UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34703
Alimera Sciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 20-0028718 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
6120 Windward Parkway, Suite 290 Alpharetta, GA | 30005 | |
(Address of principal executive offices) | (Zip Code) |
(678) 990-5740
(Registrant’s telephone number, including area code)
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, $0.01 par value per share | ALIM | The Nasdaq Stock Market LLC (Nasdaq Global Market) |
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
x NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Accelerated filer | x | |
Non-accelerated filer | o | Smaller reporting company | x | |
Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 5, 2019,3, 2020, there were 71,000,4955,031,745 shares of the registrant’s Common Stock issued and outstanding.
ALIMERA SCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this report of Alimera Sciences, Inc. (we, our, Alimera the Company or the registrant)Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include:
•the adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors;
•the adverse effects of the COVID-19 pandemic on sales of ILUVIEN® resulting from (a) limitations on in-person access to physicians for treatment imposed by governments or healthcare facilities and (b) the unwillingness of patients, many of whom suffer from diabetic macular edema and, in Europe and the Middle East, non-infectious uveitis, to visit their physicians in person due to their fear of contracting the COVID-19 pandemic;
•the possibility that we may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a slowdowngreater amount of cash in inventory than we need;
•the possibility that the economic impact of the COVID-19 pandemic will lead to changes in reimbursement policies and reduce market access for ILUVIEN in countries where we sell ILUVIEN;
•the possibility that we may fail to maintain or reductionmodify as necessary our internal controls over financial reporting in the current environment in which (a) some of our employees are working remotely and (b) we or our distributors are required to modify our standard business processes to take into account the current environment in light of the COVID-19 pandemic;
•the possibility of reduced efficiency and potential distractions of our employees resulting from the impact of the COVID-19 pandemic, and the resulting loss of productivity;
•the possibility that we may fail to comply with minimum required revenue and liquidity covenants in our sales in due$45.0 million loan and security agreement with Solar Capital Ltd.;
•uncertainty associated with our transition from our key third-party manufacturer of certain component parts of the ILUVIEN injector to a reduction in end user demand, unanticipated competition, regulatory issues, or other unexpected circumstances;
•dependence on third-party manufacturers to manufacture ILUVIEN or any future products or product candidates in sufficient quantities and quality;
•financial uncertainty associated with the adverse effects of the COVID-19 pandemic and the duration of those effects, which had an adverse effect on our need to replacerevenue in the second quarter of 2020 and may in the future have an adverse effect on our key third-party manufacturerrevenue and on our financial condition and cash flows as well as an impact in future periods on certain estimates used in the preparation of our quarterly financial results, including impairment of intangible assets, the income tax provision and recoverability of certain component partsreceivables;
•a slowdown or reduction in our sales due to, in addition to the other factors cited above, a reduction in end user demand, unanticipated competition, regulatory issues, or other unexpected circumstances;
•uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of ILUVIEN in the U.S., the European Economic Area and other regions of the ILUVIEN injector before our manufacturing contact with the manufacturer expires on September 30, 2020;
•uncertainty regarding the pricing and reimbursement guidelines for ILUVIEN or any future products or product candidates, including ILUVIEN in new markets;
•uncertainty associated with our pursuit of reimbursement withapproval from local health authorities in certain countries including the U.K., Ireland, Germany, Austria, Portugal, Italy, Spain and France for the recently obtained additional indication for ILUVIEN for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIPU)(NIU-PS);
•uncertainty associated with our ability to meet any post-market requirements for NIPUNIU-PS in the European Economic Area;
•the possibility that the NEW DAY Study may fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME) or to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, as well as uncertainty regarding the total expense we will incur over the next three to four years related to the NEW DAY Study and how we will fund these costs;
•the possibility that we may not be entitled to forgiveness of our PPP Loan;
•our ability to retain our current employees and to recruit and retain the new employees we need in the future, in particular a productive sales force;
•the possibility that we may fail to comply with the Nasdaq listing standards in the future;
•our ability to successfully commercialize ILUVIEN following regulatory approval in additional markets;
•delay in or failure to obtain regulatory and reimbursement approval of ILUVIEN or any future products or product candidates in additional countries;
•our possible need to raise additional financing.
•current and future laws and regulations.
All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).
We encourage you to read the discussion and analysis of our financial condition and our condensed consolidated financial statements contained in this report. We also encourage you to read Item 1A of Part II of this Quarterly Report on Form 10-Q, entitled “Risk Factors”Factors,” and Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, which contains a more detailed discussion of some of the risks and uncertainties associated with our business. In addition to the risks described above, other unknown or unpredictable factors also could affect our results. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates.
Unless the context otherwise requires, throughout this Quarterly Report on Form 10-Q, the words “Alimera” “we,” “us,” the “registrant” or the “Company” refer to Alimera Sciences, Inc. and its subsidiaries (as applicable).
PART I. FINANCIAL INFORMATION
ITEM 1.
Financial Statements (unaudited)ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, | December 31, | ||||
2020 | 2019 | ||||
(In thousands, except share and per share data) | |||||
CURRENT ASSETS: | |||||
Cash and cash equivalents | $ | 13,496 | $ | 9,426 | |
Restricted cash | 31 | 33 | |||
Accounts receivable, net | 14,034 | 19,331 | |||
Prepaid expenses and other current assets | 2,942 | 2,565 | |||
Inventory (Note 7) | 1,968 | 1,390 | |||
Total current assets | 32,471 | 32,745 | |||
NON-CURRENT ASSETS: | |||||
Property and equipment, net | 1,205 | 940 | |||
Right of use assets, net | 867 | 1,107 | |||
Intangible asset, net (Note 8) | 13,816 | 14,783 | |||
Deferred tax asset | 735 | 734 | |||
TOTAL ASSETS | $ | 49,094 | $ | 50,309 | |
CURRENT LIABILITIES: | |||||
Accounts payable | $ | 5,884 | $ | 7,077 | |
Accrued expenses | 3,140 | 4,716 | |||
Notes payable | 889 | — | |||
Finance lease obligations | 226 | 255 | |||
Total current liabilities | 10,139 | 12,048 | |||
NON-CURRENT LIABILITIES: | |||||
Notes payable, net of discount (Note 10) | 42,510 | 38,658 | |||
Finance lease obligations — less current portion | 311 | 94 | |||
Other non-current liabilities | 3,664 | 3,954 | |||
COMMITMENTS AND CONTINGENCIES |
|
| |||
STOCKHOLDERS’ DEFICIT: | |||||
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2020 and December 31, 2019: | |||||
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2020 and December 31, 2019; liquidation preference of $24,000 at June 30, 2020 and December 31, 2019 | 19,227 | 19,227 | |||
Series C Convertible Preferred Stock, 10,150 authorized issued and outstanding at June 30, 2020 and December 31, 2019; liquidation preference of $10,150 at June 30, 2020 and December 31, 2019 | 11,117 | 11,117 | |||
Common stock, $.01 par value — 150,000,000 shares authorized, 5,031,745 shares issued and outstanding at June 30, 2020 and 4,965,949 shares issued and outstanding at December 31, 2019 | 50 | 50 | |||
Additional paid-in capital | 350,769 | 350,117 | |||
Common stock warrants | 3,707 | 3,707 | |||
Accumulated deficit | (391,314) | (387,570) | |||
Accumulated other comprehensive loss | (1,086) | (1,093) | |||
TOTAL STOCKHOLDERS’ DEFICIT | (7,530) | (4,445) | |||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 49,094 | $ | 50,309 |
June 30, 2019 | December 31, 2018 | ||||||
(In thousands, except share and per share data) | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 12,157 | $ | 13,043 | |||
Restricted cash | 32 | 32 | |||||
Accounts receivable, net | 13,892 | 17,259 | |||||
Prepaid expenses and other current assets | 2,691 | 2,109 | |||||
Inventory (Note 7) | 2,141 | 2,405 | |||||
Total current assets | 30,913 | 34,848 | |||||
NON-CURRENT ASSETS: | |||||||
Property and equipment, net | 1,095 | 1,355 | |||||
Right of use assets, net | 1,299 | — | |||||
Intangible asset, net (Note 8) | 15,761 | 16,723 | |||||
Deferred tax asset | 1,174 | 1,182 | |||||
TOTAL ASSETS | $ | 50,242 | $ | 54,108 | |||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 7,875 | $ | 6,355 | |||
Accrued expenses (Note 9) | 3,468 | 3,643 | |||||
Finance lease obligations | 247 | 236 | |||||
Total current liabilities | 11,590 | 10,234 | |||||
NON-CURRENT LIABILITIES: | |||||||
Note payable (Note 11) | 38,288 | 37,873 | |||||
Finance lease obligations — less current portion | 172 | 305 | |||||
Other non-current liabilities | 3,874 | 2,974 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
STOCKHOLDERS’ (DEFICIT) EQUITY: | |||||||
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2019 and December 31, 2018: | |||||||
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $24,000 at June 30, 2019 and December 31, 2018 | 19,227 | 19,227 | |||||
Series C Convertible Preferred Stock, 10,150 authorized issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $10,150 at June 30, 2019 and December 31, 2018 | 11,117 | 11,117 | |||||
Common stock, $.01 par value — 150,000,000 shares authorized, 71,000,495 shares issued and outstanding at June 30, 2019 and 70,078,878 shares issued and outstanding at December 31, 2018 | 710 | 701 | |||||
Additional paid-in capital | 347,524 | 346,108 | |||||
Common stock warrants | 3,707 | 3,707 | |||||
Accumulated deficit | (384,928 | ) | (377,127 | ) | |||
Accumulated other comprehensive loss | (1,039 | ) | (1,011 | ) | |||
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY | (3,682 | ) | 2,722 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 50,242 | $ | 54,108 |
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
(In thousands, except share and per share data) | |||||||||||
NET REVENUE | $ | 10,038 | $ | 10,855 | $ | 24,573 | $ | 23,745 | |||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,485) | (1,174) | (3,412) | (2,774) | |||||||
GROSS PROFIT | 8,553 | 9,681 | 21,161 | 20,971 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,810 | 2,834 | 4,693 | 5,561 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,975 | 3,675 | 6,156 | 7,068 | |||||||
SALES AND MARKETING EXPENSES | 4,382 | 6,108 | 10,054 | 12,021 | |||||||
DEPRECIATION AND AMORTIZATION | 685 | 654 | 1,339 | 1,306 | |||||||
OPERATING EXPENSES | 9,852 | 13,271 | 22,242 | 25,956 | |||||||
NET LOSS FROM OPERATIONS | (1,299) | (3,590) | (1,081) | (4,985) | |||||||
INTEREST EXPENSE AND OTHER | (1,351) | (1,236) | (2,643) | (2,464) | |||||||
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET | 109 | 49 | 28 | (20) | |||||||
NET LOSS BEFORE TAXES | (2,541) | (4,777) | (3,696) | (7,469) | |||||||
PROVISION FOR TAXES | (5) | (261) | (48) | (332) | |||||||
NET LOSS | $ | (2,546) | $ | (5,038) | $ | (3,744) | $ | (7,801) | |||
NET LOSS PER COMMON SHARE — Basic and diluted | $ | (0.51) | $ | (1.06) | $ | (0.75) | $ | (1.65) | |||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted | 5,030,833 | 4,732,687 | 5,005,777 | 4,724,417 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands, except share and per share data) | |||||||||||||||
NET REVENUE | $ | 10,855 | $ | 10,717 | $ | 23,745 | $ | 20,347 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,174 | ) | (913 | ) | (2,774 | ) | (2,017 | ) | |||||||
GROSS PROFIT | 9,681 | 9,804 | 20,971 | 18,330 | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 2,834 | 2,777 | 5,561 | 5,599 | |||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 3,675 | 3,229 | 7,068 | 7,084 | |||||||||||
SALES AND MARKETING EXPENSES | 6,108 | 5,926 | 12,021 | 11,895 | |||||||||||
DEPRECIATION AND AMORTIZATION | 654 | 650 | 1,306 | 1,299 | |||||||||||
OPERATING EXPENSES | 13,271 | 12,582 | 25,956 | 25,877 | |||||||||||
NET LOSS FROM OPERATIONS | (3,590 | ) | (2,778 | ) | (4,985 | ) | (7,547 | ) | |||||||
INTEREST EXPENSE AND OTHER | (1,236 | ) | (1,178 | ) | (2,464 | ) | (2,329 | ) | |||||||
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET | 49 | 32 | (20 | ) | 34 | ||||||||||
LOSS ON EARLY EXTINGUISHMENT OF DEBT | — | — | — | (1,766 | ) | ||||||||||
NET LOSS BEFORE TAXES | (4,777 | ) | (3,924 | ) | (7,469 | ) | (11,608 | ) | |||||||
PROVISION FOR TAXES | (261 | ) | (76 | ) | (332 | ) | (76 | ) | |||||||
NET LOSS | (5,038 | ) | (4,000 | ) | (7,801 | ) | (11,684 | ) | |||||||
NET LOSS PER SHARE — Basic and diluted | $ | (0.07 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.17 | ) | |||
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted | 70,990,340 | 70,022,100 | 70,866,285 | 69,952,940 |
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
(In thousands) | |||||||||||
NET LOSS | (2,546) | $ | (5,038) | $ | (3,744) | $ | (7,801) | ||||
OTHER COMPREHENSIVE LOSS | |||||||||||
Foreign currency translation adjustments | 93 | 55 | 7 | (27) | |||||||
TOTAL OTHER COMPREHENSIVE LOSS | 93 | 55 | 7 | (27) | |||||||
COMPREHENSIVE LOSS | $ | (2,453) | $ | (4,983) | $ | (3,737) | $ | (7,828) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
NET LOSS | $ | (5,038 | ) | $ | (4,000 | ) | $ | (7,801 | ) | $ | (11,684 | ) | |||
OTHER COMPREHENSIVE INCOME | |||||||||||||||
Foreign currency translation adjustments | 55 | (213 | ) | (27 | ) | (107 | ) | ||||||||
TOTAL OTHER COMPREHENSIVE INCOME | 55 | (213 | ) | (27 | ) | (107 | ) | ||||||||
COMPREHENSIVE LOSS | $ | (4,983 | ) | $ | (4,213 | ) | $ | (7,828 | ) | $ | (11,791 | ) |
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended | |||||
June 30, | |||||
2020 | 2019 | ||||
(In thousands) | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
Net loss | $ | (3,744) | $ | (7,801) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||
Depreciation and amortization | 1,339 | 1,306 | |||
Unrealized foreign currency transaction (gain) loss | (28) | 20 | |||
Amortization of debt discount | 481 | 415 | |||
Stock-based compensation expense | 757 | 1,399 | |||
Changes in assets and liabilities: | |||||
Accounts receivable | 5,305 | 3,332 | |||
Prepaid expenses and other current assets | (238) | (963) | |||
Inventory | (582) | 256 | |||
Accounts payable | (1,211) | 1,532 | |||
Accrued expenses and other current liabilities | (1,568) | (603) | |||
Other long-term liabilities | (293) | 431 | |||
Net cash provided by (used in) operating activities | 218 | (676) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
Purchases of property and equipment | (217) | (39) | |||
Net cash used in investing activities | (217) | (39) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
Proceeds from issuance of common stock | 10 | 26 | |||
Issuance of debt | 4,278 | — | |||
Payment of debt costs | (19) | — | |||
Payment of finance lease obligations | (231) | (168) | |||
