vvus_Current Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2018

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 001-33389

VIVUS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

94-3136179

(State or other jurisdiction of

 

(IRS employer

incorporation or organization)

 

identification number)

 

 

 

 

 

900 E. Hamilton Avenue, Suite 550

 

 

Campbell, California

 

95008

(Address of principal executive office)

 

(Zip Code)

 

(650) 934-5200

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  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.

 

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer 

Non-accelerated filer ☐

Smaller reporting company 

 

 

(Do not check if a smaller reporting company)

Emerging growth company ☐

 

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. ☐

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

At October 30, 2018,  10,629,923 shares of common stock, par value $.001 per share, were outstanding.

 

 

 

 


 

Table of Contents

VIVUS, INC.

 

Quarterly Report on Form 10-Q 

 

INDEX

 

 

 

 

 

PART I —  FINANCIAL INFORMATION

3

 

 

 

Item 1 

Condensed Consolidated Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of September  30, 2018 and December 31, 2017

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September  30, 2018 and 2017

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017

4

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3 

Quantitative and Qualitative Disclosures about Market Risk

32

Item 4 

Controls and Procedures

32

 

 

 

 

PART II  — OTHER INFORMATION

33

 

 

 

Item 1 

Legal Proceedings

33

Item 1A 

Risk Factors

33

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3 

Defaults Upon Senior Securities

67

Item 4 

Mine Safety Disclosures

67

Item 5 

Other Information

67

Item 6 

Exhibits

68

 

Signatures

70

 

 

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PART I: FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

VIVUS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

2018

 

2017

ASSETS

 

Unaudited

    

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

58,022

 

$

66,392

Available-for-sale securities

 

57,096

 

 

159,943

Accounts receivable, net

 

23,625

 

 

12,187

Inventories

 

21,603

 

 

17,712

Prepaid expenses and other current assets

 

7,744

 

 

7,178

Total current assets

 

168,090

 

 

263,412

Property and equipment, net

 

381

 

 

542

Intangible and other non-current assets

 

137,918

 

 

1,014

Total assets

$

306,389

 

$

264,968

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

4,483

 

$

10,072

Accrued and other liabilities

 

31,924

 

 

21,475

Deferred revenue

 

2,159

 

 

2,075

Current portion of long-term debt

 

 —

 

 

5,147

Total current liabilities

 

38,566

 

 

38,769

Long-term debt, net of current portion

 

300,182

 

 

230,536

Deferred revenue, net of current portion

 

3,686

 

 

4,674

Non-current accrued and other liabilities

 

258

 

 

327

Total liabilities

 

342,692

 

 

274,306

Commitments and contingencies

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

Preferred stock; $.001 par value; 5,000 shares authorized; no shares issued and outstanding at September 30, 2018 and December 31, 2017

 

 —

 

 

 —

Common stock; $.001 par value; 200,000 shares authorized; 10,628 and 10,603 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

11

 

 

11

Additional paid-in capital

 

840,100

 

 

834,824

Accumulated other comprehensive loss

 

(399)

 

 

(608)

Accumulated deficit

 

(876,015)

 

 

(843,565)

Total stockholders’ deficit

 

(36,303)

 

 

(9,338)

Total liabilities and stockholders’ deficit

$

306,389

 

$

264,968

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 

 

September 30, 

 

2018

    

2017

    

2018

    

2017

Revenue:

 

    

    

 

    

 

 

    

    

 

    

Net product revenue

$

16,484

 

$

9,911

 

$

39,366

 

$

36,049

License and milestone revenue

 

 —

 

 

2,500

 

 

 —

 

 

7,500

Supply revenue

 

478

 

 

2,133

 

 

3,203

 

 

8,064

Royalty revenue

 

1,126

 

 

649

 

 

2,379

 

 

1,819

Total revenue

 

18,088

 

 

15,193

 

 

44,948

 

 

53,432

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (excluding amortization)

 

3,484

 

 

3,423

 

 

9,400

 

 

12,798

Amortization of intangible assets

 

3,638

 

 

91

 

 

5,002

 

 

453

Selling, general and administrative

 

8,456

 

 

8,388

 

 

30,235

 

 

31,449

Research and development

 

2,102

 

 

865

 

 

5,547

 

 

4,059

Total operating expenses

 

17,680

 

 

12,767

 

 

50,184

 

 

48,759

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

408

 

 

2,426

 

 

