UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 20182021
OR
[ ] ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____________ to _____________
Commission file number 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+1 610-254-9200
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of each class: | Trading Symbol(s) | 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 |
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Non-Accelerated Filer |
| Smaller Reporting Company |
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| Emerging Growth Company |
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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, 2018,10, 2021, there were 45,534,66567,588,878 ordinary shares of the registrant issued and outstanding.
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| Consolidated Balance Sheets as of March 31, |
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| Consolidated Statements of |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are referred to without the ® and ™ symbols, but absence of such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. The trademarks, trade names and service marks appearing in this AnnualQuarterly Report are the property of their respective owners.
2
PART I – FINANCIAL INFORMATION
STRONGBRIDGE BIOPHARMA plc
Consolidated Balance Sheets
(In thousands, except share and per share data)
(unaudited)
| | | | | | |
| March 31, |
| December 31, |
| ||
| 2021 | | 2020 | | ||
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 73,898 | | $ | 87,522 | |
Accounts receivable | | 2,846 | | | 2,801 | |
Inventory | | 1,007 | | | 1,103 | |
Prepaid expenses and other current assets |
| 1,913 | |
| 926 | |
Total current assets |
| 79,664 | |
| 92,352 | |
Property and equipment, net |
| 205 | |
| 216 | |
Right-of-use asset, net | | 544 | | | 597 | |
Intangible asset, net |
| 18,832 | |
| 20,088 | |
Goodwill |
| 7,256 | |
| 7,256 | |
Other assets |
| 1,549 | |
| 591 | |
Total assets | $ | 108,050 | | $ | 121,100 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 5,738 | | $ | 1,483 | |
Accrued and other current liabilities |
| 16,238 | |
| 19,648 | |
Total current liabilities |
| 21,976 | |
| 21,131 | |
Long-term debt, net | | 17,399 | | | 17,114 | |
Warrant liability | | 5,715 | | | 4,941 | |
Supply agreement liability, noncurrent | | 6,471 | | | 11,556 | |
Other long-term liabilities | | 642 | | | 753 | |
Total liabilities |
| 52,203 | |
| 55,495 | |
Commitments and contingencies (Note 8) | | | | | | |
Shareholders’ equity: | | | | | | |
Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at March 31, 2021 and December 31, 2020 | | 44 | | | 44 | |
Ordinary shares, $0.01 par value, 600,000,000 shares authorized; 67,545,369 and 67,243,772 shares issued and outstanding at March 31, 2021 and December 31, 2020 |
| 675 | |
| 672 | |
Additional paid-in capital |
| 372,500 | |
| 370,447 | |
Accumulated deficit |
| (317,372) | |
| (305,558) | |
Total shareholders’ equity |
| 55,847 | |
| 65,605 | |
Total liabilities and shareholders’ equity | $ | 108,050 | | $ | 121,100 | |
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| March 31, |
| December 31, |
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| 2018 |
| 2017 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | 92,405 |
| $ | 57,510 |
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Accounts receivable |
| 2,016 |
|
| 1,584 |
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Inventory |
| 1,661 |
|
| 511 |
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Prepaid expenses and other current assets |
| 1,776 |
|
| 1,208 |
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Total current assets |
| 97,858 |
|
| 60,813 |
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Property and equipment, net |
| 12 |
|
| 15 |
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Intangible assets, net |
| 58,041 |
|
| 35,155 |
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Goodwill |
| 7,256 |
|
| 7,256 |
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Other assets |
| 360 |
|
| 686 |
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Total assets | $ | 163,527 |
| $ | 103,925 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable | $ | 2,168 |
| $ | 1,247 |
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Accrued liabilities |
| 8,837 |
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| 11,232 |
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Total current liabilities |
| 11,005 |
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| 12,479 |
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Long-term debt |
| 76,142 |
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| 37,794 |
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Warrant liability |
| 51,008 |
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| 41,308 |
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Supply agreement liability, noncurrent |
| 23,519 |
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| 24,258 |
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Total liabilities |
| 161,674 |
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| 115,839 |
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Commitments and contingencies (Note 8) |
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Stockholders’ equity (deficit): |
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Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at March 31, 2018 and December 31, 2017 |
| 44 |
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| 44 |
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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 |
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| 401 |
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Additional paid-in capital |
| 272,960 |
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| 230,524 |
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Accumulated deficit |
| (271,606) |
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| (242,883) |
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Total stockholders’ equity (deficit) |
| 1,853 |
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| (11,914) |
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Total liabilities and stockholders’ equity (deficit) | $ | 163,527 |
| $ | 103,925 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
31
STRONGBRIDGE BIOPHARMA plc
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(unaudited)
| | | | | | | |
| | Three Months Ended | |||||
| | March 31, | |||||
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| 2021 |
| 2020 |
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| | | | | | | |
Total revenues | | $ | 8,382 | | $ | 6,674 | |
| | | | | | | |
Cost and expenses: | | | | | | | |
Cost of sales (excluding amortization of intangible asset) | | | 411 | | | 969 | |
Selling, general and administrative | | | 10,946 | | | 10,403 | |
Research and development | |
| 5,839 | |
| 7,552 | |
Amortization of intangible asset | | | 1,256 | | | 1,256 | |
Total cost and expenses | |
| 18,452 | |
| 20,180 | |
Operating loss | |
| (10,070) | |
| (13,506) | |
Other (expense) income, net: | | | | | | | |
Interest expense | | | (782) | | | — | |
Unrealized (loss) gain on fair value of warrants | | | (774) | | | 580 | |
Other (expense) income, net | |
| (188) | |
| 228 | |
Total other (expense) income, net | |
| (1,744) | |
| 808 | |
Loss before income taxes | |
| (11,814) | |
| (12,698) | |
Income tax benefit (expense) | |
| — | |
| — | |
Net loss | | | (11,814) | | | (12,698) | |
Other comprehensive loss: | |
| | |
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Unrealized gain on marketable securities | | | — | | | 3 | |
Comprehensive loss | | $ | (11,814) | | $ | (12,695) | |
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Net loss attributable to ordinary shareholders: | | | | | | | |
Basic | | $ | (11,814) | | $ | (12,698) | |
Diluted | | $ | (11,814) | | $ | (13,278) | |
Net loss per share attributable to ordinary shareholders: | | | | | | | |
Basic | | $ | (0.18) | | $ | (0.23) | |
Diluted | | $ | (0.18) | | $ | (0.24) | |
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders: | | | | | | | |
Basic | |
| 67,375,383 | |
| 54,231,024 | |
Diluted | |
| 67,375,383 | |
| 54,444,681 | |
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| Three Months Ended |
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| 2018 |
| 2017 |
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Revenues: |
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Net product sales |
| $ | 3,870 |
| $ | — |
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Total revenues |
