The following information should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, or the Quarterly Report, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with theSecurities and Exchange Commission , or theSEC , onMarch 7, 2022 , or our Annual Report. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under "Risk Factors" included elsewhere in this Quarterly Report. Such factors may be amplified by the COVID-19 pandemic and its current or its potential impact on our business and the global economy. Unless otherwise indicated or required by context, references throughout to "Eagle," the "Company," "we," "our," or "us" refer to financial information and transactions ofEagle Pharmaceuticals, Inc. 36 --------------------------------------------------------------------------------
overview
We are an integrated pharmaceutical company focused on finding ways to help medicines do more for patients. Along with our collaborators, we have the capabilities to take a molecule from preclinical research through regulatory approval and into the marketplace, including development, manufacturing and commercialization of our products and product candidates. Our business model applies our scientific expertise, proprietary research-based insights and marketplace proficiency to identify challenging-to-treat diseases of the central nervous system or metabolic critical care therapeutic areas as well as in oncology. By focusing on patients' unmet needs, we strive to provide healthcare professionals with urgently needed treatment solutions that are designed to improve patient care and outcomes and create near- and long-term value for our stakeholders, including patients and healthcare providers and our employees, marketing partners, collaborators and stockholders. Our science-based business model has a proven track record with theU.S. Food and Drug Administration ("FDA") approval and commercial launches of six products: PEMFEXY® (pemetrexed for injection), vasopressin, an A-rated generic alternative to Vasostrict®, Ryanodex® (dantrolene sodium) ("Ryanodex"), bendamustine ready-to-dilute ("RTD") 500ml solution ("Belrapzo"), and rapidly infused bendamustine RTD ("Bendeka") and RTD ("Treakisym"). We market our products through marketing partners and/or our internal direct sales force. We market PEMFEXY, vasopressin, Ryanodex and Belrapzo, and Teva Pharmaceutical Industries Ltd. ("Teva") markets Bendeka through its subsidiaryCephalon, Inc. SymBio Pharmaceuticals Limited ("SymBio"), markets Treakisym, a RTD product, inJapan . We acquired Acacia Pharma Group plc ("Acacia") as ofJune 9, 2022 , which added twoU.S. Food and Drug Administration ("FDA") approved new chemical entities with patent protection, BARHEMSYS® (amisulpride for injection) and BYFAVO® (remimazolam for injection). The addition of these two products expands our presence in the acute care space, and we believe that our hospital-based salesforce will have success commercializing these assets. Refer to Note 14 for further details. With several pipeline projects underway and the potential for product launches over the next several years, we believe we have many growth opportunities ahead. We believe that each of our pipeline projects currently has the potential to enter the market as a first-in-class, first-to-file, first-to-market or best-in-class product. In particular, we are applying our expertise to conduct novel research regarding the potential for Ryanodex to address conditions including acute radiation syndrome, traumatic brain injury/concussion and Alzheimer's disease as well as investigations of compounds such as EA-114 (our fulvestrant product candidate) for patients with HR-positive advanced breast cancer. Our clinical development program also includes a license agreement withCombioxin, SA under which the Company was granted exclusive, worldwide development and commercialization rights to CAL02, a novel first-in-class anti-infective agent for Phase 2b/3 development for the treatment of severe pneumonia in combination with traditional antibacterial drugs and a license agreement withAOP Orphan Pharmaceuticals GmbH , a member of theAOP Health Group ("AOP Orphan"), for the commercial rights to its product, landiolol inthe United States . Landiolol is a leading hospital emergency use product, which is currently approved inEurope for the treatment of non-compensatory sinus tachycardia and tachycardic supraventricular arrhythmias.
