA for a generic formulation of BELBUCA®.BELBUCA. The patents subject to Teva’s certification were U.S.the ‘019 Patent No. 7,579,019 (the “‘019 Patent”) and U.S. Patent No. 8,147,866 (the “‘866 Patent”). Under the Hatch-Waxman Amendments, after receipt of a valid Paragraph IV notice, the Company brought a patent infringement suit in federal district court against Teva USA within 45 days from the date of receipt of the certification notice.‘866 Patent. The Company filed complaints in Delaware against Teva on December 22, 2016 and February 3, 2017 thusin which it asserted against Teva the ‘019 Patent and the ‘866 Patent. Teva did not contest infringement of the claims of the ‘019 Patent and did not contest infringement of the claims of the ‘866 Patent.
The ‘019 Patent had already been the subject of an unrelated IPR before the USPTO under which the Company prevailed, and all claims of the ‘019 Patent survived. Aquestive’s request for rehearing of the final IPR decision regarding the ‘019 Patent was entitled to receive a 30 month stay on the FDA’s ability to give final approval to any proposed products that reference BELBUCA®. The30-month stay was expected to preempt any final approvaldenied by the FDAUSPTO on Teva’s ANDA Nos. 209704December 19, 2016. Aquestive did not file a timely appeal at the Federal Circuit.
On May 23, 2017, the USPTO issued U.S. Patent 9,655,843 (the “‘843 Patent”) relating to the BEMA technology, and 209772 untilthis patent was properly listed in the Orange Book as covering the BELBUCA product.
On August 28, 2017, the Court entered orders staying both BELBUCA suits at least Maythe request of 2019 and for Teva’s ANDA No. 209807 until at least June of 2019.the parties.
In February 2018, the Company announced that it had entered into a settlement agreement with Teva that resolved the Company’s BELBUCA® patent litigation against Teva pending in the U.S. District Court for the District of Delaware. As part of the settlement
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
12. Commitments and contingencies (continued):
agreement, which is subject to review by the U.S. Federal Trade Commission and the U.S. Department of Justice, the Company has granted Teva anon-exclusive license (for which the Company will receive no current or future payments) that permits Teva to first begin selling the generic version of the Company’s BELBUCA® product in the U.S. on January 23, 2027 or earlier under certain circumstances (including, for example, upon (i) the delisting of thepatents-in-suit from the U.S. FDA Orange Book, (ii) the granting of a license by us to a third party to launch another generic form of BELBUCA® at a date prior to January 23, 2027, or (iii) the occurrence of certain conditions regarding BELBUCA® market share). Other terms of the Agreement are confidential.
Alvogen
On September 7, 2018, the Company filed a complaint for patent infringement in Delaware against Alvogen Pb Research & Development LLC, Alvogen Malta Operations Ltd., Alvogen Pine Brook LLC, Alvogen, Incorporated, and Alvogen Group, Incorporated (collectively, “Alvogen”), asserting that Alvogen infringes the Company’s Orange Book listed patents for BELBUCA®, including U.S. Patent Nos. 8,147,866 and 9,655,843, both expiring in July of 2027, and U.S. Patent No. 9,901,539, expiring in December of 2032. This complaint follows receipt by the Company on July 30, 2018 of a Paragraph IV Patent Certification from Alvogen stating that Alvogen had filed an ANDA with the FDA for a generic version of BELBUCA® Buccal Film (75 mcg, 150 mcg, 300 mcg, 450 mcg, 600 mcg, 750 mcg and 900 mcg). Because the Company initiated a patent infringement suit to defend the patents identified in the Paragraph IV notice within 45 days after receipt of the Paragraph IV Certification, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid. Alvogen’s notice letter also does not provide any information on the timing or approval status of its ANDA.
In its Paragraph IV Certification, Alvogen does not contest infringement of at least several independent claims of each of the ’866, ’843, and ’539 patents. Rather, Alvogen advances only invalidly arguments for these independent claims. The Company believes that it will be able to prevail on its claims of infringement of these patents, particularly as Alvogen does not contest infringement of certain claims of each patent. Additionally, as the Company has done in the past, it intends to vigorously defend its intellectual property against assertions of invalidity. Each of the three patents carry a presumption of validity, which can only be overcome by clear and convincing evidence.
2018 Arkansas Opioid Litigation
On March 15, 2018, the State of Arkansas, and certain counties and cities in that State, filed an action in the Circuit Court of Arkansas, Crittenden County against multiple manufacturers, distributors, retailers, and prescribers of opioid analgesics, including ourthe Company. The Company was served with the complaint on April 27, 2018. The complaint specifically alleged that the Companyit licensed its branded fentanyl buccal soluble film ONSOLIS®to Collegium, Pharmaceutical Inc. (“Collegium”), and Collegium is also named as a defendant in the lawsuit. ONSOLIS® is not presently sold in the United States and the license agreement with Collegium was terminated prior to Collegium launching ONSOLIS® in the United States. Therefore, on June 28, 2018, the Company moved to dismiss the case against themit and most recently, on July 6, 2018, the plaintiffs filed a notice to voluntarily dismiss the Companyus from the Arkansas case, without prejudice.
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
11. Commitments and contingencies (continued):
Chemo Research, S.L
On March 1, 2019, the Company filed a complaint for patent infringement in Delaware against Chemo Research, S.L., Insud Pharma S.L., IntelGenx Corp., and IntelGenx Technologies Corp. (collectively, “Defendants”), asserting that the Defendants infringe its Orange Book listed patents for BELBUCA, including U.S. Patent Nos. 8,147,866 and 9,655,843, both expiring in July of 2027, and U.S. Patent No. 9,901,539 expiring December of 2032. This complaint follows a receipt by the Company on January 31, 2019, of a Notice Letter from Chemo Research S.L. stating that it has filed with the FDA an ANDA containing a Paragraph IV Patent Certification, for a generic version of BELBUA Buccal Film in strengths 75 mcg, 150 mcg, 300 mcg, 450 mcg, and 900 mcg. Because the Company initiated a patent infringement suit to defend the patents identified in the Notice Letter within 45 days after receipt, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid. Chemo Research S.L.’s Notice Letter also does not provide any information on the timing or approval status of its ANDA. On March 15, 2019, the Company filed a complaint against the Defendants in New Jersey asserting the same claims for patent infringement made in the Delaware lawsuit. On April 19, 2019, Defendants filed an answer to the Delaware complaint wherein they denied infringement of the ‘866, ‘843 and ‘539 patents and asserted counterclaims seeking declaratory relief concerning the alleged invalidity andnon-infringement of such patents. On April 25, 2019, the Company voluntarily dismissed the New Jersey lawsuit given Defendants’ consent to jurisdiction in Delaware.
The Company believes that it will be able to prevail in this lawsuit. As it has done in the past, the Company intends to vigorously defend its intellectual property against assertions of invalidity.
12. Subsequent events:
License Agreement with Shionogi Inc.
On April 4, 2019 (the “Effective Date”), the Company and Shionogi Inc. (“Shionogi”), entered into an exclusive license agreement for the commercialization of Symproic® (naldemedine tosylate) in the United States including Puerto Rico (the “Territory”) for opioid-induced constipation in adult patients withchronic non-cancer pain.
Pursuant to the terms of the license agreement, the Company agreed to pay Shionogi a$30 million up-front payment, payable in two installments ($20 million on the Effective Date and $10 million onthe six-month anniversary of the Effective Date (or earlier if the license agreement is assigned or transferred), and quarterly, tiered royalty payments on sales of the product in the Territory that range from 8.5% to 17.5% (plus an additional 1% of net sales on a pass-through basis to a third party licensor of Shionogi) of net sales based on volume of net sales and whether the Product is being sold as an authorized generic.
