UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

~~[X]~~ ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~March 31, 2018~~June 30, 2020

~~[ ]~~ ☐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 001-37569

Strongbridge Biopharma plc

(Exact name of Registrant as specified in its charter)

Ireland

98-1275166

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

900 Northbrook Drive

Suite 200

Trevose, PA19053

(Address of principal executive offices)

Registrant’s Telephone Number, Including Area Code: +1 610‑-254‑-9200

Securities Registered Pursuant to Section 12(b) of the Exchange Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Ordinary shares, par value $0.01 per share	SBBP	The Nasdaq Global Select 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]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate 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. ~~(Check one):~~


Large Accelerated Filer	~~[ ]~~☐	Accelerated Filer	~~[X]~~☒

Non-Accelerated Filer	~~[ ]~~☐	Smaller Reporting Company	~~[ ]~~☒
~~(Do not check if a smaller reporting company)~~
		Emerging Growth Company	~~[X]~~☒

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. ~~[X]~~☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No ~~[X]~~

☒

As of ~~May 4, 2018,~~July 28, 2020, there were ~~45,534,665~~54,355,957 ordinaryshares of the registrant issued and ~~outstanding.~~outstanding.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STRONGBRIDGE BIOPHARMA plc

Consolidated Balance ~~Sheets~~Sheets

(In thousands, except share and per share data)

(unaudited)


	June 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	59,909	$	57,032
Marketable securities		—		21,072
Accounts receivable		2,885		2,289
Inventory		1,315		1,993
Prepaid expenses and other current assets		1,914		1,157
Total current assets		66,023		83,543
Property and equipment, net		248		291
Right of use asset, net		696		789
Intangible asset, net		22,599		25,110
Goodwill		7,256		7,256
Other assets		812		649
Total assets	$	97,634	$	117,638
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,957	$	3,331
Accrued and other current liabilities		17,363		20,962
Current portion of long-term debt, net		162		—
Total current liabilities		19,482		24,293
Long-term debt, net		6,841		—
Warrant liability		10,914		4,127
Supply agreement liability, noncurrent		11,556		15,947
Other long-term liabilities		972		1,080
Total liabilities		49,765		45,447
Commitments and contingencies (Note 8)
Stockholders’ equity:
Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at June 30, 2020 and December 31, 2019		44		44
Ordinary shares, $0.01 par value, 600,000,000 shares authorized; 54,355,957 and 54,205,852 shares issued and outstanding at June 30, 2020 and December 31, 2019		544		542
Additional paid-in capital		337,734		332,085
Accumulated deficit		(290,453)		(260,483)
Accumulated other comprehensive income		—		3
Total stockholders’ equity		47,869		72,191
Total liabilities and stockholders’ equity	$	97,634	$	117,638

March 31,

December 31,

2018

2017

ASSETS

Current assets:

Cash and cash equivalents
$
92,405

$
57,510

Accounts receivable

2,016

1,584

Inventory

1,661

511

Prepaid expenses and other current assets

1,776

1,208

Total current assets

97,858

60,813

Property and equipment, net

12

15

Intangible assets, net

58,041

35,155

Goodwill

7,256

7,256

Other assets

360

686

Total assets
$
163,527

$
103,925

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Accounts payable
$
2,168

$
1,247

Accrued liabilities

8,837

11,232

Total current liabilities

11,005

12,479

Long-term debt

76,142

37,794

Warrant liability

51,008

41,308

Supply agreement liability, noncurrent

23,519

24,258

Total liabilities

161,674

115,839

Commitments and contingencies (Note 8)

Stockholders’ equity (deficit):

Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at March 31, 2018 and December 31, 2017

44

44

Ordinary shares, $0.01 par value, 600,000,000 shares authorized at March 31, 2018 and December 31, 2017; 45,531,827 and 40,149,812 shares issued and outstanding at March 31, 2018 and December 31, 2017

455

401

Additional paid-in capital

272,960

230,524

Accumulated deficit

(271,606)

(242,883)

Total stockholders’ equity (deficit)

1,853

(11,914)

Total liabilities and stockholders’ equity (deficit)
$
163,527

$
103,925

The accompanying notes are an integral part of these unaudited consolidated financial statements.

STRONGBRIDGE BIOPHARMA plc

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(unaudited)


	Three Months Ended					Six Months Ended
	June 30					June 30,
	2020			2019		2020		2019
Revenues:
Net product sales	$	7,752		$	6,073	$	14,415	$	10,406
Royalty revenue		8	��		6		19		16
Total revenues		7,760			6,079		14,434		10,422

Cost and expenses:
Cost of sales (excluding amortization of intangible asset)	$	393		$	1,022	$	1,362	$	1,835
Selling, general and administrative		9,638			12,182		20,041		24,282
Research and development		6,152			8,739		13,704		15,322
Amortization of intangible asset		1,255			1,255		2,511		2,511
Total cost and expenses		17,438			23,198		37,618		43,950
Operating loss		(9,678)			(17,119)		(23,184)		(33,528)
Other (expense) income, net:
Unrealized (loss) gain on fair value of warrants		(7,367)			8,697		(6,787)		6,877
Income from field services agreement		—			1,725		—		3,741
Expense from field services agreement		—			(1,758)		—		(3,987)
Interest expense		(253)			—		(253)		—
Other income, net		26			608		254		1,293
Total other (expense) income, net		(7,594)			9,272		(6,786)		7,924
Loss before income taxes		(17,272)			(7,847)		(29,970)		(25,604)
Income tax expense		—			(400)		—		(1,077)
Net loss	$	(17,272)		$	(8,247)		(29,970)		(26,681)
Other comprehensive income
Unrealized loss on marketable securities		(6)			—		(3)		—
Comprehensive loss	$	(17,278)		$	(8,247)	$	(29,973)	$	(26,681)

Net loss attributable to ordinary shareholders:
Basic	$	(17,272)		$	(8,247)	$	(29,970)	$	(26,681)
Diluted	$	(17,272)		$	(16,944)	$	(29,970)	$	(33,558)
Net loss per share attributable to ordinary shareholders:
Basic	$	(0.32)		$	(0.15)	$	(0.55)	$	(0.49)
Diluted	$	(0.32)		$	(0.30)	$	(0.55)	$	(0.60)
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders:
Basic		54,302,325			54,175,731		54,266,675		54,165,439
Diluted		54,302,325			55,781,078		54,266,675		56,262,936

Three Months Ended

March 31


2018

2017

Revenues:

Net product sales

$
3,870

$
—

Total revenues

3,870

—

Cost and expenses:

Cost of sales (excluding amortization of intangible assets)

$
667

$
—

Selling, general and administrative

12,362

7,442

Research and development

4,881

3,481

Amortization of intangible assets

1,769

1,256

Total cost and expenses

19,679

12,179

Operating loss

(15,809)

(12,179)

Other expense, net:

Unrealized loss on fair value of warrants

(9,700)

(14,928)

Interest expense

(2,874)

(737)

Foreign exchange loss

(20)

(12)

Loss on extinguishment of debt

(500)

—

Other income (expense), net

180

(35)

Total other expense, net

(12,914)

(15,712)

Loss before income taxes

(28,723)

(27,891)

Income tax expense

—

(1,594)

Net loss

$
(28,723)

$
(29,485)

Net loss per share attributable to ordinary shareholders:

Basic and diluted

$
(0.66)

$
(0.83)

Weighted-average shares used in computing net loss per share attributable to ordinary shareholders:

Basic and diluted

43,620,746

35,335,026

The accompanying notes are an integral part of these unaudited consolidated financial statements.

STRONGBRIDGE BIOPHARMA plc

Consolidated Statement of Stockholders’ ~~(Deficit)~~ Equity

(In thousands, except share amounts)

(unaudited)

Additional



Total

Ordinary Shares

Deferred Shares

Paid-In

Accumulated

Shareholders’

Shares

Amount

Shares

Amount

Capital

Deficit

(Deficit) Equity

Balance—December 31, 2017

40,149,812

$
401

40,000

$
44

$
230,524

$
(242,883)

$
(11,914)

Net loss

—

—

—

—

—

(28,723)

(28,723)

Stock-based compensation

—

—

—

—

1,688

—

1,688

Issuance of shares, net of offering costs

5,255,683

53

—

—

33,455

—

33,508

Common stock issued, net of shares withheld for employee taxes

89,163

1

—

—

(429)

—

(428)

Exercise of stock options

37,169

*

—

—

59

—

59

Issuance of warrants related to loan agreements

—

—

—

—

7,663

—

7,663

Balance—March 31, 2018

45,531,827

$
455

40,000

$
44

$
272,960

$
(271,606)

$
1,853



							Additional				Accumulated Other		Total
	Ordinary Shares			Deferred Shares			Paid-In		Accumulated		Comprehensive		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Gain		Equity
Balance—March 31, 2019	54,167,948	$	542	40,000	$	44	$	325,863	$	(229,466)		—	$	96,983
Net loss	—		—	—		—		—		(8,247)		—		(8,247)
Stock-based compensation	—		—	—		—		2,572		—		—		2,572
Exercise of stock options	4,113		*	—		—		12		—		—		12
Ordinary shares issued, net of shares withheld for employee taxes	14,207		*	—		—		(31)		—		—		(31)
Balance—June 30, 2019	54,186,268	$	542	40,000	$	44	$	328,416	$	(237,713)		—	$	91,289

Balance—December 31, 2018	54,122,074	$	541	40,000	$	44	$	323,402	$	(211,032)		—	$	112,955
Net loss	—		—	—		—		—		(26,681)		—		(26,681)
Stock-based compensation	—		—	—		—		4,895		—		—		4,895
Exercise of stock options	43,841		1	—		—		178		—		—		179
Ordinary shares issued, net of shares withheld for employee taxes	20,353		*	—		—		(59)		—		—		(59)
Balance—June 30, 2019	54,186,268	$	542	40,000	$	44	$	328,416	$	(237,713)		—	$	91,289

Balance—March 31, 2020	54,247,501	$	542	40,000	$	44	$	333,768	$	(273,181)		6	$	61,179
Net loss	—		—	—		—		—		(17,272)		—		(17,272)
Stock-based compensation	—		—	—		—		1,773		—		—		1,773
Issuance of warrants and beneficial conversion feature related to the Loan Agreement	—		—	—		—		2,457		—		—		2,457
Ordinary shares issued, net of shares withheld for employee taxes	108,456		2					(264)						(262)
Unrealized loss on marketable securities	—		—	—		—				—		(6)		(6)
Balance—June 30, 2020	54,355,957	$	544	40,000	$	44	$	337,734	$	(290,453)		—	$	47,869

Balance—December 31, 2019	54,205,852	$	542	40,000	$	44	$	332,085	$	(260,483)		3	$	72,191
Net loss	—		—	—		—		—		(29,970)		—		(29,970)
Stock-based compensation	—		—	—		—		3,524		—		—		3,524
Issuance of warrants and beneficial conversion feature related to the Loan Agreement	—		—	—		—		2,457		—		—		2,457
Ordinary shares issued, net of shares withheld for employee taxes	150,105		2	—		—		(332)		—		—		(330)
Unrealized loss on marketable securities			—	—		—		—		—		(3)		(3)
Balance—June 30, 2020	54,355,957	$	544	40,000	$	44	$	337,734	$	(290,453)		—	$	47,869

* Represents an amount less than $1.

Table of Contents

The accompanying notes are an integral part of these unaudited consolidated financial statements.

~~Table of Contents~~

STRONGBRIDGE BIOPHARMA plc

Consolidated Statements of Cash ~~Flow~~Flow

(In thousands)

(unaudited)


	Six Months Ended
	June 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(29,970)	$	(26,681)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of warrant liability		6,787		(6,877)
Stock-based compensation		3,524		4,895
Amortization of intangible asset		2,511		2,511
Accretion of discounts on marketable securities		(53)		(71)
Depreciation		43		36
Changes in operating assets and liabilities:
Accounts receivable		(596)		(4,717)
Inventory		294		393
Prepaid expenses and other current assets		(757)		1,782
Other assets		314		(1,166)
Accounts payable		(1,374)		285
Accrued and other liabilities		(8,098)		(6,873)
Net cash used in operating activities		(27,375)		(36,483)
Cash flows from investing activities:
Purchases of property and equipment		—		(33)
Purchases of marketable securities		—		(27,939)
Maturities of marketable securities		21,122		—
Net cash provided by (used in) investing activities		21,122		(27,972)
Cash flows from financing activities:
Proceeds from long-term debt, net		9,460		—
Proceeds from exercise of stock options		—		180
Payments related to tax withholding for net-share settled equity awards		(330)		(59)
Net cash provided by financing activities		9,130		121
Net increase (decrease) in cash and cash equivalents		2,877		(64,334)
Cash and cash equivalents—beginning of period		57,032		122,490
Cash and cash equivalents—end of period	$	59,909	$	58,156
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	118	$	—
Income taxes other, net of refunds	$	531	$	—

Three Months Ended

March 31,

2018

2017

Cash flows from operating activities:

Net loss

$
(28,723)

$
(29,485)

Adjustments to reconcile net loss to net cash used in operating activities:

Change in fair value of warrant liability

9,700

14,928

Stock-based compensation

1,688

1,169

Amortization of intangible assets

1,769

1,256

Interest and related guarantee fees paid in kind

766

—

Amortization of debt discounts and debt issuance costs

314

140

Loss on extinguishment of debt

500

—

Deferred income tax expense

—

1,599

Depreciation

3

3

Changes in operating assets and liabilities:

Accounts receivable

(432)

—

Inventory

(1,150)

—

Prepaid expenses and other current assets

(567)

(198)

Other assets

325

(1)

Accounts payable

921

791

Accrued liabilities and other liabilities

(3,133)

509

Net cash used in operating activities

(18,019)

(9,289)

Cash flows from investing activities:

Payment for acquisitions

(24,655)

(7,500)

Net cash used in investing activities

(24,655)

(7,500)

Cash flows from financing activities:

Proceeds from long-term debt, net

44,930

—

Payment for loss on extinguishment of debt

(500)

—

Payment for amendment of long-term debt

—

(150)

Proceeds from issuance of ordinary shares, net

33,508

—

Proceeds from exercise of stock options

59

—

Payments related to tax withholding for net-share settled equity awards

(428)

—

Net cash provided by (used in) financing activities

77,569

(150)

Net increase (decrease) in cash and cash equivalents

34,895

(16,939)

Cash and cash equivalents—beginning of period

57,510

66,837

Cash and cash equivalents—end of period

$
92,405

$
49,898

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Interest

$
1,642

$
295

Income taxes other, net of refunds

$
—

$
255

Supplemental non-cash financing activities:

Issuance of shares from vested restricted share units

$
1,016

$
—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

STRONGBRIDGE BIOPHARMA plc

Notes to Unaudited Consolidated Financial ~~Statements~~Statements

1. Organization

We are a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs.