Recent Developments
OnAugust 8, 2022 , we andEnalare Therapeutics Inc. ("Enalare") entered into a Securities Purchase Agreement, pursuant to which we have committed to provide equity investments of up to$55 million in Enalare, subject to the completion of certain development milestones (the "Purchase Agreement"). Concurrently with the execution of the Purchase Agreement, we, Enalare and holders of all of the outstanding capital stock, and any securities or options exercisable for capital stock, of Enalare (the "Securityholders") entered into a Security Purchase Option Agreement, pursuant to which we were granted an option (the "Purchase Option") to acquire all of the remaining outstanding shares of Enalare other than those that we already own, subject to the terms and conditions of the agreement (the "Option Agreement"). The term of the Purchase Option (the "Option Period") commenced onAugust 8, 2022 and will end upon the earlier of (x) 90 days following the FDA communication of proceed to clinical for a Phase 3 clinical study for a Product Candidate or (y)June 30, 2027 . Enalare shall not initiate Phase 3 pivotal studies prior to the end of the Option Period and we shall have reasonable access to all relevant data and documents following the Phase 3 Milestone (as defined in the Option Agreement). ENA-001 is an investigational, portfolio of novel new chemical entities being developed by Enalare as an agnostic respiratory stimulant for multiple patient populations experiencing acute respiratory depression. The initial targeted indications include post-operative respiratory depression; community drug overdose; and Apnea of Prematurity, a common condition in preterm infants. FDA granted Orphan Drug Designation to ENA-001 for the treatment of Apnea of Prematurity ("AoP"). AoP is a development disorder attributed to immaturity of the pulmonary system characterized by either cessation of breathing for more than 20 seconds or cessation of breathing that lasts less than 20 seconds but is accompanied by either bradycardia or hypoxemia. 37 -------------------------------------------------------------------------------- Third Amended and Restated Credit Agreement OnNovember 1, 2022 , we entered into the Third Amended and Restated Credit Agreement (the "Third Amended Credit Agreement"), withJPMorgan Chase Bank, N.A ., as administrative agent (the "Administrative Agent") and the lenders party thereto, which replaced our existing credit agreement, dated as ofNovember 8, 2019 (the "Prior Credit Agreement"). The terms and amounts borrowed under the Third Amended Credit Agreement includes a drawn term loan of$50 million and a$100 million revolving credit facility of which$15.0 million was drawn onNovember 1, 2022 . In addition, approximately$35.4 million of the proceeds of the credit facility were used to refinance all amounts outstanding under the Prior Credit Agreement, and we currently intend to use the remaining proceeds to repay certain indebtedness of our wholly-owned subsidiary,Acacia Pharma Group Limited , and for other corporate purposes. The new maturity date of the schedule of principal payments for each of the revolving credit facility and the term loan facility isOctober 31, 2025 , unless required to mature earlier or extended pursuant to the terms of the Third Amended Credit Agreement.
acacia acquisition
OnJune 9, 2022 , we completed the acquisition of Acacia Pharma Group plc ("Acacia"), formerly a public company organized under the laws ofEngland andWales . The acquisition added two FDA approved currently marketed, acute care, hospital products, both of which are new chemical entities with strong patent protection:
• BARHEMSYS (amisulpride for injection), the first and only FDA-approved antiemetic for the emergency treatment of postoperative nausea and vomiting, and
•BYFAVO (remimazolam for injection), indicated for the induction and maintenance of procedural sedation in adults undergoing procedures lasting 30 minutes or less. Landiolol OnJune 1, 2022 , we announced thatAOP Orphan , with whom we entered into a licensing agreement inAugust 2021 , submitted an NDA to the FDA for landiolol, a short-acting, intravenous ("IV"), cardio-selective beta-1 adrenergic blocker. The submission seeks approval for landiolol for the short-term reduction of ventricular rate in patients with supraventricular tachycardia ("SVT"), including atrial fibrillation and atrial flutter. TheFDA's decision with respect to approval is expected in mid-2023. Patient enrollment for a study of pediatric patients with supraventricular tachycardia is underway inEurope .
PEMFEXY
OnFebruary 1, 2022 , we announced the commercial availability of our novel product PEMFEXY® (pemetrexed for injection). A branded alternative to ALIMTA®, Eagle's PEMFEXY is a ready-to-use liquid with a unique J-code approved to treat nonsquamous non-small cell lung cancer and mesothelioma. InFebruary 2020 , Eagle received final approval from the FDA of its New Drug Application ("NDA") for PEMFEXY, following the settlement agreement of patent litigation with Eli Lilly and Company (NYSE: LLY) inDecember 2019 . The agreement provided for a release of all claims by the parties and allows for an initial entry of PEMFEXY into the market (equivalent to approximately a three-week supply of current ALIMTA utilization) onFebruary 1, 2022 and a subsequent uncapped entry onApril 1, 2022 .
vasopressin
On
OnDecember 15, 2021 , the FDA approved Eagle's abbreviated new drug application ("ANDA") for vasopressin, a product that is indicated for use to increase blood pressure in adults with vasodilatory shock (e.g., post-cardiotomy or sepsis) who remain hypotensive despite fluids and catecholamines.
TREAKISYM
Eagle's bendamustine franchise continues to grow, including the launch of the
TREAKISYM ready-todilute ("RTD") formulation in Japan in the first quarter of
2021. Together with a potential approval of the rapid infusion ("RI") (50ml)
liquid formulation.
Fulvestrant
Based on discussions with the FDA, we have shortly reformulated our product candidate fulvestrant for the treatment of HR+/HER- advanced breast cancer and have begun pilot studies in humans.
38 --------------------------------------------------------------------------------
CAL02
We submitted an IND to the FDA for CAL02, a novel first-in-class broad-spectrum
anti-virulence agent for the treatment of severe community-acquired bacterial
pneumonia ("SCABP"). The IND filing includes a protocol for a global Phase 2
study to evaluate the efficacy and safety of CAL02 when added to standard of
care therapy in patients with SCABP.
We expect to start a Phase 2b/3 clinical trial for CAL02 patients later in 2022,
during pneumonia season. In August 2021 , we entered into a license agreement
with Combioxin SA under which we were granted exclusive, worldwide development
and commercialization rights to CAL02, a novel approach to the treatment of
severe bacterial pneumonia.