The Company and Shionogi have also entered into a customary supply agreement under which Shionogi will supply the product to the Company at cost plus an agreed upon markup for an initial term of up to two years. The Company and Shionogi also entered into a customary transition services and distribution agreement under which Shionogi will continue to perform certain sales, distribution and related activities and commercialization and administrative services on the Company’s behalf until June 30, 2019, or such later date as may be agreed by the parties pursuant to the transition services and distribution agreement.
Public Offering.
On April 11, 2019 the Company announced the pricing of an underwritten public offering by the Company and a selling stockholder of 12,000,000 shares of common stock at a public offering price of $5.00 per share. The gross proceeds from the Company’s portion of the offering (10,000,000 shares), before deducting the underwriter discounts and commission and other offering expenses, was $50.0 million, or net $47.5 million. The gross proceeds to the selling stockholder was approximately $10.0 million. The offering subsequently closed on April 15, 2019.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the SEC. See “Cautionary Note Regarding Forward Looking Statements” below.
Overview
Strategy
We are a specialty pharmaceutical company that is developing and commercializing, either on our own or in partnerships with third parties, new applications of approved therapeutics to address important unmet medical needs using both proven and new drug delivery technologies. We have developed and are continuing to develop pharmaceutical products aimed principally in the areas of pain management and addiction.
Our strategy is to:
Focusevolving with the establishment of our commercial and development effortsfootprint in the areasmanagement of pain managementchronic conditions. We seek to build a well-balanced, diversified, high-growth specialty pharmaceutical company. Through our industry-leading commercialization infrastructure, we are executing the commercialization of our existing products. As part of our corporate growth strategy, we have licensed, and addiction within the U.S. pharmaceutical marketplace;
Market our products through specialty sales teams by primarily focusing on high-prescribing U.S. physicians working with patients in the pain and addiction space; and
Identify andwill continue to explore opportunities to acquire rights toor license additional products that meet the needs of patients living with debilitating chronic conditions and treated primarily by therapeutic specialists. As we believe have potentialgain access to these drugs and technologies, we intend to employ our commercialization experience to bring them to the marketplace. With a strong commitment to patient access and a focused business-development approach for near-termtransformative acquisitions or licensing opportunities, we intend to leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions.
We intend to pursue additional therapeutic products as well as new formulations of previously approved, active therapeutics through the FDA’s 505(b)(2) approval process and acquisitions of existing commercial products. Our historical clinical and regulatory approval throughdevelopment strategy has focused primarily on our ability to use the 505(b)(2) approval process to obtain more timely and efficient approval of new formulations of previously approved, active therapeutics incorporated into our drug-delivery technology. Because the U.S Food505(b)(2) approval process is designed to address new formulations of previously approved drugs, we believe it has the potential to be more cost efficient and Drug Administration (“FDA”) or are already FDA approved,
We believe this strategy will allow us to increase our revenues, improve our margins as we seek profitability and enhance stockholder value.expeditious, with less regulatory approval risk than otherFDA-approval approaches.
ThirdFirst Quarter and Recent Highlights
On August 2, 2018, in connection with our 2018 Annual Meeting of Stockholders, our stockholders approved, among other matters, (i) to amend our Certificate of Incorporation to increase the number of authorized shares of Common Stock from 75,000,000 to 125,000,000; and (ii) to ratify the newly designated sale of our 5,000 shares of Series B Preferred Stock, par value $0.001 per share, and to approve the issuance of Common Stock issuable upon the conversion of the Series B Preferred Stock as required by and in accordance with NASDAQ Marketplace Rule 5635(d).
|
On October 29, 2018,January 15, 2019, we announced the appointment of James VollinsTerry Coelho as General Counsel and member of our Executive Leadership Team effective November 5, 2018. Mr. Vollins willChief Financial Officer. Ms. Coelho also serveserves as our Chief Compliance Officerprincipal financial officer and Corporate Secretary. We also announced the retirement of Ernest R. DePaolantonio, Chief Financial Officer and Corporate Secretary, which is expected to occur bymid-2019. And lastly,principal accounting officer.
On February 4, 2019, we announced that a leading national managed care organization has moved BELBUCA into preferred status across all its commercial formularies from its previous position ofnot-covered effective February 1, 2019. In addition, patients will no longer require a prior authorization to receive their BELBUCA script. This significant improvement in access for more than 7 million covered lives brings the enhanced titletotal of Scott PleshaAmericans with preferred access for BELBUCA to President and Chief Commercial Officer of the Company.more than 115 million.
|
Our Products and Related Trends
Our product portfolio currently consists of four products. As of the date of this report, three products that are approved by the FDA and one is development. Three of these fourFDA. The three approved products utilize our patented BEMA® thin film drug delivery technology.
BELBUCA (buprenorphine buccal film) is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for use in patients with pain severe enough to require daily,around-the-clock, long-term opioid treatment for which alternative options are inadequate. BELBUCA is differentiated from other opioids and has the potential to address some of the most critical issues facing healthcare providers treating chronic pain with prescription opioids – abuse, misuse, addiction and the risk of overdose. Compared to currently marketed products and products under development, we believe that BELBUCA is differentiated based on the following features:
|
strong and durable efficacy in both opioid naïve and opioid experienced patients;
Schedule III designation by DEA, which indicates less abuse and addiction potential compared to Schedule II opioids, which include oxycodone, hydrocodone and morphine;
in published studies, investigators observed that respiratory depression from buprenorphine administration reached a plateau, and we believe this ceiling effect may result in a lower risk of overdose related respiratory depression;
favorable tolerability with a low incidence of constipation and low discontinuation rate;
|
|
|
Buprenorphine Extended Release Injectionflexible dosing options with seven available strengths; and
buccal administration to optimize buprenorphine delivery.
We believe that there are long-term growth opportunities for BELBUCA and we focus our commercial efforts primarily on BELBUCA. Our sales force is in development as an injectable, extended-release, microparticle formulationfocused on current BELBUCA prescribers and clinicians we believe have the greatest opportunity to be adopters of buprenorphineBELBUCA. As of January 2019, BELBUCA had formulary coverage for more than 88% of commercial lives.
In June 2014, BUNAVAIL (buprenorphine and naloxone buccal film) was approved by the FDA for the maintenance treatment of opioid dependence as part of a complete treatment plan to include counseling and chronic pain,psychosocial support. BUNAVAIL contains the rightspartial opioid agonist buprenorphine, which binds to which we securedthe same receptors as opiate drugs but has a higher affinity, and naloxone, an opioid antagonist and an abuse deterrent.
BUNAVAIL provides an alternative treatment utilizing the advanced BEMA drug delivery technology. BUNAVAIL has approximately twice the bioavailability of sublingual buprenorphine-containing products for opioid dependence, allowing for effective treatment with half the dose when we entered intocompared to Suboxone film. Additionally, BUNAVAIL offers convenient and discrete buccal administration and avoids the need for patients to avoid talking and swallowing during administration. BUNAVAIL has demonstrated an excellent tolerability profile, with a definitive development and exclusive license option agreement from Evonik in October 2014. In 2015, we completed initial development work and preclinical studies which have resulted68% reduction in the identificationincidence of constipation at the end of 12 weeks in a Phase 3 trial in patients converted from Suboxone sublingual tablets or film to BUNAVAIL.
