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 March 31, 2020

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)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock

VVUS

The Nasdaq Global Select Market

Preferred Share Purchase Rights

 

 

 

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 

 

 

 

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 April 30, 2020,  17,867,697 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 March  31, 2020 and December 31, 2019

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March  31, 2020 and 2019

4

 

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2020 and 2019

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2 

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

23

Item 3 

Quantitative and Qualitative Disclosures about Market Risk

33

Item 4 

Controls and Procedures

34

 

 

 

 

PART II  — OTHER INFORMATION

35

 

 

 

Item 1 

Legal Proceedings

35

Item 1A 

Risk Factors

35

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3 

Defaults Upon Senior Securities

75

Item 4 

Mine Safety Disclosures

75

Item 5 

Other Information

76

Item 6 

Exhibits

76

 

Signatures

78

 

 

2

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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)

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

2020

 

2019

ASSETS

 

Unaudited

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

32,854

 

$

32,649

Accounts receivable, net

 

24,724

 

 

22,338

Inventories, net

 

33,936

 

 

33,679

Prepaid expenses and other current assets

 

6,340

 

 

8,134

Total current assets

 

97,854

 

 

96,800

Fixed assets, net

 

201

 

 

233

Right-of-use assets

 

930

 

 

1,135

Intangible and other non-current assets

 

116,923

 

 

120,140

Total assets

$

215,908

 

$

218,308

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

11,015

 

$

7,726

Accrued and other liabilities

 

32,912

 

 

32,398

Deferred revenue

 

1,296

 

 

1,249

Current portion of lease liability

 

741

 

 

767

Current portion of long-term debt

 

181,822

 

 

183,006

Total current liabilities

 

227,786

 

 

225,146

Long-term debt

 

58,910

 

 

58,721

Deferred revenue, net of current portion

 

2,769

 

 

3,063

Lease liability, net of current portion

 

399

 

 

602

Total liabilities

 

289,864

 

 

287,532

Commitments and contingencies

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

Preferred stock; $.001 par value; 5,000 shares authorized; no shares issued and outstanding at March 31, 2020 and December 31, 2019

 

 —

 

 

 —

Common stock; $.001 par value; 200,000 shares authorized; 10,649 and 10,649 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

11

 

 

11

Additional paid-in capital

 

843,146

 

 

842,808

Accumulated other comprehensive income (loss)

 

108

 

 

(35)

Accumulated deficit

 

(917,221)

 

 

(912,008)

Total stockholders’ deficit

 

(73,956)

 

 

(69,224)

Total liabilities and stockholders’ deficit

$

215,908

 

$

218,308

 

 

 

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

 

March 31, 

 

2020

 

2019

Revenue:

 

 

 

 

 

Net product revenue

$

14,697

 

$

13,497

License and milestone revenue

 

2,000

 

 

 —

Supply revenue

 

1,823

 

 

1,604

Royalty revenue

 

1,111

 

 

1,045

Total revenue

 

19,631

 

 

16,146

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Cost of goods sold (excluding amortization)

 

4,627

 

 

4,308

Amortization of intangible assets

 

3,638

 

 

3,638

Sales and marketing

 

4,233

 

 

4,534

General and administrative

 

6,727

 

 

5,284

Research and development

 

2,445

 

 

2,469

Total operating expenses

 

21,670

 

 

20,233

Loss from operations

 

(2,039)

 

 

(4,087)

Interest and other expense, net

 

3,219

 

 

3,870

Loss before income taxes

 

(5,258)

 

 

(7,957)

Benefit from income taxes

 

(45)

 

 

(8)

Net loss

$

(5,213)

 

$

(7,949)

 

 

 

 

 

 

Basic and diluted net loss per share:

$

(0.49)

 

$

(0.75)

Shares used in per share computation:

 

 

 

 

 

Basic and diluted

 

10,649

 

 

10,637

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

March 31, 

 

2020

 

2019

Net loss

$

(5,213)

 

$

(7,949)

Unrealized gain on securities, net of taxes

 

 —

 

 

249

Translation adjustment

 

143

 

 

(1)

Comprehensive loss

$

(5,070)

 

$

(7,701)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Capital

 

Loss

 

Deficit

 

Total

Balances, January 1, 2019

10,636

 

$

11

 

$

840,751

 

$

(270)

 

$

(880,515)

 

$

(40,023)

Vesting of restricted stock units

 1

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Share-based compensation expense

 —

 

 