Bendeka settlement
OnApril 19, 2022 , we entered into a definitive settlement agreement, or the Settlement Agreement, withHospira, Inc. , or Hospira, relating to our product BENDEKA® (rapidly infused bendamustine hydrochloride). This settlement resolves patent litigation brought by us and our marketing partnersTeva Pharmaceuticals International, GmbH andCephalon, Inc. relating to the alleged infringement of Orange Book listed United States Patent Nos. 11,103,483 and 9,572,887, or the Asserted Patents, with respect to Hospira's 505(b)(2) NDA, No. 211530. Pursuant to the terms of the Settlement Agreement, we will grant Hospira a license to market Hospira's product made under NDA No. 211530 inthe United States beginning onJanuary 17, 2028 (subject to FDA approval), or earlier under certain circumstances. Additionally, in accordance with the Agreement, the parties will terminate all ongoing litigation among us,Teva Pharmaceuticals International, GmbH andCephalon, Inc. and Hospira regarding the Asserted Patents pending in theUnited States District Court for the District of Delaware . The Agreement is confidential and subject to review by theU.S. Federal Trade Commission and theU.S. Department of Justice .
COVID-19 business update
In response to the ongoing COVID-19 pandemic, we have taken and continue to take active measures designed to address and mitigate the impact of the COVID-19 pandemic on its business, such as remote working policies, facilitating management's daily communication to address employee and business concerns and providing frequent updates to the Board. While we have experienced variable financial and operational impacts to date, the ongoing COVID-19 pandemic, including the global economic slowdown, government measures taken in response thereto, the overall disruption of global healthcare systems and other risks and uncertainties associated with the pandemic, could materially adversely affect our business, financial condition, results of operations and growth prospects. We continue to closely monitor the COVID-19 pandemic as we evaluate and evolve our business plans and response strategy. The impact of the COVID-19 pandemic on our business and financial condition is more fully described below in Trends and Uncertainties.
In addition, we continue to monitor the impact of other global and deteriorating macroeconomic conditions, such as global geopolitical tensions, rising inflation and interest rates, exchange rate fluctuations, supply chain disruptions and increases in commodity, energy and fuel prices.
Other Business Updates
In addition, theU.S. government and other nations have imposed significant restrictions on most companies' ability to do business inRussia as a result of the ongoing military conflict betweenRussia andUkraine . It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to further expand our business and to otherwise generate revenues and develop our product candidates. In addition, a significant escalation or expansion of economic disruption or the conflict's current scope could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Overview of financial operations
revenue
Our income consists of product sales, license income, and royalties and other income.
product sales. Through
39 -------------------------------------------------------------------------------- We typically enter into agreements with group purchasing organizations acting on behalf of their hospital members, in connection with the hospitals' purchases of our direct commercial products. Based on these agreements, most of our hospital customers have contracted prices for products and volume-based rebates on product purchases. These amounts are estimated and recorded at the time of sale. In the case of discounted pricing, we typically provide a chargeback, representing the difference between the price invoiced to the wholesaler and the customer contract price. Royalty Revenue. We recognize revenue from royalties based on a percentage of Teva's net sales of Bendeka and Symbio's net sales of Treakisym, net of discounts, returns and allowances incurred by our commercial partners. Royalty revenue is recognized as earned in accordance with contract terms when it can be reasonably estimated and collectability is reasonably assured. License and Other Revenue. Our revenues may either be in the form of the recognition of deferred revenues upon milestone achievement for which cash has already been received or recognition of revenue upon milestone achievement for which the payment for which is reasonably assured to be received in the future.
The main factors that determine our income from Bendeka are:
•the amount of orders submitted by our trading partner Teva;
• the rate at which Teva can convert the current market into Bendeka;
•the level of institutional demand for Bendeka;
• Unit sales prices calculated by Teva, less any sales reserves; and
•The volume of orders submitted to Teva by wholesalers, hospitals and operations centers.
The main factors that determine our revenue from Trekisym are:
•the volume of orders submitted by our trading partner SymBio;
• the level of institutional demand for Treakisym; and
• Sales unit prices calculated by SymBio, less any sales reserves.
The main factors that can determine our earnings from Pemfexy, Vasopressin, Ryanodex, Belrapzo, BARHEMSYS, BYFAVO and our future products are:
• the effectiveness of our sales force;
•the volume of orders placed by wholesalers, hospitals and surgery centers;
• the level of institutional demand for our products; and
•Sales prices per unit, less any sales reserves.
cost of revenue
Cost of revenue consists of the costs associated with producing our products for
our commercial partners. In particular, our cost of revenue includes production
costs of our products paid to a contract manufacturing organization coupled with
shipping and customs charges, cost of royalty and the amortization of intangible
assets. Cost of revenue may also include the effects of product recalls, if
applicable.
Research and Development
Costs for research and development are charged to expenses as incurred and
include: employee-related expenses including salaries, benefits, travel and
stock-based compensation expense for research and development personnel;
expenses incurred under agreements with contract research organizations,
contract manufacturing organizations and service providers that assist in
conducting clinical and preclinical studies; costs associated with preclinical
activities and development activities; costs associated with regulatory
operations; and depreciation expense for assets used in research and development
activities.