Our first commercial product is Keveyis (dichlorphenamide), the first and only treatment approved by the U.S. Food and Drug Administration (the “FDA”) for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis (“PPP”), a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis.

Our second commercial product, Macrilen (macimorelin) is an oral growth hormone secretagogue receptor agonist, and is the first and only oral drug approved by the FDA for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). In January 2018, we acquired the U.S. and Canadian rights to Macrilen and we expect to launch Macrilen in the United States in mid-2018.

~~In addition to our two commercial products, we~~We have ~~two~~2 clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole) is a cortisol synthesis inhibitor currently being studied for the treatment of endogenous Cushing's syndrome. Veldoreotide is a next-generation somatostatin analog being investigated for ~~the treatment of acromegaly and~~ potential ~~additional~~ applications in ~~other~~ conditions amenable to somatostatin receptor ~~activation.~~activation, such as acromegaly. Both ~~Recorlev~~levoketoconazole and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).

~~Since~~wholly-owned subsidiaries, entered into an agreement with Novo Nordisk Inc. (“NNI”), a subsidiary of Novo, pursuant to which NNI funded the ~~introduction~~costs of 23 of our ~~new management team~~field-based employees to provide full-time ongoing services to NNI, including the promotion of Macrilen in ~~August 2014, we have been building~~the United States, for a ~~rare disease, franchise-based business model focused on expansion through a disciplined in-licensing and acquisition strategy. In pursuit~~period of three years. Novo also purchased 5.2 million of our ~~growth strategy,~~ordinary shares at a purchase price of $7.00 per share. In December 2019, we ~~have raised over $275~~reached an agreement with Novo to terminate the services agreement. We received a $6 million payment in ~~equity~~connection with such termination and ~~debt financings since December 2014. We will continue~~we no longer provide services to identify and evaluate the acquisition of products and product candidates for licensing or acquisition that would be complementary to our existing rare neuromuscular and endocrine franchises or that would form the basis for new rare disease franchises. We believe this approach will enable us to maximize our commercial potential by further leveraging our existing resources and expertise.Novo.

Liquidity

We believe that our cash ~~resources~~and cash equivalents of ~~$92.4~~$59.9 million at ~~March 31, 2018~~June 30, 2020, will be sufficient to allow us to fund planned operations for at least 12 months beyond the issuance date of these unaudited consolidated financial statements, which is after the expected receipt of data from the Recorlev SONICS and LOGICS Phase 3 clinical trials. We expect our funding requirements for operating activities to increase in 2018 and possibly beyond due to expenses associated with the commercialization of Keveyis and Macrilen, the execution of the Phase 3 SONICS and LOGICS clinical trials for Recorlev, and selling, general and administrative expenses. We also expect our cash needs to increase to fund potential in‑licenses, acquisitions or similar transactions as we pursue our strategy. These expenses may be offset only in part by sales of Keveyis and ~~Macrilen. In addition, beginning in March 2021, we may be required to make quarterly principal payments to repay amounts borrowed under our credit facility.~~statements.

We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital. We plan to continue to fund our operations and capital funding needs through equity or debt financing along with revenues from ~~Keveyis and~~ ~~Macrilen~~.Keveyis. There can be no assurances, however, that additional funding will be available on terms acceptable to us.

~~Table of Contents~~

Our loan and security agreement, under which outstanding borrowings were $86.5 million at March 31, 2018 contains financial and non-financial covenants including minimum amounts of net revenue in 2018 and beyond. Failure to comply with the covenants could result in the lenders declaring the loan immediately due and payable. Our liquidity requirements are predicated on maintaining compliance with the debt covenants and repaying outstanding borrowings in accordance with the loan term (see Note 7).

2. Summary of significant accounting policies and basis of presentation

Basis of presentation

These unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). The unaudited consolidated financial statements reflect all adjustments, which include only normal recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the operating results and financial position for the periods presented.

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures in the consolidated

Table of Contents

financial statements. Actual results could differ from those estimates. Results for the ~~three~~six months ended ~~March 31, 2018~~June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018.~~2020.

These unaudited consolidated financial statements should be read in conjunction with the accounting policies and notes to the audited consolidated financial statements included in our ~~annual report~~Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2019 filed with the U.S. Securities and Exchange Commission on ~~March 12, 2018~~February 28, 2020 (the ~~“2017~~“2019 Annual Report”). Our significant accounting policies are described in Note 2 of the notes to the audited consolidated financial statements included in our ~~2017~~2019 Annual Report. Since the date of those financial statements, there have been no changes to our significant accounting policies.

~~Revenue recognition~~

~~We follow Accounting Standards Codification (“ASC”) Topic 606,~~ ~~Revenue from Contracts with Customers,~~ effective April 1, 2017. Topic 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We apply the five-step model to contracts only when it is probable that we will collect the consideration we are entitled to receive in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for net product revenue, see Note 3, "Revenue recognition".

~~Inventoryand cost of sales~~

~~Inventory is stated at the lower of cost or market where cost is determined using the first-in, first-out method. Our inventory consists of only finished goods.~~ ~~Cost of sales includes the cost of inventory sold, which includes third-party acquisition costs, third-party warehousing and product distribution charges.~~

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~~Foreign currency translation~~Reclassifications

The consolidated financial statements ~~are reported in United States dollars, which is our functional currency, including each of~~contain certain reclassifications within our consolidated ~~subsidiaries. Transactions~~statements of cash flow for the six months ended June 30, 2019 due to an immaterial incorrect classification of investments in ~~foreign currencies~~marketable securities and the related impact on investing activities.

Leases

We account for leases in accordance with Accounting Standards Codification Topic 842, Leases (“ASC 842”). We determine if an arrangement is a lease at contract inception. A lease exists when a contract conveys to us the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) we have the right to control the use of the identified asset.

Operating leases where we are ~~remeasured into~~the lessee are included in Right of use (“ROU”) assets and Accrued and other current liabilities and Other long-term liabilities on our ~~functional currency~~Consolidated Balance Sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.

Key estimates and judgments include how we determined (1) the discount rate we use to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.

ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our incremental borrowing rate for a lease is the rate of ~~exchange prevailing~~interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

The lease term for all of our leases includes the noncancellable period of the lease. Lease payments included in the measurement of the lease asset or liability are comprised of our fixed payments.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date less any lease incentives received.

For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We monitor for events or changes in circumstances that require a reassessment of a lease. If a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

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We have elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. We recognize the lease payments associated with our short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all of our other leases.

Cash, cash equivalents and marketable securities

We consider all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of account balances at banks and money market accounts, respectively.

We occasionally invest our excess cash balances in marketable debt securities of highly rated financial institutions. We seek to diversify our investments and limit the ~~transaction. Any monetary~~amount of investment concentrations for individual institutions, maturities and investment types. We classify marketable debt securities as available-for-sale and, accordingly, record such securities at fair value. We classify these securities as current assets ~~and liabilities arising from~~as these ~~transactions~~investments are ~~remeasured into our functional currency at exchange rates prevailing at the balance sheet date or on settlement. Resulting~~intended to be available to us for use in funding current operations. There were 0 marketable securities as of June 30, 2020.

Unrealized gains and losses on marketable debt securities are recorded as a separate component of Accumulated other comprehensive income (loss) included in ~~foreign exchange loss in our consolidated statements of operations.~~stockholders’ equity.

~~Use of estimates~~

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. We must apply significant judgment in this process. Actual results could materially differ from those estimates.

Segment information

Operating segments are identified as components of an enterprise ~~about~~for which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. We view our operations and manage our business in ~~one~~1 operating segment. ~~Prior to March 31, 2018, our material long‑lived assets reside in Ireland, Sweden and the Cayman Islands. Effective March 31, 2018 all of our material long-lived assets reside in Ireland.~~ ~~For the three months ended March 31, 2018, revenues from product sales were derived entirely from theUnited States.~~

Net loss per share

Basic net loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss attributable to shareholders by the ~~weighted‑average~~weighted-average number of ordinary shares outstanding for the period, including any dilutive effect from outstanding stock options or other equity-based awards. Shares used in the diluted net loss per share calculations exclude ~~anti‑dilutive~~anti-dilutive ordinary share equivalents, which currently consist of outstanding stock options, unvested restricted stock units (“RSUs”) and equity-classified warrants.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as of ~~March 31, 2018~~June 30, 2020 and ~~2017,~~2019, as they would be anti-dilutive:

Three Months Ended

March 31,

2018

2017
Warrants

8,803,253

7,428,571
Stock options issued and outstanding


7,960,469


5,291,986
Unvested restricted stock units

173,400

194,000


	June 30,
	2020		2019
Warrants		7,100,643		1,803,253
Stock options issued and outstanding		10,499,222		10,241,158
Unvested RSUs		1,090,300		964,850

Recent accounting pronouncements – not yet adopted

In ~~January 2017, the~~ ~~Financial Accounting Standards Board (FASB)~~ ~~issued~~ ~~Accounting Standards Update (ASU) 2017-04,~~ ~~Intangibles - Goodwill and Other~~: ~~Simplifying the Accounting for Goodwill Impairment~~. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which will be effective for us beginning in the first quarter of fiscal year 2021, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact this new accounting guidance will have on our consolidated financial statements.

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~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows in order to reduce diversity in practice. The guidance is effective for us beginning in the first quarter of fiscal year 2018. Early adoption is permitted. We have adopted this effective January 1, 2018.

~~In February~~June 2016, the FASB issued ASU No. ~~2016-02,~~ ~~Leases, that discusses how~~2016-13,Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.ASU 2016-13 requires an entity ~~should account~~to measure and recognize expected credit losses for ~~lease assets and lease liabilities.~~certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded through net income instead of directly reducing the amortized cost of the investment under the

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current other-than-temporary impairment model. The guidance specifies that an entity who is a lessee under lease agreements should recognize lease assets and lease liabilities for those leases classified as operating leases under previous FASB guidance. Accounting for leases by lessors is largely unchanged under the new guidance. The guidancestandard is effective for ussmaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning inafter December 15, 2022. We do not expect the ~~first quarter~~adoption of ~~fiscal year 2019. Early adoption is permitted. In transition, lessees and lessors are required~~this standard to ~~recognize and measure leases at the beginning of the earliest period presented using~~have a ~~modified retrospective approach. We are currently evaluating the~~significant impact ~~this new accounting guidance will have~~ on our ~~consolidated~~ financial ~~statements.~~statements or internal controls.

3. Revenue recognition

Product ~~Revenue, Net~~

sales, net

We sell Keveyis to ~~one~~1 specialty pharmacy provider (the “Customer”), who is the exclusive distributor of Keveyis in the United States. The Customer subsequently resells Keveyis to patients, ~~which~~most of whom are covered by payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of Keveyis.

Revenues from sales of Keveyis are recognized when we satisfy a performance obligation by transferring control of ~~Keveyis~~the product to the Customer. Transfer of control occurs upon receipt of ~~Keveyis~~the product by the Customer. We expense incremental costs related to the set-up of ~~the contract~~contracts with the Customer when incurred, as these costs ~~did~~do not meet the criteria for capitalization.

Reserves for ~~Variable Consideration~~variable consideration

Revenues from sales of Keveyis are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and ~~which~~that result from rebates, co-pay assistance and other allowances that are offered between us and the patients’ payors. There is no0 variable consideration reserve for returns as we do not accept returns of Keveyis. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the Customer) or a current liability (if the amount is payable to a party other than the Customer). Where appropriate, these estimates may take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. We reassess our estimates on an ongoing basis. If actual results in the future vary from our estimates, we will adjust our estimates. Any such adjustments would affect net product revenue and earnings in the period such variances become known.