Net cash provided by (used in) financing activities | 4,038 | (142) | |||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 29 | (29) | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 4,068 | (886) | |||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period | 9,459 | 13,075 | |||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period | $ | 13,527 | $ | 12,189 | |
SUPPLEMENTAL DISCLOSURES: | |||||
Cash paid for interest | $ | 1,084 | $ | 2,048 | |
Cash paid for income taxes | $ | 30 | $ | 7 | |
Supplemental schedule of non-cash investing and financing activities: | |||||
Property and equipment acquired under finance leases | $ | 495 | $ | 64 | |
Property and equipment acquired under operating leases | $ | — | $ | 676 | |
Note payable end of term payment accrued but unpaid | $ | 1,800 | $ | 1,800 |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net loss | $ | (7,801 | ) | $ | (11,684 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 1,306 | 1,299 | |||||
Inventory reserve | — | 9 | |||||
Unrealized foreign currency transaction loss (gain) | 20 | (34 | ) | ||||
Loss on early extinguishment of debt | — | 1,766 | |||||
Amortization of debt discount | 415 | 421 | |||||
Stock-based compensation expense | 1,399 | 2,358 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | 3,332 | (2,054 | ) | ||||
Prepaid expenses and other current assets | (963 | ) | (48 | ) | |||
Inventory | 256 | (651 | ) | ||||
Accounts payable | 1,532 | 167 | |||||
Accrued expenses and other current liabilities | (603 | ) | 84 | ||||
Other long-term liabilities | 431 | (35 | ) | ||||
Net cash used in operating activities | (676 | ) | (8,402 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment | (39 | ) | (123 | ) | |||
Net cash used in investing activities | (39 | ) | (123 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from exercise of stock options | — | 2 | |||||
Proceeds from issuance of common stock | 26 | 49 | |||||
Issuance of debt | — | 40,000 | |||||
Payment of principal on notes payable | — | (35,000 | ) | ||||
Payment of extinguishment of debt costs | — | (2,544 | ) | ||||
Payment of deferred financing costs | — | (1,142 | ) | ||||
Payment of finance lease obligations | (168 | ) | (187 | ) | |||
Net cash (used in) provided by financing activities | (142 | ) | 1,178 | ||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (29 | ) | (34 | ) | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (886 | ) | (7,381 | ) | |||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period | 13,075 | 24,101 | |||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period | $ | 12,189 | $ | 16,720 | |||
SUPPLEMENTAL DISCLOSURES: | |||||||
Cash paid for interest | $ | 2,048 | $ | 1,579 | |||
Cash paid for income taxes | $ | 7 | $ | 229 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Property and equipment acquired under finance leases | $ | 64 | $ | 432 | |||
Property and equipment acquired under operating leases | $ | 676 | $ | — | |||
Note payable end of term payment accrued but unpaid | $ | 1,800 | $ | 1,800 |
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITYDEFICIT
Series A | Series C | ||||||||||||||||||||||||||||
Convertible | Convertible | Accumulated | |||||||||||||||||||||||||||
Common Stock | Preferred Stock | Preferred Stock | Additional | Common | Other | ||||||||||||||||||||||||
Paid-In | Stock | Accumulated | Comprehensive | ||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Warrants | Deficit | Loss | Total | |||||||||||||||||||
2020 | (In thousands, except share data) | ||||||||||||||||||||||||||||
Balance, December 31, 2019 | 4,965,949 | $ | 50 | 600,000 | $ | 19,227 | 10,150 | $ | 11,117 | $ | 350,117 | $ | 3,707 | $ | (387,570) | $ | (1,093) | $ | (4,445) | ||||||||||
Issuance of common stock, net of issuance costs | 62,933 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 440 | — | — | — | 440 | ||||||||||||||||||
Other | — | — | — | — | — | — | (115) | — | — | — | (115) | ||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (1,198) | — | (1,198) | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | (86) | (86) | ||||||||||||||||||
Balance, March 31, 2020 | 5,028,882 | $ | 50 | 600,000 | $ | 19,227 | 10,150 | $ | 11,117 | $ | 350,442 | $ | 3,707 | $ | (388,768) | $ | (1,179) | $ | (5,404) | ||||||||||
Issuance of common stock, net of issuance costs | 2,863 | — | — | — | — | — | 10 | — | — | — | 10 | ||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 317 | — | — | — | 317 | ||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (2,546) | — | (2,546) | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | 93 | 93 | ||||||||||||||||||
Balance, June 30, 2020 | 5,031,745 | $ | 50 | 600,000 | $ | 19,227 | 10,150 | $ | 11,117 | $ | 350,769 | $ | 3,707 | $ | (391,314) | $ | (1,086) | $ | (7,530) | ||||||||||
2019 | |||||||||||||||||||||||||||||
Balance, December 31, 2018 | 4,671,921 | $ | 47 | 600,000 | $ | 19,227 | 10,150 | $ | 11,117 | $ | 346,762 | $ | 3,707 | $ | (377,127) | $ | (1,011) | 2,722 | |||||||||||
Issuance of common stock, net of issuance costs | 59,319 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 770 | — | — | — | 770 | ||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (2,763) | — | (2,763) | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | (83) | (83) | ||||||||||||||||||
Balance, March 31, 2019 | 4,731,240 | $ | 47 | 600,000 | $ | 19,227 | 10,150 | $ | 11,117 | $ | 347,532 | $ | 3,707 | $ | (379,890) | $ | (1,094) | $ | 646 | ||||||||||
Issuance of common stock, net of issuance costs | 2,124 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 655 | — | — | — | 655 | ||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (5,038) | — | (5,038) | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | 55 | 55 | ||||||||||||||||||
Balance, June 30, 2019 | 4,733,364 | $ | 47 | 600,000 | $ | 19,227 | 10,150 | $ | 11,117 | $ | 348,187 | $ | 3,707 | $ | (384,928) | $ | (1,039) | $ | (3,682) |
Common Stock | Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Series C Convertible Preferred Stock | Additional Paid-In Capital | Common Stock Warrants | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
2019 | (In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2018 | 70,078,878 | $ | 701 | 600,000 | $ | 19,227 | — | $ | — | 10,150 | $ | 11,117 | $ | 346,108 | $ | 3,707 | $ | (377,127 | ) | $ | (1,011 | ) | $ | 2,722 | |||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 889,752 | 9 | — | — | — | — | — | — | (9 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 770 | — | — | — | 770 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (2,763 | ) | — | (2,763 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | — | — | (83 | ) | (83 | ) | ||||||||||||||||||||||||||||||||
Balance, March 31, 2019 | 70,968,630 | $ | 710 | 600,000 | $ | 19,227 | — | $ | — | 10,150 | $ | 11,117 | $ | 346,869 | $ | 3,707 | $ | (379,890 | ) | $ | (1,094 | ) | $ | 646 | |||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 31,865 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 655 | — | — | — | 655 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (5,038 | ) | — | (5,038 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | — | — | 55 | 55 | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 71,000,495 | $ | 710 | 600,000 | $ | 19,227 | — | $ | — | 10,150 | $ | 11,117 | $ | 347,524 | $ | 3,707 | $ | (384,928 | ) | $ | (1,039 | ) | $ | (3,682 | ) | ||||||||||||||||||||||
2018 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2017 | 69,146,381 | $ | 691 | 600,000 | $ | 19,227 | 8,416 | $ | 49,568 | — | $ | — | $ | 341,622 | $ | 3,707 | $ | (399,074 | ) | $ | (821 | ) | $ | 14,920 | |||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 839,285 | 9 | — | — | — | — | — | — | (9 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||
Exercise of stock options | 1,563 | — | — | — | — | — | — | — | 2 | — | — | — | 2 | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 1,207 | — | — | — | 1,207 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (7,684 | ) | — | (7,684 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | — | — | 106 | 106 | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2018 | 69,987,229 | $ | 700 | 600,000 | $ | 19,227 | 8,416 | $ | 49,568 | — | $ | — | $ | 342,822 | $ | 3,707 | $ | (406,758 | ) | $ | (715 | ) | $ | 8,551 | |||||||||||||||||||||||
Issuance of common stock, net of issuance costs | 51,182 | — | — | — | — | — | — | — | (9 | ) | — | — | — | (9 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 1,209 | — | — | — | 1,209 |
Net loss | — | — | — | — | — | — | — | — | — | — | (4,000 | ) | — | (4,000 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | — | — | (213 | ) | (213 | ) | ||||||||||||||||||||||||||||||||
Balance, June 30, 2018 | 70,038,411 | $ | 700 | 600,000 | $ | 19,227 | 8,416 | $ | 49,568 | — | $ | — | $ | 344,022 | $ | 3,707 | $ | (410,758 | ) | $ | (928 | ) | $ | 5,538 |
1. NATURE OF OPERATIONS
Alimera Sciences, Inc., together with its wholly-ownedwholly owned subsidiaries (the Company), is a pharmaceutical company that specializes in the commercialization and development of ophthalmic pharmaceuticals. The Company was formed on June 4, 2003 under the laws of the State of Delaware.
The Company has completed enrollment into a five-year, post-authorization, open label registry study in patients treated with ILUVIEN. In total, 562 patients enrolled in this study, and the Company anticipates the follow up period to be completed in early 2020.
2. BASIS OF PRESENTATION
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10-018-03 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, theythese Interim Financial Statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.
The accompanying interim financial statementsInterim Financial Statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 20182019 and related notes included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 25, 2019.March 2, 2020. The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.
Effects of the COVID-19 Pandemic
The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and the Company expects will continue to have, certain negative effects on, and present certain risks to, the Company’s business. The Company is currently unable to fully determine its future impact on the Company’s business. These limitations and other effects of the COVID-19 pandemic had an adverse impact on the Company’s revenues late in the first quarter of 2020 and throughout the second quarter of 2020. The Company expects these factors to continue to adversely impact the Company’s revenue, and the extent and duration of that impact is uncertain at this time. The Company is monitoring the pandemic and its potential effect on the Company’s financial position, results of operations and cash flows. This uncertainty could have an impact in future periods on certain estimates used in the preparation of the Company’s quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables. Should the pandemic continue for an extended period, the impact on the Company’s operations could have an adverse effect on the Company’s revenue, financial condition and cash flows.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018.
Reverse Stock Split
On November 14, 2019, the Company filed a certificate of amendment to its restated certificate of incorporation with the Secretary of State of the State of Delaware, which effected a one-for-15 reverse stock split (the “reverse split”) of its issued and Development Expenses
The reverse split did not change the par value of the common stock or the authorized number of shares of common stock. All outstanding options, preferred stock, restricted stock units, warrants and other securities entitling their holders to purchase or otherwise receive shares of Alimera’s common stock have any impact on gross profit, net loss from operations or net loss.
Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) or other standard setting bodies issue new accounting pronouncements that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
In December 15, 2019, includingthe FASB issued ASU No. 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes. The standard eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exceptions in interim periods within those annual periods,period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with early adoption available.a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax and (4) enacted changes in tax laws in interim periods. The standard becomes effective for the Company on January 1, 2021. The Company is in the process of determining the effect that the adoption will have on its financial statements.
4. REVENUE RECOGNITION
Net Revenue
The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (collectively, its Customers). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. All of the Company’s current 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 is, therefore, not distinct.
All of the Company’s revenue is derived from product sales. The Company recognizes revenues from product sales at a point in time when the Customer obtains control, typically upon delivery. The Company accrues for fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.
As of June 30, 2019,2020, the Company had received a total of $1,000,000 of milestone payments in connection with the Company'sCompany’s Canadian distributor that it has not recognized as revenue based on the Company’s analysis in connection with ASU 2014-09,
Estimates of Variable Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.
With respect to the Company’s international contracts with third party distributors, certain contracts have elements of variable consideration, and management reviews those contracts on a regular basis and makes estimates of revenue based on historical ordering patterns and known market events and data. The amount of variable consideration included in net sales in each period could vary depending on the terms of these contracts and the probability of reversal in future periods.
Consideration Payable to Customers
Distribution service fees are payments issued to distributors for compliance with various contractually-defined inventory management practices or services provided to support patient access to a product. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.
Product Returns
The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product, and the related product is destroyed after it is returned. The Company may either refund the sales price paid by the Customer by issuing a credit or exchanging the returned product for replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products and product recalls, if any.
The estimation process for product returns involves, in each case, a number ofseveral interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this
Other Revenue
The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of these arrangements may include payment to the Company of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides; and a revenue share on net sales of licensed products. Each of these payments is recognized as other revenues.
As part of the accounting for these arrangements, the Company must develop estimates that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. Performance obligations are promises in a contract to transfer a distinct good or service to the Customer, and the Company recognizes revenue when, or as, performance obligations are satisfied. The Company uses key assumptions to determine the stand-alone selling price; these assumptions may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical, regulatory and commercial success.
Certain of these agreements include consideration in the form of milestone payments. At the inception of each arrangement that includes milestone payments, the Company evaluates the recognition of milestone payments. Typically, milestone payments are associated with
events that are not entirely within the control of the Company or the licensee, such as regulatory approvals;approvals, are included in the transaction price;price, and are subject to a constraint until it is probable that there will not be a significant revenue reversal, typically upon achievement of the milestone. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.