Costs for certain development activities, such as clinical studies, are
recognized based on an evaluation of the progress to completion of specific
tasks using data such as patient enrollment, clinical site activations, or
information provided to the Company by its vendors on their actual costs
incurred. Payments for these activities are based on the terms of the individual
arrangements, which may differ from the patterns of costs incurred, and are
reflected in the condensed consolidated financial statements as prepaid expenses
or accrued expenses as deemed appropriate. Recoveries of previously recognized
research and development expenses from third parties are recorded as a reduction
to research and development expense in the period it becomes realizable.
40
--------------------------------------------------------------------------------Sales General and administration
Selling, general and administrative costs consist of employee-related costs including salaries, benefits and other related costs, stock-based compensation for executive, finance, sales and operations personnel. Selling, general and administrative expenses also include facility and related costs, professional fees for legal, consulting, tax and accounting services, insurance, selling, marketing, market research, advisory board and key opinion leaders, depreciation and general corporate expenses.
income tax
We account for income taxes using the liability method in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 740 - Income Taxes, or ASC 740. Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that the rate changes. A valuation allowance is required when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. ASC 740 also prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction. We recognize any interest and penalties accrued related to unrecognized tax benefits as income tax expense. The provision for income taxes was based on the applicable federal and state tax rates for those periods. The effective tax rate for the three months endedSeptember 30, 2022 reflects certain non-deductible executive compensation, partially offset by credits for research and development activity. The effective tax rate for the three months endedSeptember 30, 2021 reflects the impact of a valuation allowance established and adjusted for the fair value adjustments on our investment in Syros Pharmaceuticals, Inc. ("Syros"), following the merger ofTyme Technologies, Inc. ("Tyme") and Syros onSeptember 16, 2022 , certain non-deductible executive compensation and changes in state filing positions, partially offset by credits for research and development activity.
operating results
Comparison of the past three months
Revenues
Three Months Ended
September 30,
2022 2021 Increase / (Decrease)
(in thousands)
Product sales, net $ 38,086 $ 12,124 $ 25,962
Royalty revenue 24,007 27,729 (3,722)
License and other revenue 3,808 - 3,808
Total revenue $ 65,901 $ 39,853 $ 26,048
Our product sales increased $26 million during the three months ended September
30, 2022 as compared to the three months ended September 30, 2021 . The increase
was primarily attributable to product sales of $13.8 million for vasopressin and
product sales of Pemfexy of $1.7 million , each of which launched in the first
quarter of 2022. We also had higher product sales for Ryanodex, Bendeka, and
Belrapzo of $3.1 million , $3.0 million and $3.6 million , respectively, primarily
driven by volume increases. Product sales for the three months ended September
30, 2022 also included our recently acquired Barhemsys and Byfavo products,
which totaled $0.8 million .
Our royalty revenue decreased $3.7 million during the three months ended
September 30, 2022 as compared to the three months ended September 30, 2021 ,
primarily as a result of a decrease in royalty revenue from our share of Teva's
Bendeka sales.
During the three months ended September 30, 2022 , we earned a sales milestone of
$3.8 million from Symbio related to a contractual milestone for aggregate net
sales of Treakisym.
41
--------------------------------------------------------------------------------
Cost of revenue
Three Months Ended
September 30,
2022 2021 Increase
(in thousands)
Cost of product sales $ 20,869 $ 5,486 $ 15,383
Cost of royalty revenue 2,782 2,773 9
Total cost of revenue $ 23,651 $ 8,259 $ 15,392
Our cost of product sales increased by $15.4 million during the three months
ended September 30, 2022 as compared to the three months ended September 30,
2021 . This was primarily attributable to the cost of product sales of
vasopressin of $7.1 million , which launched in 2022. There were also increases
of $2.7 million in Bendeka and $1.2 million in Belrapzo cost of product sales
resulting from higher unit sales. We also recorded $2.9 million of amortization
expenses related to intangible assets acquired with Acacia in June 2022 .
Our cost of royalty revenue was almost unchanged during the three months ended
September 30, 2022 as compared to the three months ended September 30, 2021 and
included royalties we paid on our bendamustine franchise products. This was
primarily attributable to costs related to the royalty revenue for Treakisym.
Research and Development The following table presents the Company’s research and development expenses by major projects for the periods presented.