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| 3,870 |
|
| — |
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Cost and expenses: |
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Cost of sales (excluding amortization of intangible assets) |
| $ | 667 |
| $ | — |
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Selling, general and administrative |
|
| 12,362 |
|
| 7,442 |
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Research and development |
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| 4,881 |
|
| 3,481 |
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Amortization of intangible assets |
|
| 1,769 |
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| 1,256 |
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Total cost and expenses |
|
| 19,679 |
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| 12,179 |
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Operating loss |
|
| (15,809) |
|
| (12,179) |
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Other expense, net: |
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Unrealized loss on fair value of warrants |
|
| (9,700) |
|
| (14,928) |
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Interest expense |
|
| (2,874) |
|
| (737) |
|
Foreign exchange loss |
|
| (20) |
|
| (12) |
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Loss on extinguishment of debt |
|
| (500) |
|
| — |
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Other income (expense), net |
|
| 180 |
|
| (35) |
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Total other expense, net |
|
| (12,914) |
|
| (15,712) |
|
Loss before income taxes |
|
| (28,723) |
|
| (27,891) |
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Income tax expense |
|
| — |
|
| (1,594) |
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Net loss |
| $ | (28,723) |
| $ | (29,485) |
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Net loss per share attributable to ordinary shareholders: |
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Basic and diluted |
| $ | (0.66) |
| $ | (0.83) |
|
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders: |
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Basic and diluted |
|
| 43,620,746 |
|
| 35,335,026 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
42
STRONGBRIDGE BIOPHARMA plc
Consolidated Statement of Stockholders’ (Deficit)Shareholders’ Equity
(In thousands, except share amounts)
(unaudited)
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| Additional |
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| Total |
| |||||
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| 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 |
|
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| | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | Additional |
| | |
| Accumulated Other |
| Total |
| ||||||
| | Deferred Shares | | Ordinary Shares | | Paid-In | | Accumulated | | Comprehensive | | Shareholders’ |
| ||||||||||
| | Shares |
| Amount |
| Shares |
| Amount |
| Capital | | Deficit | | Income | | Equity |
| ||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Balance—December 31, 2019 | | 40,000 | | $ | 44 | | 54,205,852 | | $ | 542 | | $ | 332,085 | | $ | (260,483) | | | 3 | | $ | 72,191 | |
Net loss | | — | | | — | | — | | | — | | | — | | | (12,698) | | | — | | | (12,698) | |
Stock-based compensation | | — | | | — | | — | | | — | | | 1,751 | | | — | | | — | | | 1,751 | |
Ordinary shares issued, net of shares withheld for employee taxes | | — | | | — | | 41,649 | | | * | | | (68) | | | — | | | — | | | (68) | |
Unrealized gain on marketable securities | | — | | | — | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Balance—March 31, 2020 | | 40,000 | | $ | 44 | | 54,247,501 | | $ | 542 | | $ | 333,768 | | $ | (273,181) | | | 6 | | $ | 61,179 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance—December 31, 2020 | | 40,000 | | | 44 | | 67,243,772 | | | 672 | | | 370,447 | | | (305,558) | | | — | | | 65,605 | |
Net loss | | — | | | — | | — | | | — | | | — | | | (11,814) | | | — | | | (11,814) | |
Stock-based compensation | | — | | | — | | — | | | — | | | 2,277 | | | — | | | — | | | 2,277 | |
Common stock issued, net of shares withheld for employee taxes | | — | | | — | | 242,129 | | | 3 | | | (400) | | | — | | | — | | | (397) | |
Exercise of stock options | | — | | | — | | 48,157 | | | * | | | 138 | | | — | | | — | | | 138 | |
Issuance of shares, net of expenses | | — | | | — | | 11,311 | | | * | | | 38 | | | — | | | — | | | 38 | |
Balance—March 31, 2021 | | 40,000 | | $ | 44 | | 67,545,369 | | $ | 675 | | $ | 372,500 | | $ | (317,372) | | | — | | $ | 55,847 | |
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* Represents an amount less than $1.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
53
STRONGBRIDGE BIOPHARMA plc
Consolidated Statements of Cash Flow
(In thousands)
(unaudited)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 | | 2020 | | ||
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (11,814) | | $ | (12,698) | |
Adjustments to reconcile net loss income to net cash used in operating activities: | | | | | | | |
Stock-based compensation | |
| 2,277 | |
| 1,751 | |
Amortization of intangible asset | | | 1,256 | | | 1,256 | |
Change in fair value of warrant liability | | | 774 | | | (580) | |
Amortization of debt discounts and debt issuance costs | |
| 285 | |
| — | |
Accretion of discounts on marketable securities | | | — | | | (48) | |
Depreciation | |
| 21 | |
| 21 | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable | | | (45) | | | (401) | |
Inventory | | | (865) | | | 101 | |
Prepaid expenses and other current assets | |
| (987) | |
| 79 | |
Other assets | | | 55 | | | 266 | |
Accounts payable | |
| 4,256 | |
| 1,954 | |
Accrued and other liabilities | | | (8,606) | | | (6,941) | |
Net cash used in operating activities | |
| (13,393) | |
| (15,240) | |
Cash flows from investing activities: | | | | | | | |
Sales and maturities of marketable securities | | | — | | | 14,830 | |
Purchases of property and equipment | | | (10) | |
| — | |
Net cash (used in) provided by investing activities | |
| (10) | |
| 14,830 | |
Cash flows from financing activities: | | | | | | | |
Payments related to tax withholding for net-share settled equity awards | | | (397) | | | (68) | |
Proceeds from exercise of stock options | | | 138 | | | — | |
Proceed from issuance of ordinary shares in connection with at-the-market offering, net | | | 38 | | | — | |
Net cash used in financing activities | |
| (221) | |
| (68) | |
Net decrease in cash and cash equivalents | |
| (13,624) | |
| (478) | |
Cash and cash equivalents—beginning of period | |
| 87,522 | |
| 57,032 | |
Cash and cash equivalents—end of period | | $ | 73,898 | | $ | 56,554 | |
Supplemental disclosures of cash flow information: | | | | | | | |
Cash paid during the year for: | |
| | |
| | |
Interest | | $ | 499 | | $ | — | |
Income taxes other, net of refunds | | $ | 1,301 | | $ | — | |
Supplemental non-cash financing activities: | | | | | | | |
Changes in unrealized gain on marketable securities | | $ | — | | $ | 3 | |
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| Three Months Ended |
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| March 31, |
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| 2018 |
| 2017 |
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Cash flows from operating activities: |
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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: |
|
|
|
|
|
|
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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.
64
STRONGBRIDGE BIOPHARMA plc
Notes to Unaudited Consolidated Financial 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, weWe have two2 clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole), the pure 2S,4R enantiomer of the enantiomeric pair comprising ketoconazole, is a cortisol synthesisnext-generation steroidogenesis inhibitor currently being studiedinvestigated as a chronic therapy for the treatment ofadults with endogenous Cushing'sCushing’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 Recorlevlevoketoconazole and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).
Given the well-identified and concentrated prescriber base addressing our target markets, we intend to continue to use a small, focused sales force to market Keveyis, Macrilen and any future products, in the United States, the European Union and other key global markets. We believe that our ability to execute on our strategy is enhanced by the significant commercial and clinical development experience of key members of our management team. Liquidity
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.