Trade Discount: We provide the Customer with a discount that is explicitly stated in our contract and is recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, we receive sales order management, data and distribution services from the Customer. To the extent the services received are distinct from our sale of Keveyis to the Customer, these payments are classified in ~~selling,~~Selling, general and administrative expenses in our consolidated statement of operations and comprehensive loss.

Funded Co-pay Assistance Program: We contract with a third-party to manage the co-pay assistance program intended to provide financial assistance to qualified insured patients. The calculation of the accrual for co-pay assistance

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is based on an estimate of claims and the cost per claim that we expect to receive associated with Keveyis that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. These payments are consideration payable to the ~~customer~~Customer and the related reserve is recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the consolidated balance sheet.

Government Rebates: We are subject to discount obligations under state Medicaid programs and Medicare. We estimate our Medicaid and Medicare rebates ~~based upon a range of possible outcomes that are probability-weighted~~ for the estimated patient mix. These reserves are recorded in the same

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period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses on the consolidated balance sheet. For Medicaid, accruals are based on estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. ~~Effective January 1, 2011, manufacturers~~Manufacturers of pharmaceutical products are responsible for ~~50%~~70% of the patient’s cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this Medicare coverage gap responsibility, we estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for Keveyis that ~~has~~have been recognized as revenue, but remains in the ~~distribution channel inventories~~Customer’s inventory at the end of each reporting period.

Temporary Supply and Patient Assistance Programs: We provide free Keveyis to uninsured patients who satisfy pre-established criteria for either the Temporary Supply Program or the Patient Assistance Program. Patients who meet the Temporary Supply Program eligibility criteria may receive a temporary supply of free Keveyis for no more than sixty days while ~~we are determining~~there is a determination of the patient’s third-party insurance, prescription drug benefit or other third-party coverage for Keveyis. The Patient Assistance Program provides free Keveyis for up to twelve months to uninsured patients ~~that~~who satisfy pre-established criteria for financial need. We do not recognize any revenue related to these free products and the associated costs are classified in selling, general and administrative expenses in our consolidated statements of operations and comprehensive loss.

4. Fair value measurement

We follow FASB accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Because of their short-term nature, the amounts reported in the balance sheet for cash and ~~cash equivalents, and~~ accounts payable approximate fair value.

The guidance requires fair value measurements to maximize the use of “observable inputs.” The three-level hierarchy of inputs to measure fair value are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Because of their short-term nature, the amounts reported in the balance sheet for cash ~~and cash equivalents,~~ and accounts payable approximate fair value.

Level 2: Significant observable inputs other than Level 1 prices such as quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable ~~(i.e.~~(i.e., supported by little or no market activity). The fair values of the outstanding warrants were measured using the Black-Scholes option-pricing model. Inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, ~~expected dividends~~ and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the volatility rate and the estimated term of the warrants. Generally, increases ~~(decreases)~~and decreases in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.

We did not have any transfers between the different levels.

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The following table presents our assets and liabilities that are measured at fair value on a recurring basis for the periods presented (in thousands):


	As of March 31, 2018
	Level I		Level II		Level III		Total

									As of June 30, 2020
									Level I		Level II		Level III		Total
Cash equivalents		92,148		—		—		92,148		58,966		—		—		58,966
Marketable securities										—		—		—		—
Total assets	$	92,148	$	—	$	—	$	92,148	$	58,966	$	—	$	—	$	58,966
Warrant liability		—		—		51,008		51,008		—		—		10,914		10,914
Total liabilities	$	—	$	—	$	51,008	$	51,008	$	—	$	—	$	10,914	$	10,914


	As of December 31, 2017
	Level I		Level II		Level III		Total

									As of December 31, 2019
									Level I		Level II		Level III		Total
Cash equivalents		57,024		—		—		57,024		56,544		—		—		56,544
Marketable securities										—		21,072		—		21,072
Total assets	$	57,024	$	—	$	—	$	57,024	$	56,544	$	21,072	$	—	$	77,616
Warrant liability		—		—		41,308		41,308		—		—		4,127		4,127
Total liabilities	$	—	$	—	$	41,308	$	41,308	$	—	$	—	$	4,127	$	4,127

The following table presents a reconciliation of our level 3 warrant liability (in thousands):


		As of June 30, 2020
Balance as of December 31, 2019	$	4,127
Unrealized loss on fair value of warrants for six months ended June 30, 2020		6,787
Balance as of June 30, 2020	$	10,914

5. Intangible ~~assets~~asset and goodwill

The following represents the balance of our intangible ~~assets~~asset and goodwill as follows (in thousands):


	As of March 31, 2018
	Beginning of Period		Additions		Impairment		Amortization		End of Period

											As of June 30, 2020
											Beginning of Period		Amortization		End of Period
Keveyis		35,155		—		—		(1,256)		33,899	$	25,110	$	(2,511)	$	22,599
Macrilen		—		24,655		—		(513)		24,142
Goodwill		7,256		—		—		—		7,256		7,256		—		7,256
Total	$	42,411	$	24,655	$	—	$	(1,769)	$	65,297	$	32,366	$	(2,511)	$	29,855

As of December 31, 2017

Beginning of Period

Additions

Impairment

Amortization

End of Period

IPR&D

$
20,723

$
—

$
(20,723)

$
—

$
—

Keveyis

40,177

—

—

(5,022)

35,155

Goodwill

7,256

—

—

—

7,256

Total

$
68,156

$
—

$
(20,723)

$
(5,022)

$
42,411

Our ~~finite lived~~finite-lived intangible ~~assets~~asset consists of acquired developed product rights obtained from our ~~acquisitions~~acquisition of Keveyis (dichlorphenamide) from a subsidiary of Taro Pharmaceutical Industries Ltd. (“Taro”) ~~and Macrilen from~~ ~~Aeterna Zentaris GmbH~~.

Pursuant to the terms of the Asset Purchase Agreement and Supply Agreement that we entered into with Taro in December 2016, we paid Taro an upfront payment in two installments of $1 million in December 2016 and $7.5 million in March 2017. We concluded that the supply price payable by us exceeds fair value and, therefore, used a discounted cash flow method with a probability assumption to value the payments in excess of fair value at $29.3 million, for which we have recorded an intangible asset and corresponding liability. This liability will be reduced as we purchase inventory over the term of the Supply Agreement. In addition, we incurred transaction costs of $2.4 million. The overall recording of the transaction resulted in the recording of an intangible asset of $40.2 million. This asset is being amortized over an eight-year period using the straight-line method.

We entered into a License and Assignment Agreement in 2018 with Aeterna Zentaris GmbH, pursuant to which we acquired the U.S. and Canadian rights to manufacture and commercialize Macrilen (macimorelin) for $24 million and incurred transaction costs of $0.7 million, resulting in an intangible of $24.7. This asset is being amortized over a ten-year period using the straight-line method.

~~We recorded amortization expense of $1.8 million and $1.3 for the three months ended March 31, 2018 and 2017, respectively.~~

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~~6. Accrued liabilities~~

~~Accrued liabilities consist of the following (in thousands):~~

March 31,

December 31,

2018

2017

Consulting and professional fees

$
3,082

$
3,207

Supply agreement - current portion

4,191

4,237

Employee compensation

1,342

3,668

Other

222

120

Total accrued liabilities

$
8,837

$
11,232

~~7. Long-term debt~~

~~On January 16, 2018 (the “Loan Amendment Effective Date”), we and our subsidiaries, Strongbridge U.S. Inc., Strongbridge Ireland Limited~~, Cortendo AB (publ) and Cortendo Cayman Ltd., entered into an amendment (the “Loan Amendment”), to the Term Loan Agreement (the “Loan Agreement”), dated July 14, 2017, with CRG Servicing LLC (“CRG”), as administrative agent and collateral agent, and the lenders named therein (the “Lenders”).

The primary purpose of the Loan Amendment was to increase the total potential borrowing under the Loan Agreement from $50 million to $100 million. The Loan Amendment provides for (i) an additional disbursement of $45.0 million (the “Second Tranche”), to the Company on the Loan Amendment Effective Date, and (ii) an additional disbursement of $5.0 million (the “Fourth Tranche”), to us at our election, contingent upon our achievement of certain revenue milestones and a market capitalization condition on or before December 31, 2018, as described in the Loan Amendment. We continue to be eligible to borrow up to an additional $10.0 million (the “Third Tranche”), contingent upon our achievement of certain revenue milestones on or before June 30, 2018, as previously provided in the Loan Agreement; provided, however, that under the Loan Agreement, as amended, the Third Tranche is now subject to market capitalization condition, as described in the Loan Amendment.

The term of the Loan Agreement, as amended, remains six years, although the interest-only period was extended by six months to December 31, 2020. We retained the option to extend the interest-only period to six years based upon the achievement of certain milestones during the interest-only period. ~~The Loan Agreement provides for interest payable at an annual rate of 12.5% and a final payment fee of 5% of the principal balance.~~

The Loan Agreement includes a payment-in-kind (“PIK”) provision, which allows us to defer 4.0% of the 12.5% annual interest payable under the loan during the first three years of the term of the loan (which may be extended for the entire term of the loan, subject to the satisfaction of certain conditions) by adding such amount to the principal loan amount. We have elected to PIK each period so far, resulting in an additional $0.5 million added to our outstanding principal balance as of March 31, 2018. We have granted a security interest in substantially all of our existing assets and assets acquired by us in the future, including intellectual property. The Loan Agreement contains facility and prepayment fees, and customary affirmative and negative covenants, including a financial covenant regarding minimum amounts of net revenue and restrictions on our ability to pay cash dividends, and a list of events that will constitute “events of default” under the loan agreement, and permit the lenders to declare all amounts under the Loan Agreement immediately due and payable, including a material adverse change in our business, operations or financial condition. We recorded $10.6 million in debt discounts and $0.2 million of debt issuance costs relating to this loan agreement which have been recorded as a reduction to the long-term debt. These amounts will be amortized over the outstanding period of the debt to interest expense using the effective interest rate method.

As a condition to the Second Tranche under the Loan Agreement, as amended, we issued to the Lenders on the Loan Amendment Effective Date warrants to purchase an aggregate of 1,248,250 of our ordinary shares, at an exercise price of $10.00 per share. If we borrow the Third Tranche, we must issue to the Lenders, or their designees, one or more additional warrants to purchase a number of our ordinary shares equal to an aggregate of 0.20% of our ordinary shares outstanding following such issuance on a fully diluted basis (inclusive of the ordinary shares underlying all such

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warrants issued), at an exercise price equal to 110% of the closing price of our ordinary shares on the date immediately preceding the Third Tranche disbursement date. If we borrow the Fourth Tranche, we must issue to the Lenders, or their designees, one or more additional warrants to purchase a number of our ordinary shares equal to an aggregate of 0.25% of our ordinary shares outstanding following such issuance on a fully diluted basis (inclusive of the ordinary shares underlying all such warrants issued), at an exercise price equal to 140% of the 10-day volume weighted average price (“VWAP”) per ordinary share for the consecutive 10-day trading period ending on the trading day immediately prior to the Fourth Tranche disbursement date. Each of these warrants will be exercisable at any time prior to seven years following its issue date and will contain customary provisions for assumption or exchange upon a change of control or a sale of all or substantially all of our assets. The warrants were valued using the Black-Scholes Model resulting in a fair value of $7.7 million which was recorded as equity.

~~Due to a greater than 10% change in cash flows as compared to the original debt instrument, the loan amendment was accounted for as a debt extinguishment, which resulted in a~~ ~~$0.5 million loss during the three months ended March 31, 2018.~~

~~Future principal payments due under the Loan Agreement are as follows~~ ~~(in thousands)~~:

Principal

Payments

2018

$
—

2019

—

2020

—

2021

34,611

2022

34,611

2023

17,305

Total future payments

$
86,527

~~8. Commitments and contingencies~~

~~Lease obligations~~

On April 22, 2014, we entered into a 48‑month building lease for approximately 3,000 square feet of space in Radnor, Pennsylvania. The lease has annual rent escalations. We obtained access to this leased space on August 1, 2014, and this was considered the lease commencement date for accounting purposes. Thus, rent expense began on this date and is recognized on a straight‑line basis over the subsequent 48 months.

In March 2015, we entered into a 52‑month building sublease agreement for 14,743 square feet of office space in Trevose, Pennsylvania. The lease has annual rent escalations and is recognized on a straight‑line basis over the term of the lease. In November 2017, the Company entered into a 60‑month building lease agreement for an additional 7,326 square feet of office space in the same building in Trevose, Pennsylvania. The lease has annual rent escalations. We obtained access to this newly leased space on November 27, 2017, and this was considered the lease commencement date for accounting purposes. Thus, rent expense began on this date and is recognized on a straight‑line basis over the term of the lease. The lease provides for us the ability to continue leasing its currently subleased office space upon expiration of the sublease described above.