(5,236)

 

 

4,673

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense and other expense, net

 

9,595

 

 

8,412

 

 

27,162

 

 

25,112

Loss before income taxes

 

(9,187)

 

 

(5,986)

 

 

(32,398)

 

 

(20,439)

Provision for (benefit from) income taxes

 

36

 

 

 8

 

 

52

 

 

(3)

Net loss

$

(9,223)

 

$

(5,994)

 

$

(32,450)

 

$

(20,436)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share:

$

(0.87)

 

$

(0.57)

 

$

(3.06)

 

$

(1.93)

Shares used in per share computation:

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

10,628

 

 

10,583

 

 

10,617

 

 

10,567

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 

 

September 30, 

 

2018

 

2017

 

2018

 

2017

Net loss

$

(9,223)

 

$

(5,994)

    

$

(32,450)

    

$

(20,436)

Unrealized gain on securities, net of taxes

 

109

 

 

125

 

 

208

 

 

359

Translation adjustment

 

 —

 

 

 —

 

 

 1

 

 

 —

Comprehensive loss

$

(9,114)

 

$

(5,869)

 

$

(32,241)

 

$

(20,077)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

Nine Months Ended

 

September 30, 

 

2018

 

2017

Operating activities:

 

    

    

 

    

Net loss

$

(32,450)

 

$

(20,436)

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

 

 

 

 

 

Depreciation and amortization

 

5,197

 

 

656

Amortization of debt issuance costs and discounts

 

15,390

 

 

15,163

Amortization of discount or premium on available-for-sale securities

 

638

 

 

605

Share-based compensation expense

 

2,650

 

 

2,221

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(11,438)

 

 

(2,328)

Inventories

 

(3,276)

 

 

2,744

Prepaid expenses and other assets

 

(577)

 

 

4,490

Accounts payable

 

(5,589)

 

 

(277)

Accrued and other liabilities

 

3,698

 

 

4,211

Deferred revenue

 

(904)

 

 

(18,534)

Net cash used for operating activities

 

(26,661)

 

 

(11,485)

Investing activities:

 

 

 

 

 

Property and equipment purchases

 

(34)

 

 

(21)

Acquisition of PANCREAZE license

 

(135,000)

 

 

 —

Purchases of available-for-sale securities

 

(7,604)

 

 

(20,915)

Proceeds from maturity of available-for-sale securities

 

48,356

 

 

29,120

Proceeds from sales of available-for-sale securities

 

61,666

 

 

13,413

Net cash (used for) provided by investing activities

 

(32,616)

 

 

21,597

Financing activities:

 

 

 

 

 

Net proceeds from debt issuance

 

107,991

 

 

 —

Repayments of notes payable

 

(57,187)

 

 

(21,770)

Net proceeds from exercise of common stock options

 

79

 

 

 —

Sale of common stock through employee stock purchase plan

 

24

 

 

26

Net cash provided by (used for) financing activities

 

50,907

 

 

(21,744)

Net decrease in cash and cash equivalents

 

(8,370)

 

 

(11,632)

Cash and cash equivalents:

 

 

 

 

 

Beginning of year

 

66,392

 

 

84,783

End of period

$

58,022

 

$

73,151

See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER  30, 2018

 

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

VIVUS is a specialty pharmaceutical company with three approved therapies (Qsymia®,  STENDRA® and PANCREAZE®)  and one product candidate in active clinical development (VI-0106). Qsymia (phentermine and topiramate extended release) is approved by the U.S. Food and Drug Administration, or FDA, for chronic weight management. STENDRA (avanafil) is approved by FDA for erectile dysfunction, or ED, and by the European Commission, or EC, under the trade name SPEDRA, for the treatment of ED. In June 2018, the Company acquired the U.S. and Canadian commercial rights for PANCREAZE (pancrelipase), which is indicated for the treatment of exocrine pancreatic insufficiency due to cystic fibrosis or other conditions. The Company commercializes Qsymia and PANCREAZE in the U.S. through a small sales force supported by an internal commercial team. The Company licenses the commercial rights to STENDRA/SPEDRA in the U.S., EU and other countries and to PANCREAZE in Canada. VI-0106 (tacrolimus) is in active clinical development and is being studied in patients with pulmonary arterial hypertension, or PAH.