Three Months Ended September 30, Increase /
2022 2021 (Decrease)
(in thousands)
Fulvestrant $ 1,676 $ 729 $ 947
Vasopressin 13 2,086 (2,073)
Ryanodex related projects 80 - 80
CAL02 3,351 10,000 (6,649)
Landiolol 214 5,000 (4,786)
Pemfexy - 1,386 (1,386)
All other projects 690 602 88
Salary and other personnel related costs 3,302 3,486 (184)
Research and development $ 9,326
Our research and development expenses decreased$14.0 million during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . The decrease was primarily due to lower spend of$6.6 million on CAL02 and$4.8 million on landiolol due to the upfront license fees paid in Q3 2021 and non-recurrence of development costs of$2.1 million on vasopressin and$1.4 million on PEMFEXY. This was partially offset by an increase in spend on fulvestrant of$0.9 million compared to the three months endedSeptember 30, 2021 . Selling, general and administrative Three Months Ended September 30, 2022 2021 Increase (in thousands)
Sales General and administration
Our selling, general and administrative expenses increased$5.0 million during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . This increase was primarily related to$1.1 million of external sales and marketing and$1.2 million of headcount costs for BARHEMSYS and BYFAVO re-launches,$1.1 million of financial and 42 --------------------------------------------------------------------------------
other professional fees,
Other expense, net
Three Months Ended
September 30,
2022 2021 Increase
(in thousands)
Interest income $ (444) $ 197 $ (641)
Interest expense (1,147) (396) (751)
Other expense (11,534) (2,284) (9,250)
Total other expense, net $ (13,125) $ (2,483) $ (10,642)
Our interest income decreased by $0.6 million for the three months ended
September 30, 2022 as compared to the three months ended September 30, 2021 .
This increase was primarily due to write-off $0.5 million of interest receivable
associated with the convertible promissory note which was written-off during the
third quarter 2022.
Our interest expense increased by $0.8 million for the three months ended
September 30, 2022 as compared to the three months ended September 30, 2021 .
This increase was due to our higher level of outstanding debt during the three
months ended September 30, 2022 .
Our other expense was a net expense of $11.5 million for the three months ended
September 30, 2022 as compared to a net expense of $2.3 million for the three
months ended September 30, 2021 . The change was primarily due to a $6.4 million
loss related to foreign exchange losses and forward contracts settled during the
period, and a $4.2 million loss related to fair value adjustments related to a
promissory note write off, partially offset by small gain related to fair value
adjustments on our investment in Syros during the three months ended September
30, 2022 .
Income tax provision
Three Months Ended September 30,
2022 2021
(in thousands)
(Provision) benefit for income taxes $ (3,468) $ 7,038
Effective tax rate (95) % 56 %
Our effective tax rate for the three months ended September 30, 2022 , reflects
an interim tax provision resulting from the impact of certain non-deductible
executive compensation and the impact of certain non-deductible costs from the
acquisition of Acacia. The effective tax rate for the three months ended
September 30, 2021 reflects the impact of a valuation allowance established and
certain non-deductible executive compensation, partially offset by credits for
research and development activity.
Comparison of Nine Months Ended September 30, 2022 and 2021
Revenues
Nine Months Ended September 30, Increase /
2022 2021 (Decrease)
(in thousands)
Product sales, net $ 177,375 $ 48,865 $ 128,510
Royalty revenue 74,728 80,361 (5,633)
License and other revenue 3,808 - 3,808
Total revenue $ 255,911 $ 129,226 $ 126,685
43-------------------------------------------------------------------------------- Our product sales increased$128.5 million in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The increase was primarily attributable to product sales of Pemfexy and vasopressin, which each launched in the first quarter of 2022, which combined for$114.9 million of product sales, net. We also had higher product sales of Bendeka of$4.5 million , Belrapzo of$4.2 million , each due to unit volume, and Ryanodex of$3.6 million due to volume and price increases. Our royalty revenue decreased$5.6 million in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , primarily as a result of lower royalties on Teva's sales of Bendeka of$9.3 million , which were partially offset by royalties on Symbio's sales of Treakisym of$3.7 million .
During the nine months ended
Cost of revenue
Nine Months Ended September 30, Increase /
2022 2021 (Decrease)
(in thousands)
Cost of product sales $ 67,216 $ 21,835 $ 45,381
Cost of royalty revenue 7,854 8,036 (182)
Total cost of revenue $ 75,070 $ 29,871 $ 45,199
Our cost of product sales increased $45.4 million in the nine months ended
September 30, 2022 as compared to the nine months ended September 30, 2021 . This
was primarily attributable to the product launches of Pemfexy and vasopressin in
2022, which combined for cost of sales of $34.4 million in the nine months ended
September 30, 2022 , as well as increases of $4.4 million for Bendeka and $1.8
million for Belrapzo, each related to higher unit sales. We also recorded $3.6
million of amortization expenses related to intangible assets acquired with
Acacia in June 2022 .
Our license revenue costs have gone down
Research and development
Nine Months Ended September 30, Increase /
2022 2021 (Decrease)
(in thousands)
Fulvestrant $ 8,594 $ 5,207 $ 3,387
Vasopressin (591) 7,297 (7,888)
Ryanodex related projects 512 3,625 (3,113)
CAL02 6,737 10,000 (3,263)
Landiolol 367 5,000 (4,633)
Pemfexy (56) 2,502 (2,558)
All other projects 1,425 2,475 (1,050)
Salary and other personnel related costs 9,883 11,382 (1,499)
Research and development $ 26,871 $ 47,488 $ (20,617)
Our research and development expenses decreased $20.6 million in the nine months
ended September 30, 2022 as compared to the nine months ended September 30,
2021 . The decrease primarily resulted from non-recurrence of development costs
of $7.9 million for vasopressin, $3.1 million for Ryanodex related projects,
$2.6 million related to Pemfexy and $1.5 million total decrease in salaries,
bonus, severance, included with salary and other personnel related costs.