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~~As of March 31, 2018, future minimum commitments under facility operating leases were as follows (in thousands):~~

Operating

leases

2018

278

2019

439

2020

470

2021

481

2022

492

2023

207

Total minimum lease payments

$
2,367

~~Rent expense recognized under our operating lease was approximately $175,000 and $68,000 for the three months ended March 31, 2018 and 2017, respectively.~~

~~Commitments to Taro Pharmaceuticals Industries Ltd.~~

In December 2016, we acquired the United States marketing rights to Keveyis (dichlorphenamide) from a subsidiary of Taro. Under the terms of the Asset Purchase Agreement, we paid Taro an upfront payment in two2 installments of $1 million in December 2016 and $7.5 million in March 2017, and will pay an aggregate of $7.5 million in potential milestones upon the achievement of certain product sales targets. Taro has agreed to continue to manufacture Keveyis for us under an exclusive supply agreement through the orphan exclusivity period. We are obligated to purchase certain annual minimum amounts of product totaling approximately $29 million over a six-year period. ~~The~~We have concluded that the supply price payable by us exceeds fair value and, therefore, have used a discounted cash flow method with a probability assumption to value the payments in excess of fair value at $29.3 million, for which we have recorded an intangible asset and corresponding liability. This liability is being reduced as we purchase inventory over the term of the Supply Agreement that we entered into with Taro. In addition, we incurred transaction costs of $2.4 million. The transaction resulted in the recording of an intangible asset of $40.2 million. This asset is being amortized over an eight-year period using the straight-line method.

We recorded amortization expense of $1.3 million and $2.5 million for the three and six months ended June 30, 2020 and 2019, respectively.

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6. Long-term debt

On May 19, 2020 (the “Closing Date”), Strongbridge Biopharma plc (“Strongbridge”), along with Strongbridge U.S. Inc., Cortendo AB (publ) and Strongbridge Dublin Limited, each a subsidiary of Strongbridge (the “Subsidiaries,” and together with Strongbridge, the “Company”), entered into a $30 million Term Loan Agreement (the “Loan Agreement”) with Avenue Venture Opportunities Fund L.P. (“Avenue”), as administrative agent and collateral agent, and the lenders named therein and from time to time a party thereto (the “Lenders”). Pursuant to the terms of the Loan Agreement, Strongbridge U.S. Inc. (the “Borrower”) borrowed $10 million (the “Initial Loan”) from the Lenders at closing.

The Borrower may borrow up to 2 additional tranches of $10 million under the Loan Agreement. The first $10 million tranche (the “Second Loan”) is available between October 1, 2020 and December 31, 2020 if Strongbridge achieves positive top-line data for RECORLEV in its Phase 3 LOGICS clinical trial. The second $10 million tranche (the “Third Loan” and, together with the Initial Loan and the Second Loan, the “Loans”) is available between October 1, 2021 and March 31, 2022 if Strongbridge achieves FDA approval of RECORLEV and subject to Avenue’s investment committee approval.

The Loan Agreement has a four-year term, 0 minimum revenue or cash balance financial covenants and an interest-only period of up to 36 months assuming the Company achieves positive top-line data for RECORLEV in its Phase 3 LOGICS clinical trial and the Company receives FDA approval of RECORLEV. The Borrower paid a commitment fee of $200,000 (1% of the amounts of the Initial Loan and the Second Loan).

Amounts borrowed under the Loan Agreement accrue interest at a floating rate per annum (based on a year of 365 days) equal to the sum of (a) the greater of (x) the Prime Rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, and (y) 3.25%, plus (b) 6.75%. Accrued interest is payable in advance on the first day of each month and on the maturity date; provided however that no principal payments are required for the first 12 months (which the period is extended for up to 36 months subject to the satisfaction of certain conditions under the Loan Agreement). The Borrower is also required to pay the Lenders a final payment fee upon repayment or prepayment of the Loans in accordance with the terms and conditions of the Loan Agreement. The interest rate as of June 30, 2020 was 10%.

The Borrower may prepay all or a portion of the outstanding principal amount of any Loans outstanding under the Loan Agreement at any time upon prior notice to the Lenders subject to a prepayment premium (which reduces after the first year) and the payment of the pro rata portion of the final payment fee (to the extent not already paid) based on the amount of Loans being prepaid. In certain circumstances, including a change of control and certain asset sales or licensing transactions, the Borrower may be required to prepay all or a portion of the Loans outstanding, and, to the extent required under the terms of the Loan Agreement, the applicable prepayment premium and final payment fee.

In connection with the execution of the Loan Agreement, Strongbridge issued warrants to the Lenders to purchase an aggregate of 267,390 ordinary shares at an exercise price (the “Exercise Price”) equal to the lower of (i) $1.87 (which is equal to the five-day volume weighted average price as of the trading day immediately prior to execution of the financing agreement) or (ii) the effective price of any bona fide equity financing prior to December 31, 2020 (subject to certain adjustments described in the Warrant). The Warrant will be exercisable, in full or in part, at any time prior to five years following the issue date and contains customary provisions for assumption or exchange upon a change of control or a sale of all or substantially all of the assets of the Company. We have accounted for these warrants as equity, and the fair value is recorded into Additional paid-in capital.

Avenue has the right to convert up to $3 million of the aggregate principal amount of any loans outstanding under the Loan Agreement into Strongbridge ordinary shares at a price per share of the lower of (a) $2.24, or (b) 20% above the effective price of any bona fide equity financing of Strongbridge prior to December 31, 2020, subject to the terms and conditions described in the Loan Agreement. We have accounted for this beneficial conversion feature, and the fair value is recorded into Additional paid-in capital.

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Future principal payments due under the Loan Agreement, if the interest payment only period is not extended are as follows (in thousands):


	Principal
	Payments

2020		—
2021		1,944
2022		3,333
2023		3,333
2024		1,390
Total future payments	$	10,000

7. Accrued and other current liabilities

Accrued and other current liabilities consist of the following (in thousands):


	June 30,		December 31,
	2020		2019
Consulting and professional fees	$	4,934	$	4,335
Supply agreement - current portion		4,391		2,773
Accrued sales allowances		2,350		2,990
Employee compensation		2,511		4,452
Accrued taxes		1,361		1,892
Severance		580		2,968
Lease liability - current portion		394		374
Accrued royalties		301		806
Other		541		372
Total accrued and other current liabilities	$	17,363	$	20,962

8. Commitments and contingencies

(a) Commitments to Taro Pharmaceuticals Industries Ltd.

In December 2016, we acquired the U.S. marketing rights to Keveyis (dichlorphenamide) from Taro. Under the terms of the Asset Purchase Agreement, we paid Taro an upfront payment in 2 installments of $1 million in December 2016 and $7.5 million in March 2017, and will pay an aggregate of $7.5 million in potential milestones upon the achievement of certain product sales targets. Taro has agreed to continue to manufacture Keveyis for us under an exclusive supply agreement through the orphan exclusivity period. We are obligated to purchase certain annual minimum amounts of product totaling approximately $29 million over a six-year period. As of June 30, 2020, our remaining obligation was $19.0 million. Our Supply Agreement with Taro may extend beyond the orphan exclusivity period unless terminated by either party pursuant to the terms of the agreement. If terminated by Taro at the conclusion of the orphan exclusivity period, we have the right to manufacture the product on our own or have the product manufactured by a third party on our behalf. We are also required to reimburse Taro for its royalty obligation resulting from its sale of Keveyis to us.

~~Commitments~~(b) Indemnifications

In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to ~~Aeterna Zentaris GmbH~~

~~In January 2018, we acquired~~events and activities prior to or following a transaction, such as breaches of contracts, unfavorable tax consequences and employee liabilities. If the ~~U.S. and Canadian rights~~indemnified party were to ~~Macrilen (macimorelin) from~~ ~~Aeterna Zentaris GmbH.~~ ~~Under~~make a successful claim pursuant to the terms of the ~~License~~indemnification, we may be required to reimburse the loss and ~~Assignment Agreement, we paid Aeterna Zentaris GmbH $24 million, and will pay tiered royalties~~such amount could be material to our consolidated financial statements. Where appropriate, the obligation for such indemnifications is recorded as a liability. Because the amount of ~~15%-18% on net sales as well as an aggregate~~these types of ~~$174 million in potential milestones upon achievement~~indemnifications generally is not specifically stated, the overall

Table of certain product sales targets. Additionally, Aeterna Zentaris will remain responsible for a pediatric development program to support regulatory submission for approval with Strongbridge sharing oversight and paying for 70 percentContents

maximum amount of the ~~cost~~obligation under such indemnifications cannot be reasonably estimated. However, we believe that the likelihood of ~~the program, or approximately $4 million over~~ a three-year period as well as $5 million upon the regulatory approval for use in pediatric patients in the U.S. and Canada. We are obligated to purchase certain amounts of product totaling $1.3 million over the next nine months.material liability being triggered under these indemnification obligations is not probable at this time.

9. Taxes

Income ~~taxes~~ Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized.

We assess our ability to realize deferred tax assets. Changes in future earnings projections, among other factors, may cause us to adjust our valuation allowance on deferred tax assets. Any such adjustments would impact our income tax expense in the period in which it is determined that these factors have changed.

~~For~~We did 0t incur income any tax expense for the three and six months ended ~~March 31, 2018, we recorded full valuation allowances against our deferred tax asset and deferred tax liability, resulting in no income tax expense.~~June 30, 2020.

~~On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs~~CARES Act ~~(the “Tax Act”).~~

The ~~Tax~~CARES Act ~~makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the top U.S. federal corporate tax rate from 35 percent to 21 percent; requiring~~

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allows companies to ~~pay a onetime transition tax on certain un-repatriated earnings~~defer payments of ~~foreign subsidiaries; generally eliminating U.S. federal income~~employer Social Security payroll taxes on dividends from foreign subsidiaries; requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; creating the base erosion anti-abuse tax (BEAT), a new minimum tax; creating a new limitation on deductible interest expense; and changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginningthat are otherwise owed for wage payments made after March 27, 2020 through December 31, ~~2017.~~

The Tax Act reduces our U.S. corporate income tax rate from 34% to 21%, effective January 1, 2018. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result2020. Fifty percent of the ~~reduction in~~taxes deferred are required to be paid by December 31, 2021 with the ~~U.S. corporate income tax rate from 34%~~remaining fifty percent required to ~~21%~~be paid by December 31, 2022. As of June 30, 2020, we have accrued $100,000 of Social Security payroll taxes that will be deferred under the ~~Tax Act, we revalued our ending net deferred tax assets and liabilities at December 31, 2017.~~

~~The Tax Act provided for a one-time transition tax on~~CARES Act. We expect to continue to defer payroll taxes through the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”). We did not have to recognize any income tax expense related to the transition tax as they own no controlled foreign corporations.

The global intangible low-taxed income tax and base erosion provisions are effective for taxable years beginning after December 31, 2017. We do not currently expect these provisions to have a material impact on its tax rate as they do not own any controlled foreign corporations and they are currently below the gross receipts threshold for purposesend of the ~~base erosion provisions.~~year and pay them as described above.

10. Warrants

~~10. Ordinary shares~~

~~Equity transactions~~

On January 30, 2018, we sold 5,000,000 ordinary shares in a public offering at a price to the public of $6.75 per ordinary share for net proceeds of approximately $31.8 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

On February 27, 2018, we sold an additional 255,683 ordinary shares to the underwriters of our January 2018 public offering in connection with their partial exercise of their option to purchase additional shares to cover over-allotments at a price of $6.75 per ordinary share for net proceeds of approximately $1.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

Warrants

During the three months ended March 31, 2018, in connection with the CRG loan amendment, we issued warrants with a seven-year term to CRG to purchase 1,248,250 of our ordinary shares at an exercise price of $10.00.

Our outstanding warrants as of ~~March 31, 2018~~June 30, 2020 are as follows:


								Warrants
								Outstanding
		Exercise			Expiration	Warrants	Warrants	June 30,
	Classification	Price			Date	Issued	Exercised	2020
Warrants in connection with private equity placement	Liability	$	2.50		6/28/2022	7,000,000	(1,970,000)	5,030,000
Warrants in connection with Horizon and Oxford loan agreement	Equity	$	2.45		12/28/2026	428,571	(267,857)	160,714
Warrants in connection with CRG loan agreement	Equity	$	7.37	��	7/14/2024	394,289	—	394,289
Warrants in connection with CRG loan amendment in January 2018	Equity	$	10.00		1/16/2025	1,248,250	—	1,248,250
Warrants in connection with Avenue Capital loan agreement	Equity	$	1.87	⁽¹⁾	5/19/2025	267,390	—	267,390
						9,338,500		7,100,643

(1)	Exercise price is lower of (i) $1.87 per share or (ii) the effective price of any bona fide equity financing prior to December 31, 2020.

Warrants

Outstanding

Exercise

Expiration

Warrants

Warrants

March 31,

Classification

Price

Date

Issued

Exercised

2018

Warrants in connection with private equity placement

Liability

$
2.50

6/28/2022

7,000,000

—

7,000,000

Warrants in connection with Horizon and Oxford loan agreement

Equity

$
2.45

12/28/2026

428,571

(267,857)

160,714

Warrants in connection with CRG loan agreement

Equity

$
7.37

7/14/2024

394,289

—

394,289

Warrants in connection with CRG loan amendment in January 2018

Equity

$
10.00

1/16/2025

1,248,250

—

1,248,250

9,071,110

8,803,253

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11. ~~Stock‑based~~Stock-based compensation

Our board of directors has adopted the 2017 Inducement Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of equity-based awards to new employees. The purpose of the Inducement Plan is to attract valued

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employees by offering them a greater stake in our success and a closer identity with us, and to encourage ownership of our ordinary shares by such employees. The Inducement Plan became effective on February 23, 2017. As of ~~March 31, 2018, 1,147,200~~June 30, 2020, 1,373,903 shares are available for issuance pursuant to the Inducement Plan.