Liquidity
We believe that our cash resourcesand cash equivalents of $92.4$73.9 million at March 31, 20182021, 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.
7
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 financial statements. Actual results could differ from those estimates. Results for the three months ended March 31, 20182021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2021.
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 reportAnnual Report on Form 10-K for the fiscal year ended December 31, 20172020 filed with the U.S. Securities and Exchange Commission on March 12, 20183, 2021 (the “2017“2020 Annual Report”). Our significant accounting policies are described in Note 2 of the notes to the audited consolidated financial statements included in our 20172020 Annual Report. Since the date of those financial statements, there have been no changes to our significant accounting policies.
Revenue recognition5
Leases
We followaccount for leases in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, effective April 1, 2017. Topic 606 applies842, Leases (“ASC 842”). We determine if an arrangement is a lease at contract inception. A lease exists when a contract conveys to all contracts with customers, exceptus the right to control the use of identified property, plant, or equipment for contracts that are within the scopea period 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 receivetime in exchange for those goods or services. To determine revenue recognition for arrangements thatconsideration. The definition of a lease embodies two conditions: (1) there is 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 obligationsidentified asset in the contract; (iii) determinecontract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) we have the transaction price; (iv) allocateright to control the transaction priceuse of the identified asset.
Operating leases where we are the lessee are included in Right of use (“ROU”) assets and Accrued and other current liabilities and Other long-term liabilities on our 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 interest we would have to pay on a collateralized basis to borrow an amount equal to the performance obligationslease payments under similar terms.
The lease term for all of our leases includes the noncancellable period of the lease. Lease payments included in the contract; and (v) recognize revenue when (or as)measurement of the entity satisfieslease 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 performance obligation. straight-line basis over the lease term.
We applymonitor for events or changes in circumstances that require a reassessment of a lease. If a reassessment results in the five-step model to contracts only when itremeasurement of a lease liability, a corresponding adjustment is probable that we will collect the consideration we are entitled to receive in exchange for the goods or services we transfermade to the customer. At contract inception, oncecarrying amount of the contract is determinedcorresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine thosean amount less than zero. In that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenuecase, the amount of the transaction priceadjustment that would result in a negative ROU asset balance is allocatedrecorded in profit or loss.
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 respective performance obligation when (or as)lease payments associated with our short-term leases as an expense on a straight-line basis over the performance obligation is satisfied. For a complete discussion of accountinglease term. Variable lease payments associated with these leases are recognized and presented in the same manner as 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.
8
Foreign currency translation
The consolidated financial statements are reported in United States dollars, which is our functional currency, including eachall of our consolidated subsidiaries. Transactions in foreign currencies are remeasured into our functional currency at the rate of exchange prevailingother 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 monetaryamount 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 fromas these transactionsinvestments are remeasured into our functional currency at exchange rates prevailing at the balance sheet date or on settlement. Resulting
6
available to us for use in funding current operations. There were 0 marketable securities as of March 31, 2021 nor December 31, 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 aboutfor which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group,decision-maker in making decisions on how to allocate resources and assess performance. We view our operations and manage our business in one1 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‑averageweighted-average number of ordinary shares outstanding for the period, including any dilutive effect from outstanding stock options or other equity-based awards.instruments. Shares used in the diluted net loss per share calculations exclude anti‑dilutiveanti-dilutive ordinary share equivalents, which currently consist of outstanding stock options, unvested restricted stock units (“RSUs”), equity-classified warrants and warrants.the conversion feature in our outstanding term loan agreement.
The following potentially dilutive securities have been excluded from the computations of diluted weighted averageweighted-average shares outstanding as offor the periods ending March 31, 20182021 and 2017,2020, 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 |
| | | | | |
| | March 31, | |||
| | 2021 | 2020 | ||
Warrants | | | 7,368,033 | | 1,803,253 |
Stock options issued and outstanding |
| | 8,686,074 | | 10,334,368 |
Unvested RSUs | | | 3,043,175 | | 925,800 |
Conversion feature of our outstanding term loan agreement | | | 1,339,285 | | — |
Due to the gain on the revaluation of warrants for the three months ended March 31, 2020, our warrants that we issued in connection with our private equity placement, were included in the dilutive calculation, therefore excluded from the table above.
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.
9
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 FebruaryJune 2016, the FASB issued ASU No. 2016-02, Leases, that discusses how2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity should accountto measure and recognize expected credit losses for lease assets and lease liabilities. The guidance specifiescertain financial instruments, including trade receivables, as an allowance 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 unchangedreflects 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 new guidance. The guidancecurrent other-than-temporary impairment model. For smaller reporting companies, the standard is effective for usfiscal years, and interim periods within those fiscal years, beginning in the first quarter of fiscal year 2019. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact this new accounting guidance will have on our consolidated financial statements.after December 15, 2022.
3. Revenue recognition
Product Revenue, Net
sales, net
We sell Keveyis to one1 specialty pharmacy provider (the “Customer”), who is the exclusive distributor of Keveyis in the United States. The Customer subsequently resells Keveyis to patients, whichmost of whom are covered by
7
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 Keveyisthe product to the Customer. Transfer of control occurs upon receipt of Keveyisthe product by the Customer. We expense incremental costs related to the set-up of the contractcontracts with the Customer when incurred, as these costs diddo not meet the criteria for capitalization.
Reserves for Variable Considerationvariable 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 whichthat 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.patterns of the Customer. 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, 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
10
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 customerCustomer 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 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, manufacturersManufacturers 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 transactions that hashave been recognized as revenue but remainsremain in the distribution channel inventoriesCustomer’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
8
the Temporary Supply Program eligibility criteria may receive a temporary supply of free Keveyis for no more than sixty60 days while we are determiningthere 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 twelve12 months to uninsured patients thatwho 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 measurementmeasurements
We follow FASB accounting guidance on fair value measurements forrecord financial assets and liabilities measured on a recurring basis.at fair value. Because of their short-term nature, the amounts reported in the balance sheet for cash, and cash equivalents,accounts receivable 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.
11
We did not have any transfers between the different levels.