Our BUNAVAIL efforts are focused on current BUNAVAIL prescribers and on increasing prescriptions related to current, upcoming and future managed care contracts where BUNAVAIL is placed in a favorable formulary position.
In July 2009, ONSOLIS (fentanyl buccal soluble film) was approved for the management of pain that “breaks through” the effects of other medications being used to control persistent pain, or breakthrough pain, in cancer patients 18 years of age and older who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. We refer to breakthrough pain in opioid tolerant patients with cancer as BTCP. ONSOLIS provides significant reduction in pain for patients suffering from BTCP in a convenient formulation we believe can provide 30 dayswith a range of continuous buprenorphine treatment.doses to allow patients to titrate to an adequate level of pain control. We submittedare assessing options for U.S. commercialization of ONSOLIS, including the use of our current sales force, or potentiallyout-licensing the product. Regulatory documentation to qualify an Investigational New Drug application (“IND”) for this product candidatealternate manufacturer of ONSOLIS was submitted to the FDA in December 2016.
We expect to continue our researchJune 2018, and developmentin October 2018, we received notification of pharmaceutical products and related drug delivery technologies, somethe FDA’s approval of which will be funded by our commercialization agreements. Tapemark as the new ONSOLIS manufacturer.
We will continue to seek additional license agreements, which may include upfront payments. We anticipate that funding for the next several years will come primarily from earnings from sales of BELBUCA® and BUNAVAIL,®, milestone payments and royalties from MedaMylan and TTY potential sales of securities and collaborative researchdevelopment agreements, including those with pharmaceutical companies.
Results of Operations
Comparison of the three months ended September 30,March 31, 2019 and 2018 and 2017
Product Sales. We recognized $13.8$19.8 million and $8.1$9.8 million in product sales during the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. The increase in 2019 over 2018 is principally due toa result of increased BELBUCA® product sales from the utilization of BELBUCA, managed care wins and the expansion of our salesforce induring 2018.
Product Royalty Revenues. We recognized $0.4 million and $1.4$0.002 million in product royalty revenue during the three months ended September 30, 2018March 31, 2019, under agreements related to previous research and 2017, respectively. Of the amounts,development contracts. We recognized $0.4 million and $0.9 million, respectively, can be attributed to royalties on net sales of BREAKYL™ under our license agreement with Meda. We also recognized $0.5 million in PAINKYL™ royalty revenue in each of the respective three months ended September 30, 2017, under our license agreement with TTY. The revenue decrease is principally due to lower BREAKYL™ and PAINKYL™ product royalty revenue during the three months ended September 30,March 31, 2018 as compared to September 30, 2017 because of delay in shipments of BREAKYL™ in the EU and PAINKYL™ in Taiwan which will occur in the fourth quarter 2018.
Research and Development Reimbursements. We recognized $0.5 million of reimbursable revenue related tounder our formerlicense agreement with Collegium Pharmaceutical Inc. (“Collegium”) during the three months ended September 30, 2017. There was no such revenue recognized during the same period ended September 30, 2018, as Collegium terminated their agreement December 2017, which was effective March 2018.TTY.
Contract RevenuesRevenues.. We recognized $0.015 million and $0.08$0.008 million in contract revenues during the three months ended September 30, 2018 related to our license agreements with Purdue Canada (“Purdue”) and TTY, respectively. We recognized $1.2 million inPAINKYL contract revenue during the three months ended September 30, 2017 upon execution ofMarch 31, 2019 under our license agreement with Purdue.TTY. We recognized $1.0 million as contract revenue in a milestone payment under our former license agreement from Purdue related to BELBUCA in Canada during the three months ended March 31, 2018.
Cost of SalesSales.. We incurred $3.8$4.1 million and $4.4$3.4 million in cost of sales during the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. Cost of sales during the three months ended September 30, 2018March 31, 2019 was related primarily to BELBUCA® and BUNAVAIL,®, which included $3.3$3.7 million of product cost, royalties paid, depreciation and depreciation.yield adjustments. Additionally, we paid a total of $0.4 million in quarterly minimum royalty payments to CDC IV, LLC (“CDC”). Cost of sales during the three months ended September 30,March 31, 2018 also included $0.1 million related to BREAKYL™ and PAINKYL™. Cost of sales during the three months ended September 30, 2017 was related primarily to BELBUCA® and BUNAVAIL,®, which included $2.8$2.9 million of product cost, royalties paid, and depreciation and $0.7 million of fair value of the inventory purchased related to the BELBUCA® reacquisition.yield adjustments. Additionally, we paid a total of $0.4 million in quarterly minimum royalty payments to CDC. Cost of sales during the three months ended September 30, 2017March 31, 2018 also included $0.5$0.02 million and $0.1 million related to BREAKYL™ and PAINKYL,™. respectively.
Selling, General and Administrative ExpensesExpenses.. During the three months ended September 30,March 31, 2019 and 2018, and 2017,selling, general and administrative expenses totaled $13.5$17.0 million and $14.9$13.5 million, respectively. Selling, general and administrative costs include commercialization costs for BELBUCA® and BUNAVAIL,®, legal, accounting and management wages, and consulting and professional fees, travel costs, amortizationstock based compensation and stock compensation expenses. Duringamortization.
Research and Development. We recognized $2.5 million of research and development expense during the normal course of business, we accrue additional expenses for certain legal matters from time to time, including legal mattersthree months ended March 31, 2018 related to allocated wages and compensation to approved products and product candidates. There was no such research and development expense during the protection and enforcement of our intellectual property. The amounts accrued for such legal matters are recorded within accrued expenses on the balance sheet. The decrease in selling, general and administrative expenses during 2018 can be primarily attributedthree months ended March 31, 2019 due to the settlement of the Teva lawsuit which reduced legal costs and the retirement of company executives which reduced stock compensation expenses.Company focusing entirely on commercialized products beginning in 2019.
Interest expense, net. During the three months ended September 30, 2018 and 2017, selling, general and administrative expenses included $0.9 million and $3.7 million of stock compensation expenses, respectively. This is primarily composed of restricted stock unit
expense for our executive management and board of directors. Also included in each of the three months ended September 30, 2018 and 2017 is amortization expense of $1.1 million for the intangible related to the BELBUCA® reacquisition.
Interest expense. During the three months ended September 30, 2018,March 31, 2019, we had net interest expense of $2.6 million, consisting of $1.4$1.93 million of scheduled interest payments $0.9and $0.63 million of related amortization of discountloan discounts and deferred finance costs related to the February 2017 term loan costs and $0.3 million of warrant interest expense.agreement from CRG Servicing LLC (“CRG”). During the three months ended September 30, 2017, we had net interest expense of $1.9 million, consisting of $1.4 million of scheduled interest payments, $0.3 million of related amortization of discount and loan costs and $0.2 million of warrant interest expense, all related to the February 2017 CRG Term Loan Agreement.
Comparison of the nine months ended September 30, 2018 and 2017
Product Sales. We recognized $34.4 million and $23.8 million in product sales during the nine months ended September 30, 2018 and 2017, respectively. The increase is principally due to increased BELBUCA® product sales from the utilization of managed care wins and the expansion of our salesforce in 2018. Also included in the product sales during the nine months ended September 30, 2017 is $1.7 million of revenue recorded because of changing to thesell-in method as of January 1, 2017.