Our board of directors has adopted, and our shareholders have approved, the 2015 Equity Compensation Plan (the “2015 Plan”). The 2015 Plan provides for the grant of incentive stock options to our employees and any parent or subsidiary ~~corporations’~~corporation’s employees, and for the grant of nonstatutory stock options, stock awards, and ~~restricted stock units~~RSUs to our employees, directors and consultants and our parent or subsidiary corporations’ employees and consultants. The 2015 Plan became effective on September 3, 2015. As of ~~March 31, 2018, 203,006~~June 30, 2020, 332,429 shares are available for issuance pursuant to the 2015 Plan.

Our board of directors has adopted, and our shareholders have approved, the ~~Non‑Employee~~Non-Employee Director Equity Compensation Plan (the ~~“Non‑Employee~~“Non-Employee Director Plan”). The ~~Non‑Employee~~Non-Employee Director Plan provides for the grant of nonstatutory stock options, stock awards, and ~~restricted stock units~~RSUs to our ~~non‑employee~~non-employee directors. The ~~Non‑Employee~~Non-Employee Director Plan became effective on September 3, 2015. As of ~~March 31, 2018, 201,541~~June 30, 2020, 71,029 shares are available for issuance pursuant to the ~~Non‑Employee~~Non-Employee Director Plan.

A summary of our outstanding stock options as of ~~March 31, 2018~~June 30, 2020 is as follows:

Options Outstanding






Weighted-


Average

Weighted-

Remaining

Average

Contractual

Number of

Exercise

Term

Aggregate

Shares

Price

(Years)

Intrinsic Value

(in thousands)

Outstanding—January 1, 2018

6,104,715

$
7.50

7.70

$
14,021

Granted

1,943,255

$
6.69

Forfeited and cancelled

(62,556)

$
12.22

Exercised

(24,945)

$
2.39

Outstanding—March 31, 2018

7,960,469

$
7.28

8.08

$
24,837

Vested and exercisable—March 31, 2018

2,423,543

$
10.41

5.74

$
5,172

Included in the stock options outstanding at March 31, 2018 are unvested stock options to purchase 88,908 shares at a weighted average exercise price of $18.80 per share for which the vesting of certain tranches will accelerate if the fair value per share of our stock reaches $31.46. In addition, the options outstanding as of March 31, 2018 include 97,652 shares that vest upon a market appreciation event, so long as it occurs prior to the date specified in the applicable award agreement and 97,652 shares that will vest upon the one year anniversary of the market appreciation event. The market appreciation event, which had not yet occurred as of March 31, 2018, is defined as the last trading day in the period in which our closing stock price on each of 20 consecutive trading days reported on Nasdaq has been at least $30.14 or $33.66 for the respective grantee.


	Options Outstanding
				Weighted-
				Average
		Weighted-		Remaining
		Average		Contractual
	Number of	Exercise		Term	Aggregate
	Shares	Price		(Years)	Intrinsic Value
					(in thousands)
Outstanding—January 1, 2020	9,192,684	$	6.58	5.96	$	164
Granted	2,480,500	$	2.93
Forfeited and cancelled	(1,173,962)	$	10.49
Exercised	—	$	—
Outstanding—June 30, 2020	10,499,222	$	5.28	6.88	$	4,650
Vested and exercisable—June 30, 2020	5,648,268	$	6.67	5.33	$	1,400

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~~Stock‑based~~Stock-based compensation expense

We recognized ~~stock‑based~~stock-based compensation expense for employees and directors for stock options and RSUs as follows (in thousands):


	Three Months Ended
	March 31,
	2018		2017

					Three Months Ended				Six Months Ended
					June 30,				June 30,
					2020		2019		2020		2019
Selling, general and administrative	$	1,280	$	216	$	1,280	$	1,981	$	2,550	$	3,792
Research and development		408		953		493		591		974		1,103
Total stock-based compensation	$	1,688	$	1,169	$	1,773	$	2,572	$	3,524	$	4,895

As of ~~March 31, 2018,~~June 30, 2020, the total unrecognized compensation expense related to unvested stock options ~~net of estimated forfeitures,~~ is ~~$17.9~~$11.2 million, which we expect to recognize over an estimated ~~weighted‑average~~weighted-average period of ~~3.23~~2.70 years.

In determining the estimated fair value of our service-based awards, we use the ~~Black‑Scholes option‑pricing~~Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment.

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The fair value of our service-based awards that were granted during the ~~years~~six months period ending June 30, 2020 and 2019 was estimated with the following assumptions:

Three Months Ended

March 31,

2018

2017

Expected term (in years)

6.08

6.09

Risk-free interest rate

2.25% - 2.71%

1.98% - 2.26%

Expected volatility

85.00%

81.1% - 81.8%

Dividend rate

—%

—%


	Six Months Ended
	June 30,
	2020	2019
Expected term (in years)	6.08	6.10
Risk-free interest rate	.45%-1.48%	1.98%-2.61%
Expected volatility	78.15%-80.74%	78.70%-85%
Dividend rate	—%	—%

Restricted ~~Stock Units~~stock units

~~Our~~We grant RSUs to employees and to members of our board of ~~directors have approved grants of restricted stock units (“RSUs”)~~directors. RSUs that are granted to ~~employees. These RSUs~~employees vest two years from the date of issuance, provided that the employee is employed by us on such vesting date. RSUs that are granted to directors, vest on the one-year anniversary of the grant date, provided that the director continues to serve as a member of the board of directors continuously from the grant date through such one-year anniversary. All RSUs will fully vest upon a change of control of our company. If and when the RSUs vest, we will issue ~~one~~1 ordinary share for each whole RSU that has vested, subject to satisfaction of the ~~executive’s~~employee’s or director’s tax withholding obligations. The RSUs will cease to be outstanding upon ~~such~~the issuance of ordinary ~~shares.~~shares upon vesting. We recorded expense related to RSUs, which is included in the stock-based compensation table above, of ~~$149,000~~$498,000 and ~~$88,000~~$533,000 for the three months ended ~~March 31, 2018~~June 30, 2020 and ~~2017,~~2019, respectively, and $1 million and $771,000 for the six months ended June 30, 2020 and 2019, respectively. As of ~~March 31, 2018,~~June 30, 2020, the total unrecognized compensation expense related to unvested RSUs is ~~$0.7~~$2.0 million, which we expect to recognize over an estimated ~~weighted‑average~~weighted-average period of ~~1.58~~1.29 years.

A summary of our unvested RSUs as of ~~March 31, 2018~~June 30, 2020 is as follows:


		Number of
		~~Number of~~Shares
		~~Shares~~
Outstanding—January 1, ~~2018~~2020		~~267,250~~791,350
Granted		~~60,150~~595,150
Forfeited		—(35,200)
Vested		~~(154,000)~~(261,000)
Unvested—~~March 31, 2018~~June 30, 2020		~~173,400~~1,090,300

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our interim unaudited consolidated financial statements and related notes ~~for the three months ended March 31, 2018~~ included elsewhere in this Quarterly Report on 10-Q (this “Quarterly Report”)and the audited financial statements and related notes for the year ended December 31, ~~2017~~2019 and related Management’s Discussion and Analysis of Financial Condition and Results of Operations that are included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2019 (the ~~“2017~~“2019 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on ~~March 12, 2018.~~February 28, 2020. As used in this Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” or “Strongbridge” refer to Strongbridge Biopharma plc.

Special Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, prospective products, size orof market or patient population, plans, objectives of management, ~~and~~ expected market growth and the anticipated effects of the coronavirus (COVID-19) pandemic on our business, operating results and financial condition are forward-looking

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statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our 2019 Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report, in each case under the heading “Risk Factors.” In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report except as required by law. You should also read carefully the factors described in the “Risk Factors” section of our ~~2017~~2019 Annual Report and this Quarterly Report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

Overview

We are a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs.

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~~deficiency (“AGHD”). In January 2018, we acquired the U.S. and Canadian rights to Macrilen and we expect to launch Macrilen in the United States in mid-2018.~~

~~In addition to our two commercial products, we~~We have two clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole) is a cortisol synthesis inhibitor currently being studied for the treatment of endogenous Cushing's syndrome. Veldoreotide is a next-generation somatostatin analog being investigated for ~~the treatment of acromegaly and~~ potential ~~additional~~ applications in ~~other~~ conditions amenable to somatostatin receptor activation. Both ~~Recorlev~~levoketoconazole and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).

~~Given~~In January 2018, Strongbridge Ireland Limited, one of our wholly-owned subsidiaries, acquired the ~~well-identified~~U.S. and ~~concentrated prescriber base addressing our target markets, we intend~~Canadian rights to ~~continue to use a small, focused sales force to market Keveyis,~~ Macrilen (macimorelin), the first and ~~any future products,~~only oral drug approved by the FDA for the diagnosis of patients with adult growth hormone deficiency. We launched Macrilen in the United States in July 2018. In December 2018, we sold Strongbridge Ireland Limited to Novo Nordisk Healthcare AG (“Novo”) for $145 million plus the ~~European Union~~right to receive tiered royalties on net sales of Macrilen through 2027. In addition, Strongbridge U.S. Inc., another of our wholly-owned subsidiaries, entered into an agreement with Novo Nordisk Inc. (“NNI”), a subsidiary of Novo, pursuant to which NNI funded the costs of 23 of our field-based employees to provide full-time ongoing services to NNI, including the promotion of Macrilen in the United States, for a period of three years. Novo also purchased 5.2 million of our ordinary shares at a purchase price of $7.00 per share. In December 2019, we reached an agreement with Novo to terminate the services agreement. We received a $6 million payment in connection with such termination and ~~other key global markets. We~~we no longer provide services to Novo.

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Recent Developments

On July 2, 2020, our board of directors appointed John H. Johnson to the position of Chief Executive Officer, effective immediately.

In June 2020, we conducted a pre-NDA meeting with the Division of General Endocrinology (DGE) of the FDA to review plans relating to our proposed NDA submission for Recorlev, with an anticipated submission date approximately 6 months following disclosure of topline results from the LOGICS study. Based on feedback received from DGE during this meeting, we believe that the LOGICS and SONICS study results together will provide a sufficient clinical-studies basis for a substantive review of an NDA and that it will be a review issue as to whether the data will be sufficient to support approval of the NDA. There can be no assurance that DGE will determine that the totality of data included in the NDA, including the results from our SONICS and LOGICS studies, will be sufficient to warrant approval of the NDA for Recorlev.

COVID-19

COVID-19 emerged in Asia at the end of calendar year 2019. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in the financial markets.

While the COVID-19 pandemic did not have a material impact on our business, financial condition or results of operations for the six months ended June 30, 2020, we have experienced business disruptions as a result of the outbreak. For example, most of our corporate employees are currently working remotely from home, we have suspended all commercial air and train travel for business, and any other employee travel is done in accordance with the state and local guidelines. In addition, our field teams have had limited access to visit physicians.

We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will remain in effect or to what degree they will impact our operations and financial results. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, as well as our ability to execute on our ~~strategy is enhanced by the significant commercial~~business strategies and ~~clinical development experience of key members of our management team.~~ initiatives in their respective expected time frames.

Since the introduction of our new management team in August 2014, we have been building a rare disease, franchise-based business model focused on expansion through a disciplined in-licensing and acquisition strategy. In pursuit of our growth strategy, we have raised over $275 million in equity and debt financings since December 2014. We will continue to identify and evaluate the acquisition of products and product candidates for licensing or acquisition that would be complementary to our existing rare neuromuscular and endocrine franchises or that would form the basis for new rare disease franchises. We believe this approach will enable us to maximize our commercial potential by further leveraging our existing resources and expertise.

In December 2017, we received letters from the offices of United States Senators Amy Klobuchar, Susan Collins and Tammy Baldwin, and Senator Claire McCaskill, Ranking Member of the Homeland Security and Governmental Affairs Committee, requesting information relating to the marketing and sales of Keveyis. The letters request information principally relating to the pricing of Keveyis, among other things. ~~We are cooperating with these voluntary requests for information.~~

Financial Operations Overview

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

~~Net Revenue~~Product Sales, net

We sell Keveyis to one specialty pharmacy provider (the “Customer”), who is the exclusive distributor of Keveyis in the United States. The Customer subsequently resells Keveyis to patients, which are covered by payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of the Keveyis.