Customer Payment Obligations
The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s locations, but generally range between 30 to 120 days. Occasionally, the timing of receipt of payment for the Company’s international Customers can be extended. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that the Customer will pay for the product or services in one year or less of receiving those products or services.
5. LEASES
The Company evaluates all of its contracts to determine whether it is or contains a lease at inception. The Company reviews its contracts for options to extend, terminate or purchase any right of use assets and accounts for these, as applicable, at inception of the contract. Upon adoption of ASC 842, the Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification, or whether its contracts contain or are leases. The Company made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, or those that do not meet the Company’s capitalization threshold, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. Lease costs associated with those leases are recognized as incurred. The Company has also chosen the practical expedient that allows it to combine lease and non-lease components as a single lease component.
Operating Leases
The Company’s operating lease activities primarily consist of leases for office space in the U.S., the United Kingdom and Germany. Most of these leases include options to renew, with renewal terms generally ranging from one to seven years. The exercise of lease renewal options is at the Company’s sole discretion. Certain of the Company’s operating lease agreements include variable lease costs that are based on common area maintenance and property taxes. The Company expenses these payments as incurred. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information as of June 30, 20192020 for the Company’s operating leases is as follows:
(In thousands) | ||
NON-CURRENT ASSETS: | ||
Right of use assets, net | $ | 867 |
Total lease assets | $ | 867 |
CURRENT LIABILITIES: | ||
Accrued expenses | $ | 486 |
NON-CURRENT LIABILITIES: | ||
Other non-current liabilities | 537 | |
Total lease liabilities | $ | 1,023 |
(in thousands) | ||||
NON-CURRENT ASSETS: | ||||
Right of use assets, net | $ | 1,299 | ||
Total lease assets | $ | 1,299 | ||
CURRENT LIABILITIES: | ||||
Accrued expenses (Note 9) | $ | 446 | ||
NON-CURRENT LIABILITIES: | ||||
Other non-current liabilities | 1,050 | |||
Total lease liabilities | $ | 1,496 |
The Company’s operating lease cost for the three and six months ended June 30, 20192020 was $120,000$96,000 and $243,000,$223,000, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations.
As of June 30, 2019,2020, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:
Years Ending December 31 | (In thousands) | |
2020 | $ | 284 |
2021 | 451 | |
2022 | 152 | |
2023 | 152 | |
2024 | 152 | |
Thereafter | — | |
Total | 1,191 | |
Less amount representing interest | (168) | |
Present value of minimum lease payments | 1,023 | |
Less current portion | (486) | |
Non-current portion | $ | 537 |
Years Ending December 31 | (In thousands) | |||
2019 (remaining) | $ | 281 | ||
2020 | 569 | |||
2021 | 456 | |||
2022 | 156 | |||
2023 | 156 | |||
Thereafter | 156 | |||
Total | 1,774 | |||
Less amount representing interest | (278 | ) | ||
Present value of minimum lease payments | 1,496 | |||
Less current portion | (446 | ) | ||
Non-current portion | $ | 1,050 |
Cash paid for operating leases was $239,000$216,000 during the six months ended June 30, 2019. Right2020. NaN right of use assets of $676,000 were obtained in exchange for operating leases for the six months ended June 30, 2019.
As of June 30, 2019,2020, the weighted average remaining lease terms of the Company’s operating leases was 3.83.1 years. The weighted average discount rate used to determine the lease liabilities was 10.2%10.1%. When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. In using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and apply the rates to a portfolio of leases with similar underlying assets and terms. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
Finance Leases
The Company’s finance lease activities primarily consist of leases for office equipment and automobiles. The propertyProperty and equipment isleases are capitalized at the lesser of fair market value or the present value of the minimum lease payments at the inception of the leases using the Company’s incremental borrowing rate. The Company’s finance lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information as of June 30, 20192020 and December 31, 20182019 for the Company’s finance leases is as follows:
June 30, | December 31, | ||||
2020 | 2019 | ||||
(In thousands) | |||||
NON-CURRENT ASSETS: | |||||
Property and equipment, net | $ | 641 | $ | 414 | |
Total lease assets | $ | 641 | $ | 414 | |
CURRENT LIABILITIES: | |||||
Finance lease obligations | $ | 226 | $ | 255 | |
NON-CURRENT LIABILITIES: | |||||
Finance lease obligations — less current portion | 311 | 94 | |||
Total lease liabilities | $ | 537 | $ | 349 |
June 30, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
NON-CURRENT ASSETS: | |||||||
Property and equipment, net | $ | 508 | $ | 615 | |||
Total lease assets | $ | 508 | $ | 615 | |||
CURRENT LIABILITIES: | |||||||
Finance lease obligations | $ | 247 | $ | 236 | |||
NON-CURRENT LIABILITIES: | |||||||
Finance lease obligations — less current portion | 172 | 305 | |||||
Total lease liabilities | $ | 419 | $ | 541 |
Depreciation expense associated with property and equipment under finance leases was approximately $77,000$112,000 and $53,000$77,000 for the three months ended June 30, 20192020 and 2018,2019, respectively. Depreciation expense associated with property and
As of June 30, 2019,2020, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:
Years Ending December 31 | (In thousands) | |
2020 | $ | 191 |
2021 | 252 | |
2022 | 110 | |
2023 | 18 | |
Total | 571 | |
Less amount representing interest | (34) | |
Present value of minimum lease payments | 537 | |
Less current portion | (226) | |
Non-current portion | $ | 311 |
Years Ending December 31 | (In thousands) | |||
2019 (remaining) | $ | 136 | ||
2020 | 243 | |||
2021 | 65 | |||
2022 | 3 | |||
Total | 447 | |||
Less amount representing interest | (28 | ) | ||
Present value of minimum lease payments | 419 | |||
Less current portion | (247 | ) | ||
Non-current portion | $ | 172 |
Cash paid for finance leases was $190,000$210,000 during the six months ended June 30, 2019.2020. The Company acquired $64,000$495,000 of property and equipment in exchange for finance leases forduring the six months ended June 30, 2019.
As of June 30, 2019,2020, the weighted average remaining lease terms of the Company’s financing leases was 1.51.3 years. The weighted average discount rate used to determine the financing lease liabilities was 7.0%8.2%. When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. In using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and applies the rates to a portfolio of leases with similar underlying assets and terms.
6. GOING CONCERN
The accompanying Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
To date, the Company has incurred recurring losses and negative cash flow from operations and has accumulated a deficit of $384,928,000$391,314,000 from inception through June 30, 2019.2020. As of June 30, 2019,2020, the Company had approximately $12,157,000$13,496,000 in cash and cash equivalents. The Company’s ability to achieve profitability and positiveavoid depleting its cash flow depends upon its ability to increasemaintain revenue and contain its expenses.
Further, the Company must maintain compliance with the debt covenants of its $40,000,000$45,000,000 Loan and Security Agreement dated January 5, 2018 with Solar Capital Ltd., as Collateral Agent, and the parties signing such agreement from time to time as Lenders, including Solar Capital in its capacity as a Lenderamended (see Note 11)10). In management’s opinion, the uncertainty regarding future revenues raises substantial doubt about the Company’s ability to continue as a going concern without access to additional debt and/or equity financing over the course of the next twelve months.
To meet the Company’s future working capital needs, the Company may need to raise additional debt or equity financing. While the Company has historicallyfrom time to time been able to raise additional capital through issuance of equity and/or debt financing, and while the Company has implemented a plan to control its expenses to satisfy its obligations due within one year from the date of issuance of these Interim Financial Statements, the Company cannot guarantee that it will be able to maintain debt compliance, raise additional equity, contain expenses, or increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these Interim Financial Statements are issued.
7. INVENTORY
Inventory consisted of the following:
June 30, | December 31, | ||||
2020 | 2019 | ||||
(In thousands) | |||||
Component parts (1) | $ | 420 | $ | 389 | |
Work-in-process (2) | 600 | 399 | |||
Finished goods | 948 | 602 | |||
Total Inventory | $ | 1,968 | $ | 1,390 |
June 30, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Component parts (1) | $ | 469 | $ | 129 | |||
Work-in-process (2) | 470 | 924 | |||||
Finished goods | 1,202 | 1,352 | |||||
Total Inventory | $ | 2,141 | $ | 2,405 |
(1) Component parts inventory consists of manufactured components of the ILUVIEN applicator.
(2) Work-in-process consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing or stability testing as required by U.S. or EEA regulatory authorities.
8. INTANGIBLE ASSET
As a result of the approval of ILUVIEN by the U.S. Food and Drug Administration (FDA) in 2014, the Company was required to pay EyePoint Pharmaceuticals, Inc. (EyePoint) a milestone payment of $25,000,000 (the EyePoint Milestone Payment) (see Note 10)9).
The gross carrying amount of the intangible asset is $25,000,000, which is being amortized over approximately 13 years from the acquisition date. The amortization expense related to the intangible asset was approximately $484,000 for both the three months ended June 30, 20192020 and 2018,2019, respectively. The amortization expense related to the intangible asset was approximately $967,000 and $962,000 for both the six months ended June 30, 20192020 and 2018,2019, respectively. The net book value of the intangible asset was $15,761,000$13,816,000 and $16,723,000$14,783,000 as of June 30, 20192020 and December 31, 2018,2019, respectively.
The estimated future amortization expense as of June 30, 20192020 for the remaining periods in the next five years and thereafter is as follows:
Years Ending December 31 | (In thousands) | |
2020 | $ | 978 |
2021 | 1,940 | |
2022 | 1,940 | |
2023 | 1,940 | |
2024 | 1,946 | |
Thereafter | 5,072 | |
Total | $ | 13,816 |
Years Ending December 31 | (In thousands) | ||
2019 (remaining) | $ | 978 | |
2020 | 1,946 | ||
2021 | 1,940 | ||
2022 | 1,940 | ||
2023 | 1,940 | ||
Thereafter | 7,017 | ||
Total | $ | 15,761 |
June 30, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Accrued clinical investigator expenses | $ | 853 | $ | 781 | |||
Accrued compensation expenses | 1,666 | 1,427 | |||||
Accrued rebate, chargeback and other revenue reserves | 414 | 346 | |||||
Accrued lease liabilities (Note 5) | 446 | — | |||||
Other accrued expenses | 89 | 1,089 | |||||
Total accrued expenses | $ | 3,468 | $ | 3,643 |
In April of 2020, as a result of the potential impact of the COVID-19 pandemic on the Company’s statements of operations, the Company performed an asset impairment analysis by comparing future undiscounted cash flows of the identified asset group to the carrying value of that asset group. The Company concluded 0 impairment was necessary.
9. LICENSE AGREEMENTS
EyePoint Agreement
In February 2005, the Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in EyePoint’s proprietary insert technology. This agreement was subsequently amended a number of times (as
amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.
In July 10, 2017, the Company amended and restated its license agreement with EyePoint, entered into a Second Amended and Restated Collaboration Agreementwhich was made effective July 1, 2017 (the New Collaboration Agreement), which amended and restated the EyePoint Agreement.
Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to $15,000,000 of commercialization costs that were incurred prior to profitability of ILUVIEN and to offset a portion of future payments owed to EyePoint with these accumulated commercialization costs, referred to as the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIPUNIU-PS in the United Kingdom.U.K. As of June 30, 2019,2020, the balance of the Future Offset was approximately $9,603,000. The Company will be able to recover the balance of the Future Offset as a reduction of future royalties that would otherwise be owed to EyePoint as follows:
10. LOAN AGREEMENTS
Hercules Loan Agreement
In April 2014, Alimera Sciences Limited (Alimera UK), a subsidiary of the Company, entered into a loan and security agreement (Hercules Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to $35,000,000 (Hercules Loan). The Company amended the Hercules Loan Agreement several times. On January 5, 2018, the Company paid off the Hercules Loan on behalf of Alimera UK.
2014 Warrant
In connection with Alimera UK entering into the Hercules Loan Agreement, the Company issued a warrant that granted Hercules the right to purchase up to 285,01619,002 shares of the Company’s common stock at an exercise price of $6.14$92.10 per share (the 2014 Warrant). The Company amended the 2014 Warrant a number of times to increase the number of shares issuable upon exercise to 1,258,99383,933 and decrease the exercise price to $1.39$20.85 per share. The right to exercise this warrant expires on November 2, 2020.
2016 Warrant
In connection with Alimera UK entering into an amendment to the Hercules Loan Agreement on October 20, 2016, the Company agreed to issue a new warrant to Hercules (the 2016 Warrant) that granted Hercules the right to purchase up to 458,71630,582 shares of the Company’s common stock at an exercise price of $1.09$16.35 per share. The right to exercise this warrant expires on October 20, 2021.
2018 Solar Capital Loan Agreement
On January 5, 2018, the Company entered into a $40,000,000 Loan and Security Agreement (2018(the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital), as Collateral Agent (Agent), and the parties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2018 Solar Loan Agreement, the Company borrowed the entire $40,000,000 as a term loan (the 2018 Solar Loan) that matureswas scheduled to mature on July 1, 2022.
The Company used the proceeds of the term loan2018 Solar Loan to extinguish (prepay) the Hercules Loan Agreement and pay related expenses. The Company used the remaining loan proceeds to provide additional working capital for general corporate purposes.
Interest on the 2018 Solar Loan Agreement iswas payable at one-month LIBOR plus 7.65% per annum. The 2018 Solar Loan Agreement provided for interest only payments through the date of repayment. As of the final interest payment on the 2018 Solar Loan, the interest rate was approximately 9.3%.
The Company agreed, for itself and its subsidiaries, to customary affirmative and negative covenants and events of default in connection with the 2018 Solar Loan Agreement.
2018 Exit Fee Agreement
Notwithstanding the repayment of the 2018 Solar Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, Solar Capital as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Solar Loan Agreement upon the repayment of the 2018 Solar Loan and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the 2018 Exit Fee Agreement.