 —

 

 

468

 

 

 —

 

 

 —

 

 

468

Net unrealized gain on securities

 —

 

 

 —

 

 

 —

 

 

249

 

 

 —

 

 

249

Cumulative effect of accounting change

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10

 

 

10

Net loss

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(7,949)

 

 

(7,949)

Balances, March 31, 2019

10,637

 

 

11

 

 

841,219

 

 

(21)

 

 

(888,454)

 

 

(47,245)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2020

10,649

 

$

11

 

$

842,808

 

$

(35)

 

$

(912,008)

 

$

(69,224)

Share-based compensation expense

 —

 

 

 —

 

 

338

 

 

 —

 

 

 —

 

 

338

Translation adjustment

 —

 

 

 —

 

 

 —

 

 

143

 

 

 —

 

 

143

Net loss

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,213)

 

 

(5,213)

Balances, March 31, 2020

10,649

 

$

11

 

$

843,146

 

$

108

 

$

(917,221)

 

$

(73,956)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2020

 

2019

Operating activities:

 

 

 

 

 

Net loss

$

(5,213)

 

$

(7,949)

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,670

 

 

3,675

Amortization of debt issuance costs and discounts

 

(995)

 

 

(1,050)

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

 

 —

 

 

(116)

Share-based compensation expense

 

338

 

 

468

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(2,807)

 

 

1,054

Inventories

 

(2,034)

 

 

1,186

Prepaid expenses and other assets

 

1,999

 

 

1,004

Accounts payable

 

3,289

 

 

(5,306)

Accrued and other liabilities

 

2,114

 

 

389

Deferred revenue

 

(247)

 

 

(295)

Net cash provided by (used for) operating activities

 

114

 

 

(6,940)

Investing activities:

 

 

 

 

 

Fixed asset purchases

 

 —

 

 

(21)

Purchases of available-for-sale securities

 

 —

 

 

(13,876)

Proceeds from maturity of available-for-sale securities

 

 —

 

 

12,885

Proceeds from sales of available-for-sale securities

 

 —

 

 

562

Net cash used for investing activities

 

 —

 

 

(450)

Financing activities:

 

 

 

 

 

Principal payments of financing leases

 

(52)

 

 

 —

Net cash used for financing activities

 

(52)

 

 

 —

Effect of exchange rates on cash and cash equivalents

 

143

 

 

 —

Net increase (decrease) in cash and cash equivalents

 

205

 

 

(7,390)

Cash and cash equivalents:

 

 

 

 

 

Beginning of year

 

32,649

 

 

30,411

End of year

$

32,854

 

$

23,021

 

See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH  31, 2020

 

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

VIVUS is a specialty pharmaceutical company with three approved therapies (Qsymia®, PANCREAZE®/PANCREASE® MT and STENDRA®/SPEDRA™) 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 (“FDA”) for chronic weight management. PANCREAZE/PANCREASE MT (pancrelipase) is indicated for the treatment of exocrine pancreatic insufficiency due to cystic fibrosis or other conditions. STENDRA (avanafil) is approved by FDA for erectile dysfunction (“ED”), and by the European Commission (“EC”) under the trade name SPEDRA, for the treatment of ED. The Company commercializes Qsymia and PANCREAZE in the U.S. through a specialty 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. VI-0106 (tacrolimus) is in active clinical development and is being studied in patients with pulmonary arterial hypertension (“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.

Liquidity and Ability to Continue as a Going Concern

At March 31, 2020, the Company’s accumulated deficit was approximately $917.2 million and its cash and cash equivalents were $32.9 million. As of March 31, 2020, the Company had a total of $240.7 million in debt, $181.8 million of which is due May 1, 2020. See Note 13 for additional information regarding the Company’s debt.

The Company does not currently have sufficient cash and/or credit facilities in place to pay the debt due May 1, 2020. On April 29, 2020, the Company entered into an agreement with IEH Biopharma LLC (“IEH Biopharma”), which holds a principal amount of approximately $170.2 million of the Company’s 4.50% Convertible Senior Notes due May 1, 2020 (the “Convertible Notes”). Under the terms of the agreement, the Company paid IEH Biopharma $3.8 million in accrued and unpaid interest on the Convertible Notes and IEH Biopharma granted the Company a 30-day grace period (if not terminated sooner pursuant to the terms of the agreement), beginning May 1, for payment of the principal amount of the Convertible Notes during which the two parties will work exclusively to attempt to restructure the outstanding principal amount of the Convertible Notes. As part of the agreement, the Company paid $7.5 million to settle the remaining $11.3 million in principal and $253,000 in accrued and unpaid interest held by other holders.