When reference is made to the “Company” or “VIVUS” in these footnotes, it refers to the Delaware corporation, or VIVUS, Inc., and, unless the context otherwise requires, its California predecessor, as well as all of its consolidated subsidiaries.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Management has evaluated all events and transactions that occurred after September 30, 2018 through the date these unaudited condensed consolidated financial statements were filed. There were no events or transactions during this period that require recognition or disclosure in these unaudited condensed consolidated financial statements. The December 31, 2017 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed on March 14, 2018 with the Securities and Exchange Commission, or SEC, and as amended by the Form 10-K/A filed on April 26, 2018 with the SEC. Certain amounts have been reclassified to conform to current year presentation. The unaudited condensed consolidated financial statements include the accounts of VIVUS, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Reverse Stock Split

On September 10, 2018, the Company effected a one-for-10 reverse stock split of its common stock. As a result of the reverse stock split, every 10 shares of the Company’s pre-reverse split common stock issued and outstanding was combined and converted into one issued and outstanding share of post-reverse split common stock without any change in the par value of the shares. Accordingly, an amount equal to the par value of the decreased shares resulting from the reverse stock split was reclassified from “Common stock” to “Additional paid-in capital.”  No fractional shares were issued as a result of the reverse stock split; any fractional shares that would have resulted were rounded up to the nearest whole share. Proportionate voting rights and other rights of stockholders were not affected by the reverse stock split, other than as a result of the rounding up of potential fractional shares. All stock options, warrants and restricted stock units outstanding and common stock reserved for issuance under the Company’s equity incentive plans immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 10 and, where applicable, multiplying the exercise price by 10. All share and

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per share amounts related to common stock, stock options, warrants and restricted stock units have been restated for all periods to give retroactive effect to the reverse stock split.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including critical accounting policies or estimates related to available-for-sale securities, debt instruments, research and development expenses, income taxes, inventories, revenues, contingencies and litigation and share-based compensation. The Company bases its estimates on historical experience, information received from third parties and on various market specific and other relevant assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions or conditions.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 with the exception of its revenue recognition policy as discussed in Note 2.

Recent Accounting Pronouncement Adopted

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This new standard supersedes most previously-existing revenue recognition guidance. The Company adopted this standard in January 2018 using the modified retrospective basis. See Note 2.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. The standard clarifies how certain cash receipts and cash payments will be presented and classified in the statement of cash flows. The Company adopted this standard in January 2018, and it had no impact on its consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), which modifies the accounting by lessees for all leases with a term greater than 12 months. This standard will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. For public companies, this standard is effective for annual and interim periods beginning on or after December 15, 2018. Early adoption is permitted, but the Company intends to adopt this guidance effective January 1, 2019 using a modified retrospective transition method, not adjusting comparative periods. The Company’s only significant lease is its operating lease for its corporate headquarters, although it has several smaller leases.  The Company is completing its analysis, but expects the adoption of this guidance to have a significant impact on its balance sheets as it will recognize right of use assets and corresponding lease liabilities. The Company expects the impact on accumulated deficit to be minimal. The Company expects the overall ongoing recognition of expense to be similar to current guidance, though the classification of such expense could be significantly different.

 

2. REVENUES

On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, or Topic 606. Topic 606 supersedes the revenue recognition requirements in Topic 605 Revenue Recognition, or Topic 605, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning

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on or after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. Due in large part to the change in accounting estimate made by the Company in the first quarter of 2017, revenue amounts as reported for the three and nine months ended September 30, 2017 under Topic 605 are approximately the same as they would have been under Topic 606, and the Company did not have or record a cumulative impact of adopting Topic 606 as of January 1, 2018.

Revenue Recognition

For all revenue transactions, the Company evaluates its contracts with its customers to determine revenue recognition using the following five-step model:

1)The Company identifies the contract(s) with a customer

2)The Company identifies the performance obligations in the contract

3)The Company determines the transaction price

4)The Company allocates the transaction price to the identified performance obligations

5)The Company recognizes revenue when (or as) the entity satisfies a performance obligation

Product Revenue

Product revenue is recognized at the time of shipment at which time the Company has satisfied its performance obligation. Product revenue is recognized net of consideration paid to the Company’s customers, wholesalers and certified pharmacies. Such consideration is for services rendered by the wholesalers and pharmacies in accordance with the wholesalers and certified pharmacy services network agreements, and includes a fixed rate per prescription shipped and monthly program management and data fees. These services are not deemed sufficiently separable from the customers’ purchase of the product; therefore, they are recorded as a reduction of revenue at the time of revenue recognition.