2019 Solar Capital Loan Agreement
On December 31, 2019, the Company entered into a $45,000,000 Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital, as Agent, and the parties signing the 2019 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2019 Solar Loan Agreement, the Company borrowed $42,500,000 on December 31, 2019 and subsequent to December 31, 2019, the Company borrowed the remaining $2,500,000 on February 21, 2020 (the two borrowings totaling $45,000,000 are referred to as the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024.
As noted above, the Company used the initial proceeds of the 2019 Solar Loan to pay off the 2018 Solar Loan, along with related prepayment, legal and other fees and expenses of approximately $2,278,000, which included a $1.8 million fee to Solar Capital upon repayment of the 2018 Solar Loan that was previously accrued and a $400,000 prepayment fee to Solar Capital that was capitalized as deferred financing costs. The Company expects to use the remaining loan proceeds to provide additional working capital for general corporate purposes.
Interest on the 2019 Solar Loan is payable at the greater of (i) one-month LIBOR or (ii) 1.78%, plus 7.65% per annum. As of December 31, 2019, the 2019 Solar Loan’s interest rate is 9.43%. The 2019 Solar Loan provides for interest only payments for the first 30 months ending on Julyuntil January 1, 2020, followed by 24 months of payments of principal and interest.2023. If the Company meets certain revenue thresholds and no event of default shall have occurred and is continuing, the Company can extend the interest only period an additional six months, to endending on January 1, 2021,June 30, 2023, followed by 18 monthsone year of monthly payments of principal and interest. As of June 30, 2019, the interest rate on the 2018 Loan Agreement was approximately 10.1%.
The Company paid Solar Capitalthe Lenders a $400,000non-refundable facility fee at closing. Thein the amount of $25,000 on February 21, 2020. In addition, the Company is obligated to pay a $1,800,000$2,250,000 fee upon repayment of the term loan2019 Solar Loan.
First Amendment to 2019 Solar Capital Loan Agreement
On May 1, 2020, the Company entered into a First Amendment (the Amendment) to its 2019 Solar Loan Agreement with Solar Capital. The Amendment, among other things:
(a)eliminates the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: the Company shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in full ($2,000,000 if the interest only period has been extendedordinary course of business to 36 months). The Company may electthird party customers, on a trailing six-month basis, to prepaybe less than a specified minimum revenue amount for each such date;
(b)requires that the outstanding principal balanceRevenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;
(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and
(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the 2018 Loan AgreementCompany’s projected revenues in incrementsaccordance with an annual plan submitted by the Company to Agent by January 15th of $10,000,000 or more. The Company must pay a prepayment premium upon any prepaymentsuch year, such plan to be approved by the Company’s board of the 2018 Loan Agreement beforedirectors and Agent in its maturity date, whether by mandatory or voluntary prepayment, acceleration or otherwise, equal to:
The Amendment also adds the following new minimum liquidity requirement that is in effect from May 1, 2020 until the Company notifies Agent that it has met the Revenue Covenant at November 30, 2020: the Company shall not permit the aggregate amount of unrestricted cash and cash equivalents to be less than the sum of (i) $8,500,000 plus (ii) the amount of the Company’s accounts payable that have not been paid within 90 days from the invoice date of the relevant account payable. The Company paid 0 fees to Solar Capital; however, the Company agreed to reimburse Agent for its legal fees.
Paycheck Protection Program
On April 22, 2020, the Company received approximately $1,778,000 in support in the form of a loan from the U.S. federal government under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act (the PPP Loan). The PPP Loan is also obligatedunsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender and is governed by a Loan Agreement with HSBC.
The interest rate on the Note is 1.0% per annum. The Note has a two-year term and is payable in 18 equal monthly payments of principal and interest beginning on the 180th day following the disbursement of the loan proceeds, subject to forgiveness as described below. The Paycheck Protection Program provides a mechanism for forgiveness of up to the full amount borrowed as long as the Company uses the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. The Company used all of the proceeds from the PPP Loan to pay additional feesexpenses during the applicable period that the Company believes were for eligible purposes. On July 21, 2020, the Company submitted an application to HSBC for forgiveness of the PPP Loan.
In connection with the PPP Loan, the Company entered into a Consent to Loan and Security Agreement (the Consent) under the Exit Fee Agreement (Exit Fee Agreement) dated as of January 5, 2018 by and among2019 Solar Loan Agreement. In the Company,Consent, Solar Capital consented as Collateral Agent and a Lender, and the other Lenders consented as Lenders, to the indebtedness incurred under the PPP Loan, subject to certain conditions, including the Company’s covenant to comply with specified provisions of the CARES Act, the Company’s confirmation of the accuracy of its representations and warranties in the 2019 Solar Loan Agreement and related documents and a release in favor of the Collateral Agent and the Lenders. The Exit Fee Agreement survives the termination of the 2018 Loan Agreement and has a term of 10 years.
The Company is obligated to pay up to, but no more than, $2,000,000 in fees underaccounted for the Exit Fee Agreement.
Modification of Debt
In accordance with the guidance in AS C.V.ASC 470-50, Debt, a Dutch subsidiary owned by the Company entered into and Alimera DE, are pledged toaccounted for the Lenders,2019 Solar Loan Agreement as a modification and no assets or equity interestscapitalized approximately $427,000 of costs as additional deferred financing costs and expensed approximately $76,000 of costs incurred with third parties within the consolidated statements of operations for the year ended December 31, 2019.
In accordance with the guidance in the direct or indirect subsidiaries of AS C.V. are subject to the Lenders’ security interests. The Lender does, however, maintain a negative pledge on the property ofASC 470-50, Debt, the Company entered into and allaccounted for the May 1, 2020 Amendment to its 2019 Solar Loan Agreement as a modification, capitalized 0 additional costs and expensed approximately $76,000 of its subsidiaries, includingcosts incurred with third parties within the Company’s intellectual property, requiringconsolidated statements of operations for the Lender’s consent for any liens (other than typical permitted liens) on, or the sale of, such property.
Fair Value of Debt
The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at June 30, 20192020 and December 31, 2018.
11. EARNINGS (LOSS) PER SHARE (EPS)
The Company follows ASC 260,
Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because the Company’s preferred stockholders participate in dividends equally with common stockholders (if the Company were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, the Company’s preferred stockholders are not contractually obligated to share in losses.Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating or would have been anti-dilutive, were as follows:
Three and Six Months Ended | |||||
June 30, | |||||
2020 | 2019 | ||||
Series A convertible preferred stock | 601,504 | 601,504 | |||
Series C convertible preferred stock | 676,667 | 676,667 | |||
Common stock warrants | 119,712 | 119,712 | |||
Stock options | 1,043,297 | 912,430 | |||
Restricted stock & RSUs outstanding at period end | 30,086 | 36,763 | |||
Total | 2,471,266 | 2,347,076 |
Three and Six Months Ended June 30, | |||||
2019 | 2018 | ||||
Series A convertible preferred stock | 9,022,556 | 9,022,556 | |||
Series B convertible preferred stock | — | 8,416,251 | |||
Series C convertible preferred stock | 10,150,000 | — | |||
Common stock warrants | 1,795,663 | 1,795,663 | |||
Stock options | 13,682,709 | 12,514,650 | |||
Restricted stock units | 551,400 | 1,023,630 | |||
Total | 35,202,328 | 32,772,750 |
12. STOCK INCENTIVE PLANS
Stock Option Plans
During the three months ended June 30, 20192020 and 2018,2019, the Company recorded compensation expense related to stock options of approximately $463,000$279,000 and $888,000,$463,000, respectively. During the six months ended June 30, 20192020 and 2018,2019, the Company recorded compensation expense related to stock options of approximately $1,062,000$571,000 and $1,754,000,$1,062,000, respectively. As of June 30, 2019,2020, the total unrecognized compensation cost related to non-vested stock options granted was $2,801,000$1,997,000 and is expected to be recognized over a weighted average period of 2.432.42 years. The following table presents a summary of stock option activity for the three months ended June 30, 20192020 and 2018:2019:
Three Months Ended | |||||||||||
June 30, | |||||||||||
2020 | 2019 | ||||||||||
Weighted | Weighted | ||||||||||
Average | Average | ||||||||||
Exercise | Exercise | ||||||||||
Options | Price ($) | Options | Price ($) | ||||||||
Options outstanding at beginning of period | 1,036,484 | 30.84 | 894,106 | 37.25 | |||||||
Grants | 27,431 | 6.54 | 43,212 | 14.2 | |||||||
Forfeitures | (20,618) | 49.07 | (24,888) | 41.80 | |||||||
Exercises | — | — | — | — | |||||||
Options outstanding at period end | 1,043,297 | 29.84 | 912,430 | 36.04 | |||||||
Options exercisable at period end | 730,712 | 38.14 | 648,373 | 43.90 | |||||||
Weighted average per share fair value of options granted during the period | $ | 4.16 | $ | 8.66 |
Three Months Ended June 30, | |||||||||||||||
2019 | 2018 | ||||||||||||||
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | ||||||||||||
Options outstanding at beginning of period | 13,407,536 | $ | 2.48 | 12,343,820 | $ | 2.75 | |||||||||
Grants | 648,000 | 0.95 | 320,625 | 0.88 | |||||||||||
Forfeitures | (372,827 | ) | 2.79 | (149,795 | ) | 2.70 | |||||||||
Exercises | — | — | — | — | |||||||||||
Options outstanding at period end | 13,682,709 | 2.40 | 12,514,650 | 2.70 | |||||||||||
Options exercisable at period end | 9,722,530 | 2.93 | 8,578,358 | 3.19 | |||||||||||
Weighted average per share fair value of options granted during the period | $ | 0.58 | $ | 0.56 |
The following table presents a summary of stock option activity for the six months ended June 30, 20192020 and 2018:2019:
Six Months Ended | |||||||||||
June 30, | |||||||||||
2020 | 2019 | ||||||||||
Weighted | Weighted | ||||||||||
Average | Average | ||||||||||
Exercise | Exercise | ||||||||||
Options | Price ($) | Options | Price ($) | ||||||||
Options outstanding at beginning of period | 871,472 | 35.46 | 830,100 | 39.41 | |||||||
Grants | 196,281 | 6.72 | 121,536 | 13.5 | |||||||
Forfeitures | (24,456) | 44.67 | (39,206) | 37.46 | |||||||
Exercises | — | — | — | — | |||||||
Options outstanding at period end | 1,043,297 | 29.84 | 912,430 | 36.04 | |||||||
Options exercisable at period end | 730,712 | 38.14 | 648,373 | 43.90 | |||||||
Weighted average per share fair value of options granted during the period | $ | 4.17 | $ | 8.37 |
Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | ||||||||||||||
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | ||||||||||||
Options outstanding at beginning of period | 12,447,355 | $ | 2.63 | 11,595,510 | $ | 2.90 | |||||||||
Grants | 1,822,750 | 0.90 | 1,553,625 | 1.10 | |||||||||||
Forfeitures | (587,396 | ) | 2.50 | (632,922 | ) | 2.43 | |||||||||
Exercises | — | — | (1,563 | ) | 1.06 | ||||||||||
Options outstanding at period end | 13,682,709 | 2.40 | 12,514,650 | 2.70 | |||||||||||
Options exercisable at period end | 9,722,530 | 2.93 | 8,578,358 | 3.19 | |||||||||||
Weighted average per share fair value of options granted during the period | $ | 0.56 | $ | 0.73 |
The following table provides additional information related to outstanding stock options, exercisable stock options and stock options that were expected to vest as of
June 30,Weighted | |||||||||||||||||||||||
Weighted | Average | ||||||||||||||||||||||
Average | Remaining | Aggregate | |||||||||||||||||||||
Exercise | Contractual | Intrinsic | |||||||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | Shares | Price ($) | Term | Value ($) | ||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||||
Outstanding | 13,682,709 | $ | 2.40 | 6.15 years | $ | 42 | 1,043,297 | 29.84 | 6.17 years | 5 | |||||||||||||
Exercisable | 9,722,530 | 2.93 | 5.03 years | 12 | 730,712 | 38.14 | 4.98 years | — | |||||||||||||||
Outstanding, vested and expected to vest | 13,190,204 | 2.45 | 6.04 years | 37 | 1,003,528 | 30.65 | 6.05 years | 4 |
The following table provides additional information related to outstanding stock options, exercisable stock options and stock options that were expected to vest as of December 31, 2018:2019:
Weighted | |||||||||||
Weighted | Average | ||||||||||
Average | Remaining | Aggregate | |||||||||
Exercise | Contractual | Intrinsic | |||||||||
Shares | Price ($) | Term | Value ($) | ||||||||
(In thousands) | |||||||||||
Outstanding | 871,472 | 35.46 | 5.83 years | 4 | |||||||
Exercisable | 674,952 | 41.25 | 5.04 years | — | |||||||
Outstanding, vested and expected to vest | 849,285 | 36.00 | 5.75 years | 3 |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
(In thousands) | ||||||||||||
Outstanding | 12,447,355 | $ | 2.63 | 6.25 years | $ | — | ||||||
Exercisable | 9,138,544 | 3.09 | 5.37 years | — | ||||||||
Outstanding, vested and expected to vest | 12,044,311 | 2.67 | 6.16 years | — |
As of June 30, 2019, the Company was authorized to2020, 241,263 shares remain available for grant stock options and restricted stock units (RSUs) to acquire up to an additional 7,142,000 shares under the 2019 Omnibus Incentive Plan.
Employee Stock Purchase Plan
During the three months ended June 30, 20192020 and 2018,2019, the Company recorded compensation expense related to its employee stock purchase plan of approximately $4,000$17,000 and $8,000,$4,000, respectively. During the six months ended June 30, 20192020 and 2018,2019, the Company recorded compensation expense related to its employee stock purchase plan of approximately $38,000 and $11,000, respectively.
Restricted Stock and $18,000, respectively.