The Company is actively pursuing funding or a restructuring of its outstanding debt, which may come through public or private debt or equity financings, collaborations, sale of assets or other available financing sources. It is substantially uncertain whether any such funding or restructuring will be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. As a result of this uncertainly, the Company believes that a strategic transaction that restructures or refinances its debt may be necessary in order for us to service the existing indebtedness. The Company may need to seek relief under the U.S. Bankruptcy Code or otherwise complete a restructuring transaction to address its liquidity needs. If the Company seeks bankruptcy relief, the Company’s common stockholders could receive little or no consideration for their interests. In addition, unsecured creditors would likely realize recoveries significantly less than the principal amount of their claims and, possibly, no recovery at all.

Alternatively, the Company will not be able to continue its operations at its current level and may be required to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop on its own. The Company might also be required to delay, reduce the scope of or eliminate one or more of its commercialization or development programs or obtain funds through collaborations with others that are on unfavorable terms or restructure the Company in other ways that may not be favorable.

The Company’s independent registered public accounting firm’s audit report on the Company’s consolidated financial statements as of and for the year ended December 31, 2019 included in the Annual Report on Form 10-K includes an explanatory paragraph stating that there is substantial doubt about the Company’s ability to

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continue as a going concern. If the Company cannot continue as a viable entity, its security holders may lose some or all of their investment in the Company. Even if adequate funds become available, the Company may need to raise additional funds in the near future to finance operations and pursue development and commercial opportunities.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company’s coming debt maturities as well as its negative cash flow from operations and accumulated deficit raise substantial doubt about its ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The COVID-19 pandemic may result in significant adverse impacts to the Company’s business. Although the full impact of the pandemic on the Company’s revenue, financial condition and results of operations for the remainder of the fiscal year remains uncertain and difficult to predict, the spread of the virus and public health measures being undertaken to reduce such transmission have created and will likely continue to create significant disruptions with respect to consumer demand, healthcare providers and healthcare facilities and the reliability of the Company’s supply chain. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be adversely impacted by factors including, but not limited to, delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand.

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 (“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 months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.  

Management has evaluated all events and transactions that occurred after March  31, 2020 through the date these unaudited condensed consolidated financial statements were filed. Note 17 details all events and transactions during this period that require recognition or disclosure in these unaudited condensed consolidated financial statements. The condensed consolidated balance sheet data as of December 31, 2019 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, 2019 as filed on March 3, 2020 and as amended on April 29, 2020 with the Securities and Exchange Commission (“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.

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.

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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, 2019.

Recent Accounting Pronouncement Adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which adds disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this standard effective January 1, 2020. The adoption did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The standard is effective for the Company beginning January 1, 2023. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

2. REVENUES

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; and

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.

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

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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 March  31, 2020.

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 March 31, 

 

 

2020

 

 

2019

 

 

U.S.

 

ROW

 

Total

 

 

U.S.

 

ROW

 

Total

Qsymia—Net product revenue

    

$

8,914

 

$

 —

 

$

8,914

 

 

$

8,423

 

$

 —

 

$

8,423

Qsymia—License revenue

 

 

 —

 

 

2,000

 

 

2,000

 

 

 

 —

 

 

 —

 

 

 —

Qsymia—Royalty revenue

 

 

 —

 

 

564

 

 

564

 

 

 

 —

 

 

 —

 

 

 —

PANCREAZE - Net product revenue

 

 

5,035

 

 

748

 

 

5,783

 

 

 

5,074

 

 

 —

 

 

5,074

PANCREAZE - Royalty revenue

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

570

 

 

570

STENDRA/SPEDRA—Supply revenue

 

 

 —

 

 

1,823

 

 

1,823

 

 

 

 —

 

 

1,604

 

 

1,604

STENDRA/SPEDRA—Royalty revenue

 

 

 —

 

 

547

 

 

547

 

 

 

 —

 

 

475

 

 

475

Total revenue

 

$

13,949

 

$

5,682

(1)

$

19,631

 

 

$

13,497

 

$

2,649

(2)

$

16,146

 


(1)

$2.4 million of which was attributable to Germany, $2.6 million of which was attributable to South Korea and $0.7 million of which was attributable to Canada.