Product Royalty Revenues. We recognized $2.2 million and $3.7 million in product royalty revenue during the nine months ended September 30, 2018 and 2017, respectively. Of the amounts, $1.3 million and $2.1 million, respectively, can be attributed to royalty revenue from BREAKYL™ under our license agreement with Meda. We recognized $0.9 million in each of the nine months ended September 30, 2018 and 2017 in PAINKYL™ royalty revenue under our license agreement with TTY. We also recognized $0.7 million in milestones related to our agreement with Endo during the nine months ended September 30, 2017. The revenue decrease is principally due to lower BREAKYL™ and PAINKYL™ royalty revenue during the nine months ended September 30, 2018 as compared to September 30, 2017 because of delay in shipments of BREAKYL™ in the EU and PAINKYL™ in Taiwan which will occur in the fourth quarter 2018.
Research and Development Reimbursements. We recognized $0.8 million of reimbursable revenue related to our agreement with Collegium during the nine months ended September 30, 2017. There was no such revenue recognized during the same period ended September 30, 2018, as Collegium terminated their agreement December 2017, which was effective March 2018.
Contract Revenues.We recognized $1.0 million in contract revenue during the nine months ended September 30, 2018 related to our license agreement with Purdue, which was for the Canadian commercial launch and related milestones. We recognized $20.0 million of deferred revenue during the nine months ended September 30, 2017. The $20.0 million recognized in 2017 was received in November 2015 as partial payment from Endo for the BELBUCA® NDA approval. This amount was deferred upon receipt because it was contingently refundable to Endo if a third-party generic product was introduced in the U.S. during the patent extension period from 2020 to 2027. However, we entered into a Termination Agreement with Endo on December 7, 2016 which terminated the BELBUCA® license to Endo effective January 6, 2017 and such deferred revenue was recognized. We also recognized $1.2 million in contract revenue during the nine months ended September 30, 2017 related to our license agreement with Purdue.
Cost of Sales. We incurred $11.8 million and $14.3 million in cost of sales during the nine months ended September 30, 2018 and 2017, respectively. Cost of sales during the nine months ended September 30, 2018 was $9.9 million for both BELBUCA® and BUNAVAIL®. Additionally, we paid a total of $1.1 million in quarterly minimum and royalty payments to CDC. Cost of sales during the nine months ended September 30, 2018 also includes $0.8 million related to BREAKYL™ and PAINKYL™. Cost of sales during the nine months ended September 30, 2017 was $9.5 million for both BELBUCA® and BUNAVAIL®. Such product costs include manufacturing, royalties and depreciation and $2.8 million of fair value of the inventory purchased related to the BELBUCA® reacquisition. Additionally, we paid a total of $1.1 million in quarterly minimum and royalty payments to CDC. Cost of sales during the nine months ended September 30, 2017 also includes $0.9 million related to BREAKYL™ and PAINKYL™.
Selling,GeneralandAdministrativeExpenses. During the nine months ended September 30, 2018 and 2017, general and administrative expenses totaled $41.0 million and $44.1 million, respectively. Selling, general and administrative costs include commercialization costs for BELBUCA® and BUNAVAIL®, management wages and stock-based compensation, legal, accounting and other professional fees, travel costs, and the amortization of our intangible assets including the license and distribution rights from the reacquisition of BELBUCA®asnoted above. During the normal course of business, we accrue additional expenses for certain legal matters from time to time, including legal matters related to the protection and enforcement of our intellectual property. The amounts accrued for such legal matters are recorded within accrued expenses on the balance sheet. The decrease in selling, general and administrative expenses during 2018 can be primarily attributed to the settlement of the Teva lawsuit which reduced legal costs and the retirement of company executives which reduced stock compensation expenses.
During the nine months ended September 30, 2018 and 2017, selling, general and administrative expenses included $3.8 million and $8.9 million of stock compensation expenses, respectively. This is primarily composed of restricted stock unit expense for our
executive management and board of directors. Also included in each of the nine months ended September 30, 2018 and 2017 is amortization expense of $3.4 million for the intangible related to the BELBUCA® reacquisition.
Interest expense. During the nine months ended September 30,31, 2018, we had net interest expense of $7.6$2.5 million, consisting of $4.6 million of scheduled interest payments, $2.2 million of related amortization of discount and loan costs and $0.8 million of warrant interest expense. During the nine months ended September 30, 2017, we had net interest expense of $6.7 million, consisting of $2.9$1.9 million of scheduled interest payments and $0.8$0.6 million of related amortization of discountloan discounts and loandeferred finance costs and $0.4 million of warrant interest expense all related to the February 2017 CRG Term Loan Agreement. In addition, we had remaining $0.9 million of scheduled interest payments and $1.4 million of related amortization of discount,term loan costs and loan pay off and $0.2 million of warrant interest expense all related to the July 2013 secured loan facilityagreement from MidCap, which was paid off with the CRG term loan.CRG.
Revenues
The following table summarizes net product sales for the three and nine-monththree-month periods ended September 30March 31 in thousands:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
BELBUCA® | $ | 12,358 | $ | 6,437 | $ | 30,128 | $ | 17,554 | ||||||||
% of net product sales | 90 | % | 79 | % | 88 | % | 74 | % | ||||||||
BUNAVAIL® | 1,405 | 1,681 | 4,239 | 6,224 | ||||||||||||
% of net product sales | 10 | % | 21 | % | 12 | % | 26 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net product sales | $ | 13,763 | $ | 8,118 | $ | 34,367 | $ | 23,798 | ||||||||
|
|
|
|
|
|
|
|
Expenditures for Research and Development Programs
Our research and development expenditures for our approved products and product candidates as of September 30 are as follows in thousands:
Three Months Ended September 30, | Nine Months Ended September 30, | Cumulative through September 30, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | ||||||||||||||||
BELBUCA® | $ | 621 | $ | 126 | $ | 3,082 | $ | 733 | $ | 125,779 | ||||||||||
BUNAVAIL® | 41 | 702 | 312 | 2,474 | 41,197 | |||||||||||||||
ONSOLIS® | 62 | 1,118 | 536 | 1,744 | 3,590 | |||||||||||||||
Buprenorphine Depot Injection | (28 | ) | (6 | ) | 94 | 1,015 | 9,879 | |||||||||||||
Clonidine Topical Gel* | 3 | 46 | 14 | 280 | 27,533 |
|
Non-GAAP (Loss) Income and Earnings Per Common Share:
Non-GAAP (loss) income and EPS are alternative views of our performance that we are providing because management believes this information enhances investors’ understanding of our results as it permits investors to understand how management assesses performance.Non-GAAP (loss) income and EPS excludes certainone-time items because of the nature of the item and the impact that is has on the analysis of underlying business performance and trends. In the presentation ofnon-GAAP (loss) income and EPS below, we have excluded the Series B Preferred Stock beneficial conversion feature, which was approved in August 2018, as it isnon-recurring. This excluded item is a significant component in understanding and assessing financial performance.Non-GAAP (loss) income and EPS is an important internal measure for our Company. Senior management receives a monthly analysis of operating results that includesnon-GAAP (loss) income and EPS. Management uses these measures internally for planning and forecasting purposes and to measure the performance of our Company along with other metrics. Sincenon-GAAP (loss) income and EPS are not measures determined in accordance with GAAP, it has no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. Thenon-GAAP (loss) income and EPS measures should be
considered in addition to, but not as a substitute for or superior to, (loss) income and EPS prepared in accordance with generally accepted accounting principles in the United States (GAAP).