A summary of RSUrestricted stock and restricted stock units (RSU) transactions under the plans are as follows:
Three Months Ended | |||||||||||
June 30, | |||||||||||
2020 | 2019 | ||||||||||
Weighted | Weighted | ||||||||||
Restricted | Average | Restricted | Average | ||||||||
Stock & RSUs | Grant Date | Stock & RSUs | Grant Date | ||||||||
RSUs | Fair Value ($) | RSUs | Fair Value ($) | ||||||||
Restricted stock & RSUs outstanding at beginning of period | 30,086 | 3.12 | 32,029 | 12.90 | |||||||
Grants | — | — | 4,734 | 14.85 | |||||||
Vested units | — | — | — | — | |||||||
Forfeitures | — | — | — | — | |||||||
Restricted stock & RSUs outstanding at period end | 30,086 | 3.12 | 36,763 | 13.15 |
Six Months Ended | |||||||||||
June 30, | |||||||||||
2020 | 2019 | ||||||||||
Weighted | Weighted | ||||||||||
Restricted | Average | Restricted | Average | ||||||||
Stock & RSUs | Grant Date | Stock & RSUs | Grant Date | ||||||||
RSUs | Fair Value ($) | RSUs | Fair Value ($) | ||||||||
Restricted stock & RSUs outstanding at beginning of period | 36,763 | 13.15 | 60,041 | 17.30 | |||||||
Grants | 30,086 | 3.12 | 36,763 | 13.15 |
Three Months Ended June 30, | |||||||||||||
2019 | 2018 | ||||||||||||
RSUs | Weighted Average Grant Date Fair Value | RSUs | Weighted Average Grant Date Fair Value | ||||||||||
Restricted stock units outstanding at beginning of period | 480,400 | $ | 0.86 | 1,039,370 | $ | 1.16 | |||||||
Grants | 71,000 | 0.99 | 19,660 | 0.88 | |||||||||
Vested units | — | — | — | — | |||||||||
Forfeitures | — | — | (44,300 | ) | 1.16 | ||||||||
Restricted stock units outstanding at period end | 551,400 | 0.88 | 1,014,730 | 1.15 |
Vested units | (36,763) | 13.15 | (59,341) | 17.30 | |||||||
Forfeitures | — | — | (700) | 17.40 | |||||||
Restricted stock & RSUs outstanding at period end | 30,086 | 3.12 | 36,763 | 13.15 |
Six Months Ended June 30, | |||||||||||||
2019 | 2018 | ||||||||||||
RSUs | Weighted Average Grant Date Fair Value | RSUs | Weighted Average Grant Date Fair Value | ||||||||||
Restricted stock units outstanding at beginning of period | 900,252 | $ | 1.15 | 839,285 | $ | 1.21 | |||||||
Grants | 551,400 | 0.88 | 1,080,830 | 1.15 | |||||||||
Vested units | (889,752 | ) | 1.15 | (839,285 | ) | 1.21 | |||||||
Forfeitures | (10,500 | ) | 1.16 | (66,100 | ) | 1.16 | |||||||
Restricted stock units outstanding at period end | 551,400 | 0.88 | 1,014,730 | 1.15 |
As of June 30, 2019,2020, there was approximately $324,000$123,000 of total unrecognized compensation cost related to outstanding RSUs that will bewas recognized throughduring the first quarter of 2020. Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718,
13. INCOME TAXES
In accordance with ASC 740,
Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized.The Company’s quarterlyCompany also applies the provisions for income tax rate may differ from its estimated annual effective tax rate becausetaxes related to, among other things, accounting standards require the Company to exclude the actual results of certain entities expected to generate a pretax loss when applying the estimated annual effective tax rate to the Company’s consolidated pretax results in interim periods. In estimating the annual effective tax rate, the Company does not include the estimated impact of unusual and/or infrequent items, including the reversal of valuation allowances, which may cause significant variations in the customary relationship between income tax expense (benefit) and pretax income (loss) in quarterly periods. The income tax expense (benefit) for such unusual and/or infrequent items is recorded in the quarterly period such items are incurred.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. In addition to other provisions, the CARES Act contains modifications to Net Operating Loss (NOL) carryback rules. For the six months ended June 30, 2019 properly excluded2020, there was no impact to the tax benefits associated with year-to-date pre-tax losses generated in the U.S., Ireland and the Netherlands. Income tax positions are considered for uncertainty in accordance with ASC 740-10. The Company has recorded unrecognized tax benefitsprovision related to researchthe CARES Act. We are currently evaluating the provisions of the CARES Act and development tax credits. In accordance with ASC 740-10, such attributes are reduced to the amount that is expected to be recognized in the future. The Company has not accrued interest or penalties as no research and development credits have been utilized due to significant net operating losses (NOLs) available. The Company does not expect any decreases to the unrecognized tax benefits within the next twelve months due to any lapses in statute of limitations. Tax years remain subject to examination at the U.S. federal level between 2010 and 2017, and subject to examinations at various state levels between 2005 and 2017. The statute of limitations on these years will close when the NOLs expire or when the statute closes on the years in which the NOLs are utilized. Tax years since 2012 remain subject to examination in the United Kingdom and the Netherlands. Tax years since 2013 remain subject to examination in Germany.
At December 31, 2018,2019, the Company had U.S. federal NOL carry-forwards of approximately $122,455,000$125,756,000 and state NOL carry-forwards of approximately $153,333,000$172,993,000 available to reduce future taxable income. The Company’s U.S. federal NOL carry-forwards remain fully reserved as of June 30, 2019. If2020. Except for the NOLs generated after 2017, the U.S. federal NOLs not fully utilized the federal NOL carry-forwards will expire at various dates between 2029 and 2037 and the2037; most state NOL carry-forwards will expire at various dates between 2020 and 2037.
As of December 31, 2018,2019, the Company had cumulative book losses in foreign subsidiaries of $126,648,000.$134,379,000. The Company has not recorded a deferred tax asset for the excess of tax over book basis in the stock of its foreign subsidiaries. The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries do have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings of and original investments in such subsidiaries. As a result, the Company has not recorded a deferred tax liability related to excess of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.
14. SEGMENT INFORMATION
The Company’s chief operating decision maker is the Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics and information, the business is principally managed and organized based upon geographic and regulatory environment. Each segment is separately managed and is evaluated primarily upon segment gain or loss from operations. Non-cash items including stock-based compensation expense and depreciation and amortization are categorized as Other within the table below. The Company does not report balance sheet information by segment because the Company’s chief operating decision maker does not review that information.
The following table presents a summary of the Company’s reporting segments for the three months ended June 30, 20192020 and 2018:2019:
Three Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||
U.S. | International | Other | Consolidated | U.S. | International | Other | Consolidated | ||||||||||||||||
(In thousands) | |||||||||||||||||||||||
NET REVENUE | $ | 3,420 | $ | 6,618 | $ | — | $ | 10,038 | $ | 7,320 | $ | 3,535 | $ | — | $ | 10,855 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (423) | (1,062) | — | (1,485) | (808) | (366) | — | (1,174) | |||||||||||||||
GROSS PROFIT | 2,997 | 5,556 | — | 8,553 | 6,512 | 3,169 | — | 9,681 | |||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,098 | 664 | 48 | 1,810 | 1,630 | 1,090 | 114 | 2,834 | |||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 1,943 | 838 | 194 | 2,975 | 2,150 | 946 | 579 | 3,675 | |||||||||||||||
SALES AND MARKETING EXPENSES | 3,207 | 1,100 | 75 | 4,382 | 4,217 | 1,779 | 112 | 6,108 | |||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | 685 | 685 | — | — | 654 | 654 | |||||||||||||||
OPERATING EXPENSES | 6,248 | 2,602 | 1,002 | 9,852 | 7,997 | 3,815 | 1,459 | 13,271 | |||||||||||||||
SEGMENT (LOSS) INCOME FROM OPERATIONS | (3,251) | 2,954 | (1,002) | (1,299) | (1,485) | (646) | (1,459) | (3,590) | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | (1,242) | (1,242) | — | — | (1,187) | (1,187) | |||||||||||||||
NET LOSS BEFORE TAXES | $ | (2,541) | $ | (4,777) |
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||
U.S. | International | Other | Consolidated | U.S. | International | Other | Consolidated | ||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||
NET REVENUE | $ | 7,320 | $ | 3,535 | $ | — | $ | 10,855 | $ | 7,799 | $ | 2,918 | $ | — | $ | 10,717 | |||||||||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (808 | ) | (366 | ) | — | (1,174 | ) | (656 | ) | (257 | ) | — | (913 | ) | |||||||||||||||||
GROSS PROFIT | 6,512 | 3,169 | — | 9,681 | 7,143 | 2,661 | — | 9,804 | |||||||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,630 | 1,090 | 114 | 2,834 | 1,602 | 954 | 221 | 2,777 | |||||||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,150 | 946 | 579 | 3,675 | 1,866 | 723 | 640 | 3,229 | |||||||||||||||||||||||
SALES AND MARKETING EXPENSES | 4,217 | 1,779 | 112 | 6,108 | 4,142 | 1,493 | 291 | 5,926 | |||||||||||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | 654 | 654 | — | — | 650 | 650 | |||||||||||||||||||||||
OPERATING EXPENSES | 7,997 | 3,815 | 1,459 | 13,271 | 7,610 | 3,170 | 1,802 | 12,582 | |||||||||||||||||||||||
SEGMENT LOSS FROM OPERATIONS | (1,485 | ) | (646 | ) | (1,459 | ) | (3,590 | ) | (467 | ) | (509 | ) | (1,802 | ) | (2,778 | ) | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | (1,187 | ) | (1,187 | ) | — | — | (1,146 | ) | (1,146 | ) | |||||||||||||||||||
NET LOSS BEFORE TAXES | $ | (4,777 | ) | $ | (3,924 | ) |
The following table presents a summary of the Company’s reporting segments for the six months ended June 30, 2020 and 2019:
Six Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||
U.S. | International | Other | Consolidated | U.S. | International | Other | Consolidated | ||||||||||||||||
(In thousands) | |||||||||||||||||||||||
NET REVENUE | $ | 10,487 | $ | 14,086 | $ | — | $ | 24,573 | $ | 14,086 | $ | 9,659 | $ | — | $ | 23,745 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,182) | (2,230) | — | (3,412) | (1,493) | (1,281) | — | (2,774) | |||||||||||||||
GROSS PROFIT | 9,305 | 11,856 | — | 21,161 | 12,593 | 8,378 | — | 20,971 | |||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 3,020 | 1,557 | 116 | 4,693 | 3,057 | 2,261 | 243 | 5,561 | |||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 3,915 | 1,775 | 466 | 6,156 | 4,084 | 1,933 | 1,051 | 7,068 | |||||||||||||||
SALES AND MARKETING EXPENSES | 7,487 | 2,392 | 175 | 10,054 | 8,258 | 3,484 | 279 | 12,021 | |||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | 1,339 | 1,339 | — | — | 1,306 | 1,306 | |||||||||||||||
OPERATING EXPENSES | 14,422 | 5,724 | 2,096 | 22,242 | 15,399 | 7,678 | 2,879 | 25,956 | |||||||||||||||
SEGMENT (LOSS) INCOME FROM OPERATIONS | (5,117) | 6,132 | (2,096) | (1,081) | (2,806) | 700 | (2,879) | (4,985) | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | (2,615) | (2,615) | — | — | (2,484) | (2,484) | |||||||||||||||
NET LOSS BEFORE TAXES | $ | (3,696) | $ | (7,469) |
During the three months ended June 30, 2020 and 2019, 2 customers within the U.S. segment that are large pharmaceutical distributors accounted for 34% and 2018:67%, respectively, of the Company’s consolidated revenues. During the six months ended June 30, 2020 and 2019, these 2 customers within the U.S. segment accounted for 43% and 59%, respectively, of the Company’s consolidated revenues. These same 2 customers within the U.S. segment accounted for approximately 55% and 68% of the Company’s consolidated accounts receivable at June 30, 2020 and at December 31, 2019, respectively.
Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||
U.S. | International | Other | Consolidated | U.S. | International | Other | Consolidated | ||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||
NET REVENUE | $ | 14,086 | $ | 9,659 | $ | ��� | $ | 23,745 | $ | 14,604 | $ | 5,743 | $ | — | $ | 20,347 | |||||||||||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,493 | ) | (1,281 | ) | — | (2,774 | ) | (1,369 | ) | (648 | ) | — | (2,017 | ) | |||||||||||||||||
GROSS PROFIT | 12,593 | 8,378 | — | 20,971 | 13,235 | 5,095 | — | 18,330 | |||||||||||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 3,057 | 2,261 | 243 | 5,561 | 3,242 | 1,904 | 453 | 5,599 | |||||||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 4,084 | 1,933 | 1,051 | 7,068 | 4,159 | 1,630 | 1,295 | 7,084 | |||||||||||||||||||||||
SALES AND MARKETING EXPENSES | 8,258 | 3,484 | 279 | 12,021 | 8,514 | 2,771 | 610 | 11,895 | |||||||||||||||||||||||
DEPRECIATION AND AMORTIZATION | — | — | 1,306 | 1,306 | — | — | 1,299 | 1,299 | |||||||||||||||||||||||
OPERATING EXPENSES | 15,399 | 7,678 | 2,879 | 25,956 | 15,915 | 6,305 | 3,657 | 25,877 | |||||||||||||||||||||||
SEGMENT (LOSS) INCOME FROM OPERATIONS | (2,806 | ) | 700 | (2,879 | ) | (4,985 | ) | (2,680 | ) | (1,210 | ) | (3,657 | ) | (7,547 | ) | ||||||||||||||||
OTHER INCOME AND EXPENSES, NET | — | — | (2,484 | ) | (2,484 | ) | — | — | (4,061 | ) | (4,061 | ) | |||||||||||||||||||
NET LOSS BEFORE TAXES | $ | (7,469 | ) | $ | (11,608 | ) |
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverview
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forthprovided in the sections entitled “Risk Factors” in our most recent annual report on Form 10-K, our most recent Form 10-Q and in Part II, Item 1A of this report below. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.
Alimera Sciences, Inc., and its subsidiaries (we, our Alimera or the Company)us), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We presently focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people in our aging populations.
We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal, Austria and Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Belgium, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand, Canada and several countries in the Middle East.
As of June 30, 2020, we have recognized sales of ILUVIEN to our international distributors in the Middle East, France, Italy and Spain.