(2)

$2.0 million of which was attributable to Germany and $0.6 million of which was attributable to Canada.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

2020

 

 

2019

 

Qsymia

 

PANCREAZE

 

STENDRA/ SPEDRA

 

Total

 

 

Qsymia

 

PANCREAZE

 

STENDRA/ SPEDRA

 

Total

Net product revenue

$

8,914

 

$

5,783

 

$

 —

 

$

14,697

 

 

$

8,423

 

$

5,074

 

$

 —

 

$

13,497

License

 

2,000

 

 

 —

 

 

 —

 

 

2,000

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Supply revenue

 

 —

 

 

 —

 

 

1,823

 

 

1,823

 

 

 

 —

 

 

 —

 

 

1,604

 

 

1,604

Royalty revenue

 

564

 

 

 —

 

 

547

 

 

1,111

 

 

 

 —

 

 

570

 

 

475

 

 

1,045

Total revenue

$

11,478

 

$

5,783

 

$

2,370

 

$

19,631

 

 

$

8,423

 

$

5,644

 

$

2,079

 

$

16,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (excluding amortization)

$

1,340

 

$

1,602

 

$

1,685

 

$

4,627

 

 

$

1,382

 

$

1,461

 

$

1,465

 

$

4,308

Amortization of intangible assets

$

91

 

$

3,547

 

$

 —

 

$

3,638

 

 

$

91

 

$

3,547

 

$

 —

 

$

3,638

 

 

 

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

 

March 31, 

 

2020

 

2019

Cost of goods sold

$

 9

 

$

14

Selling and marketing

 

49

 

 

70

General and administrative

 

247

 

 

329

Research and development

 

33

 

 

55

Total share-based compensation expense

$

338

 

$

468

 

 

 

 

 

 

Share-based compensation expense capitalized as part of the cost of inventory

$

30

 

$

 —

 

 

 

4.  CASH AND CASH EQUIVALENTS

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

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2020

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

Cash and cash equivalents

Cost

 

Gains

 

Losses

 

Fair Value

Cash and money market funds

$

32,854

 

$

 —

 

$

 —

 

$

32,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2019

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

Cash and cash equivalents

Cost

 

Gains

 

Losses

 

Fair Value

Cash and money market funds

$

32,649

 

$

 —

 

$

 —

 

$

32,649

As of March 31, 2020 and December 31, 2019, the Company had no available-for-sale securities.

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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 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, cash equivalents and available-for-sale securities by major security type (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2020

 

Level 1

 

Level 2

 

Level 3

 

Total

Cash and money market funds

$

32,854

 

$

 —

 

$

 —

 

$

32,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2019

 

Level 1

 

Level 2

 

Level 3

 

Total

Cash and money market funds

$

32,649

 

$

 —

 

$

 —

 

$

32,649

 

 

5.  ACCOUNTS RECEIVABLE

Accounts receivable consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2020

 

2019

Qsymia

$

17,648

 

$

15,423

PANCREAZE

 

6,693

 

 

6,380

STENDRA/SPEDRA

 

626

 

 

787

 

 

24,967

 

 

22,590

Allowance for cash discounts

 

(243)

 

 

(252)

Net

$

24,724

 

$

22,338

 

 

6.  INVENTORIES

Inventories consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2020

 

2019

Raw materials

$

28,509

    

$

26,313

Work-in-process

 

3,115

 

 

2,908

Finished goods

 

2,312

 

 

4,458

Inventories, net

$

33,936

 

$

33,679

Raw materials inventories consist primarily of the active pharmaceutical ingredients (“API”) for Qsymia and STENDRA/SPEDRA. Work-in-process and finished goods inventory consist of Qsymia, STENDRA/SPEDRA and 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

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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

 

March 31, 

 

December 31, 

 

2020

 

2019

Prepaid insurance

$

1,771

 

$

2,029

Prepaid sales and marketing expenses

 

1,252

 

 

1,806

Taxes receivable

 

438

 

 

1,196

Other prepaid expenses and assets

 

2,879

 

 

3,103

Total

$

6,340

 

$

8,134

 

The amounts included in prepaid expenses and other current assets consist primarily of prepayments for future services, miscellaneous non-trade receivables, prepaid interest and interest income receivable. These costs have been deferred as prepaid expenses and other current assets on the 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.