Reconciliations to most directly comparable U.S. GAAP financial measures:
The following table reconciles net (loss) income and the numerators and denominators of the basic and diluted earnings per common share computations (in thousands, except share and per share data) under GAAP to aNon-GAAP basis.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Basic: | ||||||||||||||||
Net (loss) income under GAAP | $ | (18,880 | ) | $ | (11,951 | ) | $ | (39,359 | ) | $ | 21,495 | |||||
Adjustment to beneficial conversion feature of convertible preferred stock | 12,500 | — | 12,500 | — | ||||||||||||
Net (loss) income attributable to common stockholders’Non-GAAP | (6,380 | ) | (11,951 | ) | (26,859 | ) | 21,495 | |||||||||
Weighted average common shares outstanding | 64,900,007 | 55,604,708 | 60,599,456 | 55,170,569 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic (loss) income per common share | $ | (0.10 | ) | $ | (0.21 | ) | $ | (0.44 | ) | $ | 0.39 | |||||
|
|
|
|
|
|
|
| |||||||||
Diluted: | ||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Net (loss) income under GAAP | $ | (18,880 | ) | $ | (11,951 | ) | $ | (39,359 | ) | $ | 21,495 | |||||
Adjustment to beneficial conversion feature of convertible preferred stock | 12,500 | — | 12,500 | — | ||||||||||||
Net (loss) income attributable to common stockholders’Non-GAAP | (6,380 | ) | (11,951 | ) | (26,859 | ) | 21,495 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding | 64,900,007 | 55,604,708 | 60,599,456 | 55,170,569 | ||||||||||||
Effect of dilutive options and warrants | — | — | — | 1,033,789 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted weighted average common shares outstanding | 64,900,007 | 55,604,708 | 60,599,456 | 56,204,358 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted (loss) income per common share | $ | (0.10 | ) | $ | (0.21 | ) | $ | (0.44 | ) | $ | 0.38 | |||||
|
|
|
|
|
|
|
|
The following table reconciles GAAP diluted EPS toNon-GAAP diluted EPS for the three and nine months ended September 30, 2018 and 2017 follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Diluted EPS under GAAP | $ | (0.29 | ) | $ | (0.21 | ) | $ | (0.65 | ) | $ | 0.38 | |||||
Diluted EPS adjustment to beneficial conversion feature of convertible preferred stock | 0.19 | — | 0.21 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted EPSNon-GAAP | $ | (0.10 | ) | $ | (0.21 | ) | $ | (0.44 | ) | $ | 0.38 | |||||
|
|
|
|
|
|
|
|
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
BELBUCA | $ | 18,703 | $ | 8,024 | ||||
% of net product sales | 95 | % | 82 | % | ||||
BUNAVAIL | 1,056 | 1,814 | ||||||
% of net product sales | 5 | % | 18 | % | ||||
|
|
|
| |||||
Net product sales | $ | 19,759 | $ | 9,838 | ||||
|
|
|
|
Liquidity and Capital Resources
Since inception, we have financed our operations principally from the sale of equity securities, proceeds from short-term borrowings, or convertible notes, and notes payable, funded research arrangements, and revenue generated as a result of our worldwide license and development agreements.agreements and the commercialization of our BELBUCA and BUNAVAIL products. We intend to finance our commercialization research and development and working capital needs from existing cash, royalty revenue, earnings from the continued commercialization of BELBUCA®and BUNAVAIL,®, our term loan with CRG (assuming we achieve the conditions for additional funding under such loan), potential royalty revenue, new sources of debt and equity financing, existing and new licensing and commercial partnership agreements and, potentially, through the exercise of outstanding common stock options and warrants to purchase common stock.
At September 30, 2018,March 31, 2019, we had cash of approximately $49.5$41.3 million. We used $18.3$2.9 million of cash in operations during the ninethree months ended September 30, 2018 and had stockholders’ equity of $35.6 million, versus stockholders’ equity of $8.9 million at DecemberMarch 31, 2017.2019. We believe that we have sufficient current cash to manage the business as currently planned into the second
quarter of 2020, which would provide sufficient capital necessary to support the continued commercialization of BELBUCA® and BUNAVAIL®.planned.
Additional capital may be required to support the continued commercialization of our BELBUCA® and BUNAVAIL® products, the reformulation project for and the anticipated commercial relaunch of ONSOLIS®, the potential continued development of Buprenorphine Extended Release Injection oras well as other products which may be acquired or licensed by us, and for general working capital requirements. Based on product development timelines and agreements with our partners, the ability to scale up or reduce personnel and associated costs are factors considered throughout the product life cycle. Available resources may be consumed more rapidly than currently anticipated, potentially resulting in the need for additional funding. Additional funding, capital or loans (including, without limitation, milestone or other payments from commercialization agreements) may be unavailable on favorable terms, if at all, which could leave our company without adequate capital resources.
Also, product development timelines and agreements with our development partners, the ability to scale up or reduce personnel and associated costs are factors considered throughout the product development life cycle. Available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding.all.
Accordingly, we anticipate that we willmay be required to raise additional capital, which may be available to us through a variety of sources, including:
public equity markets;
private equity financings;
commercialization agreements and collaborative arrangements;
sale of product royalty;
grants and new license revenues;
bank loans;
equipment financing;
public or private debt; and
exercise of existing warrants and options.
Readers are cautioned that additional funding, capital or loans (including, without limitation, milestone or other payments from commercialization agreements) may be unavailable on favorable terms, if at all. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain technologies and drug formulations or potential markets, either of which could have a material adverse effect on us, our financial condition and our results of operations.operations in 2019 and beyond. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to existing stockholders.
Contractual Obligations and Commercial Commitments
Our contractual obligations as of September 30, 2018March 31, 2019 are as follows in thousands:
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
Operating lease obligations | $ | 1,386 | $ | 348 | $ | 725 | $ | 313 | $ | — | ||||||||||
Secured loan facility* | 66,315 | — | — | 66,315 | — | |||||||||||||||
Interest on secured loan facility* | 25,161 | 5,663 | 5,883 | 13,615 | — | |||||||||||||||
Minimum royalty expenses** | 13,125 | 1,125 | 3,000 | 3,000 | 6,000 | |||||||||||||||
Purchase obligations*** | 1,508 | 493 | 1,015 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total contractual cash obligations | $ | 107,495 | $ | 7,629 | $ | 10,623 | $ | 83,243 | $ | 6,000 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
Lease obligations | $ | 1,213 | $ | 353 | $ | 735 | $ | 125 | $ | — | ||||||||||
Secured loan facility | 61,784 | — | 30,892 | 30,892 | — | |||||||||||||||
Interest on secured loan facility | 28,103 | 7,852 | 13,218 | 7,033 | — | |||||||||||||||
Minimum royalty expenses* | 12,375 | 1,500 | 3,000 | 3,000 | 4,875 | |||||||||||||||
Purchase obligations** | 1,015 | 493 | 522 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total contractual cash obligations | $ | 104,490 | $ | 10,198 | $ | 48,367 | $ | 41,050 | $ | 4,875 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Minimum royalty expenses represent a contractual floor that we are obligated to pay CDC and NB Athyrium LLC regardless of actual sales. The minimum payment is $0.4 million per quarter or $1.5 million per year until patent expiry on July 23, 2027. |
** | Purchase obligations represent an agreement for the supply of active pharmaceutical ingredient for use in production. |
Off-Balance Sheet Arrangements
As of September 30, 2018,March 31, 2019, we had nooff-balance sheet arrangements.
Effects of Inflation
We do not believe that inflation has had a material effect on our financial position or results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.