Where We Market ILUVIEN to Treat DME
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME for the indications and in the countries shown in the following table:
Indication for the Treatment of DME | Countries Where ILUVIEN Has Received Marketing Authorization to Treat DME | Countries Where ILUVIEN Has Received Reimbursement Approval to Treat DME | Countries Where ILUVIEN is Currently Marketed to Treat DME | ||||
Treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure | U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates | U.S., Kuwait, Lebanon and the United Arab Emirates | U.S., Kuwait, Lebanon and the United Arab Emirates | ||||
Treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies | The United Kingdom (U.K.), Germany, France, Italy, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg | The U.K., Germany, France, Italy, Spain, Portugal, Ireland and Austria | The U.K., Germany, France, Italy, Spain, Portugal, Ireland and Austria |
Where We Market ILUVIEN to Treat Recurrent NIU-PS
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat NIU-PS for the indications and in the countries shown in the following table:
Indication for the Treatment of NIU-PS | Countries Where ILUVIEN Has Received Marketing Authorization to Treat NIU-PS | Countries Where ILUVIEN Has Received Reimbursement Approval to Treat NIU-PS | Countries Where ILUVIEN is Currently Marketed to Treat NIU-PS | |||
The prevention of relapse in recurrent NIU-PS | The U.K., Germany, France, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg | The U.K. and Germany | The U.K. and Germany |
Effects of the eye (NIPU)COVID-19 Pandemic
The unprecedented and adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the EEA countriesregions where we have satisfiedcustomers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues and may in the country’s labeling requirements. Asfuture have an adverse effect on our liquidity and financial condition. These adverse effects of the datepandemic on us have resulted from the following, among other factors. Governments and private parties imposed limitations on in-person access to physicians, which adversely affects us in at least two ways. First, these limitations can affect patient access to treatment. Because ILUVIEN is administered only by an injection into the eye, telemedicine is not a viable substitute when administration of treatment is required. Second, limitations on in-person access to physicians also makes it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about ILUVIEN.
Our business is also negatively affected by patients’ concerns in the current environment. Prior to the pandemic, most of our ILUVIEN sales were driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that health authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are unwilling to visit their physicians in person (even if otherwise permitted) due to their fear of contracting the COVID-19 pandemic.
In addition to the effects of limitations on in-person access to physicians, limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, has curtailed our in-person marketing activities.
These limitations and other effects of the COVID-19 pandemic had an adverse impact on our revenues late in the first quarter and throughout the second quarter. We expect these factors to continue to adversely impact our revenue, but the extent and duration of that impact is uncertain at this filing,time. Depending on the duration of these limitations and other effects of the COVID-19 pandemic, our liquidity and financial condition may be adversely affected in the future as well.
In response to these developments, we have satisfiedimplemented measures to mitigate the labeling requirementsimpact of the pandemic on our financial position and operations. These measures include the following:
•We have managed our cost structure, minimizing all non-payroll spending where possible to mitigate our anticipated loss of revenue and conserve our cash.
•We have decreased our external spending on commercial and medical affairs activities related to the promotion of ILUVIEN.
•Because we believe that our employees are critical to both (a) serving our customers and patients as the pandemic-related restrictions are lifted in the United Kingdomcoming weeks and expectmonths, and (b) realizing the long-term value of ILUVIEN, we have maintained our staffing levels and do not currently have any plans to complyreduce them.
License Agreement with the local labeling requirements of other EEA countries, but timelines for satisfying individual country requirements vary. Uveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness.
In July 2017, we amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, we
have rights to the technology underlying ILUVIEN now includesfor the treatment of uveitis, including NIPU,NIU-PS, in Europe, the Middle East and Africa. In December 2017, we filed an application for a new indication for ILUVIEN for the treatment of NIPU in the 17 EEA countries where ILUVIEN is currently approved for the treatment of DME. In March 2019, we received the Final Variation Assessment Report (FVAR) for ILUVIEN from the Medicines and Healthcare products Regulatory Agency of the United Kingdom (MHRA) based on our submission to the MHRA through the Mutual Recognition Procedure. Under that procedure, the United Kingdom has acted as the Reference Member State and prepared an assessment report to share with the 16 other countries in the EEA in which we applied for an additional indication. The FVAR states that ILUVIEN is approved for the additional indication for prevention of relapse in NIPU. In June 2019, the United Kingdom's National Institute for Health and Care Excellence (NICE) recommended funding for ILUVIEN for NIPU. In the United Kingdom, a NICE recommendation for funding signifies that the country’s National Health Service (NHS) will pay for ILUVIEN prescriptions for the treatment of NIPU as part of its offering. Timing for receiving funding for ILUVIEN for NIPU, if received at all, in the other EEA countries in which we have applied for the additional indication can vary. The reimbursement process in each EEA country usually starts after we have satisfied the labeling requirements of each individual country.
Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty payments.payments (the Future Offset). In March 2019, pursuant to the New Collaboration Agreement, we forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIPUNIU-PS in the United Kingdom.U.K. As of June 30, 2019,2020, the balance of the Future Offset was approximately $9,603,000.$8,367,000. (See Note 109 of our notes to the accompanying unaudited interim condensed consolidated financial statements and notes thereto (InterimInterim Financial Statements).Statements.)
Sources of June 30, 2019, we have recognized sales of ILUVIEN to the Company’s international distributors in the Middle East, France, Italy and Spain.
Our revenues for the three and six months ended June 30, 20192020 and 20182019 were generated from product sales primarily in the U.S., Germany and the United Kingdom.U.K. In the U.S., two large pharmaceutical distributors accounted for 67%34% and 73%67% of our consolidated revenues for the three months ended June 30, 20192020 and 2018,2019, respectively, and 59%43% and 72%59% of our consolidated revenues for the six months ended June 30, 20192020 and 2018,2019, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.
Reverse Stock Split Effective November 14, 2019
On November 14, 2019, we filed a certificate of amendment to our restated certificate of incorporation with the Secretary of State of the State of Delaware, which effected a one-for-15 reverse stock split (the “reverse split”) of our issued and outstanding shares of common stock at 5:01 PM Eastern Time on that date. As a result of the reverse split, every 15 shares of common stock issued and outstanding were converted into one share of common stock.
First Amendment to 2019 Solar Capital Loan Agreement
On May 1, 2020, we entered into a First Amendment (the Amendment) to our $45,000,000 Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital, as Agent, and the parties signing the Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). For a summary of the terms of the Amendment, see “Liquidity and Capital Resources – Indebtedness – Loans from Solar Capital.”
Results of Operations
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
(In thousands, except share and per share data) | |||||||||||
NET REVENUE | $ | 10,038 | $ | 10,855 | $ | 24,573 | $ | 23,745 | |||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,485) | (1,174) | (3,412) | (2,774) | |||||||
GROSS PROFIT | 8,553 | 9,681 | 21,161 | 20,971 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,810 | 2,834 | 4,693 | 5,561 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,975 | 3,675 | 6,156 | 7,068 | |||||||
SALES AND MARKETING EXPENSES | 4,382 | 6,108 | 10,054 | 12,021 | |||||||
DEPRECIATION AND AMORTIZATION | 685 | 654 | 1,339 | 1,306 | |||||||
OPERATING EXPENSES | 9,852 | 13,271 | 22,242 | 25,956 | |||||||
NET LOSS FROM OPERATIONS | (1,299) | (3,590) | (1,081) | (4,985) | |||||||
INTEREST EXPENSE AND OTHER | (1,351) | (1,236) | (2,643) | (2,464) | |||||||
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET | 109 | 49 | 28 | (20) | |||||||
NET LOSS BEFORE TAXES | (2,541) | (4,777) | (3,696) | (7,469) | |||||||
PROVISION FOR TAXES | (5) | (261) | (48) | (332) | |||||||
NET LOSS | $ | (2,546) | $ | (5,038) | $ | (3,744) | $ | (7,801) | |||
NET LOSS PER COMMON SHARE — Basic and diluted | $ | (0.51) | $ | (1.06) | $ | (0.75) | $ | (1.65) | |||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted | 5,030,833 | 4,732,687 | 5,005,777 | 4,724,417 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands, except share and per share data) | |||||||||||||||
NET REVENUE | $ | 10,855 | $ | 10,717 | $ | 23,745 | $ | 20,347 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,174 | ) | (913 | ) | (2,774 | ) | (2,017 | ) | |||||||
GROSS PROFIT | 9,681 | 9,804 | 20,971 | 18,330 | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 2,834 | 2,777 | 5,561 | 5,599 | |||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 3,675 | 3,229 | 7,068 | 7,084 | |||||||||||
SALES AND MARKETING EXPENSES | 6,108 | 5,926 | 12,021 | 11,895 | |||||||||||
DEPRECIATION AND AMORTIZATION | 654 | 650 | 1,306 | 1,299 | |||||||||||
OPERATING EXPENSES | 13,271 | 12,582 | 25,956 | 25,877 | |||||||||||
NET LOSS FROM OPERATIONS | (3,590 | ) | (2,778 | ) | (4,985 | ) | (7,547 | ) | |||||||
INTEREST EXPENSE AND OTHER | (1,236 | ) | (1,178 | ) | (2,464 | ) | (2,329 | ) | |||||||
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET | 49 | 32 | (20 | ) | 34 | ||||||||||
LOSS ON EARLY EXTINGUISHMENT OF DEBT | — | — | — | (1,766 | ) | ||||||||||
NET LOSS BEFORE TAXES | (4,777 | ) | (3,924 | ) | (7,469 | ) | (11,608 | ) | |||||||
PROVISION FOR TAXES | (261 | ) | (76 | ) | (332 | ) | (76 | ) | |||||||
NET LOSS | $ | (5,038 | ) | $ | (4,000 | ) | $ | (7,801 | ) | $ | (11,684 | ) | |||
NET LOSS PER SHARE — Basic and diluted | $ | (0.07 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.17 | ) | |||
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted | 70,990,340 | 70,022,100 | 70,866,285 | 69,952,940 |
Net Revenue
Revenue from our U.S. distributors and revenue from our partners in the markets in our international segment where we do not sell direct fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.
Net revenue increaseddecreased by approximately $200,000,$900,000, or 2%8%, to approximately $10.0 million for the three months ended June 30, 2020, compared to approximately $10.9 million for the three months ended June 30, 2019, compared to approximately $10.7 million for the three months ended June 30, 2018.2019. The increasedecrease was primarily attributable to a $600,000 revenue decrease of $3.9 million in our U.S. business related to the impact of the COVID-19 pandemic. This decrease was offset by a $3.1 million increase in our international segment including an increaseas a result of sales in the international markets where we sell to distributors, partially offsetU.K. and Germany for our posterior uveitis indication and by a $500,000 revenue decreaseincreased shipments in our U.S. segment, which is partly attributable to turnover in our U.S. sales force.
Net revenue increased by approximately $3.4$900,000, or 4%, to approximately $24.6 million or 17%,for the six months ended June 30, 2020, compared to approximately $23.7 million for the six months ended June 30, 2019, compared to approximately $20.3 million for the six months ended June 30, 2018.2019. The increase was primarily attributable to a revenue$4.4 million increase in our international segment including increasesas a result of approximately $1.7 millionsales in the U.K. and Germany for our posterior uveitis indication and by increased shipments in our international markets where we sell direct and $2.2 million in the international markets where we sell to distributors, partiallydistributor markets. This was offset by a $500,000 revenue$3.6 million decrease in our U.S. segment, which is partly attributablebusiness related to turnover in our U.S. sales force.
Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit
Gross profit is affected by costs of goods sold, which includes (a) costs of manufactured goods sold and (b)royalty payments to EyePoint in the form of royalty payments under the New Collaboration Agreement. Additionally, cost of goods sold from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to the distributor.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $290,000,$300,000, or 32%25%, to approximately $1.5 million for the three months ended June 30, 2020, compared to approximately $1.2 million for the three months ended June 30, 2019, compared to approximately $910,000 for the three
Cost of goods sold, excluding depreciation and amortization, increased by approximately $800,000,$600,000, or 40%21%, to approximately $3.4 million for the six months ended June 30, 2020, compared to approximately $2.8 million for the six months ended June 30, 2019, compared to approximately $2.0 million for the six months ended June 30, 2018.2019. The increase was primarily attributable to an increase in our royalty expense on our global net revenue.
Gross profit decreased by approximately $100,000,$1.1 million, or 1%11%, to approximately $8.6 million for the three months ended June 30, 2020, compared to approximately $9.7 million for the three months ended June 30, 2019, compared to approximately $9.8 million2019. Gross margin was 85% and 89% for the three months ended June 30, 2018. Gross2020 and 2019, respectively. The decrease in gross margin was 89% and 91% for the three months ended June 30, 2019 and 2018, respectively.
Gross profit increased by approximately $2.7$200,000, or 1%, to approximately $21.2 million or 14%,for the six months ended June 30, 2020, compared to approximately $21.0 million for the six months ended June 30, 2019, compared to approximately $18.3 million2019. Gross margin was 86% and 88% for the six months ended June 30, 2018. Gross2020 and 2019, respectively. The decrease in gross margin was 88% and 90% for the six months ended June 30, 2019 and 2018, respectively.
Research, Development and Medical Affairs Expenses
Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and includesinclude clinical trials costs, salaries and related expenses for research, and development and medical affairs personnel, including medical sales liaisons,as well as costs related to the provision of medical affairs support, includingsuch as scientific advisory boards, symposia development for physician education, and costs related to compliance with FDA, EEAEuropean Medicines Agency or other regulatory requirements. We expense both internal and external development costs as they are incurred.
Research, development and medical affairs expenses weredecreased by approximately $2.8$1.0 million, or 36%, to approximately $1.8 million for both the three months ended June 30, 20192020, compared to approximately $2.8 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $360,000 in personnel costs, including international vacant positions, global bonus expenses and 2018.
Research, development and medical affairs expenses weredecreased by approximately $5.6$900,000, or 16%, to approximately $4.7 million for both the six months ended June 30, 20192020, compared to approximately $5.6 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $440,000 in personnel costs, including international vacant positions, global bonus expenses and 2018.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, information technology and human resources. Other significant costs include facilities costs and professional fees for accounting and legal services. We expect to continue to incur significant costs to comply with the corporate governance, internal control and similar requirements applicable to public companies.
General and administrative expenses increaseddecreased by approximately $500,000,$700,000, or 16%19%, to approximately $3.0 million for the three months ended June 30, 2020, compared to approximately $3.7 million for the three months ended June 30, 2019, compared to approximately $3.2 million for the three months ended June 30, 2018.2019. The increasedecrease was primarily attributable to increasesdecreases of approximately $210,000 in global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $170,000 in international severance expenses incurred in 2019 and $160,000 in professional fees and logistics costs, some of which are attributable to Brexit preparation.