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, 2021 |
| ||||||||||
| | Level I | | Level II | | Level III | | Total |
| ||||
Cash equivalents | | | 73,864 | | | — | | | — | | | 73,864 | |
Total assets | | $ | 73,864 | | $ | — | | $ | — | | $ | 73,864 | |
Warrant liability | | | — | | | — | | | 5,715 | | | 5,715 | |
Total liabilities | | $ | — | | $ | — | | $ | 5,715 | | $ | 5,715 | |
| | | | | | | | | | | | | |
| | As of December 31, 2020 |
| ||||||||||
| | Level I | | Level II | | Level III | | Total |
| ||||
Cash equivalents | | | 86,775 | | | — | | | — | | | 86,775 | |
Total assets | | $ | 86,775 | | $ | — | | $ | — | | $ | 86,775 | |
Warrant liability | | | — | | | — | | | 4,941 | | | 4,941 | |
Total liabilities | | $ | — | | $ | — | | $ | 4,941 | | $ | 4,941 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2018 |
| ||||||||||
|
| Level I |
| Level II |
| Level III |
| Total |
| ||||
Cash equivalents |
|
| 92,148 |
|
| — |
|
| — |
|
| 92,148 |
|
Total assets |
| $ | 92,148 |
| $ | — |
| $ | — |
| $ | 92,148 |
|
Warrant liability |
|
| — |
|
| — |
|
| 51,008 |
|
| 51,008 |
|
Total liabilities |
| $ | — |
| $ | — |
| $ | 51,008 |
| $ | 51,008 |
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 |
| ||||||||||
|
| Level I |
| Level II |
| Level III |
| Total |
| ||||
Cash equivalents |
|
| 57,024 |
|
| — |
|
| — |
|
| 57,024 |
|
Total assets |
| $ | 57,024 |
| $ | — |
| $ | — |
| $ | 57,024 |
|
Warrant liability |
|
| — |
|
| — |
|
| 41,308 |
|
| 41,308 |
|
Total liabilities |
| $ | — |
| $ | — |
| $ | 41,308 |
| $ | 41,308 |
|
The following table presents a reconciliation of our level 3 warrant liability (in thousands):
| | | |
|
| As of March 31, 2021 | |
Balance as of December 31, 2020 | | $ | 4,941 |
Unrealized loss on fair value of warrants for three months ended March 31, 2021 | | | 774 |
Balance as of March 31, 20201 | | $ | 5,715 |
5. Intangible assetsasset and goodwill
The following represents the balance of our intangible assetsasset and goodwill as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| As of March 31, 2018 |
| |||||||||||||||||||||||
|
| Beginning of Period |
| Additions |
| Impairment |
| Amortization |
| End of Period |
| |||||||||||||||
| | | | | | | | |||||||||||||||||||
| | As of March 31, 2021 |
| |||||||||||||||||||||||
| | Beginning of Period | | Amortization | | End of Period |
| |||||||||||||||||||
Keveyis |
|
| 35,155 |
|
| — |
|
| — |
|
| (1,256) |
| 33,899 |
| | $ | 20,088 | | $ | (1,256) | | $ | 18,832 | | |
Macrilen |
|
| — |
|
| 24,655 |
|
| — |
|
| (513) |
| 24,142 |
| |||||||||||
Goodwill |
|
| 7,256 |
|
| — |
|
| — |
|
| — |
|
| 7,256 |
| |
| 7,256 | | | — | |
| 7,256 | |
Total |
| $ | 42,411 |
| $ | 24,655 |
| $ | — |
| $ | (1,769) |
| $ | 65,297 |
| | $ | 27,344 | | $ | (1,256) | | $ | 26,088 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 livedfinite-lived intangible assetsasset consists of acquired developed product rights obtained from our acquisitionsacquisition 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.
12
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
13
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.
14
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 milestonesmilestone payments 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. TheWe 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 for the three months ended March 31, 2021 and 2020.
6. Long-term debt
On May 19, 2020, we 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, our wholly-owned subsidiary Strongbridge U.S. Inc. (the “Borrower”) borrowed $10 million (the “Initial Loan”) from the Lenders at closing. As a result of achieving positive top-line data for Recorlev in our Phase 3 LOGICS clinical trial in September 2020, we borrowed an additional $10 million under the Loan Agreement (the “Second Loan”), on December 30, 2020. The remaining $10 million tranche (the “Third Loan”) will become available to us between October 1, 2021 and March 31, 2022 if we achieve 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 for 24 months that can increase to 36 months assuming we receive FDA approval of Recorlev. 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%. The interest rate as of March 31, 2021 was 10%.
10
We paid a commitment fee of $200,000 (1% of the amounts of the Initial Loan and the Second Loan) at closing. We are also required to pay the Lenders a final payment fee upon repayment or prepayment of any loans made under the Loan Agreement in accordance with the terms and conditions of the Loan Agreement.
Under the terms of the Loan Agreement, we 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, we may be required to prepay all or a portion of loans outstanding, and, to the extent required under the terms of the Loan Agreement, the applicable prepayment premium and final payment fee.
As security for our obligations under the Loan Agreement, we entered into a security agreement with Avenue, pursuant to which we granted a lien on substantially all of our assets, including intellectual property, to the Secured Parties (as such term is defined in the Loan Agreement).
Avenue has the right to convert up to $3 million of the aggregate principal amount of any loans outstanding under the Loan Agreement into ordinary shares at a price per share of $2.24. We have accounted for this term as a beneficial conversion feature, and the fair value is recorded in Additional paid-in capital. This amount is recorded as a debt discount and classified as a contra-liability on the consolidated balance sheet and amortized to interest expense over the term of the loan.
In connection with the execution of both the Loan Agreement and the Second Loan, we issued to Avenue warrants to purchase up to an aggregate of 267,390 ordinary shares at an exercise price (the “Exercise Price”) of $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) for each of the tranches of debt, respectively. The warrants are exercisable, in full or in part, at any time prior to five years following the issue date for both tranches of the loan. We have accounted for these warrants as equity, and the fair value is recorded into Additional paid-in capital. This amount is recorded as a debt discount and classified as a contra-liability on the consolidated balance sheet and amortized to interest expense over the term of the loan. If we borrow the Third Loan, we will be required to issue to the Lenders or their designees additional warrants to purchase ordinary shares equal to an aggregate of 5% of the Third Loan divided by the Exercise Price, rounded down to the nearest whole share.
11
Future principal payments due under the Loan Agreement, if the interest payment only period is not extended beyond the current 24-month period, are as follows (in thousands):
| | | | |
|
| Principal |
| |
| | Payments |
| |
| | | | |
2021 | | $ | — | |
2022 | | | 5,833 | |
2023 | | | 10,000 | |
2024 | | | 4,167 | |
Total future payments | | $ | 20,000 | |
7. Accrued and other current liabilities
Accrued and other current liabilities consist of the following (in thousands):
| | | | | | | |
| | March 31, | | December 31, |
| ||
| | 2021 | | 2020 |
| ||
Supply agreement - current portion | | $ | 5,085 | | $ | 4,391 | |
Consulting and professional fees | | | 4,155 | | | 2,754 | |
Accrued sales allowances | | | 4,190 | | | 4,312 | |
Employee compensation | | | 1,572 | | | 5,749 | |
Accrued royalties | | | 499 | | | 301 | |
Lease liability - current portion | | | 426 | | | 415 | |
Severance | | | 211 | | | 493 | |
Other | |
| 92 | |
| 72 | |
Accrued taxes | | | 8 | | | 1,161 | |
Total accrued and other current liabilities | | $ | 16,238 | | $ | 19,648 | |
8. Commitments and contingencies
(a) Commitments to Taro Pharmaceuticals Industries Ltd.
As of March 31, 2021, our remaining obligation under the Supply Agreement (see note 5) was $14.1 million. The 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.