Other product revenue allowances include a reserve for estimated product returns, certain prompt pay discounts and allowances offered to the Company’s customers, program rebates and chargebacks. These product revenue allowances are recognized as a reduction of revenue at the date at which the related revenue is recognized. The Company also offers discount programs to patients. Calculating certain of these items involves estimates and judgments based on sales or invoice data, contractual terms, utilization rates, new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates or chargebacks. The Company reviews the adequacy of product revenue allowances on a quarterly basis. Amounts accrued for product revenue allowances are adjusted when trends or significant events indicate that adjustment is appropriate and to reflect actual experience. See Note 9 for product reserve balances.

Change in Accounting Estimate in 2017

The Company ships units of Qsymia through a distribution network that includes certified retail pharmacies. The Company began shipping Qsymia in September 2012 and grants rights to its customers to return unsold product from six months prior to and up to 12 months subsequent to product expiration. This has resulted in a potential return period of from 24 to 36 months depending on the ship date of the product. As the Company had no previous experience in selling Qsymia and given its lengthy return period, the Company was not initially able to reliably estimate expected returns of Qsymia at the time of shipment, which was required by the accounting literature at the time, and therefore recognized revenue when units were dispensed to patients through prescriptions, at which point the product was not subject to return, or when the expiration period had ended.

Beginning in the first quarter of 2017, with 48 months of returns experience, the Company believed that it had sufficient data and experience from selling Qsymia to reliably estimate expected returns. Therefore, beginning in the first quarter of 2017, under the then relevant accounting literature, the Company began recognizing revenue from the sales of Qsymia upon shipment and recording a reserve for expected returns at the time of shipment.

In accordance with this change in accounting estimate, in the first quarter of 2017 the Company recognized a one-time adjustment relating to products that had been previously shipped, consisting of $17.9 million of gross revenues, adjusted for an expected returns reserve of $5.7 million and estimated gross-to-net charges of $4.9 million, for a net impact of $7.3 million in revenues. The Company also recorded increased cost of goods sold of $0.6 

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million and marketing expense of $0.7 million associated with the change in accounting estimate. The increase in net product revenue resulted in a decrease in net loss of $6.0 million or $0.57 per share for the nine months ended September 30, 2017.

Supply Revenue

The Company produces STENDRA/SPEDRA through a contract manufacturing partner and then sells it to the Company’s commercialization partners. The Company is the primary responsible party in the commercial supply arrangements and bears significant risk in the fulfillment of the obligations, including risks associated with manufacturing, regulatory compliance and quality assurance, as well as inventory, financial and credit loss. As such, the Company recognizes supply revenue on a gross basis as the principal party in the arrangements. The Company recognizes supply revenue at the time of shipment and, in the unusual case where the product does not meet contractually-specified product dating criteria at the time of shipment to the partner, the Company records a reserve for estimated product returns. There are no such reserves as of September 30, 2018.

License and Milestone Revenue

License and milestone revenues related to arrangements, usually license and/or supply agreements, entered into by the Company are recognized by following the five-step process outlined above. The allocation and timing of recognition of such revenue will be determined by that process and the amounts recognized and the timing of that recognition may not exactly follow the wording of the agreement as the amount allocated following the accounting analysis of the agreement may differ and the timing of recognition of a significant performance obligation may predate the contractual date.

Royalty Revenue

The Company relies on data provided by its collaboration partner in determining its contractually-based royalty revenue. Such data includes accounting estimates and reports for various discounts and allowances, including product returns. The Company records royalty revenues based on the best data available and makes any adjustments to such revenues as such information becomes available.

Revenue by Source and Geography

Revenue disaggregated by revenue source and by geographic region was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

2018

 

2017

 

U.S.

 

ROW

 

Total

 

U.S.

 

ROW

 

Total

Qsymia—Net product revenue

$

9,737

 

$

 —

 

$

9,737

 

$

9,911

 

$

 —

 

$

9,911

Qsymia—License revenue

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,500

 

 

2,500

PANCREAZE - Net product revenue

 

6,747

 

 

 —

 

 

6,747

 

 

 —

 

 

 —

 

 

 —

PANCREAZE - Royalty revenue

 

 —

 

 

576

 

 

576

 

 

 —

 

 

 —

 

 

 —

STENDRA/SPEDRA—Supply revenue

 

 —

 

 

478

 

 

478

 

 

1,070

 

 

1,063

 

 

2,133

STENDRA/SPEDRA—Royalty revenue

 

 —

 

 

550

 

 

550

 

 

 —

 

 

649

 

 

649

Total revenue

$

16,484

 

$

1,604

(1)

$

18,088

 

$

10,981

 

$

4,212

(2)

$

15,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Nine Months Ended September 30, 

 

2018

 

2017

 

U.S.