General and administrative expenses weredecreased by approximately $7.1$900,000, or 13%, to approximately $6.2 million for both the six months ended June 30, 2020, compared to approximately $7.1 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $410,000 in global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $170,000 in international severance expense incurred in 2019, $170,000 in professional fees and 2018.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion, the assessment of the commercial opportunity of, the development of market awareness for, the pursuit of market reimbursement for and the execution of launch plans for ILUVIEN.ILUVIEN in countries where we have not previously sold ILUVIEN or are marketing it for a different indication. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.
Sales and marketing expenses increaseddecreased by approximately $200,000,$1.7 million, or 3%28%, to approximately $4.4 million for the three months ended June 30, 2020, compared to approximately $6.1 million for the three months ended June 30, 2019, compared2019. The decrease was primarily attributable to decreases of approximately $5.9$1.0 million forin marketing costs related to cost controls put in place during the three months ended June 30, 2018. The increase was primarily attributable to increases2020 as a result of the COVID-19 pandemic, the absence in marketing costs associated with2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and market access costs.
Sales and marketing expenses increaseddecreased by approximately $100,000,$1.9 million, or 1%16%, to approximately $10.1 million for the six months ended June 30, 2020, compared to approximately $12.0 million for the six months ended June 30, 2019, compared2019. The decrease was primarily attributable to decreases of approximately $11.9$1.5 million forin marketing costs related to cost controls put in place during the sixthree months ended June 30, 2018.
Operating Expenses
As a result of the increases and decreases in various expenses described above, total operating expenses increaseddecreased by approximately $700,000,$3.4 million, or 6%26%, to approximately $9.9 million for the three months ended June 30, 2020, compared to approximately $13.3 million for the three months ended June 30, 2019, compared to approximately $12.6 million for the three months ended June 30, 2018.2019. The increasedecrease was primarily attributable to andecreases of approximately $500,000 increase$1.7 million in sales and marketing expenses, $1.0 million in research, development and medical affairs expenses and $700,000 in general and administrative expenses as described above.
As a result of the increases and a $200,000 increasedecreases in sales and marketing expenses.
Interest Expense and Other
Interest Expense and Other increased by approximately $200,000, or 17%, to approximately $25.9$1.4 million for the sixthree months ended June 30, 2018. The increase was primarily attributable2020, compared to an approximately $100,000 increase in sales and marketing expenses.
Interest Expense and Other increased by approximately $1.8$100,000, or 4%, to approximately $2.6 million for the six months ended June 30, 2018 as a result of refinancing2020, compared to approximately $2.5 million for the Hercules Loan Agreement by entering into the 2018 Loan Agreement with Solar Capital on January 5, 2018.
Basic and Diluted Net Income (Loss) Applicable to Common Stockholders per Share of Common Stock
We follow FASB Accounting Standards Codification,
Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common stockholders (if we were to declare and pay dividends),Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating and do not share in losses or would have been anti-dilutive, were approximately 35,202,3282,471,266 for the three and six months ended June 30, 2020, respectively, and 2,347,076 for the three and six months ended June 30, 2019, and 32,772,750 for the three and six months ended June 30, 2018. Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periodsrespectively.
Results of Operations - Segment Review
The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how executive management monitors the performance of our reporting segments.
We have three segments: U.S., International and Other. Each segment is separately managed and is evaluated primarily upon segment gain or loss from operations. Non-cash items including stock-based compensation expense, depreciation and amortization are categorized as Other. We allocate certain operating expenses between our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation methodology during 20192020 or 2018.
U.S. Segment
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
(In thousands) | |||||||||||
NET REVENUE | $ | 3,420 | $ | 7,320 | $ | 10,487 | $ | 14,086 | |||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (423) | (808) | (1,182) | (1,493) | |||||||
GROSS PROFIT | 2,997 | 6,512 | 9,305 | 12,593 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,098 | 1,630 | 3,020 | 3,057 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 1,943 | 2,150 | 3,915 | 4,084 | |||||||
SALES AND MARKETING EXPENSES | 3,207 | 4,217 | 7,487 | 8,258 | |||||||
OPERATING EXPENSES | 6,248 | 7,997 | 14,422 | 15,399 | |||||||
SEGMENT LOSS FROM OPERATIONS | $ | (3,251) | $ | (1,485) | $ | (5,117) | $ | (2,806) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
NET REVENUE | $ | 7,320 | $ | 7,799 | $ | 14,086 | $ | 14,604 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (808 | ) | (656 | ) | (1,493 | ) | (1,369 | ) | |||||||
GROSS PROFIT | 6,512 | 7,143 | 12,593 | 13,235 | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,630 | 1,602 | 3,057 | 3,242 | |||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,150 | 1,866 | 4,084 | 4,159 | |||||||||||
SALES AND MARKETING EXPENSES | 4,217 | 4,142 | 8,258 | 8,514 | |||||||||||
OPERATING EXPENSES | 7,997 | 7,610 | 15,399 | 15,915 | |||||||||||
SEGMENT LOSS FROM OPERATIONS | $ | (1,485 | ) | $ | (467 | ) | $ | (2,806 | ) | $ | (2,680 | ) |
U.S. Segment - three months ended June 30, 20192020 compared to the three months ended June 30, 2018
Net revenue.
Net revenue decreased by approximatelyCost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization,Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $500,000, or 31%, to approximately $1.1 million for the three monthsended June 30, 2020, compared to approximately $660,000$1.6 million for the three months ended June 30, 2018.2019. The increasedecrease was primarily attributable to royalties paid on ILUVIEN.
General and administrative expenses. General and administrative expenses
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $1.0 million, or 24%, to approximately $1.9$3.2 million for the three months ended June 30, 2018. The increase was primarily attributable2020, compared to an increase of approximately $360,000 in professional fees offset with a decrease of $130,000 in personnel costs.
U.S. Segment - six months ended June 30, 20192020 compared to the six months ended June 30, 2018
Net revenue.
Net revenue decreased by approximatelyCost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization,Research, development and medical affairs expenses
. Research, development and medical affairs expenses decreased by approximately $100,000, or 3%, to approximately $3.0 million for the six monthsended June 30, 2020, compared to approximately $3.1 million for the six months ended June 30,General and administrative expenses. General and administrative expenses decreased by approximately $200,000, or 5%, to approximately $3.2$3.9 million for the six months ended June 30, 2018.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $800,000, or 10%, to approximately $4.2$7.5 million for the six months ended June 30, 2018.
International Segment
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
(In thousands) | |||||||||||
NET REVENUE | $ | 6,618 | $ | 3,535 | $ | 14,086 | $ | 9,659 | |||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (1,062) | (366) | (2,230) | (1,281) | |||||||
GROSS PROFIT | 5,556 | 3,169 | 11,856 | 8,378 | |||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 664 | 1,090 | 1,557 | 2,261 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 838 | 946 | 1,775 | 1,933 | |||||||
SALES AND MARKETING EXPENSES | 1,100 | 1,779 | 2,392 | 3,484 | |||||||
OPERATING EXPENSES | 2,602 | 3,815 | 5,724 | 7,678 | |||||||
SEGMENT LOSS FROM OPERATIONS | $ | 2,954 | $ | (646) | $ | 6,132 | $ | 700 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
NET REVENUE | $ | 3,535 | $ | 2,918 | $ | 9,659 | $ | 5,743 | |||||||
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION | (366 | ) | (257 | ) | (1,281 | ) | (648 | ) | |||||||
GROSS PROFIT | 3,169 | 2,661 | 8,378 | 5,095 | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | 1,090 | 954 | 2,261 | 1,904 | |||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 946 | 723 | 1,933 | 1,630 | |||||||||||
SALES AND MARKETING EXPENSES | 1,779 | 1,493 | 3,484 | 2,771 | |||||||||||
OPERATING EXPENSES | 3,815 | 3,170 | 7,678 | 6,305 | |||||||||||
SEGMENT INCOME (LOSS) FROM OPERATIONS | $ | (646 | ) | $ | (509 | ) | $ | 700 | $ | (1,210 | ) |
International Segment - three months ended June 30, 20192020 compared to the three months ended June 30, 2018
Net revenue.
Net revenue increased by approximatelyCost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization, increased by approximatelyResearch, development and medical affairs expenses
. Research, development and medical affairs expensesthree months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $280,000 in personnel and travel expenses, including vacant positions and bonus expenses.
General and administrative expenses. General and administrative expenses decreased by approximately $110,000, or 12%, to approximately $840,000 for the three months ended June 30, 2020, compared toapproximately $950,000 for the three months ended June 30, 2019. The decrease was primarily attributable to a decrease in severance expenses resulting from costs incurred in 2019.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $700,000, or 39%, to approximately $1.1 million for the three months ended June 30, 2019,2020, compared to approximately $950,000 for the three months ended June 30, 2018. The increase was primarily related to an increase of approximately $130,000 in personnel costs.
International Segment - six months ended June 30, 20192020 compared to the six months ended June 30, 2018
Net revenue.
Net revenue increased by approximatelyCost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization, increased by approximatelyResearch, development and medical affairs expenses
. Research, development and medical affairs expensesGeneral and administrative expenses. General and administrative expenses decreased by approximately $100,000, or 5%, to approximately $1.8 million for the six months ended June 30, 2020, compared toapproximately $1.9 million for the six months ended June 30, 2018.2019. The increasedecrease was primarily attributable to increases of approximately $260,000a decrease in personnelseverance expenses resulting from costs incurred in 2019.
Sales and $100,000 in costs associated with our ongoing clinical studies.
Other Segment
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
(In thousands) | |||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | $ | 48 | $ | 114 | $ | 116 | $ | 243 | |||
GENERAL AND ADMINISTRATIVE EXPENSES | 194 | 579 | 466 | 1,051 | |||||||
SALES AND MARKETING EXPENSES | 75 | 112 | 175 | 279 | |||||||
DEPRECIATION AND AMORTIZATION | 685 | 654 | 1,339 | 1,306 | |||||||
OPERATING EXPENSES | 1,002 | 1,459 | 2,096 | 2,879 | |||||||
SEGMENT LOSS FROM OPERATIONS | $ | (1,002) | $ | (1,459) | $ | (2,096) | $ | (2,879) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES | $ | 114 | $ | 221 | $ | 243 | $ | 453 | |||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 579 | 640 | 1,051 | 1,295 | |||||||||||
SALES AND MARKETING EXPENSES | 112 | 291 | 279 | 610 | |||||||||||
DEPRECIATION AND AMORTIZATION | 654 | 650 | 1,306 | 1,299 | |||||||||||
OPERATING EXPENSES | 1,459 | 1,802 | 2,879 | 3,657 | |||||||||||
SEGMENT LOSS FROM OPERATIONS | $ | (1,459 | ) | $ | (1,802 | ) | $ | (2,879 | ) | $ | (3,657 | ) |
Our CEO, who is our chief operating decision maker manages and evaluates our U.S. and International segments based on net gain or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, these non-cash expenses included in research, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses are classified within the Other segment within our Interim Financial Statements.
Operating expenses in the Other segment stock-based compensation expense, collectively, decreased by approximately $570,000,$500,000, or 48%33%, to $630,000 for the three months ended June 30, 2019, compared to approximately $1.2$1.0 million for the three months ended June 30, 2018. Stock-based2020, compared to approximately $1.5 million for the three months ended June 30, 2019. This decrease is primarily attributable to a decrease of $310,000 in global stock-based compensation expenses and $170,000 in international severance expense collectively,incurred in 2019. Operating expenses in the Other segment decreased by approximately $1.0 million,$800,000, or 42%28%, to $1.4$2.1 million for the six months ended June 30, 2019,2020, compared to approximately $2.4$2.9 million for the six months ended June 30, 2018.
Liquidity and Capital Resources
Overview
Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit in stockholders’ equity of $384.9$391.3 million through June 30, 2019.2020.
As explained above in “Effects of the COVID-19 Pandemic,” the unprecedented and adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues. Depending on the duration of the pandemic and the success of our strategy to conserve our cash and otherwise mitigate the impact of the pandemic, the pandemic may have an adverse effect on our liquidity and financial condition in the future as well. We expect that the pandemic may continue to adversely affect our operations. As a result, it is difficult to project the extent of that impact now and as this situation continues to evolve.
Since January 2018, we have funded our operations through the public2018 and private placement2019 Solar Loan Agreements described below and a small offering of common stock, convertible preferred stock, warrants,stock. In April 2020, we obtained a loan under the sale of certain assetsPaycheck Protection Program established as part of the non-prescription businessCoronavirus Aid, Relief and Economic Security Act, or the CARES Act. Our loans do not include a revolving loan feature and have been fully advanced by the respective lenders. We currently have no additional borrowing capacity, and the 2019 Solar Loan Agreement generally prohibits any additional debt unless we obtain the prior consent of Solar Capital. Currently, we cannot access the equity markets without severe dilution to our current stockholders.
On July 9, 2020, we announced the initiation of the NEW DAY study, a randomized, controlled, multi-center clinical trial designed to generate prospective data for ILUVIEN 0.19 mg as a first-line baseline therapy in patients diagnosed with DME and demonstrate ILUVIEN’s advantages over the current standard of care (anti-VEGF injections). We estimate we will incur approximately $13.5 million in expenses over the next three to four years associated with the NEW DAY Study. We expect to fund these costs with existing resources, cash flow from operations and the redeployment of other clinical spending.
Under our 2012 agreement with Flextronics International, Ltd. (Flextronics), Flextronics agreed to manufacture the component parts of the ILUVIEN applicator for us at its facility located near Tijuana, Mexico. We purchased certain equipment for Flextronics’ facility that Flextronics uses solely to manufacture the components of the ILUVIEN applicator for us. During 2019, Flextronics gave us 18 months’ notice to terminate the existing manufacturing agreement, which will terminate on September 30, 2020. We have identified an alternative manufacturer and are currently negotiating a final agreement to allow the transfer of equipment and qualification of the new facility, which is located in Pennsylvania. We currently expect to incur approximately $400,000 of capital expenditures associated with the new facility through February 2021, when we were previously engaged and certain debt facilities.