 

8. INTANGIBLE AND OTHER NON-CURRENT ASSETS

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Cost

 

Accumulated Amortization

 

Net

 

 

Cost

 

Accumulated Amortization

 

Net

PANCREAZE license (1)

$

141,895

 

$

(26,014)

 

$

115,881

 

 

$

141,895

 

$

(22,467)

 

$

119,428

Janssen patents (2)

 

3,050

 

 

(3,050)

 

 

 —

 

 

 

3,050

 

 

(2,959)

 

 

91

Long-term receivables (3)

 

834

 

 

 —

 

 

834

 

 

 

413

 

 

 —

 

 

413

Other non-current assets (4)

 

208

 

 

 —

 

 

208

 

 

 

208

 

 

 —

 

 

208

Total

$

145,987

 

$

(29,064)

 

$

116,923

 

 

$

145,566

 

$

(25,426)

 

$

120,140

_________________

(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.

(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 were amortized over their estimated useful life of 5.5 years using the straight-line method.

(3)

Long-term receivables consist of amounts not expected to be collected within a year of the balance sheet date.

(4)

Other non-current assets primarily consist of real estate deposits.

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Amortization of intangible assets was $3.6 million for both the three months ended March 31, 2020 and 2019. Future expected amortization expenses for intangible assets as of March  31, 2020 are as follows (in thousands):

 

 

 

2020 (rest of year)

$

10,642

2021

 

14,190

2022

 

14,189

2023

 

14,190

2024

 

14,189

Thereafter

 

48,481

Total

$

115,881

 

 

 

9. ACCRUED AND OTHER LIABILITIES

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

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2020

 

2019

Reserve for product returns (see Note 2)

$

15,135

 

$

14,874

Product-related accruals (see Note 2)

 

6,044

 

 

6,663

Accrued interest on debt (see Note 13)

 

3,737

 

 

1,351

Accrued manufacturing costs

 

2,214

 

 

3,105

Accrued employee compensation and benefits

 

2,217

 

 

2,777

Other accrued liabilities

 

3,565

 

 

3,628

Total

$

32,912

 

$

32,398

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.  DEFERRED REVENUE

Deferred revenue relates to a prepayment for future royalties on sales of SPEDRA. In the three months ended March 31, 2020 and 2019, the Company recorded $0.2 million and $0.3 million, respectively, of revenues which had been deferred as of December 31, 2019 and 2018, respectively. These amounts were applied against the prepayment for future royalties.

 

 

11. LEASES

The Company adopted Accounting Standards Update 2016-02, Leases (Topic 842) on January 1, 2019 using the modified retrospective transition method, and as a result did not adjust comparative periods. The Company has an operating lease for its corporate headquarters and several smaller leases, including financing leases for its automobile fleet and copiers. At the time of adoption, the Company recorded the following amounts (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-Use Asset

 

Current Portion of Lease Liability

 

Lease Liability, Net of Current Portion

 

Current Portion of Deferred Rent

 

Deferred Rent, Net of Current Portion

 

Accumulated Deficit

Operating leases

$

1,201

 

$

512

 

$

1,017

 

$

(94)

 

$

(234)

 

$

 —

Financing leases

 

329

 

 

131

 

 

188

 

 

 —

 

 

 —

 

 

10

Total

$

1,530

 

$

643

 

$

1,205

 

$

(94)

 

$

(234)

 

$

10

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The Company’s leases have remaining lease terms as of March 31, 2020 of from less than 1 year up to 2.3 years, some of which include options to extend the leases for up to 2 years.

The components of lease expense were as follows (in thousands):

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2020

 

2019

Operating lease cost

$

130

 

$

130

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

  Amortization of right-of-use assets

$

54

 

$

53

  Interest on lease liabilities

 

 2

 

 

 3

Total finance lease cost

$

56

 

$

56

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2020

 

2019

Right-of-use assets:

 

 

 

 

 

Operating leases

$

670

 

$

781

Financing leases

 

260

 

 

354

Total right-of-use assets

$

930

 

$

1,135

 

 

 

 

 

 

Current portion of lease liability:

 

 

 

 

 

Operating leases

$

548

 

$

551

Financing leases

 

193

 

 

216

Total current portion of lease liability

$

741

 

$

767

 

 

 

 

 

 

Lease liability, net of current portion

 

 

 

 

 

Operating leases

$

331

 

$

466

Financing leases

 

68

 

 

136

Total lease liability, net of current portion

$

399

 

$

602

 

The weighted average remaining lease term as of March 31, 2020 was 1.5 years for operating leases and 1.3 years for financing leases. The weighted average discount rate as of March 31, 2020 was 7.8% for operating leases and 2.8% for financing leases.