Commitments to Aeterna Zentaris GmbH
In January 2018, we acquired the U.S. and Canadian rights to Macrilen (macimorelin) from Aeterna Zentaris GmbH. Under the terms of the License and Assignment Agreement, we paid Aeterna Zentaris GmbH $24 million, and will pay tiered royalties of 15%-18% on net sales as well as an aggregate of $174 million in potential milestones upon achievement 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 percent of the cost 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 obligatedalso required to purchasereimburse Taro for its royalty obligation resulting from its sale of Keveyis to us.
(b) Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often agree to indemnify our counterparties against certain amountsliabilities that may arise in connection with a transaction or that are related to events and activities prior to or following a transaction, such as breaches of product totaling $1.3 million overcontracts, unfavorable tax consequences and employee liabilities. If a counterparty were to make a successful indemnification claim against us, we may be required to reimburse the next nine months.loss and such amount could be material to our consolidated financial statements. Where appropriate, the obligation for such indemnifications is recorded as a liability. Because these agreements generally do not specify the maximum amount of indemnification a counterparty may be entitled to, the overall maximum amount of our potential indemnification liability under these agreements cannot be reasonably estimated. However, we believe that the likelihood of a material liability being triggered under these indemnification obligations is not probable at this time.
12
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.
ForWe did 0t incur income any tax expense for the three months ended March 31, 2018,2021 and 2020.
10. Ordinary Shares
Equity transactions
We entered into an equity distribution agreement with JMP Securities LLC (“JMP”) on April 28, 2017, pursuant to which we recorded full valuation allowances againstcould sell, at our deferred tax asset and deferred tax liability, resulting in no income tax expense.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referredoption, from time to time, up to an aggregate of $40 million of our ordinary shares through JMP, as the Tax Cuts and Jobs Act (the “Tax Act”).sales agent. The Tax 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
15
companies to pay a onetime transition tax on certain un-repatriated earnings of foreign subsidiaries; generally eliminating U.S. federal income 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 beginning after 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 result of the reduction in the U.S. corporate income tax rate from 34% to 21% under the Tax Act, we revalued our ending net deferred tax assets and liabilities at December 31, 2017.
The Tax Actagreement provided for a one-time transition tax oncommission to JMP equal to 3% of the deemed repatriationgross proceeds from the sale of post-1986 undistributed foreign subsidiary earnings and profitsour ordinary shares under this at-the-market (“E&P”ATM”). We did not have to recognize any income tax expense related facility. Pursuant 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 purposesterms of the base erosion provisions.
10. Ordinary shares
Equity transactions
On January 30, 2018,equity distribution agreement, we sold 5,000,000 ordinary shares in a public offering at a pricereimbursed JMP for certain out-of-pocket expenses, including the fees and disbursements of counsel 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 offeringJMP, incurred 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 discountsestablishing the ATM facility and commissions and offering expenses payable by us.
Warrants
provided JMP with customary indemnification rights. During the three months ended March 31, 2018,2021, we sold an aggregate of 11,311 ordinary shares under the ATM facility at an average selling price of $3.36 per share, resulting in connectionnet proceeds of approximately $38,000 after payment of fees to JMP of $1,100. This equity distribution agreement was terminated on March 24, 2021.
We entered into an equity distribution agreement with the CRG loan amendment,Jefferies LLC (“Jefferies”) on March 25, 2021, pursuant to which we issued warrants with a seven-year termmay sell, at our option, from time to CRGtime, up to purchase 1,248,250an aggregate of $50 million of our ordinary shares at an exercise pricethrough Jefferies, as sales agent. We will pay Jefferies a commission equal to 3% of $10.00.the gross proceeds from the sale of our ordinary shares under ATM facility. Pursuant to the terms of the equity distribution agreement, we reimbursed Jefferies for certain out-of-pocket expenses, including the fees and disbursements of counsel to Jefferies, incurred in connection with establishing the ATM facility and have provided Jefferies with customary indemnification rights. During the three months ended March 31, 2021, we did 0t sell any shares under this agreement.
13
Warrants
Our outstanding warrants as of March 31, 20182021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
| | | | | | | | | | | | | | |
|
| |
| | | | | | | | |
| Warrants |
|
| | | | | | | | | | | | | Outstanding | |
| | | | Exercise |
| Expiration |
| Warrants |
| Warrants | | March 31, | | |
| | Classification | | Price | | Date | | Issued | | Exercised | | 2021 | | |
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 | | 5/19/2025 | | 267,390 | | — | | 267,390 | |
Warrants in connection with Avenue Capital loan agreement | | Equity | | $ | 1.87 | | 12/30/2025 | | 267,390 | | — | | 267,390 | |
| | | | | | | | | 9,605,890 | | | | 7,368,033 | |
16
11. Stock‑basedStock-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 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, 1,147,2002021, 1,349,603 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 unitsRSUs 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, 203,0062021, 2,056,084 shares are available for issuance pursuant to the 2015 Plan.
Our board of directors has adopted, and our shareholders have approved, the Non‑EmployeeNon-Employee Director Equity Compensation Plan (the “Non‑Employee“Non-Employee Director Plan”). The Non‑EmployeeNon-Employee Director Plan provides for the grant of nonstatutory stock options, stock awards, and restricted stock unitsRSUs to our non‑employeenon-employee directors. The Non‑EmployeeNon-Employee Director Plan became effective on September 3, 2015. As of March 31, 2018, 201,5412021, 407,247 shares are available for issuance pursuant to the Non‑EmployeeNon-Employee Director Plan.
14
A summary of our outstanding stock options as of March 31, 20182021 is as follows:
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|
|
|
|
|
|
|
|
|
| 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
| | | | | | | | | | | |
| | Options Outstanding |
| ||||||||
|
| |
| | |
| Weighted- |
| | |
|
| | | | | | | Average | | | |
|
| | | | Weighted- | | Remaining | | | |
| |
| | | | Average | | Contractual | | | |
| |
| | Number of | | Exercise | | Term | | Aggregate |
| ||
| | Shares | | Price | | (Years) | | Intrinsic Value |
| ||
| | | | | | | | | (in thousands) |
| |
Outstanding—January 1, 2021 | | 8,989,306 | | $ | 4.81 | | 6.58 | | $ | 350 | |
Granted | | 91,300 | | $ | 3.20 | | | | | | |
Exercised | | (48,157) | | | | | | | | | |
Forfeited, cancelled and expired | | (346,375) | | $ | 3.96 | | | | | | |
Outstanding—March 31, 2021 |
| 8,686,074 | | $ | 4.83 | | 7.10 | | $ | 577 | |
Vested and exercisable—March 31, 2021 |
| 5,602,713 | | $ | 5.49 | | 6.56 | | $ | 191 | |
The weighted average grant date fair value of stock options granted during the three months ended March 31, 2021 and 2020 was $2.46 and $2.01, respectively.