Indebtedness
Loans from Solar Capital. On January 5, 2018, we entered into thea $40.0 million Loan and Security Agreement (the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital) and other lenders.Under the 2018 Solar Loan Agreement, with Solar Capital. Under this agreement, we borrowed the entire $40.0 million as a term loan that matureswas scheduled to mature on July 1, 2022.2022 (the 2018 Solar Loan). We used the proceeds of the 2018 Solar Loan to refinance the then outstanding loan under our previous loan agreement with Hercules Capital, Inc. and to pay closing expenses associated with the 2018 Solar Loan Agreement.
On December 31, 2019, we refinanced the 2018 Solar Loan Agreement to repayby entering into a $45.0 million Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital as Collateral Agent (Agent), and the Herculesparties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2019 Solar Loan Agreement, we borrowed $42.5 million on December 31, 2019 and pay related expenses.$2.5 million on February 21, 2020 (the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024. We used the initial proceeds of the 2019 Solar Loan to pay off the 2018 Solar Loan, along with related
prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to Solar Capital. We expect to use the remaining loan proceeds in 2018of the 2019 Solar Loan to provide additional working capital for general corporate purposes. (See Note 11purposes, and those proceeds are part of the cash and cash equivalents described below.
On May 1, 2020, we entered into a First Amendment (the Amendment) to the 2019 Solar Loan Agreement. The Amendment, among other things:
(a)eliminated the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: we shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in the ordinary course of business to third party customers, on a trailing six-month basis, to be less than a specified minimum revenue amount for each such date;
(b)requires that the Revenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;
(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and
(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our notesprojected revenues in accordance with an annual plan we submit to Interim Financial Statements.)
The Amendment also adds the following new minimum liquidity requirement that became effective on May 1, 2020 and will continue until we notify Agent that we have met the Revenue Covenant at November 30, 2020: we shall not permit the aggregate amount of unrestricted cash and cash equivalents to be less than the sum of (i) $8,500,000 plus (ii) the amount of our accounts payable that have not been paid within 90 days from the invoice date of the relevant account payable.
Paycheck Protection Program Loan. On April 22, 2020, we received approximately $1.8 million in support (the PPP Loan) from the U.S. federal government under the Paycheck Protection Programestablished as part of the CARES Act. The PPP Loan is unsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender and is governed by a loan agreement with HSBC.
The interest rate on the Note is 1.0% per annum. The Note has a two-year term and is payable in 18 equal monthly payments of principal and interest beginning on the 180th day following the disbursement of the loan proceeds, subject to forgiveness as described below. The Paycheck Protection Program provides a mechanism for forgiveness of up to the full amount borrowed as long as we use the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. We used all of the proceeds from the PPP Loan to pay expenses during the applicable period that we believe were for eligible purposes. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. As of the date of this filing, the application is still pending review. To the extent any or all of the PPP Loan is not forgiven, we will be required to repay the PPP Loan on the terms described above.
Current Cash Position
As of June 30, 2019,2020, we had approximately $13.5 million in cash and cash equivalents, an increase of $1.3 million from the $12.2 million in cash and cash equivalents. Due to the limited revenue generated by ILUVIEN to date,equivalents that we reported as of March 31, 2020. In April 2020, we received approximately $1.8 million PPP Loan. We may haveneed to raise additional capital to fund our business strategy, including the continued commercialization of ILUVIEN. IfILUVIEN and the retention of our current employees and staff. In response to the effects of the COVID-19 pandemic, we are unablehave adjusted, and we expect to raise additional financing, we will needcontinue to adjust, our commercial plans so that we canspending to continue to operate with our existing cash resources. The actual amount of funds that we willmay need will depend on many factors, some of which are beyond our control. See “Effects of the COVID-19 Pandemic” in this Item 2 above for an explanation of our strategy to conserve our cash and otherwise mitigate the impact of the pandemic on our financial position and operations.
We may need funds sooner thancannot ensure that our commercial spending controls will be effective or will continue to be effective throughout the currently anticipated.
covenants and specific financial ratios that may restrict our ability to commercialize ILUVIEN or any future products or product candidates or operateachieve our business;business strategy; and (b) we would be required to obtain the permission or participation of Solar Capital, which we might not be able to obtain. Our capital raising efforts may be hindered by the fact that we are currently not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1), which could ultimately lead to our delisting from Nasdaq if we are unable to regain compliance. See Part II, Item 1A, Risk Factors. Our recurring losses and any potential needs to raise capital create substantial doubt about our ability to continue as a going concern for the next 12 months following the issuance of the financial statements.
Sources and Uses of Cash for the six months ended June 30, 2020 compared to the six months ended June 30, 2019
For the six months ended June 30, 2020, cash provided by our operations was approximately $220,000. The cash provided by our operations was primarily due to our net loss of $3.7 million, offset by $1.3 million of non-cash depreciation and amortization, $760,000 of non-cash stock-based compensation expense and $480,000 of non-cash interest expense associated with the amortization of our debt discount. Further reducing cash from operations was a $2.8 million net decrease in accounts payable, accrued expenses and other current liabilities, a $580,000 increase in inventory, a $290,000 decrease in long-term liabilities and a $240,000 increase in prepaid expenses and other current assets. These were offset by a $5.3 million decrease in accounts receivable.
For the six months ended June 30, 2019, cash used in our operations was approximately $680,000. The cash used in our operations was primarily due to our net loss of $7.8 million and an increase in prepaid expenses and other current assets of $960,000, offset by a $3.3 million decrease in accounts receivable, $1.4 million of non-cash stock-based compensation expense, $1.3 million for non-cash depreciation and amortization and a $930,000 net increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2019 was further offset by a $430,000 increase in other long-term liabilities, $420,000 for non-cash interest expense associated with the amortization of our debt discount and $260,000 of inventory.
For the six months ended June 30, 2018,2020, net cash used in our operationsinvesting activities was $8.4 million. The cash used in our operationsapproximately $220,000, which was primarily due to our net lossthe purchase of $11.7 million, offset by $2.4 million of non-cash stock-based compensation expense, $1.8 million loss on our early extinguishment of debt, $1.3 million for non-cash depreciationproperty and amortization, $420,000 for non-cash interest expense associated with the amortization of our debt discount and a $250,000 increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2018 was further affected by an increase in accounts receivable of $2.1 million and an increase of $650,000 of inventory.
For the six months ended June 30, 2019, net cash used in our investing activities was approximately $40,000.
For the six months ended June 30, 2018,2020, net cash used inprovided by our investingfinancing activities was approximately $120,000,$4.0 million, which wasis primarily due to borrowing the purchaseremaining $2.5 million under the 2019 Solar Loan Agreement and receiving the $1.8 million PPP Loan, offset by $230,000 of property and equipment, primarily the purchasepayments of additional software.
For the six months ended June 30, 2019, net cash used in our financing activities was approximately $140,000, which is primarily due to payments of
finance lease obligations.Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on February 25, 2019.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
Impact of Recent Accounting Pronouncements
See Note 3 of our notes to Interim Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.
ITEM 3.
Quantitative and Qualitative Disclosures About Market RiskNot required for smaller reporting companies.
ITEM 4.
Controls and ProceduresEvaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019.
Changes in Internal Control over Financial Reporting
There havehas been no other changeschange in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the six months ended June 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. 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, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 1.
Legal ProceedingsWe are not a party to any material pending legal proceedings, and management is not aware of any contemplated proceedings by any governmental authority against us.
ITEM 1A.
Risk FactorsIn our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, filed with the SEC on February 25, 2019,March 2, 2020, we identify under Item 1A of Part I important factors that could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. Except as described below and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, there have been no material changes in our risk factors after the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019. However, the risks described in our Form 10-K and Forms 10-Q are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.
You should read the following information in conjunction with the Interim Financial Statements and related notes in Part I, Item 1, Financial Information and the discussion and analysis of our financial condition in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business, and such impacts may have an adverse effect on our results of operations, financial condition and cash flows.
The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, health authorities, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and we expect will continue to have, certain negative effects on, and present certain risks to, our business including the following:
•We have experienced a decrease in sales of ILUVIEN in the U.S. and in our international markets that have been affected by the COVID-19 pandemic resulting from, among other things:
•Governments and private parties have imposed limitations on in-person access to physicians, which can (and in certain instances already have):
◦affect patient access to treatment, given that ILUVIEN is administered only by an injection into the eye, which means telemedicine is not a viable substitute; and
◦make it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about the benefits of ILUVIEN and to provide support for insurance pre-certifications.
•Our business is also negatively affected by patient behavior in the current environment. Most of our ILUVIEN sales are driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that governmental authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are or may be unwilling to visit their physicians in person (even if otherwise permitted) due to their fear of contracting the COVID-19 pandemic.
These limitations had an adverse impact on our revenues late in the first quarter of 2020 and throughout the second quarter. We received noticeexpect these factors to continue to adversely impact our revenue, but the extent and duration of that impact is uncertain at this time. If the COVID-19 pandemic intensifies (as is currently the case in June 2019the Southern portion of the U.S. from The Nasdaq Stock Market (“Nasdaq”) thatcoast to coast), its duration is longer than we failedexpect or if a second pandemic follows after initial resolution, its negative effect on our sales and thus our liquidity and financial condition could be more prolonged and may be severe. Financial uncertainty associated with the adverse effects of the COVID-19 pandemic, and the duration of those effects, could have an impact in future periods on certain estimates used in the preparation of our quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables.
Other effects or possible effects of the COVID-19 pandemic on us include:
•Limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, have curtailed our in-person marketing activities, which have in turn contributed to lower sales of ILUVIEN.
•As a result of the COVID-19 pandemic, including related governmental guidance or directives, we required almost all office-based employees, including almost all employees based at our headquarters in Georgia, to work remotely for some or all of the second quarter. While most of our personnel in our headquarters have returned to work in the office, we may in the future experience reductions in productivity and disruptions to our business routines if remote work requirements are reinstated in Georgia.
•We may fail to maintain or modify as necessary our internal controls over financial reporting in an environment in which (a) many of our employees are working remotely and (b) we or our distributors have been and may be required to modify our standard business processes to take into account the current environment in light of the pandemic. If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
•We may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need. Either event could have an adverse effect on our results of operations, financial condition and cash flows.
•As the result of lower sales of ILUVIEN, we may fail to comply with financial covenants in our $45.0 million 2019 Solar Loan Agreement, as amended, that are based on (a) minimum trailing six months’ revenues as of November 30, 2020 and the Nasdaq Global Market’send of each calendar quarter thereafter and (b) a minimum bidliquidity requirement becausethat took effect on May 1, 2020. If an event of default under the 2019 Solar Loan Agreement occurs, Solar Capital may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to raise additional financing, renegotiate the 2019 Solar Loan Agreement on terms less favorable to us or immediately cease operations. Any declaration by Solar Capital of an event of default could significantly harm our business and prospects and could cause the price of our common stock price was below $1.00 per common shareto decline significantly after we publicly disclose that event in an SEC filing. Further, if we are liquidated, Solar Capital’s right to repayment would be senior to the rights of our stockholders.
We may not be entitled to forgiveness of our PPP Loan.
In April 2020, we received proceeds of approximately $1.8 million from a loan under the PPP of the CARES Act, which we used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures in April 2022 and bears annual interest at a rate of 1.0%.
Commencing October 2020 and subject to prior forgiveness of all or part of the PPP Loan, we are required to pay HSBC equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan as of October 2020, plus interest outstanding at the end of the six-month deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any. Interest accrued during the six-month deferment period will be capitalized as principal. Under the CARES Act, loan forgiveness is generally available for 30 consecutive business days.the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date the lender makes the first disbursement of the PPP Loan. We havewill be required to repay any portion of the outstanding principal that is not regained complianceforgiven, along with Nasdaq’s minimum bid requirement,accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven by the SBA.
We must replace our third-party manufacturer of certain component parts of the ILUVIEN injector, and we may be unable to do so. Ifreplace that third party on favorable terms in a timely manner, or at all.
On March 28, 2019 we were to fail to regain compliance, our shares could be delisted from the Nasdaq Global Market, which could materially reduce the liquidity of our common stock and have an adverse effect on its market price.
terminate on September 30, 2020. In the notice, Flextronics stated that asit is available to work with us and will continue to supply product during the notice period.
We have identified an alternative manufacturer with which we have entered into a statement of May 31, 2019,work for the closing bid price for our common stocktransition and are currently negotiating a final agreement on the Nasdaq Global Market was below $1.00 formanufacturing contract and the last 30 consecutive business dayscomponent pricing. However, unless and that, asuntil we transition to a result, we were not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1). This is the third notice of noncompliance with the minimum bid price requirement that we have received since June 2018. The notice stated that pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we will have 180 calendar days, until December 2, 2019, to regain compliance. For us to regain compliance with the minimum bid price requirement, our common stock must have a closing bid price of $1.00 or more for 10 consecutive business days. Under certain circumstances, however, to ensure that a company can sustain long-term compliance, Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that the company complies. Our common stock is continuing to trade on Nasdaq under the symbol ALIM during this 180-day period.
ITEM 2.
Unregistered Sales of Equity Securities and Use of ProceedsNone.
ITEM 3.
Defaults Upon Senior SecuritiesNone.
ITEM 4.
Mine Safety DisclosuresNot applicable.
ITEM 5.
Other InformationNone.
ITEM 6.
ExhibitsExhibit Number | Description | |
3.1 | ||
3.2 | ||
10.14.D | ||
10.14.E# | ||
10.16 | ||
10.17 | ||
31.1* | ||
31.2* | ||
32.1* | ||
101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |
104 | Cover Page Interactive Data File (Embedded within the Inline XBRL | |
*Filed herewith.
#Certain confidential information contained in this agreement has been omitted because it is not material and would be competitively harmful if publicly disclosed.
†Management contracts and compensatory plans and arrangements.
+Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALIMERA SCIENCES, INC. | |||
August | By: | /s/ Richard S. Eiswirth, Jr. | |
Richard S. Eiswirth, Jr. | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
August 4, 2020 | By: | ||
/s/ J. Philip Jones | |||
J. Philip Jones | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) | |||