 

ROW

 

Total

 

U.S.

 

ROW

 

Total

Qsymia—Net product revenue

$

30,503

 

$

 —

 

$

30,503

 

$

36,049

 

$

 —

 

$

36,049

Qsymia—License revenue

 

 —

 

 

 —

 

 

 —

 

 

5,000

 

 

2,500

 

 

7,500

PANCREAZE - Net product revenue

 

8,863

 

 

 —

 

 

8,863

 

 

 —

 

 

 —

 

 

 —

PANCREAZE - Royalty revenue

 

 —

 

 

650

 

 

650

 

 

 —

 

 

 —

 

 

 —

STENDRA/SPEDRA—Supply revenue

 

1,071

 

 

2,132

 

 

3,203

 

 

4,845

 

 

3,219

 

 

8,064

STENDRA/SPEDRA—Royalty revenue

 

 —

 

 

1,729

 

 

1,729

 

 

 —

 

 

1,819

 

 

1,819

Total revenue

$

40,437

 

$

4,511

(3)  

$

44,948

 

$

45,894

 

$

7,538

(4)  

$

53,432

 


(1)

$1.0 million of which was attributable to Germany and $0.6 million of which was attributable to Canada.

(2)

$1.7 million of which was attributable to Germany and $2.5 million of which was attributable to South Korea.

(3)

$3.9 million of which was attributable to Germany and $0.6 million of which was attributable to Canada.

(4)

$5.0 million of which was attributable to Germany and $2.5 million of which was attributable to South Korea.

 

Revenue and cost of goods sold by source was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

2018

 

2017

 

Qsymia

 

PANCREAZE

 

STENDRA/ SPEDRA

 

Total

 

Qsymia

 

STENDRA/ SPEDRA

 

Total

Net product revenue

$

9,737

 

$

6,747

 

$

 —

 

$

16,484

 

$

9,911

 

$

 —

 

$

9,911

License

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,500

 

 

 —

 

 

2,500

Supply revenue

 

 —

 

 

 —

 

 

478

 

 

478

 

 

 —

 

 

2,133

 

 

2,133

Royalty revenue

 

 —

 

 

576

 

 

550

 

 

1,126

 

 

 —

 

 

649

 

 

649

Total revenue

$

9,737

 

$

7,323

 

$

1,028

 

$

18,088

 

$

12,411

 

$

2,782

 

$

15,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (excluding amortization)

$

953

 

$

2,006

 

$

525

 

$

3,484

 

$

1,428

 

$

1,995

 

$

3,423

Amortization of intangible assets

$

91

 

$

3,547

 

$

 —

 

$

3,638

 

$

91

 

$

 —

 

$

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

2018

 

2017

 

Qsymia

 

PANCREAZE

 

STENDRA/ SPEDRA

 

Total

 

Qsymia

 

STENDRA/ SPEDRA

 

Total

Net product revenue

$

30,503

 

$

8,863

 

$

 —

 

$

39,366

 

$

36,049

 

$

 —

 

$

36,049

License

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,500

 

 

 —

 

 

7,500

Supply revenue

 

 —

 

 

 —

 

 

3,203

 

 

3,203

 

 

 —

 

 

8,064

 

 

8,064

Royalty revenue

 

 —

 

 

650

 

 

1,729

 

 

2,379

 

 

 —

 

 

1,819

 

 

1,819

Total revenue

$

30,503

 

$

9,513

 

$

4,932

 

$

44,948

 

$

43,549

 

$

9,883

 

$

53,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (excluding amortization)

$

3,648

 

$

2,574

 

$

3,178

 

$

9,400

 

$

5,311

 

$

7,487

 

$

12,798

Amortization of intangible assets

$

272

 

$

4,730

 

$

 —

 

$

5,002

 

$

453

 

$

 —

 

$

453

 

 

 

 

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3. SHARE-BASED COMPENSATION

Total share-based compensation expense for all of the Company’s share-based awards was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30, 