Critical Accounting Policies
For information regarding our critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” contained in our annual report on Form10-K for the year ended December 31, 20172018 (the “2017“2018 Annual Report”) and Note 1 of the accompanying condensed consolidated financial statements in revenue recognition to recognize revenue on thesell-in method..
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Foreign currency exchange risk
We currently have, and may in the future have increased, clinicalcommercial, manufacturing and commercial manufacturingclinical agreements which are denominated in Euros CAD or other foreign currencies. Such amounts are currently immaterial to our financial position or results of operations. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar or Euro CAD or other applicable currencies, or by weak economic conditions in Europe Canada or elsewhere in the world. Such amounts are currently immaterial to our financial position or results of operations. We are not currently engaged in any foreign currency hedging activities.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) (the “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective as of September 30, 2018.March 31, 2019.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our thirdfirst quarter of 20182019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (and the “Liquidity and Capital Resources” section thereof) and elsewhere may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to our plans, objectives, projections, expectations and intentions and other statements identified by words such as “projects,” “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions. These statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties, including those detailed in our filings with the SEC. Actual results, including, without limitation: (i) actual sales results (including the results of our continuing commercial efforts with BELBUCA® and BUNAVAIL®)BUNAVAIL), (ii) the application and availability of corporate funds and our need for future funds, (iii) the timing for completion,
and results of, scheduled or additional clinical trials and the FDA’s review and/or approval and commercial activities for our products and product candidates and regulatory filings related to the same or (iv) the results of our ongoing intellectual property litigations and patent office proceedings, may differ significantly from those set forth or anticipated in the forward-looking statements. Such forward-looking statements also involve other factors which may cause our actual results, performance or achievements to materially differ from any future results, performance, or achievements expressed or implied by such forward-looking statements and to vary significantly from reporting period to reporting period. Such factors include, among others, those listed under Item 1A of our 20172018 Annual Report and other factors detailed from time to time in our other filings with the SEC. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual future results will not be different from the expectations expressed in this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings. |
We are involved from timeSee Note 11, Commitments and Contingencies, to time in routine legal matters incidental to our business. Based upon available information, we believe that the resolution of such matters will not have a material adverse effect on our condensed consolidated financial position or resultsstatements included in Part I, Item I of operations. Except as discussed below, we are not the subject of any pending legal proceedings and, to the knowledge of management, no proceedings are presently contemplated against us by any federal, state or local governmental agency.
Indivior (formerly RB Pharmaceuticals Ltd.) and Aquestive Therapeutics (formerly MonoSol Rx)
Litigation related to BUNAVAIL®
On October 29, 2013, Reckitt Benckiser, Inc., RB Pharmaceuticals Limited, and Aquestive (collectively, the RB Plaintiffs) filed an action against us relating to our BUNAVAIL® product in the United States District Court for the Eastern District of North Carolina (“EDNC”) for alleged patent infringement. BUNAVAIL® is a drug approved for the maintenance treatment of opioid dependence. The RB Plaintiffs claim that the formulation for BUNAVAIL®, which has never been disclosed publicly, infringes its US Patent No. 8,475,832 (the ‘832 Patent). On May 21, 2014, the Court granted our motion to dismiss.
On January 22, 2014, Aquestive initiated aninter partesreview (“IPR”) IPRthis Quarterly Report on the ‘019 Patent, which was instituted. The PTAB upheld all claims of our ‘019 Patent in 2015 and this decision was not appealed by Aquestive.
On September 20, 2014, we proactively filed a declaratory judgment action in the United States District Court for the EDNC requesting the Court to make a determination that our BUNAVAIL® product does not infringe the ‘832 Patent, US Patent No. 7,897,080 (the “‘080 Patent”) and US Patent No. 8,652,378 (the “‘378 Patent”). We invalidated the “‘080 Patent” in its entirety in aninter partesreexamination proceeding. We invalidated all relevant claims of the ‘832 Patent in aninter partesreview (IPR) proceeding. And, in an IPR proceeding for the ‘378 Patent, in its decision not to institute the IPR proceeding the PTAB construed the claims of the ‘378 Patent narrowly. Shortly thereafter, by joint motion of the parties, the ‘378 Patent was subsequently removed from the action.
On June 6, 2016, in an unrelated case in which Indivior and Aquestive asserted the ‘832 Patent against other parties, the Delaware District Court entered an order invalidating other claims in the ‘832 Patent. Indivior and Aquestive cross-appealed all adverse findings in that decision to the Court of Appeals for the Federal Circuit in CaseFormNo. 17-2587.10-Q, Our declaratory judgment action remains stayed pending the outcome of that cross-appeal by Indivior and Aquestive.
On September 22, 2014, the RB Plaintiffs filed an action against us (and our commercial partner) relating to our BUNAVAIL® product in the United States District Court for the District of New Jersey for alleged patent infringement. The RB Plaintiffs claim that BUNAVAIL®, whose formulation and manufacturing processes have never been disclosed publicly, infringes its patent U.S. Patent No. 8,765,167 (the ‘167 Patent. As with prior actions by the RB Plaintiffs, we believe this is another anticompetitive attempt by the RB Plaintiffs to distract our efforts from commercializing BUNAVAIL®. We strongly refute as without merit the RB Plaintiffs’ assertion of patent infringement and will vigorously defend the lawsuit. On our motion, this case was transferred to the Eastern District of North Carolina. A Joint Motion to Stay the case was granted and the case is now stayed until a final resolution of the ‘167 IPRs discussed directly below. We will continue to vigorously defend this case.
On October 28, 2014, we filed multiple IPR petitions on certain claims of the ‘167 Patent. The USPTO instituted three of the four IPR petitions. The PTAB upheld the claims and denied collateral estoppel applied to the PTAB decisions in March 2016. We appealed to Court of Appeals for the Federal Circuit. The USPTO intervened with respect to whether collateral estoppel applied to the
PTAB. On June 19, 2018, we filed a motion to remand the case for further consideration by the PTAB in view of intervening authority. On July 31, 2018, the Federal Circuit vacated the decisions, and remanded the ‘167 Patent IPRs for further consideration on the merits.
Litigation related to BELBUCA®
On January 13, 2017, Aquestive filed a complaint in the United States District Court for the District of New Jersey alleging BELBUCA® infringes the ‘167 Patent. In lieu of answering the complaint, we filed motions to dismiss the complaint and, in the alternative, to transfer the case to the EDNC. On July 25, 2017, the New Jersey Court administratively terminated the case pending the parties submission of a joint stipulation of transfer because the District of New Jersey was an inappropriate venue. This case was later transferred to the Delaware District Court. On October 31, 2017 we filed motions to dismiss the complaint and, in the alternative, to transfer the case to the EDNC. On October 16, 2018, denying the motion to dismiss as moot, the Delaware District Court granted our motion to transfer the case to the EDNC. The case is now pending in the EDNC. We strongly refute as without merit Aquestive’s assertion of patent infringement and will vigorously defend the lawsuit.
Teva Pharmaceuticals USA (formerly Actavis)
On February 8, 2016, we received a notice relating to a Paragraph IV certification from Teva Pharmaceuticals USA (“Teva”) (formerly Actavis) seeking to find invalid three Orange Book listed patents relating specifically to BUNAVAIL®. The Paragraph IV certification related to an Abbreviated New Drug Application (the “ANDA”) filed by Teva with the U.S Food and Drug Administration (“FDA”) for a generic formulation of BUNAVAIL®. The patents subject to Teva’s certification were U.S. Patent No. 7,579,019 (the “‘019 Patent”), U.S. Patent No. 8,147,866 (the “‘866 Patent”) and 8,703,177 (the “‘177 Patent”).