Future payments of lease liabilities are as follows:

 

 

 

 

 

 

 

Operating Leases

 

Finance Leases

2020 (rest of year)

$

454

 

$

158

2021

 

482

 

 

101

2022

 

 -

 

 

 7

Total lease payments

 

936

 

 

266

Less imputed interest

 

(57)

 

 

(5)

Total

$

879

 

$

261

 

 

12. LICENSE, COMMERCIALIZATION AND SUPPLY AGREEMENTS

MTPC

In January 2001, the Company entered into an exclusive development, license and clinical trial and commercial supply agreement with Tanabe Seiyaku Co., Ltd., now Mitsubishi Tanabe Pharma Corporation (“MTPC”), for the development and commercialization of avanafil. Under the terms of the agreement, MTPC

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agreed to grant an exclusive license to the Company for products containing avanafil outside of Japan, North Korea, South Korea, China, Taiwan, Singapore, Indonesia, Malaysia, Thailand, Vietnam and the Philippines. The Company agreed to grant MTPC an exclusive, royalty free license within those countries for oral products that we develop containing avanafil. The MTPC agreement contains a number of milestone payments to be made by us based on various triggering events. The term of the MTPC agreement is based on a country by country and on a product by product basis. In August 2012, the Company entered into an amendment to the agreement with MTPC that permitted the Company to manufacture the API and tablets for STENDRA/SPEDRA by itself or through third parties. In 2015, the Company transferred the manufacturing of the API and tablets for STENDRA/SPEDRA to Sanofi. The Company maintains royalty obligations to MTPC which have been passed through to our commercialization partners.

Menarini

In July 2013, the Company entered into a license and commercialization agreement (the “Menarini License Agreement”) and a supply agreement (the “Menarini Supply Agreement”) with the Menarini Group through its subsidiary Berlin Chemie AG (“Menarini”). Under the terms of the Menarini License Agreement, Menarini received an exclusive license to commercialize and promote SPEDRA for the treatment of ED in over 40 countries, including the EU Member States, plus Australia and New Zealand. Additionally, the Company transferred to Menarini ownership of the marketing authorization for SPEDRA in the EU for the treatment of ED, which was granted by the EC in June 2013. Under the Menarini License Agreement, the Company has and is entitled to receive milestone payments based on certain net sales targets, plus royalties on SPEDRA sales. Under the terms of the Menarini Supply Agreement, the Company supplied Menarini with SPEDRA drug product until December 31, 2018. Under the Menarini Supply Agreement, Menarini also has the right to manufacture SPEDRA independently, provided that it continues to satisfy certain minimum purchase obligations to the Company. Following the expiration of the Menarini Supply Agreement, Menarini would be responsible for its own supply of SPEDRA. Either party may terminate the Menarini Supply Agreement for the other party’s uncured material breach or bankruptcy, or upon the termination of the Menarini License Agreement.

In May 2019, the Company entered into Amendment No. 1 to the License and Commercialization Agreement and Commercial Supply Agreement with Menarini effective as of January 1, 2019, pursuant to which certain amendments were made to the Menarini License Agreement and the Menarini Supply Agreement, which include: (i) under the Menarini License Agreement, Menarini’s exclusive license to commercialize and promote the Company’s drug avanafil for the treatment of ED will be limited to over 40 European countries and will no longer include Australia and New Zealand; (ii) under the Menarini License Agreement, the timing requirements of the product launches by Menarini have been adjusted; (iii) under the Menarini License Agreement, the milestone payments have been adjusted to reflect the removal of Australia and New Zealand and will continue to be non-refundable and non-creditable, with one exception added for certain costs and expenses incurred by Menarini for development work related to an avanafil development opportunity in the Menarini territory (“Menarini Development”); (iv) under the Menarini License Agreement, the royalties on avanafil sales payable by Menarini to the Company will be adjusted to allow Menarini to recoup certain Menarini Development costs and expenses but only as to sales of the Menarini Development product unless the Menarini Development product is commercialized by the Company or its sublicensees outside the Menarini territory; (v) under the Menarini Supply Agreement, the minimum purchase obligations for Menarini will be modified and extended, including the ability of Menarini to satisfy its minimum purchase obligations with the purchase of avanafil API and the addition of minimum purchase obligations for the calendar years for the extended term; and (vi) under the Menarini Supply Agreement, the term will be extended to December 31, 2023, unless otherwise agreed by the parties in writing. The Company and Menarini have entered into standalone agreements relating to Australia and New Zealand, including a license with royalties and milestone payments and a supply agreement.