 

September 30, 

 

2018

   

2017

   

2018

   

2017

Cost of goods sold

$

18

 

$

13

 

$

48

 

$

41

Selling, general and administrative

 

581

 

 

652

 

 

2,368

 

 

1,920

Research and development

 

77

 

 

88

 

 

234

 

 

260

Total share-based compensation expense

$

676

 

$

753

 

$

2,650

 

$

2,221

Share-based compensation costs capitalized as part of the cost of inventory were $4,000 and $3,000 for the three months ended September 30, 2018 and 2017, respectively, and $5,000 and $8,000 for the nine months ended September  30, 2018 and 2017, respectively.

 

4. CASH, CASH EQUIVALENTS, AND AVAILABLE-FOR-SALE SECURITIES

The fair value and the amortized cost of cash, cash equivalents, and available-for-sale securities by major security type are presented in the tables that follow (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

Cash and cash equivalents and available-for-sale securities

Cost

     

Gains

     

Losses

     

Fair Value

Cash and money market funds

$

58,022

 

$

 —

 

$

 —

 

$

58,022

U.S. Treasury securities

 

14,513

 

 

 —

 

 

(156)

 

 

14,357

Corporate debt securities

 

42,982

 

 

 6

 

 

(249)

 

 

42,739

Total

 

115,517

 

 

 6

 

 

(405)

 

 

115,118

Less amounts classified as cash and cash equivalents

 

(58,022)

 

 

 —

 

 

 —

 

 

(58,022)

Total available-for-sale securities

$

57,495

 

$

 6

 

$

(405)

 

$

57,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

Cash and cash equivalents and available-for-sale securities

Cost

     

Gains

     

Losses

     

Fair Value

Cash and money market funds

$

66,392

 

$

 —

 

$

 —

 

$

66,392

U.S. Treasury securities

 

21,070

 

 

 1

 

 

(139)

 

 

20,932

Corporate debt securities

 

139,481

 

 

16

 

 

(486)

 

 

139,011

Total

 

226,943

 

 

17

 

 

(625)

 

 

226,335

Less amounts classified as cash and cash equivalents

 

(66,392)

 

 

 —

 

 

 —

 

 

(66,392)

Total available-for-sale securities

$

160,551

 

$

17

 

$

(625)

 

$

159,943

As of September 30, 2018, the Company’s available-for-sale securities had original contractual maturities up to 57 months. However, the Company may sell these securities prior to their stated maturities in response to changes in the availability of and the yield on alternative investments as well as liquidity requirements. As these securities are readily marketable and are viewed by the Company as available to support current operations, securities with maturities beyond 12 months are classified as current assets. Due to their short-term maturities, the Company believes that the fair value of its bank deposits, accounts payable and accrued expenses approximate their carrying value.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market

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participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value. The three levels are:

·

Level 1 — Quoted prices in active markets for identical assets or liabilities.

·

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents the fair value hierarchy for our cash equivalents and available-for-sale securities by major security type (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

Level 1

     

Level 2

     

Level 3

     

Total

Cash and money market funds

$

58,022

 

$

 —

 

$

 —

 

$

58,022

U.S. Treasury securities

 

14,357

 

 

 —

 

 

 —

 

 

14,357

Corporate debt securities

 

 —

 

 

42,739

 

 

 —

 

 

42,739

Total

$

72,379

 

$

42,739

 

$

 —

 

$

115,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

Level 1

     

Level 2

     

Level 3

     

Total

Cash and money market funds

$

66,392

 

$

 —

 

$

 —

 

$

66,392

U.S. Treasury securities

 

20,932

 

 

 —

 

 

 —

 

 

20,932

Corporate debt securities

 

 —

 

 

139,011

 

 

 —

 

 

139,011

Total

$

87,324

 

$

139,011

 

$

 —

 

$

226,335

 

 

 

 

 

 

 

 

 

5. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

September 30, 

 

December 31, 

 

2018

 

2017

Qsymia

$

11,514

 

$

10,400

PANCREAZE

 

11,126

 

 

 —

STENDRA/SPEDRA

 

1,158

 

 

1,982

 

 

23,798

 

 

12,382

Qsymia allowance for cash discounts

 

(173)

 

 

(195)

Net

$

23,625

 

$

12,187

 

 

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6. INVENTORIES

Inventories consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

September 30, 

 