Coupled with decreases for $3.3
44
--------------------------------------------------------------------------------million for the CAL02 project and
Sales General and administration
Nine Months Ended September 30,
2022 2021 Increase
(in thousands)
Selling, general and administrative $ 82,476
Our selling, general and administrative expenses increased$27.5 million in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The increase is primarily related to$9.8 million of professional fees related to the Acacia acquisition,$8.2 million of severance related to the integration of Acacia,$4.7 million of external legal costs,$2.0 million of increased salaries and bonus for increased in salesforce headcount, and$1.9 million of sales and marketing costs for Pemfexy, partially offset by a decrease in stock compensation expense of$2.2 million . Other expense, net Nine Months Ended September 30, (Decrease) / 2022 2021 Increase (in thousands) Interest income$ (46) $ 395 $ (441) Interest expense (2,065) (1,240) 825 Other expense (21,254) (1,797) (19,457) Total other expense, net$ (23,365) $
(2,642)
Our interest income decreased$0.4 million in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . This decrease was primarily due to the impairment of$0.5 million of interest receivable associated with the convertible promissory note which was impaired during the third quarter 2022. Our interest expense increased$0.8 million in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . This increase was due to higher outstanding debt during the nine months endedSeptember 30, 2022 . Our other expense was a net expense amount of$21.3 million for the nine months endedSeptember 30, 2022 as compared to the net expense of$1.8 million for the nine months endedSeptember 30, 2021 . The change was primarily due to a$12.8 million loss related to foreign exchange losses and a forward contract settled during the period and$3.2 million loss related to fair value adjustments on our investment in Syros during the nine months endedSeptember 30, 2022 . Income tax provision Nine Months Ended September 30, 2022 2021 (in thousands) (Provision) benefit for income taxes$ (20,652) $ 3,341 Effective tax rate 43 % 58 % The effective tax rate for the nine months endedSeptember 30, 2022 , reflects an interim tax provision resulting from impact of certain non-deductible executive compensation and the impact of certain non-deductible costs from the acquisition of Acacia, partially offset by credits for research and development activity.
liquidity and capital resources
Our main sources of liquidity are our cash and cash equivalents, cash flows from operations and the availability of credit
45 -------------------------------------------------------------------------------- under our revolving credit facility. Our primary uses of cash are to fund working capital requirements, including repayment of debt, product development costs and operating expenses. We may also use cash for business acquisitions or other strategic transactions, such as in our acquisition of Acacia. Cash and cash equivalents were$15.4 million and$99.7 million as ofSeptember 30, 2022 andSeptember 30, 2021 , respectively. OnNovember 1, 2022 , we entered into the Third Amended and Restated Credit Agreement ("Third Amended Credit Agreement"),with the Administrative Agent and the lenders party thereto, which replaced the Prior Credit Agreement. The terms and amounts borrowed under the Third Amended Credit Agreement include a drawn term loan of$50 million and a$100 million revolving credit facility of which$15.0 million was drawn onNovember 1, 2022 . In addition, approximately$35.4 million of the proceeds of the credit facility were used to refinance all amounts outstanding under the Prior Credit Agreement, and we currently intend to use the remaining proceeds to repay certain indebtedness of our wholly-owned subsidiary,Acacia Pharma Group Limited , and for other corporate purposes. The new maturity date of the schedule of principal payments for each of the revolving credit facility and the term loan facility isOctober 31, 2025 , unless required to mature earlier or extended pursuant to the terms of the Third Amended Credit Agreement.