Sanofi

In July 2013, the Company entered into a Commercial Supply Agreement with Sanofi Chimie to manufacture and supply the API for avanafil on an exclusive basis in the United States and other territories and on a semi-exclusive basis in Europe, including the EU Member States, Latin America and other territories. In December 2018, the Company entered into an amendment to the Commercial Supply Agreement with Sanofi Chimie, pursuant to which certain amendments were made to the Commercial Supply Agreement, which include: (i) beginning January 1, 2019, Sanofi Chimie will manufacture and supply API for avanafil on an exclusive basis in all countries

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where the Company has the right to sell avanafil; (ii) beginning January 1, 2019, the yearly minimum quantities of API that the Company must purchase from Sanofi Chimie will be adjusted, as well as adjustments to the associated pricing and payment terms; and (iii) with the initial five year term of the Commercial Supply Agreement expiring on December 31, 2018, the Company and Sanofi Chimie have agreed to extend the term of the Commercial Supply Agreement until December 31, 2023 unless either party makes a timely election to terminate the agreement and that thereafter the Commercial Supply Agreement will auto-renew for successive one year terms unless either party makes a timely election not to renew.

In November 2013, the Company entered into a Manufacturing and Supply Agreement with Sanofi Winthrop Industrie to manufacture and supply the avanafil tablets on an exclusive basis in the United States and other territories and on a semi exclusive basis in Europe, including the EU Member States, Latin America and other territories. The Company has minimum annual purchase commitments under these agreements for at least the initial five-year term. In May 2019, the Company entered into Amendment N°1 to the Manufacturing and Supply Agreement with Sanofi Winthrop Industrie effective as of March 18, 2019, pursuant to which certain amendments were made to the Manufacturing and Supply Agreement, which include: (i) Sanofi Winthrop Industrie will manufacture and supply the tablets for the Company’s drug avanafil on an exclusive basis in all countries where the Company or its sublicensees and/or Menarini have the right to sell avanafil; (ii) the yearly minimum quantities of tablets that the Company must purchase from Sanofi Winthrop Industrie and the price of such tablets will be adjusted; and (iii) with the initial term of the Manufacturing and Supply Agreement expiring on January 16, 2021, the Company and Sanofi Winthrop Industrie have agreed to extend the term of the Manufacturing and Supply Agreement until December 31, 2023 unless either party makes a timely election to terminate the agreement and that thereafter the Manufacturing and Supply Agreement will auto-renew for successive one year terms unless either party makes a timely election not to renew.

Metuchen

In September 2016, the Company entered into a license and commercialization agreement (the “Metuchen License Agreement”) and a commercial supply agreement (the “Metuchen Supply Agreement”) with Metuchen Pharmaceuticals LLC (“Metuchen”). Under the terms of the Metuchen License Agreement, Metuchen received an exclusive license to develop, commercialize and promote STENDRA in the United States, Canada, South America and India (the “Metuchen Territory”) effective October 1, 2016. The Company and Metuchen have agreed not to develop, commercialize, or in-license any other product that operates as a PDE-5 inhibitor in the Metuchen Territory for a limited time period, subject to certain exceptions. The Metuchen License Agreement will terminate upon the expiration of the last-to-expire payment obligations under the Metuchen License Agreement; upon expiration of the term of the Metuchen License Agreement, the exclusive license granted under the Metuchen License Agreement shall become fully paid-up, royalty-free, perpetual and irrevocable as to the Company but not certain trademark royalties due to MTPC.

Metuchen will obtain STENDRA exclusively from the Company for a mutually agreed term pursuant to the Metuchen Supply Agreement. Metuchen may elect to transfer the control of the supply chain for STENDRA for the Metuchen Territory to itself or its designee by assigning to Metuchen the Company’s agreements with the contract manufacturer. For 2016 and each subsequent calendar year during the term of the Metuchen Supply Agreement, if Metuchen fails to purchase an agreed minimum purchase amount of STENDRA from the Company, it will reimburse the Company for the shortfall as it relates to the Company’s out of pocket costs to acquire the API needed to manufacture the agreed upon minimum purchase amount of STENDRA. Upon the termination of the Metuchen Supply Agreement (other than by Metuchen for the Company’s uncured material breach or upon completion of the transfer of the control of the supply chain), Metuchen’s agreed minimum purchase amount of STENDRA from the Company shall accelerate for the entire then current initial term or renewal term, as applicable. The initial term under the Metuchen Supply Agreement will be for a period of five years, with automatic renewal for successive two-year periods unless either party provides a termination notice to the other party at least two years in advance of the expiration of the then current term. On September 30, 2019, Metuchen provided a written notice of termination of the Metuchen Supply Agreement effective September 30, 2021.