On March 18, 2016, we asserted three different patents against Teva, the ‘019 Patent, the ‘866 Patent, and the ‘177 Patent. Teva did not raisenon-infringement positions about the ‘019 and the ‘866 Patents in its Paragraph IV certification. Teva did raise anon-infringement position on the ‘177 Patent but we asserted in our complaint that Teva infringed the ‘177 Patent either literally or under the doctrine of equivalents.
On December 20, 2016 the USPTO issued U.S. Patent No. 9,522,188 (“the ‘188 Patent”), and this patent was properly listed in the Orange Book as covering the BUNAVAIL® product. On February 23, 2017 Teva sent a Paragraph IV certification adding the 9,522,188 to its ANDA. An amended Complaint was filed, adding the ‘188 Patent to the litigation.
On January 31, 2017, we received a notice relating to a Paragraph IV certification from Teva relating to Teva’s ANDA on additional strengths of BUNAVAIL® and on March 16, 2017, we brought suit against Teva and its parent company on these additional strengths. On June 20, 2017, the Court entered orders staying both BUNAVAIL® suits at the request of the parties.
On May 23, 2017, the USPTO issued U.S. Patent 9,655,843 (the “‘843 Patent”) relating to the BEMA® technology, and this patent was properly listed in the Orange Book as covering the BUNAVAIL® product.
Finally, on October 12, 2017, we announced that we had entered into a settlement agreement with Teva that resolved our BUNAVAIL® patent litigation against Teva pending in the U.S. District Court for the District of Delaware. As part of the Settlement Agreement, which is subject to reviewincorporated into this item by the U.S. Federal Trade Commission and the U.S. Department of Justice, we have entered into anon-exclusive license agreement with Teva that permits Teva to first begin selling its generic version of BUNAVAIL® in the U.S. on July 23, 2028 or earlier under certain circumstances. Other terms of the agreement are confidential.
We received notices regarding Paragraph IV certifications from Teva on November 8, 2016, November 10, 2016, and December 22, 2016, seeking to find invalid two Orange Book listed patents relating specifically to BELBUCA®. The Paragraph IV certifications relate to three ANDAs filed by Teva with the FDA for a generic formulation of BELBUCA®. The patents subject to Teva’s certification were the ‘019 Patent and the ‘866 Patent. We filed complaints in Delaware against Teva on December 22, 2016 and February 3, 2017 in which we asserted against Teva the ‘019 Patent and the ‘866 Patent. Teva did not contest infringement of the claims of the ‘019 Patent and did not contest infringement of the claims of the ‘866 Patent.
The ‘019 Patent had already been the subject of an unrelated IPR before the USPTO under which we prevailed, and all claims of the ‘019 Patent survived. Aquestive’s request for rehearing of the final IPR decision regarding the ‘019 Patent was denied by the USPTO on December 19, 2016. Aquestive did not file a timely appeal at the Federal Circuit.
On May 23, 2017, the USPTO issued U.S. Patent 9,655,843 (the “‘843 Patent”) relating to the BEMA® technology, and this patent was properly listed in the Orange Book as covering the BELBUCA® product.
On August 28, 2017, the Court entered orders staying both BELBUCA® suits at the request of the parties.
In February 2018, we announced that we had entered into a settlement agreement with Teva that resolved our BELBUCA® patent litigation against Teva pending in the U.S. District Court for the District of Delaware. As part of the settlement agreement, which is subject to review by the U.S. Federal Trade Commission and the U.S. Department of Justice, we have granted Teva anon-exclusive license (for which we will receive no current or future payments) that permits Teva to first begin selling the generic version of our BELBUCA® product in the U.S. on January 23, 2027 or earlier under certain circumstances (including, for example, upon (i) the delisting of thepatents-in-suit from the U.S. FDA Orange Book, (ii) the granting of a license by us to a third party to launch another generic form of BELBUCA® at a date prior to January 23, 2027, or (iii) the occurrence of certain conditions regarding BELBUCA® market share). Other terms of the Agreement are confidential.
Alvogen
On September 7, 2018, we filed a complaint for patent infringement in Delaware against Alvogen Pb Research & Development LLC, Alvogen Malta Operations Ltd., Alvogen Pine Brook LLC, Alvogen, Incorporated, and Alvogen Group, Incorporated (collectively, “Alvogen”), asserting that Alvogen infringes our Orange Book listed patents for BELBUCA®, including U.S. Patent Nos. 8,147,866 and 9,655,843, both expiring in July of 2027, and U.S. Patent No. 9,901,539, expiring in December of 2032. This complaint follows receipt by us on July 30, 2018 of a Paragraph IV Patent Certification from Alvogen stating that Alvogen had filed an ANDA with the FDA for a generic version of BELBUCA® Buccal Film (75 mcg, 150 mcg, 300 mcg, 450 mcg, 600 mcg, 750 mcg and 900 mcg). Because we initiated a patent infringement suit to defend the patents identified in the Paragraph IV notice within 45 days after receipt of the Paragraph IV Certification, the FDA is prevented from approving the ANDA until the earlier of 30 months or a decision in the case that each of the patents is not infringed or invalid. Alvogen’s notice letter also does not provide any information on the timing or approval status of its ANDA.
In its Paragraph IV Certification, Alvogen does not contest infringement of at least several independent claims of each of the ’866, ’843, and ’539 patents. Rather, Alvogen advances only invalidly arguments for these independent claims. We believe that we will be able to prevail on our claims of infringement of these patents, particularly as Alvogen does not contest infringement of certain claims of each patent. Additionally, as we have done in the past, we intend to vigorously defend our intellectual property against assertions of invalidity. Each of the three patents carry a presumption of validity, which can only be overcome by clear and convincing evidence.
2018 Arkansas Opioid Litigation
On March 15, 2018, the State of Arkansas, and certain counties and cities in that State, filed an action in the Circuit Court of Arkansas, Crittenden County against multiple manufacturers, distributors, retailers, and prescribers of opioid analgesics, including our company. We were served with the complaint on April 27, 2018. The complaint specifically alleged that we licensed our branded fentanyl buccal soluble film ONSOLIS® to Collegium, and Collegium is also named as a defendant in the lawsuit. ONSOLIS® is not presently sold in the United States and the license agreement with Collegium was terminated prior to Collegium launching ONSOLIS® in the United States. Therefore, on June 28, 2018, we moved to dismiss the case against us and most recently, on July 6, 2018, the plaintiffs filed a notice to voluntarily dismiss us from the Arkansas case, without prejudice.reference.
Item 1A. | Risk Factors. |
No update.We are dependent on third party suppliers for key components of our delivery technologies, products and product candidates.
Key components of our drug delivery technologies, products and product candidates, including for BELBUCA, Symproic and BUNAVAIL, may be provided by sole or limited numbers of suppliers, and supply shortages or loss of these suppliers could result in interruptions in supply or increased costs. Certain components used in our development activities, such as the active pharmaceutical ingredients, or API, of our products, are currently purchased from a single or a limited number of outside sources. The reliance on a sole or limited number of suppliers could result in:
delays associated with developmentand non-clinical and clinical trials due to an inability to timely obtain a single or limited source component;
inability to timely obtain sufficient quantities of API and an adequate supply of required components; and
reduced control over pricing, quality and timely delivery.