Restricted stock units
We grant RSUs to employees and to members of our board of directors. RSUs that are granted to 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 1 ordinary share for each whole RSU that has vested, subject to satisfaction of the employee’s or director’s tax withholding obligations. The RSUs will cease to be outstanding upon the issuance of ordinary shares upon vesting. We recorded expense related to RSUs, which is included in the stock options outstanding atstock-based compensation table below, of $1.2 million and $0.5 million for the three months ended March 31, 2018 are2021 and 2020, respectively. As of March 31, 2021, the total unrecognized compensation expense related to unvested stock optionsRSUs is $6.5 million, which we expect to purchase 88,908 shares at a weighted average exercise pricerecognize over an estimated weighted-average period of $18.80 per share for which the vesting of certain tranches will accelerate if the fair value per share1.41 years.
A summary of our stock reaches $31.46. In addition, the options outstandingunvested RSUs as of March 31, 2018 include 97,652 shares that vest upon a market appreciation event, so long2021 is 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.follows:
| | | |
| | Number of | |
| | Shares | |
Outstanding—January 1, 2021 | 1,350,300 | | |
Granted | 2,204,525 | | |
Forfeited | (156,500) | | |
Vested | (355,150) | | |
Unvested—March 31, 2021 | 3,043,175 | |
1715
Stock‑basedStock-based compensation expense
We recognized stock‑basedstock-based compensation expense for employees and directors for stock options and RSUs as follows (in thousands):
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|
|
|
|
| |||||||
|
| Three Months Ended |
| |||||||||||
|
| March 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
| | | | | | | ||||||||
| | | Three Months Ended | |||||||||||
|
| | March 31, | |||||||||||
| |
| 2021 |
| 2020 | |||||||||
Selling, general and administrative |
| $ | 1,280 |
| $ | 216 |
| | | $ | 1,719 | | $ | 1,270 |
Research and development |
|
| 408 |
|
| 953 |
| | | | 558 | | | 481 |
Total stock-based compensation |
| $ | 1,688 |
| $ | 1,169 |
| | | $ | 2,277 | | $ | 1,751 |
As of March 31, 2018,2021, the total unrecognized compensation expense related to unvested stock options net of estimated forfeitures, is $17.9$5.6 million, which we expect to recognize over an estimated weighted‑averageweighted-average period of 3.232.04 years.
In determining the estimated fair value of our service-based awards, we use the Black‑Scholes option‑pricingBlack-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment. The fair value of our service-based awards that were granted during the yearsthree months period ending March 31, 2021 and 2020 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 |
| —% |
| —% |
|
| | | | | |
| | Three Months Ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 | |
Expected term (in years) | | 6.25 | | 6.07 | |
Risk-free interest rate | | .61%-.80% | | 1.47%-1.48% | |
Expected volatility | | 82.21% | | 78.15%-78.21% | |
Dividend rate | | —% | | —% | |
Restricted Stock Units
Our board of directors have approved grants of restricted stock units (“RSUs”) to employees. These RSUs vest two years from the date of issuance, provided that the employee is employed by us on such vesting date. All RSUs will fully vest upon a change of control of our company. If and when the RSUs vest, we will issue one ordinary share for each whole RSU that has vested, subject to satisfaction of the executive’s tax withholding obligations. The RSUs will cease to be outstanding upon such issuance of ordinary shares. We recorded expense, which is included in the stock-based compensation table above, of $149,000 and $88,000 for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, the total unrecognized compensation expense related to unvested RSUs is $0.7 million, which we expect to recognize over an estimated weighted‑average period of 1.58 years.
A summary of our unvested RSUs as of March 31, 2018 is as follows:
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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, 20172020 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, 20172020 (the “2017“2020 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 12, 2018.3, 2021. 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 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.
16
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 2020 Annual Report 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 20172020 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.
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
19
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, weWe have two clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole), the pure 2S,4R enantiomer of the enantiomeric pair comprising ketoconazole, is a cortisol synthesisnext-generation steroidogenesis inhibitor currently being studiedinvestigated as a chronic therapy for the treatment ofadults with endogenous Cushing'sCushing’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 Recorlevlevoketoconazole and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).
Given the well-identified and concentrated prescriber base addressing our target markets, we intend to continue to useRecent Developments
We have received a small, focused sales force to market Keveyis, Macrilen and any future products, innotice of allowance, dated April 22, 2021, from the United States Patent and Trademark Office relating to patent application 17/010,387 (entitled “Methods of Treating Disease with Levoketoconazole”). The patent application covers a method of treating Cushing’s syndrome patients with Recorlev who also have Type 2 diabetes. We expect the European Unionnotice of allowance to result in the issuance of a U.S. patent after administrative processes are completed.
We have submitted our NDA for Recorlev with the FDA.
COVID-19
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 three months ended March 31, 2021, we have experienced operational business disruptions as a result
17
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 keyemployee travel is done in accordance with state and local guidelines. In addition, our field teams have had limited access to physicians.
We continue to monitor the impacts of COVID-19 on the global markets. We believe thateconomy and on our business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will last or to what degree further disruption might 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 commercialbusiness 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 RevenueProduct Sales, net
We sell Keveyis to one specialty pharmacy provider (the “Customer”), who is the exclusive distributor ofspecialty pharmacy for Keveyis in the United States. The Customer subsequently resellsdispenses Keveyis to patients, whichmost of whom are covered by payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of the Keveyis.
We recognize revenuesRevenues from sales of Keveyis when we satisfy a performance obligationare 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 transferring controlus and the patients’ payors.
Cost 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 of the contract with the Customer when incurred, as these costs did not meet the criteria for capitalization.
We expect 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.Sales
Cost of Sales
Cost of sales includes third-party acquisition costs, third-party warehousing and product distribution charges.
20
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‑basedstock-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:
|
|
| expenses incurred under our agreements with contract research organizations |
| costs associated with regulatory filings; and |
|
|
| costs of acquiring preclinical study and clinical trial materials, and costs associated with formulation, process development and |
18 |
|
|
We expense all research and development costs as incurred. Clinical development expenses for our product candidates are a significant componentTable 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.Contents
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‑relatedpersonnel-related research and development costs, including stock‑basedstock-based compensation or other indirect costs, to specific programs, as they are deployed across multiple projects under development.
Amortization of Intangible Asset
Amortization of intangible asset relates to the amortization of our product rights to Keveyis. This intangible asset is being amortized over an eight-year period using the straight-line method.
Interest Expense
Interest expense represents interest paid to our lender, amortization of our debt discount, and issuance costs associated with loan and security agreements.
21
Amortization of Intangible Assets
Amortization of intangible asset relates to the amortization of our product rights to Keveyis and Macrilen. Both intangible assets are being amortized using the straight-line method, using an amortization period of eight-years for Keveyis and ten-years for Macrilen.Other (Expense) Income, Net
Other Expense, Net
Other expense,(expense) income, 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.
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.
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 inof our 20172020 Annual Report.
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Results of Operations
Comparison of the Three Months Ended March 31, 20182021 and 20172020.
The following table sets forth our results of operations for the three months ended March 31, 201830, 2021 and 2017.2020.