Alvogen

In September 2017, the Company entered into a license and commercialization agreement (the “Alvogen License Agreement”) and a commercial supply agreement (the “Alvogen Supply Agreement”) with Alvogen Malta Operations (ROW) Ltd (“Alvogen”) which was subsequently assigned to Alvogen South Korea. Under the terms of

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the Alvogen License Agreement, Alvogen will be solely responsible for obtaining and maintaining regulatory approvals for all sales and marketing activities for Qsymia in South Korea. The Company received an upfront payment of $2.5 million in September 2017, which was recorded in license and milestone revenue in the third quarter of 2017, $2.5 million in the third quarter of 2019 upon Alvogen receiving marketing authorization and $2.0 million in the first quarter of 2020 upon commercial launch. The Company is eligible to receive additional payments upon reaching a sales milestone. Additionally, the Company receives royalties on Alvogen’s Qsymia net sales in South Korea. Under the Alvogen Supply Agreement, the Company will supply product to Alvogen on an exclusive basis.

PANCREAZE

In June 2018, the Company closed on an Asset Purchase Agreement (the “PANCREAZE Purchase Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”) pursuant to which the Company acquired the rights to PANCREAZE and PANCREASE MT in the U.S. and Canada and certain existing inventory for a purchase price of $135.0 million in cash.

The Company also acquired all of the outstanding shares of Willow Biopharma Inc. (“Willow”). Willow had no significant assets at the time of acquisition. The Company issued fully-exercisable warrants to the former owners of Willow, including John Amos, M. Scott Oehrlein and Kenneth Suh, the Company’s current Chief Executive Officer, former Chief Operations Officer and former President, respectively, for the purchase of 357,000 shares of the Company’s common stock at an exercise price of $3.70 per share and agreed to assume certain of Willow’s liabilities. The amounts paid to the former owners were accounted for as a fee for the acquisition of PANCREAZE.

As all the PANCREAZE assets acquired were a part of one product line, the PANCREAZE Purchase Agreement was accounted for as an asset acquisition, with an intangible asset of $141.9 million for the PANCREAZE license recorded on the consolidated balance sheet, which was comprised of the purchase price of $135.0 million, the fair value of the warrants issued of $0.8 million, the value of liabilities assumed of $0.4 million, the value of the Willow liabilities assumed of $1.5 million and accruals for estimated destruction of future unsalable inventory of $6.3 million, less the net value of PANCREAZE inventory acquired of $2.1 million. The fair value of the warrants issued was recorded in additional paid-in capital and was estimated using the Black-Scholes option pricing model, using a term of 7.0 years, an estimated volatility of 61.6%, a risk-free interest rate of 2.91% and an expected dividend yield of 0%. The intangible asset is being amortized over an expected useful life of 10 years, which corresponds with the expiration of certain significant patent rights related to PANCREAZE.

In connection with the PANCREAZE Purchase Agreement, the Company and Janssen also entered into transition services agreements pursuant to which Janssen and a Canadian affiliate of Janssen provided  certain transition services to the Company in the U.S. and Canada as the Company transitioned to full control over the PANCREAZE supply chain. The Company and Johnson & Johnson Health Care Systems Inc., a New Jersey corporation and an affiliate of Janssen, also entered into a Long-Term Collaboration Agreement pursuant to which they will cooperate in the reporting and certification of pricing and sales data and the payment of rebates and discounts under certain governmental programs. These agreements terminated in the third quarter of 2019.

In conjunction with the PANCREAZE Purchase Agreement, Janssen assigned to the Company the Amended and Restated Know-How License and Supply Agreement (the “Nordmark Supply Agreement”) effective as of November 7, 2017 by and between Nordmark Arzneimittel GmbH & Co. KG (“Nordmark”) and Janssen. In order to extend the term of the Nordmark Supply Agreement and ensure a stable and predictable price of the Product, the Company entered into the First Amendment to the Supply Agreement on June 26,