~~We recognize revenues~~Revenues from sales of ~~Keveyis when we satisfy~~our products are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and that result from rebates, co-pay assistance and other allowances that are offered by us and the patients’ payors. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a ~~performance obligation by transferring control~~current liability (if the amount is payable to a party other than our customer). Where appropriate, these estimates may take into consideration a range of ~~Keveyis to the Customer. Transfer of control occurs upon receipt of Keveyis by the Customer. We expense incremental costs related to the set-up~~possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the ~~contract with~~amount of consideration to which we are entitled based on the ~~Customer when incurred, as these costs did not meet~~terms of the ~~criteria~~contract. For a complete discussion of accounting for ~~capitalization.~~

~~We expect~~net product revenue, see Note 3, "Revenue recognition" to ~~launch Macrilen in the United States in mid-2018 and will recognize revenue in~~ ~~accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606,~~ ~~Revenue Recognition.~~our consolidated financial statements.

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Cost of Sales

Cost of ~~Sales~~

~~Cost of~~ sales includes third-party acquisition costs, third-party warehousing and product distribution charges.

~~Table of Contents~~

Selling, General and Administrative Expenses

Selling, general and administrative expenses include personnel costs, costs for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, benefits, travel and ~~stock‑based~~stock-based compensation. Outside professional services consist of legal, accounting and audit services, commercial evaluation and strategy services, sales, market access, marketing, investor relations, public relations, recruiting and other consulting services. ~~We expect to incur additional selling, general and administrative costs as a result of our initial and on-going commercial activities in support of Keveyis and our commercial launch of Macrilen.~~

Research and Development Expenses

We expense all research and development costs as incurred. Our research and development expenses consist primarily of costs incurred in connection with the development of our product candidates, including:

●

~~personnel‑related~~personnel-related costs, such as salaries, bonuses, benefits, travel and other related expenses, including ~~stock‑based~~stock-based compensation;

●

expenses incurred under our agreements with contract research organizations ~~(“CROs”)~~(CROs), clinical sites, contract laboratories, medical institutions and consultants that plan and conduct our preclinical studies and clinical ~~trials,~~trials. We recognize costs for each grant project, preclinical study or clinical trial that we conduct based on our evaluation of the progress to completion, including in the ~~case~~use of ~~consultants, stock‑based compensation;~~

information and data provided to us by our external research and development vendors and clinical sites;

●

costs associated with regulatory filings;

and

●

~~upfront and milestone payments under in‑license or acquisition agreements with third parties;~~

costs of acquiring preclinical study and clinical trial materials, and costs associated with formulation, process development and ~~process development; and~~

statistical analysis.

~~depreciation, maintenance and other facility‑related expenses.~~

We expense all research and development costs as incurred. Clinical development expenses for our product candidates are a significant component of our current research and development expenses as we progress our product candidates into and through clinical trials. Product candidates in later stage clinical development generally have higher research and development costs than those in earlier stages of development, primarily due to increased size and duration of the clinical trials. We recognize costs for each grant project, preclinical study or clinical trial that we conduct based on our evaluation of the progress to completion, including the use of information and data provided to us by clinical sites and our external research and development vendors.

We expect our research and development expenses to increase in absolute dollars in the future as we continue to in‑license or acquire product candidates and as we advance our existing and any future product candidates into and through clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval of a product candidate is costly and time consuming. The probability that any of our product candidates receives regulatory approval and eventually is able to generate revenue depends on a variety of factors, including the quality of our product candidates, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability. As a result of these uncertainties, we are unable to determine the duration and completion costs of our research and development projects or if, when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates, if approved. We may never succeed in achieving regulatory approval for any of our product candidates.

We do not allocate ~~personnel‑related~~personnel-related research and development costs, including ~~stock‑based~~stock-based compensation or other indirect costs, to specific programs, as they are deployed across multiple projects under development.

~~Interest Expense~~

~~Interest expense represents interest paid to our lender, amortization of our debt discount, and issuance costs associated with loan and security agreements.~~

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Amortization of Intangible ~~Assets~~

Asset

Amortization of intangible asset relates to the amortization of our product rights to ~~Keveyis and Macrilen. Both~~Keveyis. This intangible ~~assets are~~asset is being amortized over an eight-year period using the straight-line ~~method, using an amortization period of eight-years for Keveyis and ten-years for Macrilen.~~method.

Other ~~Expense,~~Income (Expense), Net

Other ~~expense,~~income (expense), net, consists of unrealized loss or gain on the remeasurement of the fair value of the warrant liability, ~~interest expense recognized on our long-term debt, the loss on the extinguishment of our pre-existing long-term debt,~~ interest income generated from our cash, ~~and~~ cash equivalents and marketable securities, foreign exchange gains and losses and gains and losses on investments. In 2019, we recorded income and expenses relating to our service agreement with NNI to fund the costs of 23 of our field-based employees who provided full-time ongoing services to NNI, including the promotion of Macrilen in the United States.

Our consolidated financial statements are reported in U.S. dollars, which is also our functional currency. Transactions in foreign currencies are remeasured into our functional currency at the rate of exchange prevailing at the date of the transaction. Any monetary assets and liabilities arising from these transactions are remeasured into our functional currency at exchange rates prevailing at the balance sheet date or on settlement. Resulting gains and losses are recorded in foreign currency loss in other income (expense) in our consolidated statements of operations.

Critical Accounting Policies and Significant Judgments and Estimates

This management’s discussion and analysis ~~operating and financial review~~ of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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We believe there have been no significant changes in our critical accounting policies and significant judgments and estimates as discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~included in~~of our ~~2017~~2019 Annual Report.

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Results of Operations

Comparison of the Three and Six Months Ended ~~March 31, 2018~~June 30, 2020 and ~~2017~~2019.

The following table sets forth our results of operations for the three and six months ended ~~March 31, 2018~~June 30, 2020 and ~~2017.~~2019.


							Three Months Ended						Six Months Ended
							June 30,				Change		June 30,				Change
							2020		2019		$		2020		2019		$

	Three Months Ended
	March 31,				Change
	2018		2017		$
	(in thousands)
							(in thousands)						(in thousands)
Revenues:
Net product sales	$	3,870	$	—	$	3,870	$	7,752	$	6,073	$	1,679	$	14,415	$	10,406	$	4,009
Royalty revenues								8		6		2		19		16		3
Total revenues		3,870		—		3,870		7,760		6,079		1,681		14,434		10,422		4,012


Cost and operating expenses:
Cost of sales (excluding amortization of intangible assets)	$	667	$	—	$	667
Cost of sales (excluding amortization of intangible asset)							$	393	$	1,022	$	(629)	$	1,362	$	1,835	$	(473)
Selling, general and administrative		12,362		7,442		4,920		9,638		12,182		(2,544)		20,041		24,282		(4,241)
Research and development		4,881		3,481		1,400		6,152		8,739		(2,587)		13,704		15,322		(1,618)
Amortization of intangible assets		1,769		1,256		513
Amortization of intangible asset								1,255		1,255		—		2,511		2,511		—
Total cost and expenses		19,679		12,179		7,500		17,438		23,198		(5,760)		37,618		43,950		(6,332)
Operating loss		(15,809)		(12,179)		(3,630)		(9,678)		(17,119)		7,441		(23,184)		(33,528)		10,344
Other expense, net		(12,914)		(15,712)		2,798
Other (expense) income, net								(7,594)		9,272		(16,866)		(6,786)		7,924		(14,710)
Loss before income taxes		(28,723)		(27,891)		(832)		(17,272)		(7,847)		(9,425)		(29,970)		(25,604)		(4,366)
Income tax expense		—		(1,594)		1,594		—		(400)		400		—		(1,077)		1,077
Net loss	$	(28,723)	$	(29,485)	$	762	$	(17,272)	$	(8,247)	$	(9,025)	$	(29,970)	$	(26,681)	$	(3,289)

~~Net Revenue and Cost of Sales~~Revenues

Net ~~revenue of $3.9 million for the three ended March 31, 2018 and cost of~~product sales ~~of $0.7~~were $7.8 million for the three months ended ~~March 31, 2018, resulted~~June 30, 2020, an increase of $1.7 million compared to the three months ended June 30, 2019. Product sales from ~~commercial~~Keveyis increased primarily due to the an increase the number of patients on Keveyis and an increase in price. Cost of sales decreased due to changes in the assumptions underlying the allocation between the purchase price of our inventory and the supply agreement.

Net product sales were $14.4 million for the six months ended June 30, 2020, an increase of $4.0 million compared to the six months ended June 30, 2019. Product sales from Keveyis ~~which we launched~~increased primarily due to an increase in ~~April 2017.~~the number of patients on Keveyis and an increase in price. Cost of sales decreased due to changes in the assumptions underlying the allocation between the purchase price of our inventory and the supply agreement..

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Selling, General and Administrative Expenses

The following table summarizes our selling, general and administrative expenses during the three and six months ended ~~March 31, 2018~~June 30, 2020 and ~~2017:~~2019:


							Three Months Ended						Six Months Ended
							June 30,				Change		June 30,				Change
							2020		2019		$		2020		2019		$

	Three Months Ended
	March 31,				Change
	2018		2017		$
	(in thousands)
							(in thousands)						(in thousands)
Compensation and other personnel costs	$	5,572	$	1,902	$	3,670	$	3,669	$	6,133	$	(2,464)	$	7,448	$	11,996	$	(4,548)
Outside professional and consulting services		5,241		4,502		739		4,516		3,841		675		9,701		8,001		1,700
Stock-based compensation expense		1,280		952		328		1,280		1,981		(701)		2,550		3,792		(1,242)
Facility costs		269		86		183		173		227		(54)		342		493		(151)
Total selling, general and administrative expenses	$	12,362	$	7,442	$	4,920	$	9,638	$	12,182	$	(2,544)	$	20,041	$	24,282	$	(4,241)

Selling, general and administrative expenses were ~~$12.4~~$9.6 million for the three months ended ~~March 31, 2018, an increase~~June 30, 2020, a decrease of ~~$4.9~~$2.5 million compared to the three months ended ~~March 31, 2017. Compensation~~June 30, 2019, mostly due to decreases in compensation and ~~related~~other personnel costs ~~increased by $3.7~~due to reduced headcount in 2020 and reduced spending due to COVID-19.

Selling, general and administrative expenses were $20.0 million ~~during~~for the ~~three~~six months ended ~~March 31, 2018, primarily~~June 30, 2020, a decrease of $4.2 million compared to the six months ended June 30, 2019, mostly due to ~~increased headcount of commercial~~decreases in compensation and other personnel ~~for commercialization of Keveyis and planned launch of Macrilen. Outside professional and consulting services increased $0.7 million~~costs due to ~~expenses relating to the commercialization of Keveyis~~reduced headcount in 2020 and ~~planned launch of Macrilen. Stock-based compensation expense increased by $0.3 million during the 2018 period~~reduced spending due to ~~granting of new awards to new employees and facility costs increased due to the new lease entered into in November 2017.~~COVID-19.

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Research and Development Expenses

The following table summarizes our research and development expenses during the three and six months ended ~~March 31, 2018~~June 30, 2020 and ~~2017:~~2019:


							Three Months Ended						Six Months Ended
							June 30,				Change		June 30,				Change
							2020		2019		$		2020		2019		$

	Three Months Ended
	March 31,				Change
	2018		2017		$
	(in thousands)
							(in thousands)						(in thousands)
Product development and supporting activities	$	3,223	$	2,486	$	737	$	4,195	$	6,652	$	(2,457)	$	9,732	$	11,387	$	(1,655)
Compensation and other personnel costs		1,250		778		472		1,464		1,495		(31)		2,998		2,831		167
Stock-based compensation expense		408		217		191		493		592		(99)		974		1,104		(130)
Total research and development expenses	$	4,881	$	3,481	$	1,400	$	6,152	$	8,739	$	(2,587)	$	13,704	$	15,322	$	(1,618)

Research and development expenses were ~~$4.9~~$6.2 million for the three months ended ~~March 31, 2018, an increase~~June 30, 2020, a decrease of ~~$1.4~~$2.6 million compared to the three months ended ~~March 31, 2017.~~June 30, 2019. The ~~$0.7 million increase~~decrease was due to decreases in ~~expenses for~~ product development and supporting activities resulting from the completion of our SONICS trial in 2019 and higher costs related to our LOGICS trial in 2019, offset by an increase in costs from our OPTICS trial in 2020.

Research and development expenses were $13.7 million for the six months ended June 30, 2020, a decrease of $1.6 million compared to the six months ended June 30, 2019. The decrease was ~~primarily~~ due to ~~additional clinical~~decreases in product development ~~expenses for Recorlev. Compensation~~ and ~~other personnel~~supporting activities resulting from the completion of our SONICS trial in 2019 and higher costs ~~increased~~related to our LOGICS trial in 2019, offset by ~~$0.5~~an increase in costs from our OPTICS trial in 2020.

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Amortization of Intangible Asset

Amortization of intangible asset was $1.3 million and $2.5 million for the three and six months ended ~~March 31, 2018 as compared to the same period in 2017 due to increased headcount in research~~June 30, 2020 and ~~development. Stock-based compensation expense increased by $0.2 million for the three months ended March 31, 2018 as compared to the same period in 2017 due to the granting of new awards.~~ 2019, respectively.

~~Amortization of Intangible Assets~~

Amortization of intangible assets was $1.8 million, an increase of $0.5 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, due to the commencement of amortization of the Macrilen product rights, that we acquired in January 2018.