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| | Three Months Ended | | | |
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| | March 31, | | Change |
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| 2021 |
| 2020 |
| $ |
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| March 31, |
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| 2018 |
| 2017 |
| $ |
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| (in thousands) |
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| | (in thousands) |
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Revenues: |
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|
| | | | | | | | | | | ||
Net product sales |
| $ | 3,870 |
| $ | — |
| $ | 3,870 |
| | $ | 8,382 | | $ | 6,674 | | $ | 1,708 | |
Total revenues |
|
| 3,870 |
|
| — |
|
| 3,870 |
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| | | | | | | | | | | ||||||||||
Cost and operating expenses: |
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|
|
|
|
|
|
| |
|
| |
| |
| |
| ||
Cost of sales (excluding amortization of intangible assets) |
| $ | 667 |
| $ | — |
| $ | 667 |
| ||||||||||
Cost of sales (excluding amortization of intangible asset) | | $ | 411 | | $ | 969 | | $ | (558) | | ||||||||||
Selling, general and administrative |
|
| 12,362 |
|
| 7,442 |
|
| 4,920 |
| |
| 10,946 | |
| 10,403 | |
| 543 | |
Research and development |
|
| 4,881 |
| 3,481 |
| 1,400 |
| | | 5,839 | | | 7,552 | | | (1,713) | | ||
Amortization of intangible assets |
|
| 1,769 |
|
| 1,256 |
|
| 513 |
| ||||||||||
Amortization of intangible asset | | | 1,256 | | | 1,256 | | | — | | ||||||||||
Total cost and expenses |
|
| 19,679 |
|
| 12,179 |
|
| 7,500 |
| |
| 18,452 | |
| 20,180 | |
| (1,728) | |
Operating loss |
|
| (15,809) |
|
| (12,179) |
|
| (3,630) |
| |
| (10,070) | |
| (13,506) | |
| 3,436 | |
Other expense, net |
|
| (12,914) |
|
| (15,712) |
|
| 2,798 |
| ||||||||||
Other (expense) income, net | |
| (1,744) | |
| 808 | |
| (2,552) | | ||||||||||
Loss before income taxes |
|
| (28,723) |
|
| (27,891) |
|
| (832) |
| |
| (11,814) | |
| (12,698) | |
| 884 | |
Income tax expense |
|
| — |
|
| (1,594) |
|
| 1,594 |
| ||||||||||
Income tax benefit (expense) | |
| — | |
| — | |
| — | | ||||||||||
Net loss |
| $ | (28,723) |
| $ | (29,485) |
| $ | 762 |
| | $ | (11,814) | | $ | (12,698) | | $ | 884 | |
Net Revenue and Cost of Sales
Net revenue of $3.9 million for the three ended March 31, 2018Revenues and cost of sales of $0.7
Net product sales were $8.4 million for the three months ended March 31, 2018, resulted2021, an increase of $1.7 million compared to the three months ended March 31, 2020. Product sales from commercialKeveyis increased primarily due to an increase in 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 Keveyis, which we launched in April 2017.our inventory and the supply agreement.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses during the three months ended March 31, 20182021 and 2017:2020:
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| | Three Months Ended | | | |
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| | March 31, | | Change |
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| | 2021 | | 2020 | | $ |
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| Three Months Ended |
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| 2018 |
| 2017 |
| $ |
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| (in thousands) |
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Compensation and other personnel costs |
| $ | 5,572 |
| $ | 1,902 |
| $ | 3,670 |
| | $ | 5,206 | | $ | 5,185 | | $ | 21 | |
Outside professional and consulting services |
|
| 5,241 |
|
| 4,502 |
|
| 739 |
|
| | 3,847 |
| | 3,780 |
| | 67 | |
Stock-based compensation expense |
|
| 1,280 |
|
| 952 |
|
| 328 |
| | | 1,719 | | | 1,270 | | | 449 | |
Facility costs |
|
| 269 |
|
| 86 |
|
| 183 |
| |
| 174 | |
| 168 | |
| 6 | |
Total selling, general and administrative expenses |
| $ | 12,362 |
| $ | 7,442 |
| $ | 4,920 |
| | $ | 10,946 | | $ | 10,403 | | $ | 543 | |
Selling, general and administrative expenses were $12.4$10.9 million for the three months ended March 31, 2018,2021, an increase of $4.9$0.5 million compared to the three months ended March 31, 2017. Compensation and related personnel costs increased by $3.7 million during the three months ended March 31, 2018,2020, primarily due to increased headcount of commercial personnel for commercialization of Keveyis and planned launch of Macrilen. Outside professional and consulting services increased $0.7 million due to expenses relating to the commercialization of Keveyis and planned launch of Macrilen. Stock-basedan increase in our noncash stock-based compensation expense increased by $0.3 million during the 2018 period due to granting of new awards to new employees and facility costs increased due to the new lease entered into in November 2017.
expense.
2320
Research and Development Expenses
The following table summarizes our research and development expenses during the three months ended March 31, 20182021 and 2017:2020:
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| | Three Months Ended | | | | | ||||||||||||||
| | March 31, | | Change | | |||||||||||||||
| | 2021 | | 2020 | | $ | | |||||||||||||
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| Three Months Ended |
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| March 31, |
| Change |
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| 2018 |
| 2017 |
| $ |
| |||||||||||||
|
| (in thousands) |
| |||||||||||||||||
| | (in thousands) | | |||||||||||||||||
Product development and supporting activities |
| $ | 3,223 |
| $ | 2,486 |
| $ | 737 |
|
| $ | 3,873 |
| $ | 5,537 |
| $ | (1,664) | |
Compensation and other personnel costs |
|
| 1,250 |
|
| 778 |
|
| 472 |
| |
| 1,408 | |
| 1,534 | |
| (126) | |
Stock-based compensation expense |
|
| 408 |
|
| 217 |
|
| 191 |
| |
| 558 | |
| 481 | |
| 77 | |
Total research and development expenses |
| $ | 4,881 |
| $ | 3,481 |
| $ | 1,400 |
| | $ | 5,839 | | $ | 7,552 | | $ | (1,713) | |
Research and development expenses were $4.9$5.8 million for the three months ended March 31, 2018, an increase2021, a decrease of $1.4$1.7 million compared to the three months ended March 31, 2017.2020. The $0.7 million increase in expenses for product development and supporting activitiesdecrease was primarily due to additional clinical development expenses for Recorlev. Compensationdecreases in costs associated with our LOGICS and other personnelOPTICS trials offset by increases in regulatory costs increased by $0.5associated with our NDA submission during the three months ended March 31, 2021.
Amortization of Intangible Asset
Amortization of intangible asset was $1.3 million for the three months ended March 31, 2018 as compared to the same period in 2017 due to increased headcount in research2021 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. 2020.