For the nine months ended
We believe that our cash and cash equivalents and future cash flows from operations will be sufficient to fund our currently anticipated working capital requirements for at least the next 12 months. We believe we will be able to meet our expected future cash and working capital requirements through a combination of cash flows from operations, cash and cash equivalents, availability of borrowings under our revolving credit facility and additional funding in the capital markets, if needed. We have based this estimate on assumptions that may prove to be wrong. We may opportunistically seek access to additional capital to fund potential licenses, acquisitions or investments to expand our operations or for general corporate purposes. Raising additional capital could be accomplished through one or more public or private debt or equity financings, collaborations or partnering arrangements. As a result of the COVID-19 pandemic, as well as the ongoing military conflict betweenRussia andUkraine and the related sanctions imposed againstRussia and countermeasures related thereto in addition to macroeconomic conditions including rising inflation, the global credit and financial markets have experienced significant volatility and disruption. If these market conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments or acquisitions. An inability to borrow or raise additional capital in a timely manner and on attractive terms could prevent us from expanding our business or taking advantage of acquisition opportunities, and could otherwise have a material adverse effect on our business and growth prospects. In addition, if we use a substantial amount of our funds for any such potential acquisition or investment activities, we may not have sufficient additional funds to conduct all of our operations in the manner we would otherwise choose. Furthermore, any equity financing would be dilutive to our shareholders, and any financing could require the consent of the lenders under our credit facility. The COVID-19 pandemic has disrupted and continues to disrupt theU.S. healthcare system, global economies and global capital markets. There are significant uncertainties surrounding the full extent and duration of the impact of the COVID-19 pandemic, geopolitical and macroeconomic conditions on our business and operations. We have experienced variable financial impacts to date, as a result of the COVID-19 pandemic and the ongoing pandemic could have a material adverse impact on our financial condition and results of operations in the future, including our ability to obtain financing when and if needed. The impact of COVID-19 on our business and financial condition is more fully described below in Trends and Uncertainties. Operating Activities: Net cash used in operating activities for the nine months endedSeptember 30, 2022 was$13.1 million . Net income for the period was$27.5 million enhanced by the net of non-cash adjustments of approximately$31.2 million from deferred income taxes, depreciation expense, amortization expense of right-of-use assets, amortization expense of intangible assets, fair value adjustments on equity investment, stock-based compensation expense, amortization of debt issuance costs, foreign exchange gains and losses, and other items. Net changes in working capital decreased cash from operating activities by approximately$46.4 million , due to changes in working capital accounts. The total amount of accounts receivable atSeptember 30, 2022 was approximately$96.9 million , which included$69.1 million related to product sales and$27.8 million related to royalty revenue. Receivables from our product sales have payment terms ranging from 30 to 75 days with select extended terms to wholesalers on initial purchases of product launch quantities. Our receivables from royalty revenue are due 45 days from the end of the quarter. 46 --------------------------------------------------------------------------------
Investment activity:
Net cash used in investing activities for the nine months endedSeptember 30, 2022 was$86.8 million , primarily as a result of our acquisition of Acacia coupled with an equity investment in Enalare of$12.5 million and$0.2 million for purchases of property and equipment.
Financing activity:
Net cash used in financing activities for the nine months endedSeptember 30, 2022 was$8.6 million , as a result of$6 million of principal payments for debt required by our Prior Credit Agreement,$18 million in payments related to the repurchases of our common stock,$1.3 million of payments associated with employee withholding tax upon vesting of stock-based awards, offset by$15 million from a drawdown from our revolving credit facility under the Credit Agreement coupled with$1.7 million in proceeds received from the exercise of employee stock options. Trends and Uncertainties During the three and nine months endedSeptember 30, 2022 , we have experienced a variable impact on our business and financial condition due to the COVID-19 pandemic. We also incurred an insignificant amount of incremental administrative costs related to the COVID-19 pandemic. The COVID-19 pandemic, including containment and mitigation measures, has impacted, and is expected to continue to impact, our business and operations in a number of ways, including: •Day-to-Day Operations: During the second quarter of 2021, we developed and implemented plans to resume in-person work practices while adhering to relevant health authority guidance, for certain of our employees, including customer-facing employees, that had been primarily working remotely. We may incur additional expenses in 2022 related to the impact of the COVID-19 pandemic on our operations, including updates to our facilities to align with safety protocols. •Manufacturing and Supply Chain: We are working closely with our commercial partners and third-party manufacturers to mitigate potential disruptions as a result of the COVID-19 pandemic by continuing to monitor the supply and availability of Bendeka, Ryanodex, and Belrapzo, Treskysim, Pemfexy, vasopressin, Barhemsys, and Byfavo for the patients who rely on these products. We anticipate that the COVID-19 pandemic will continue to delay our supply chain and marketing and sales efforts for certain of our products, including Bendeka, although it is not currently expected that any disruption would be material. If the COVID-19 pandemic continues to persist for an extended period of time and impacts essential distribution systems such as FedEx and postal delivery, we could experience future disruptions to our supply chain and operations, and associated delays in the manufacturing and our clinical supply, which would adversely impact our development activities. •Marketing and Sale of Products: In addition to the impact on our product revenues resulting in a decrease in sales from Belrapzo, driven, in part, by the COVID-19 pandemic, we have also observed a reduction in the number of Bendeka patients visiting infusion centers, hospitals and clinics for intravenous administration of Bendeka due to interruptions in healthcare services, and the patients' inability to visit administration sites as well as desire to avoid contact with infected individuals. In addition, our sales and marketing teams have been working remotely and our virtual initiatives with respect to marketing and supporting the sale and administration of our products have not been as effective as our in-person sales and marketing activities. •Liquidity and Capital Resources: We believe that our future cash and cash equivalents and availability of