Other ~~Expense,~~(Expense) Income, Net

The following table summarizes our other ~~expense,~~income, net, during the three months ended March 31, ~~2018~~2020 and ~~2017:~~2019:

Three Months Ended


March 31,

Change

2018

2017

$

(in thousands)

Unrealized loss on fair value of warrants

$
(9,700)

$
(14,928)

$
5,228

Interest expense

(2,874)

(737)

(2,137)

Foreign exchange loss

(20)


(12)


(8)

Loss on extinguishment of debt

(500)

—

(500)

Other income (expense), net

180

(35)

215

Total other expense, net

$
(12,914)

$
(15,712)

$
2,798


	Three Months Ended						Six Months Ended
	June 30,				Change		June 30,				Change
	2020		2019		$		2020		2019		$

	(in thousands)						(in thousands)
Unrealized (loss) gain on fair value of warrants	$	(7,367)	$	8,697	$	(16,064)	$	(6,787)	$	6,877	$	(13,664)
Income from field services agreement		—		1,725		(1,725)		—		3,741		(3,741)
Expense from field services agreement		—		(1,758)		1,758		—		(3,987)		3,987
Interest expense		(253)		—		(253)		(253)		—		(253)
Other income, net		26		608		(582)		254		1,293		(1,039)
Total other (expense) income, net	$	(7,594)	$	9,272	$	(16,866)	$	(6,786)	$	7,924	$	(14,710)

~~Other expense,~~Total other (expense) income, net, decreased by ~~$2.8~~$16.9 million for the three months ended ~~March 31, 2018~~June 30, 2020 as compared to the three months ended ~~March 31, 2017.~~June 30, 2019. The decrease was ~~primarily~~largely due to a ~~$5.2~~net $16.1 million change in the ~~fair value~~revaluation of ~~our warrant liability in 2018 as compared to $14.9 million change in~~ the fair value of our warrant liability for the three months ended ~~March 31, 2017.~~June 30, 2020. The change in the warrant liability is primarily due to ~~changes~~increases in our stock price ~~offset in part~~.

Total other (expense) income, net, decreased by ~~a $2.1~~$14.7 million ~~increase in interest expense and $0.5 million of expense relating~~for the six months ended June 30, 2020 as compared to the ~~loss on~~six months ended June 30, 2019. The decrease was largely due to a net $13.7 million change in the ~~extinguishment~~revaluation of ~~debt.~~the fair value of our warrant liability for the six months ended June 30, 2020. The change in the warrant liability is primarily due to increases in our stock price.

Income Tax

We ~~recorded no~~did not incur income any tax expense for the three and six months ended ~~March 31, 2018 as a result of recording full valuation allowances against our deferred tax asset and deferred tax liability.~~June 30, 2020.

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Cash Flows

Comparison for the ~~Three~~Six Months Ended ~~March 31, 2018~~June 30, 2020 and ~~2017:~~2019:


					Six Months Ended
					June 30
					2020		2019

	Three Months Ended
	March 31
	2018		2017
	(in thousands)
Net cash provided by (used in):
					(in thousands)
Net cash (used in) provided by:
Operating activities	$	(18,019)	$	(9,289)	$	(27,376)	$	(36,483)
Investing activities		(24,655)		(7,500)		21,122		(27,972)
Financing activities		77,569		(150)		9,131		121
Net increase (decrease) in cash and cash equivalents	$	34,895	$	(16,939)	$	2,877	$	(64,334)

Operating Activities

Net cash used in operating activities was ~~$18.0~~$27.4 million for the ~~three~~six months ended ~~March 31, 2018~~June 30, 2020 compared to ~~$9.3~~$36.5 million for the ~~three~~six months ended ~~March 31, 2017.~~June 30, 2019. The ~~increase~~decrease in net cash used in operating activities resulted ~~primarily~~ from ~~investments during 2018 to support the commercialization~~an increase in total revenues of ~~Keveyis~~$4.0 million and ~~the launch~~reduced expenditures in our commercial activities for Keveyis.

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Investing Activities

~~Net cash used in investing activities was $24.7 million for the three months ended March 31, 2018 compared to $7.5 million for the three months ended March 31, 2017.~~ The increase in net cash ~~used in~~provided by investing activities resulted from the ~~$24 million payment made to~~ ~~Aeterna Zentaris GmbH~~ ~~for~~maturities of our ~~acquisition of Macrilen and other expenses incurred with the acquisition.~~marketable securities.

Financing Activities

Net cash provided by financing activities was $77.6 million for the three months ended March 31, 2018 compared to net cash used in financing activities for the three months ended March 31, 2017 of $0.2 million. The increase in net cash provided by financing ~~activity resulted primarily from~~activities was due to the proceeds received under our ~~receipt of $44.9 million in proceeds from the amendment to our senior credit facility~~Term Loan Agreement with ~~CRG Servicing LLC (“CRG”) and $33.5 million in proceeds from our issuance of ordinary shares.~~Avenue Venture Opportunities Fund L.P.

Liquidity and Capital Resources

~~Our operations have been financed primarily~~We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of our clinical trial activities and the significant uncertainty created by ~~net proceeds~~the COVID-19 global pandemic.

On May 19, 2020, we and our subsidiaries, Strongbridge U.S. Inc., Cortendo AB (publ) and Strongbridge Dublin Limited, entered into a $30 million Term Loan Agreement (the “Loan Agreement”) with Avenue Venture Opportunities Fund L.P. (“Avenue”), as administrative agent and collateral agent, and the lenders named therein and from time to time a party thereto (the “Lenders”). Pursuant to the terms of the Loan Agreement, Strongbridge U.S. Inc. (the “Borrower”) borrowed $10.0 million (the “Initial Loan”) from the ~~issuance~~Lenders at closing.

The Borrower may borrow up to two additional tranches of ~~ordinary shares~~$10.0 million under the Loan Agreement. The first $10 million tranche is available between October 1, 2020 and ~~the issuance of debt. Our primary uses of capital have been costs incurred~~December 31, 2020 if we achieve positive top-line data for RECORLEV in connection with the acquisition of marketing rights for Keveyis and Macrilen, third‑party expenses associated with the commercialization of Keveyis, the planning and conduct of clinical trials, costs of process development services and manufacturing of our product candidates, and compensation‑related expenses. We expect our funding requirements for operating activities to increase in 2018 and possibly beyond due to expenses associated with the commercialization of Keveyis and Macrilen, the execution of our Phase 3 ~~SONICS and~~ LOGICS clinical ~~trials for Recorlev,~~trial. The second $10 million tranche is available between October 1, 2021 and ~~selling, general~~March 31, 2022 if we achieve FDA approval of RECORLEV and ~~administrative expenses. We also expect~~subject to Avenue’s investment committee approval. See Note 6, "Long-term debt" to our cash needs to increase to fund potential in‑licenses, acquisitions or similar transactions as we pursue our business strategy. These expenses may be offset in part by sales of Keveyis and Macrilen. In addition, beginning March 2021, we may be required to make quarterly principal payments to repay amounts borrowed under our credit facility.

~~Cash used to fund operating expenses is affected by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses set forth in the~~consolidated financial statements ~~included in this Quarterly Report.~~ for additional information regarding the Loan Agreement.

We believe that our cash ~~resources~~and cash equivalents of $59.9 million at June 30, 2020 will be sufficient to allow us to fund planned operations for at least 12 months beyond the issuance date of these unaudited consolidated financial statements.

Cash used to fund operating expenses is affected by the timing of when we make payments to our vendors, as reflected in the change in our outstanding accounts payable and accrued expenses set forth in the consolidated financial statements, ~~which is after the expected receipt of data from the Recorlev SONICS and LOGICS Phase 3 clinical trials.~~

~~Table of Contents~~

included in this Quarterly Report.

Our future funding requirements will depend on many factors, including the following:

●

the amount of revenue that we receive from sales of ~~Keveyis and Macrilen;~~

Keveyis;

●

the cost and timing of establishing sales, marketing, distribution and administrative capabilities;

●

the scope, rate of progress, results and cost of our clinical trials testing and other related activities for Recorlev and ~~veldoreotide;~~

veldoreotide and our ability to prepare and file our NDA submissions on a timely basis and receive approval;

●

~~whether we borrow any additional amounts under our credit facility;~~

the number and characteristics of product candidates that we pursue, including any additional product candidates we may ~~in‑license~~in-license or acquire;

●

the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

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●

the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;

●

the cost, timing and outcomes of regulatory ~~approvals;~~

approvals, including product labeling;

●

adequate reimbursement from payors for Recorlev and Keveyis on a timely basis;

●

the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone and royalty payments thereunder; ~~and~~

●

the emergence of competing technologies and their achieving commercial success before we do or other adverse market ~~developments.~~

developments; and

●

any extended impact of COVID-19.

~~As of March 31, 2018, we held cash and cash equivalents of $92.4 million.~~

The loan and security agreement contains financial and non-financial covenants including minimum amounts of net revenue we must achieve in 2017 and beyond. Failure to comply with the covenants could result in the lenders declaring the loan immediately due and payable. Our liquidity requirements are predicated on maintaining compliance with the debt covenants and repaying outstanding borrowings in accordance with the loan agreement. See Note 7 of the financial statements included in this Quarterly Report for additionally information concerning the Loan Agreement, as amended.

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~~Our ability to achieve and maintain profitability is dependent upon the successful commercialization of Keveyis~~ ~~and Macrilen, the development, regulatory approval and commercialization of our product candidates and achieving a level of revenues adequate to support our cost structure.~~ We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital. ~~If we need to raise additional capital to fund our operations and complete our ongoing and planned clinical trials, funding may not be available to us on acceptable terms, or at all.~~

We plan to continue to fund our operations and capital funding needs through equity or debt financing along with revenues from ~~Keveyis~~ ~~and Macrilen~~. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenantsKeveyis. There can be no assurances, however, that ~~would restrict our operations. If we are not able to secure adequate~~ additional funding ~~we may~~will be ~~forced~~available on terms acceptable to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible or suspend or curtail planned programs. In addition, lack of funding would limit any strategic initiatives to in‑license or acquire additional product candidates or programs.us.

~~Contractual Obligations and Other Commitments~~

~~The following table summarizes our future minimum commitments at March 31, 2018:~~

Payments due by period


Less than





More than


1 year

1 to 3 years

3 to 5 years

5 years

Total

(in thousands)

Minimum contract purchases pursuant to supply agreement

$
3,293

$
13,820

$
7,835

$
—

$
24,948

Debt payments

$
—

$
34,611

$
51,916

$
—

$
86,527

Operating leases

$
390

$
1,399

$
578

$
—

$
2,367

Total contractual obligations

$
3,683

$
49,830

$
60,329

$
—

$
113,842

We enter into agreements in the normal course of business with vendors for clinical trials, preclinical studies, and other services and products for operating purposes. Future payment obligations under these agreements, which are cancelable at any time by us, generally upon 30 days prior written notice, are not included in this table of contractual obligations.

We are obligated to make future payments to third parties due to payments that become due and payable upon the achievement certain commercialization milestones. As the amount and timing of these milestones are not probable and estimable, such commitments have not been included on our consolidated balance sheets or in the contractual obligations table above.

~~Off‑Balance~~Off-Balance Sheet Arrangements

We do not have variable interests in variable interest entities or any ~~off‑balance~~off-balance sheet arrangements.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

~~We are exposed to certain market risks in~~Except for the ~~ordinary course~~broad effects of ~~our business. These risks primarily include interest rate sensitivities as follows:~~

~~Interest Rate Risk~~

~~We had cash and cash equivalents of $92.4 million as March 31, 2018. Our cash and cash equivalents are held in a variety of interest‑earning instruments,~~COVID-19 including money market funds. Such interest‑earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding long-term debt principal of $86.5 million as of March 31, 2018, none of which was due within 12 months. The interest rate of our borrowings under the term loan agreement with CRG is fixed. A hypothetical 10% change in interest rates during any of the periods presented would not have had a materialits negative impact on the global economy and major financial markets, there have been no material changes to our ~~financial statements.~~market risk exposures since December 31, 2019. In addition, as described in “Item 1A. Risk Factors,” there may be implications for our business with regard to the COVID-19 pandemic.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange ~~Act’~~Act”) and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~March~~ June 30, ~~2018,~~2020, the end of the period covered by this Quarterly Report.Based on ~~their~~that evaluation, ~~we believe~~our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of ~~March~~June 30, ~~2018~~2020 were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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Changes in Internal Control over Financial Reporting

~~There~~In response to the COVID-19 pandemic, most of our corporate employees, including all those involved in the operation of our internal controls over financial report, have been working remotely since mid-March 2020. Despite this change, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended ~~March 31, 2018~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are continuously monitoring and assessing the impact of COVID-19 on our internal controls to minimize any impact it may have on their design and operating effectiveness.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not currently involved in any legal matters arising in the normal course of business. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters.

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ITEM 1A. Risk Factors

The risks described in Item 1A. Risk Factors of our ~~2017~~2019 Annual Report could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in our ~~2017~~2019 Annual Report do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. ~~There have been no material changes~~The following is an update to our risk factors.