December 31, 

 

2018

 

2017

Raw materials

$

15,383

    

$

13,663

Work-in-process

 

1,815

 

 

2,264

Finished goods

 

4,405

 

 

1,785

Inventories

$

21,603

 

$

17,712

Raw materials inventories consist primarily of the active pharmaceutical ingredients, or API, for Qsymia and STENDRA/SPEDRA. At December 31, 2017, work-in-process and finished goods inventory consist of Qsymia and STENDRA/SPEDRA and, at September 30, 2018, also included PANCREAZE inventory. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first in, first out method for all inventories, which are valued using a weighted-average cost method calculated for each production batch. The Company periodically evaluates the carrying value of inventory on hand for potential excess amounts over demand using the same lower of cost or net realizable value approach as that used to value the inventory.

7.  PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

September 30, 

 

December 31, 

 

2018

 

2017

Prepaid sales and marketing expenses

$

1,579

 

$

1,538

Taxes receivable

 

2,008

 

 

1,222

Prepaid insurance

 

149

 

 

1,124

Other prepaid expenses and assets

 

4,008

 

 

3,294

Total

$

7,744

 

$

7,178

 

These costs have been deferred as prepaid expenses and other current assets on the condensed consolidated balance sheets and will be either (i) charged to expense accordingly when the related prepaid services are rendered to the Company, or (ii) converted to cash when the receivable is collected by the Company. The amounts included in other prepaid expenses and assets consist primarily of prepayments for future services, non-trade receivables, prepaid interest and interest income receivable.

 

8.  INTANGIBLE AND OTHER NON-CURRENT ASSETS

Intangible and other non-current assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

December 31, 2017

 

Cost

 

Accumulated Amortization

 

Net

 

Cost

 

Accumulated Amortization

 

Net

PANCREAZE license (1)

$

141,895

 

$

(4,730)

 

$

137,165

 

$

 —

 

$

 —

 

$

 —

Janssen patents (2)

 

3,050

 

 

(2,506)

 

 

544

 

 

3,050

 

 

(2,235)

 

 

815

Other non-current assets

 

209

 

 

 —

 

 

209

 

 

199

 

 

 —

 

 

199

Total

$

145,154

 

$

(7,236)

 

$

137,918

 

$

3,249

 

$

(2,235)

 

$

1,014

_________________

(1)

In June 2018, the Company acquired the rights to license PANCREAZE in the U.S. and Canada, as described further in Note 12. The rights are being amortized over their estimated useful life of 10 years using the straight-line method.

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(2)

In September 2014, the Company acquired certain patents relating to Qsymia from Janssen Pharmaceuticals, approximately $3.1 million of which was recorded as an intangible asset. The patents are being amortized over their estimated useful life of 5.5 years using the straight-line method. 

Other non-current assets primarily consist of real estate deposits. Amortization of intangible assets was $3.6 million and $5.0 million for the three and nine months ended September 30, 2018, respectively. Amortization of intangible assets was $91,000 and $0.5 million for the three and nine months ended September 30, 2017, respectively. Future expected amortization expenses for intangible assets as of September 30, 2018 are as follows (in thousands):

 

 

 

2018 (remainder)

$

3,639

2019

 

14,552

2020

 

14,280

2021

 

14,190

2022

 

14,190

Thereafter

 

76,858

Total

$

137,709

 

 

 

9.  ACCRUED AND OTHER LIABILITIES

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

 

 

 

 

 

 

 

Balance as of

 

September 30, 

 

December 31, 

 

2018

 

2017

Accrued employee compensation and benefits

$

2,765

    

$

3,642

Reserve for product returns (see Note 2)

 

12,995

 

 

7,854

Product-related accruals (see Note 2)

 

6,235

 

 

5,751

Accrued interest on debt (see Note 13)

 

1,730

 

 

410

Accrued manufacturing costs

 

5,679

 

 

1,238

Other accrued liabilities

 

2,520

 

 

2,580

Total

$

31,924

 

$

21,475

 

The amounts included in other accrued liabilities consist of obligations primarily related to sales, marketing, research, clinical development, corporate activities, the STENDRA license and royalties.

 

10. NON-CURRENT ACCRUED AND OTHER LIABILITIES

Non-current accrued and other liabilities at September 30, 2018 and December 31, 2017 were primarily comprised of deferred rent and security deposits.

 

 

 

11. DEFERRED REVENUE