borrowings under our Third Amended Credit Agreement flows from operations will be sufficient to fund our currently anticipated working capital requirements for the next 12 months. We have based this estimate on assumptions that may prove to be wrong While the COVID-19 pandemic has not had, and we do not expect it to have, a material adverse effect on our liquidity, the situation continues to evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists or deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate distribution of our commercialized products, product portfolio expansion or some or all of our research and development programs, which would adversely affect our business prospects. We expect to be able to obtain future funding under the terms of the Third Amended Credit Agreement, for general corporate purposes and any strategic acquisitions. •Regulatory Activities: We may experience further delays in the review and/or our interactions with FDA due to, for example, absenteeism by governmental employees, inability to conduct planned physical inspections related to regulatory approval, or the diversion ofFDA's efforts and attention to approval of other therapeutics or other activities related to the COVID-19 pandemic, which could further delay approval decisions with respect to regulatory submissions or obtain new product approvals. •Clinical Development Timelines: The clinical trial timelines for certain of our product candidates have been delayed given difficulties with limited patient enrollment resulting from the impact of the COVID-19 pandemic, and we expect that our clinical trial timelines will continue to be impacted for the duration of the pandemic. 47 -------------------------------------------------------------------------------- There are significant uncertainties surrounding the extent and duration of the impact of the COVID-19 pandemic on our business and operations. We continue to evaluate the impact of the COVID-19 pandemic on our operating results and financial condition. The COVID-19 pandemic has had a variable impact on our results of operations during the three and nine months endedSeptember 30, 2022 and, it could have a material adverse impact on our financial condition and results of operations in the future. In addition, theU.S. government and other nations have imposed significant restrictions on most companies' ability to do business inRussia as a result of the ongoing military conflict betweenRussia andUkraine . It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to further expand our business and to otherwise generate revenues and develop our product candidates. In addition, a significant escalation or expansion of economic disruption or the conflict's current scope could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We continue to monitor the impacts of other global and worsening macroeconomic conditions, such as global geopolitical tension, increasing inflation and interest rates, exchange rate fluctuations, supply chain disruptions and increases in commodity, energy and fuel prices.
Contractual obligations
Apart from what is stated below, there have been no material changes to our contractual and commercial obligations in the past nine months
Our future material contractual obligations included:
Obligations Total 2022 2023 2024 2025 Beyond Operating leases (1)$ 3,621 $ 414 $ 1,672 $ 1,122 $ 413 $ - Credit facility and Term Loans (2) 59,324 35,000 4,257 12,162 7,905 - Investment in Enalare (4) 12,500 - 12,500 - - - Purchase obligations (3) 99,403 99,403 - - - - Total obligations$ 174,848 $ 134,817 $ 18,429 $ 13,284 $ 8,318 $ - (1) We lease our corporate office location. OnAugust 8, 2019 , we amended the lease for our corporate office location in order to rent additional office space and extend the term of our existing lease toJune 30, 2025 . We also lease lab space under a lease agreement that expires onApril 1, 2024 , office space located inIndianapolis, Indiana throughNovember 2023 , and an office space located inPalm Beach Gardens, Florida , throughOctober 31, 2024 .
(2) See Note 9. and Note 16. Subsequent Events for details of our Previous Credit Agreement and Third Amended Credit Agreement and Term Loan.
(3) As ofSeptember 30, 2022 , we had purchase obligations in the amount of$99.4 million which represents the contractual commitments under contract manufacturing and supply agreements with suppliers. The obligation under the supply agreement is primarily for finished product, inventory, and research and development.
(4) We have invested
Critical Accounting Policies and Estimates
Our significant accounting policies and estimates are disclosed in "Note 2. Summary of Significant Accounting Policies" in our audited financial statements for the year endedDecember 31, 2021 included in our Annual Report. Since the date of such financial statements, there have been no changes to our significant accounting policies and estimates other than those described in Note 2 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. 48 --------------------------------------------------------------------------------
Current accounting pronouncements
InMarch 2020 , the FASB issued Update 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR, formerly known as the London Interbank Offered Rate, or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides optional expedients, including; (1) Simplify accounting analyses under current GAAP for contract modifications, such as modifications of contracts within the scope of Topic 470, Debt, that will be accounted for by prospectively adjusting the effective interest rate, as if any modification was not substantial. That is, the original contract and the new contract shall be accounted for as if they were not substantially different from one another; (2) Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue; (3) Allow a one-time election to sell or transfer debt securities classified as held to maturity beforeJanuary 1, 2020 that reference a rate affected by reference rate reform. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively throughDecember 31, 2022 . The adoption of ASU 2020-4 is not expected to have a material impact on our financial position or results of operations. InOctober 2021 , the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value at the acquisition date. This accounting standard update will be effective for public business entities in fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years; therefore for us beginning in the first quarter of 2023. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our condensed consolidated financial statements. InMarch 2022 , the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 801): Fair Value Hedging - Portfolio Layer Method, which expands the current single-layer hedging model to allow multiple-layer hedges of a single closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments under the method. This accounting standards update will be effective for public business entities in fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years; therefore for us beginning in the first quarter of 2023. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our condensed consolidated financial statements. There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures.
Impact of Inflation
While it is difficult to accurately measure the impact of inflation due to the
imprecise nature of the estimates required, we believe the effects of inflation,
if any, on our results of operations and financial condition have been
immaterial.
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