The current outbreak of the novel coronavirus, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could materially and adversely affect our results of operations, financial condition and cash flows. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the ~~risk factors discussed~~U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in the financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel, among other protective measures. While the COVID-19 pandemic has not had a material impact on our business operations to date, we have experienced business disruptions as a result of the outbreak and expect that the continued spread of COVID-19 could materially and adversely impact our operations due to, among other factors:

●

a general decline in business activity,

●

the destabilization of the markets and negative impacts on the healthcare system globally could negatively impact our ability to market and sell Keveyis, including through the disruption of health care activities in general, the inability of our sales team to contact and/or visit doctors in person, patients’ interest in starting or

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staying on drugs, patients’ ability to obtain or maintain insurance coverage for Keveyis and our ability to support patients that presently use Keveyis;

●

difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations;

●

the potential negative impact on the health of our employees, especially if a significant number of them or any of their family members are impacted or if any of our senior leaders are impacted for an extended period of time;

●

the potential negative impact on our ability to monitor the investigative sites participating in our LOGICs study in person or even remotely, which could result in a deviation from pre-pandemic protocols and/or site monitoring and data management plans, and delays in our ability to perform data-related tasks dependent on communications with personnel at the investigative sites, such as resolution of open data queries, the cumulative effects of which could lead to delayed or missed identification of non-compliance with good clinical practice (GCP), and/or unrecognized data errors.

●

potential delays in the preparation and submission of applications for regulatory approval of our products, as well as potential delays in FDA’s ability to review applications in a timely manner consistent with past practices;

●

the potential negative impact on our ability to manufacture and distribute our products, including as a result of disruptions to the businesses of third parties that manufacture and distribute our products;

●

potential difficulty in adequately overseeing and/or evaluating the manufacturing process at the facilities that will manufacture future commercial supplies of Recorlev, if approved;

●

a deterioration in our ability to ensure business continuity during a disruption.

We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will remain in effect or to what degree they will impact our operations and financial results in the future. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, as well as our ability to execute our business strategies and initiatives in their respective expected time frames.

The regulatory approval process of the FDA, EMA or any comparable foreign regulatory agency may be lengthy,

time consuming and unpredictable.

We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. The FDA, EMA and other comparable foreign regulatory agencies have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, EMA or any comparable foreign regulatory agency. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the product candidates.

Furthermore, while certain of our employees have prior experience with submitting marketing applications to the FDA, EMA and comparable foreign regulatory agencies, we, as a company, have not submitted such applications for our product candidates. Applications for any of our product candidates could fail to receive regulatory approval for many reasons, including, but not limited to, the following:

●

the FDA, EMA or any comparable foreign regulatory agency may disagree with the design or implementation of our clinical trials or our interpretation of data from nonclinical trials or clinical trials;

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●

the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval, including reliance on foreign clinical data;

●

the data collected from clinical trials of our product candidates may not be sufficient to support a finding that has statistical significance or clinical meaningfulness or support the submission of an NDA or other submission, or to obtain regulatory approval in the United States or elsewhere;

●

we may be unable to demonstrate to the FDA, EMA or any comparable foreign regulatory agency that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;

●

the FDA, EMA or any comparable foreign regulatory agency may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

●

the approval policies or regulations of the FDA, EMA or any comparable foreign regulatory agency may significantly change in a manner rendering our clinical data insufficient for approval.

In communications we had with the FDA, they recommended use of a concurrent control group in our ~~2017 Annual Report.~~SONICS Phase 3 clinical trial. However, SONICS utilizes an open-label, single-arm design because use of a placebo control in a parallel-arm monotherapy design was considered unethical or infeasible to enroll, depending on the specific country or clinical trial site under consideration. Studies lacking an active control group are more likely to be subject to unanticipated variability in study results that can potentially lead to flawed conclusions because they do not allow for discrimination of patient outcomes. In August 2018, we announced statistically significant positive top-line results from our SONICS Phase 3 clinical trial. However, even if we achieve the clinical trial’s endpoints for this clinical trial, the FDA or other regulatory authorities could view our study results as potentially biased due to our lack of an active control group.

Our LOGICS study, which is a second Phase 3 clinical trial of Recorlev for the treatment of endogenous Cushing’s syndrome, will supplement the long-term efficacy and safety data from the ongoing SONICS trial via a randomized, double-blind, placebo-controlled design that will randomize approximately 54 patients, in an attempt to address our lack of an active control group in our SONICS trial. There can be no assurances, however, that the FDA or other regulatory authorities will view the LOGICS study results as sufficient.

In March 2019, we conducted a Type C meeting with the Division of Metabolic and Endocrine Products (DMEP) of the FDA. DMEP stated in its meeting minutes that the FDA generally requests that a sponsor conduct two adequate and well-controlled clinical studies for the proposed indication of a drug candidate under 21 CFR 314.126(b)(2). DMEP also noted that the FDA recognizes situations when a single trial may be sufficient. DMEP reiterated that the characteristics of an “adequate and well-controlled” investigation under 21 CFR 314.126 include the use of a control group (e.g., placebo concurrent control, dose-comparison concurrent control), randomization and evaluation of primary endpoints that directly measure clinical benefits, or supported by evidence of clinical benefit. For this reason, while DMEP indicated that it would consider, as a review issue, the adequacy of an NDA submission with data from the SONICS trial as the sole Phase 3 evidence supporting the efficacy of RECORLEV, DMEP nonetheless recommended that we complete the LOGICS trial (which is double-blinded, randomized and placebo-controlled) and include the results from the LOGICS trial in addition to data from the SONICS trial in our NDA submission. We currently expect to receive LOGICS top-line data by the end of the first quarter of 2020 (compared to our prior projection of the end of 2019) and submit an NDA for Recorlev in the third quarter of 2020 that will include data from each of the SONICS and LOGICS trials. In addition, the DMEP stated in its meeting minutes that our clinical pharmacology program for Recorlev, as described to them, appears reasonable to support an NDA filing for Recorlev provided that the data generated are found to be suitable.

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sufficient to support approval of the NDA. There can be no assurance that DGE will determine that the totality of data included in the NDA, including the results from our SONICS and LOGICS studies, will be sufficient to warrant approval of the NDA for Recorlev.

In addition, following FDA consultation, we have determined that the 505(b)(2) approval pathway, which permits an NDA applicant to rely on data from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference, is the appropriate pathway for a Recorlev NDA. We intend to rely on published literature and the FDA’s prior findings concerning the safety and/or effectiveness of ketoconazole in our NDA for Recorlev and on similar processes in other jurisdictions. There can be no assurances, however, that the 505(b)(2) approval pathway in the United States, or similar approval pathways outside of the United States, will be available for Recorlev or that the FDA or other regulatory authorities will approve Recorlev through an application based on such pathways.

We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union and other key global markets. To obtain regulatory approval in other countries, we must comply with regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for our product candidates in any jurisdiction will result in our being unable to market and sell such products. Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

Any of our current or future product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain regulatory approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our product candidates.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits

EXHIBIT INDEX


10.1		Employment Agreement, dated as of July 2, 2020, by and between Strongbridge U.S. Inc. and John Johnson
10.2		Term Loan Agreement, dated May 19, 2020, by Strongbridge Biopharma plc (“Strongbridge”), along with Strongbridge U.S. Inc., Cortendo AB (publ) and Strongbridge Dublin Limited, Avenue Venture Opportunities Fund L.P., as administrative agent and collateral agent, and the lenders named therein.
10.3		Warrant to Adventure Ventures Opportunities Fund, L.P., dated May 19, 2020
31.1		Certificate of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certificate of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

2928

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~~SIGNATURES~~

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.



		STRONGBRIDGE BIOPHARMA PLC

~~STRONGBRIDGE BIOPHARMA PLC~~

By:	/s/ ~~A. BRIAN DAVIS~~Robert Lutz
Name:	~~A. Brian Davis~~Robert Lutz
Title:	Chief Financial Officer

Date: ~~May 10, 2018~~August 4, 2020

3029


		Page
PART I.	Financial Information	31

Item 1.	Financial Statements	31
	Consolidated Balance Sheets as of ~~March 31, 2018 (unaudited)~~June 30, 2020 and December 31, ~~2017~~2019	31
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended ~~March 31, 2018~~June 30, 2020 and ~~2017 (unaudited)~~2019	2
	Consolidated Statements of Stockholders’ Equity	3
	Consolidated Statements of Cash Flow for the Six Months Ended June 30, 2020 and 2019	4
	~~Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited)~~	5
	~~Consolidated Statements of Cash Flow for the Three Months Ended March 31, 2018 and 2017 (unaudited)~~	6
	Notes to the Unaudited Consolidated Financial Statements	75

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1915
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2823
Item 4.	Controls and Procedures	2823

PART II.	Other Information	2824

Item 1.	Legal Proceedings	24
Item 1.1A.	~~Legal Proceedings~~Risk Factors	2824
Item ~~1A.~~2.	~~Risk Factors~~	29
~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28

SIGNATURES		29
~~Item 3.~~	~~Defaults Upon Senior Securities~~	29
~~Item 4.~~	~~Mine Safety Data~~	29
~~Item 5.~~	~~Other Information~~	29
~~Item 6.~~	~~Exhibits~~	29

~~SIGNATURES~~		30


	March 31,		December 31,
	2018		2017
ASSETS
Current assets:
Cash and cash equivalents	$	92,405	$	57,510
Accounts receivable		2,016		1,584
Inventory		1,661		511
Prepaid expenses and other current assets		1,776		1,208
Total current assets		97,858		60,813
Property and equipment, net		12		15
Intangible assets, net		58,041		35,155
Goodwill		7,256		7,256
Other assets		360		686
Total assets	$	163,527	$	103,925
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	2,168	$	1,247
Accrued liabilities		8,837		11,232
Total current liabilities		11,005		12,479
Long-term debt		76,142		37,794
Warrant liability		51,008		41,308
Supply agreement liability, noncurrent		23,519		24,258
Total liabilities		161,674		115,839
Commitments and contingencies (Note 8)
Stockholders’ equity (deficit):
Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at March 31, 2018 and December 31, 2017		44		44
Ordinary shares, $0.01 par value, 600,000,000 shares authorized at March 31, 2018 and December 31, 2017; 45,531,827 and 40,149,812 shares issued and outstanding at March 31, 2018 and December 31, 2017		455		401
Additional paid-in capital		272,960		230,524
Accumulated deficit		(271,606)		(242,883)
Total stockholders’ equity (deficit)		1,853		(11,914)
Total liabilities and stockholders’ equity (deficit)	$	163,527	$	103,925


							Additional				Total
	Ordinary Shares			Deferred Shares			Paid-In		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		(Deficit) Equity
Balance—December 31, 2017	40,149,812	$	401	40,000	$	44	$	230,524	$	(242,883)	$	(11,914)
Net loss	—		—	—		—		—		(28,723)		(28,723)
Stock-based compensation	—		—	—		—		1,688		—		1,688
Issuance of shares, net of offering costs	5,255,683		53	—		—		33,455		—		33,508
Common stock issued, net of shares withheld for employee taxes	89,163		1	—		—		(429)		—		(428)
Exercise of stock options	37,169		*	—		—		59		—		59
Issuance of warrants related to loan agreements	—		—	—		—		7,663		—		7,663
Balance—March 31, 2018	45,531,827	$	455	40,000	$	44	$	272,960	$	(271,606)	$	1,853


	Principal
	Payments

2018	$	—
2019		—
2020		—
2021		34,611
2022		34,611
2023		17,305
Total future payments	$	86,527


	Operating
	leases

2018		278
2019		439
2020		470
2021		481
2022		492
2023		207
Total minimum lease payments	$	2,367


							Warrants
							Outstanding
		Exercise		Expiration	Warrants	Warrants	March 31,
	Classification	Price		Date	Issued	Exercised	2018
Warrants in connection with private equity placement	Liability	$	2.50	6/28/2022	7,000,000	—	7,000,000
Warrants in connection with Horizon and Oxford loan agreement	Equity	$	2.45	12/28/2026	428,571	(267,857)	160,714
Warrants in connection with CRG loan agreement	Equity	$	7.37	7/14/2024	394,289	—	394,289
Warrants in connection with CRG loan amendment in January 2018	Equity	$	10.00	1/16/2025	1,248,250	—	1,248,250
					9,071,110		8,803,253


	Options Outstanding
				Weighted-
				Average
		Weighted-		Remaining
		Average		Contractual
	Number of	Exercise		Term	Aggregate
	Shares	Price		(Years)	Intrinsic Value
					(in thousands)
Outstanding—January 1, 2018	6,104,715	$	7.50	7.70	$	14,021
Granted	1,943,255	$	6.69
Forfeited and cancelled	(62,556)	$	12.22
Exercised	(24,945)	$	2.39
Outstanding—March 31, 2018	7,960,469	$	7.28	8.08	$	24,837
Vested and exercisable—March 31, 2018	2,423,543	$	10.41	5.74	$	5,172


	Payments due by period
	Less than						More than
	1 year		1 to 3 years		3 to 5 years		5 years		Total
	(in thousands)

Minimum contract purchases pursuant to supply agreement	$	3,293	$	13,820	$	7,835	$	—	$	24,948
Debt payments	$	—	$	34,611	$	51,916	$	—	$	86,527
Operating leases	$	390	$	1,399	$	578	$	—	$	2,367
Total contractual obligations	$	3,683	$	49,830	$	60,329	$	—	$	113,842