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,Income (Expense), Net
The following table summarizes our other expense,income, net, during the three months ended March 31, 20182021 and 2017:2020:
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| Three Months Ended |
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| ||||
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| March 31, |
| Change |
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| 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 | | | |
| ||||
|
| March 31, | | Change |
| |||||
| | 2021 | | 2020 | | $ |
| |||
| | (in thousands) |
| |||||||
Unrealized (loss) gain on fair value of warrants | | $ | (774) | | $ | 580 | | $ | (1,354) | |
Interest expense | | | (782) | | | — | | | (782) | |
Other (expense) income, net | |
| (188) | |
| 228 | |
| (416) | |
Total other (expense) income, net | | $ | (1,744) | | $ | 808 | | $ | (2,552) | |
OtherTotal other expense, net decreased by $2.8was $1.7 million in for the three months ended March 31, 2018 as2021 compared to the three months ended March 31, 2017. The decreaseother income, net of $0.8 million in 2020. This $2.6 million change was primarilylargely due to a $5.2the net $1.3 million change inimpact from the revaluation of the fair value 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. The change in the warrant liability is primarilymostly due to changesthe change in our stock price offset in part by a $2.1and an additional $0.8 million increase in interest expense and $0.5 million of expense relating to the loss on the extinguishment of debt.our Term Loan Agreement which we entered into in May 2020.
Income Tax
We recorded nodid not incur any income tax expense for the three months ended March 31, 2018 as a result of recording full valuation allowances against our deferred tax asset2021 and deferred tax liability.
2020.
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Cash Flows
Comparison for the Three Months Ended March 31, 20182021 and 2017:2020:
| | | | | | | | |||||||
| | Three Months Ended | | |||||||||||
| | March 31 | | |||||||||||
|
| 2021 |
| 2020 | | |||||||||
|
|
|
|
|
|
| ||||||||
|
| 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) |
| | $ | (13,393) | | $ | (15,240) | |
Investing activities |
|
| (24,655) |
|
| (7,500) |
| |
| (10) | |
| 14,830 | |
Financing activities |
|
| 77,569 |
|
| (150) |
| |
| (221) | |
| (68) | |
Net increase (decrease) in cash and cash equivalents |
| $ | 34,895 |
| $ | (16,939) |
| |||||||
Net decrease in cash and cash equivalents | | $ | (13,624) | | $ | (478) | |
Operating Activities
Net cash used in operating activities was $18.0$13.4 million for the three months ended March 31, 20182021 compared to $9.3$15.2 million for the three months ended March 31, 2017.2020. The increasedecrease in net cash used in operating activities resulted primarily from investments during 2018 to support the commercializationan increase of Keveyis and the launch of Macrilen. $1.7 million in net revenues.
Investing Activities
Net cash used in investing activities was $24.7insignificant for the three months ended March 31, 2021 compared to proceeds of $14.8 million for the three months ended March 31, 2018 compared2020. The decrease is due to $7.5 million for the three months ended March 31, 2017. sale of marketable securities during 2020. We did not hold marketable securities during 2021.
Financing Activities
The increase in net cash used in investing activities resulted from the $24 million payment made to Aeterna Zentaris GmbH for our acquisition of Macrilen and other expenses incurred with the acquisition.
Financing Activities
Net cash provided by financing activities was $77.6 million for the three months ended March 31, 2018 compareddue to payments related to tax withholding of net cash used in financing activities for the three months ended March 31, 2017share settled equity awards offset by stock option exercises and sales of $0.2 million. The increase in net cash provided by financing activity resulted primarily fromshares under our receipt of $44.9 million in proceeds from the amendment to our senior credit facility with CRG Servicing LLC (“CRG”) and $33.5 million in proceeds from our issuance of ordinary shares.ATM facility.
Liquidity and Capital Resources
Our operations have been financed primarily by net proceeds from the issuanceWe continuously and critically review our liquidity and anticipated capital requirements in light of ordinary sharesour clinical trial activities and the issuance of debt. Our primary uses of capital have been costs incurred 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, 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 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 affectedsignificant uncertainty created 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 financial statements, included in this Quarterly Report. COVID-19 global pandemic.
We believe that our cash resourcesand cash equivalents of $73.9 million at March 31, 2021 will be sufficient to allow us to fund planned operations for at least 12 months beyond the issuance date of the 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.
25
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 |
| 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 |
22 |
|
|
| the number and characteristics of product candidates that we pursue, including any additional product candidates we may |
| the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
| 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 |
| adequate reimbursement from payors for Keveyis and Recorlev (if approved) 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; |
| the emergence of competing technologies and their achieving commercial success before we do or other adverse market |
● | any extended impact of COVID-19. |
As of March 31, 2018, we held cash and cash equivalents of $92.4 million.
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 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.
26
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.
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 KeveyisKeveyis. There can be no assurances, however, that additional funding will be available on terms acceptable to us.
Long-term Debt
On May 19, 2020, we entered into the $30 million Loan Agreement with Avenue Venture Opportunities Fund L.P. (“Avenue”), as administrative agent and Macrilencollateral agent, and the lenders named therein and from time to time a party thereto (the “Lenders”). Pursuant to the terms of the Loan Agreement, our wholly-owned subsidiary Strongbridge U.S. Inc. (the “Borrower”) borrowed $10 million (the “Initial Loan”) from the Lenders at closing. As a result of achieving positive top-line data for Recorlev in our Phase 3 LOGICS clinical trial in September 2020, we were eligible to and did borrow an additional $10 million under the Loan Agreement (the “Second Loan”), on December 30, 2020. The remaining $10 million tranche (the “Third Loan”) will become available to us between October 1, 2021 and March 31, 2022 if we achieve FDA approval of Recorlev and subject to Avenue’s investment committee approval.
At-The-Market Facility
We entered into an equity distribution agreement with Jefferies LLC (“Jefferies”) on March 25, 2021, pursuant to which we may sell, at our option, from time to time, up to an aggregate of $50 million of our ordinary shares through Jefferies, as sales agent. We will pay Jefferies a commission equal to 3% of the gross proceeds from the sale of additionalour ordinary shares under this at-the-market (“ATM”) facility. Pursuant to the terms of the equity would resultdistribution agreement, we reimbursed Jefferies for certain out-of-pocket expenses, including the fees and disbursements of counsel to Jefferies, incurred in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligationsconnection with establishing the ATM facility and have provided Jefferies with customary indemnification rights. During the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are not able to secure adequate additional funding, we may be forced 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.
Contractual Obligations and Other Commitments
The following table summarizes our future minimum commitments atthree months ended 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 |
|
2021, we did not sell any shares under this agreement.
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‑BalanceOff-Balance Sheet Arrangements
We do not have variable interests in variable interest entities or any off‑balanceoff-balance sheet arrangements.
2723
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our market risk exposures since December 31, 2020.
We are exposed to certain market risks in the ordinary course 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, 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 material impact on our financial statements.
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 30, 2018,31, 2021, the end of the period covered by this Quarterly Report.Based on theirthat evaluation, we believeour principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of March 30, 201831, 2021 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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 20182021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
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.
28
The risks described in Item 1A. Risk Factors of our 20172020 Annual Report could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in our 20172020 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 in the risk factors discussed in our 2017 Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
24
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
None.
EXHIBIT INDEX
| | |
10.1 | | |
31.1 | | |
31.2 | | |
32.1 | | |
101.INS |
| XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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) |
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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 | ||||
| |||||
| |||||
| By: |
| /s/ | ||
| Name: |
|
| ||
| Title: |
| President & Chief Financial Officer |
Date: May 10, 201812, 2021
3026