Our relationships with our manufacturers and suppliers are particularly important to us and any loss of or material diminution of their capabilities due to factors such as regulatory issues, accidents, acts of God or any other factor would have a material adverse effect on our company. Any loss of or interruption in the supply of components from our suppliers or other third-party suppliers would require us to seek alternative sources of supply or require us to manufacture these components internally, which we are currently not able to do.
If the supply of any components is lost or interrupted, API, product or components from alternative suppliers may not be available in sufficient quality or in volumes within required time frames, if at all, to meet our or our partners’ needs. This could delay our ability to complete clinical trials, obtain approval for commercialization or commence marketing or cause us to lose sales, force us into breach of other agreements, incur additional costs, delay new product introductions or harm our reputation. Furthermore, product or components from a new supplier may not be identical to those provided by the original supplier. Such differences could have material effects on our overall business plan and timing, could fall outside of regulatory requirements, affect product formulations or the safety and effectiveness of our products that are being developed.
If our competitors are successful in obtaining approval for Abbreviated New Drug Applications for products that have the same active ingredients as BELBUCA, Symproic or BUNAVAIL, sales of BELBUCA, Symproic or BUNAVAIL may be adversely affected.
Our competitors may submit for approval certain Abbreviated New Drug Applications, or ANDAs, which provide for the marketing of a drug product that has the same active ingredients in the same strengths and dosage form as a drug product already listed with the FDA, and which has been shown to be bioequivalent tosuch FDA-listed drug. Drugs approved in this way are commonly referred to as generic versions of a listed drug and can often be substituted by pharmacists under prescriptions written for an original listed drug. Any applicant filing an ANDA is required to make patent certifications to the FDA, such as certification to the FDA that the new product subject to the ANDA will not infringe an already approved product’s listed patents or that such patents are invalid (otherwise known as a Paragraph IV Certification).
In February 2016, we announced that a generic competitor, Teva Pharmaceuticals USA (formerly known as Actavis, or Teva), had filed a Paragraph IV Certification challenging certain of our BUNAVAIL-related patents and we received notices regarding Paragraph IV certifications from Teva in November and December 2016, seeking to find invalid two Orange Book listed patents relating specifically to BELBUCA. The filing of this certification required us to initiate costly litigation against Teva. In addition, a number of our competitor companies have filed Paragraph IV Certifications challenging the patent for Suboxone® film, the market leader in the field in which we are seeking to generate sales of BUNAVAIL. To the extent that any company is successful in challenging the validity of certain patents covering BUNAVAIL or Suboxone® film under a Paragraph IV Certification, it could result in FDA approval of a drug that is lower in price to BUNAVAIL or Suboxone® film. Such a new drug could make it more difficult for BUNAVAIL to gain any significant market share in an increasingly generic marketplace, which would have a material adverse effect on our results of operations, cash flow, reputation and stock price.
In October 2017, we announced that we had entered into a settlement agreement with Teva that resolved our BUNAVAIL patent litigation against Teva pending in the U.S. District Court for the District of Delaware. As part of the Settlement Agreement, which is subject to review by the U.S. Federal Trade Commission and the U.S. Department of Justice, we entered intoa non-exclusive license agreement with Teva that permits Teva to first begin selling its generic version of BUNAVAIL in the U.S. on July 23, 2028 or earlier under certain circumstances. Other terms of the agreement are confidential.
In February 2018, we announced that we had entered into a Settlement Agreement with Teva that resolves our previously reported BELBUCA, patent litigation against Teva pending in the United States District Court for the District of Delaware. As part of the settlement agreement, which is subject to review by the U.S. Federal Trade Commission and the U.S. Department of Justice, we
entered intoa non-exclusive license agreement with Teva that permits Teva to first begin selling its generic version of BELBUCA in the U.S. on January 23, 2027 or earlier under certain circumstances. Other terms of the agreement are confidential.
As such, we have been and may continue to be subject to ANDA-related litigation, which is costly and distracting and has the potential to impair the long-term value of our products.
We are presently a party to lawsuits by third parties who claim that our products, methods of manufacture or methods of use infringe on their intellectual property rights, and we may be exposed to these types of claims in the future.
We are presently, and may continue to be, exposed to litigation by third parties based on claims that our technologies, processes, formulations, methods, or products infringe the intellectual property rights of others or that we have misappropriated the trade secrets of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in pharmaceutical patents is, in most instances, uncertain and highly complex. Any litigation or claims against us, whether or not valid, would result in substantial costs, could place a significant strain on our financial and human resources and could harm our reputation. Such a situation may force us to do one or more of the following:
incur significant costs in legal expenses for defending against an intellectual property infringement suit;
delay the launch of, or cease selling, making, importing, incorporating or using one or more or all of our technologies and/or formulations or products that incorporate the challenged intellectual property, which would adversely affect our revenue;
obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or
redesign our formulations or products, which would be costly and time-consuming.
With respect to our BEMA delivery technology, the thin film drug delivery technology space is highly competitive. There is a risk that a court of law in the United States or elsewhere could determine that one or more of our BEMA based products conflicts with or covered by external patents. This risk presently exists in our litigation with Reckitt Benckiser, Inc., Indivior PLC (formerly known as RB Pharmaceuticals Limited, or Indivior) and Aquestive Therapeutics, Inc. (formerly known as MonoSol Rx LLC, or Aquestive) relating to our BUNAVAIL product which was filed in September 2014 and in our litigation with Aquestive relating to our BELBUCA product which was filed in January 2017. If the courts in these cases were to rule against us and our partner in these cases, we could be forced to license technology from Aquestive or be prevented from marketing BUNAVAIL or BELBUCA, or otherwise incur liability for damages, which could have a material adverse effect on our ability for us or our partners to market and sell BUNAVAIL or BELBUCA.
We have been grantednon-exclusive license rights to European Patent No. 949 925, which is controlled by LTS to market BELBUCA and ONSOLIS within the countries of the European Union. We are required to pay a low single digit royalty on sales of products that are covered by this patent in the European Union. We have not conducted freedom to operate searches and analyses for our other proposed products. Moreover, the possibility exists that a patent could issue that would cover one or more of our products, requiring us to defend a patent infringement suit or necessitating a patent validity challenge that would be costly, time consuming and possibly unsuccessful.
Our lawsuits with Aquestive and Indivior have caused us to incur significant legal costs to defend ourselves, and we would be subject to similar costs if we are a party to similar lawsuits in the future Furthermore, if a court were to determine that we infringe any other patents and that such patents are valid, we might be required to seek one or more licenses to commercialize our BEMA products. We may be unable to obtain such licenses from the patent holders, which could materially and adversely impact our business.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | Defaults upon Senior Securities. |
None.
Item 4. | Mine Safety Disclosures. |
Not applicable.
Item 5. | Other Information. |
None.
Item 6. | Exhibits. |
* | Filed herewith, a signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. |
(1) | Previously filed as an exhibit to the Company’s Current Report on Form8-K filed on |
(2) | Previously filed as an exhibit to the Company’s Current Report on Form8-K filed on April 30, 2019. |
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIODELIVERY SCIENCES INTERNATIONAL, INC. | ||||||
Date: May 6, 2019 | By: | /s/ Herm Cukier | ||||
Herm Cukier | ||||||
Chief Executive Officer and Director
| ||||||
(Principal Executive Officer) | ||||||
Date: May 6, 2019 | By: | /s/ | ||||
| ||||||
| ||||||
(Principal Financial and Accounting Officer) |
S-1