Item 2. Management’s Discussion and Analysis o
f F
inancial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our consolidated financial statements for the period ended June 30, 2016 included in Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under Part I, Item 1A, “Risk Factors”, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “2015 10-K”), our actual results may differ materially from those anticipated in these forward-looking statements. References to the words “we,” “our,” “us,” and the “Company” in this report refer to NovoCure Limited, including its consolidated subsidiaries.
Overview
We are a commercial-stage oncology company developing a novel, proprietary therapy called TTFields for the treatment of solid tumor cancers. TTFields is a low-toxicity anti-mitotic treatment that uses low-intensity, intermediate frequency, alternating electric fields to exert physical forces on key molecules inside cancer cells, disrupting the basic machinery necessary for normal cell division, leading to cancer cell death. Physicians have typically treated patients with solid tumors using one or a combination of three principal treatment modalities—surgery, radiation and pharmacological therapies. Despite meaningful advancements in each of these modalities, a significant unmet need to improve survival and quality of life remains. We believe we will establish TTFields as a new treatment modality for a variety of solid tumors that increases survival without significantly increasing side effects when used in combination with other cancer treatment modalities.
We were founded in 2000 and operated as a development stage company through December 31, 2011. We initially received U.S. Food and Drug Administration (“FDA”) approval for Optune, our first commercial TTFields delivery system, in 2011 for use as a monotherapy treatment for adult patients with glioblastoma brain cancer (“GBM”) following confirmed recurrence after chemotherapy. In November 2014, our phase 3 pivotal trial of Optune in combination with chemotherapy for patients with newly diagnosed GBM met its endpoints after a pre-specified interim analysis showed significant improvements in both progression free and overall survival. In October 2015, we received FDA approval to market Optune for the treatment of adult patients with newly diagnosed GBM in combination with temozolomide, a chemotherapy drug. In July 2016, Optune was added to the National Comprehensive Cancer Network (NCCN) Clinical Practice Guidelines in Oncology for Central Nervous Systems Cancers for newly diagnosed GBM. Optune plus temozolomide is now a Category 2A recommendation following standard brain radiation therapy with concurrent temozolomide, and is now a standard treatment option for newly diagnosed patients with GBM.
We have built a commercial organization and launched Optune in the United States, Germany, Switzerland and Japan, which we refer to as our currently active markets. As we enter each new market, our commercial activities focus initially on establishing the required in-market infrastructure, certifying physicians to prescribe Optune and obtaining a defined reimbursement pathway. Once established, our commercial efforts turn to increasing adoption.
In December 2015, we submitted a partial amendment application to the Japanese Pharmaceuticals and Medical Devices Agency in connection with our application for approval of Optune for the treatment of patients with newly diagnosed GBM. We hope to receive Japanese Ministry of Health, Labour and Welfare (“MHLW”) approval for this indication in late 2016. The MHLW approved the use of Optune to treat patients with recurrent GBM in March 2015. We plan to wait until we receive MHLW approval for the use of Optune to treat patients with newly diagnosed GBM before we submit an application for public reimbursement of Optune in Japan.
We continue to invest in the improvement of Optune to enhance ease of use for patients. A second generation Optune System that is less than half the weight and size of the first generation Optune System was launched in Europe in the fourth quarter of 2015. We received FDA approval on the premarket approval supplement application to market the second generation Optune System in the United States in July 2016 and are in the process of converting all patients to the second generation Optune System.
We have researched the biological effects of TTFields extensively. Because TTFields are delivered regionally, act only on mitotic cells and are tuned to target cells of a specific size, there is minimal damage to healthy cells. We believe our pre-clinical and clinical research demonstrates that TTFields’ mechanism of action affects fundamental aspects of cell division and can have broad applicability across a variety of solid tumors. We have demonstrated in pre-clinical studies that TTFields can offer additive or synergistic benefits in combination with radiation, chemotherapy, and immunotherapy, which may lead to greater efficacy than radiation, chemotherapy, and immunotherapy alone, without appearing to increase the side effects of the other cancer treatments. In addition to our clinical and commercial progress in GBM, we are currently planning or conducting clinical trials evaluating the use of TTFields in brain metastases, non-small-cell lung cancer (“NSCLC”), pancreatic cancer, ovarian cancer and mesothelioma.
Results from the first cohort of our PANOVA trial, a phase 2 pilot trial in advanced pancreatic adenocarcinoma examining TTFields in combination with chemotherapy, were presented at the American Society of Clinical Oncology (“ASCO”) Gastrointestinal Cancers
- 11 -
Symposium in January 2016, with additional subgroup analyses presented at th
e ASCO Annual Meeting in June 2016. The first cohort was designed to test the feasibility, safety and preliminary efficacy of TTFields in combination with gemcitabine, a chemotherapy drug, and included 20 patients with advanced pancreatic cancer whose tumo
rs could not be removed surgically and who had not received chemotherapy or radiation therapy prior to the clinical trial.
Efficacy results based on the 20 patients in the first cohort showed that progression free survival (“PFS”) and overall survival (“OS
”), of patients treated with TTFields combined with gemcitabine were more than double those of gemcitabine-treated historical controls. Of the 20 patients in the first cohort of the trial, 13 had distant metastases and seven had locally advanced unresectab
le disease.
The median OS for all patients was 14.9 months. Median OS was longer than 15 months in locally advanced patients with 86% of patients alive at end of follow up. Patients with metastatic disease experienced a median OS of 8.3 months. The one-yea
r survival rate was 55%; 86% in locally advanced and 40% in metastatic disease.
Adverse events reported in this combination study were comparable to those reported with gemcitabine alone, suggesting minimal added toxicities due to TTFields.
Following the approval of nab-paclitaxel, a taxane-based chemotherapy, for the treatment of advanced pancreatic cancer, the PANOVA study was expanded to include 20 additional patients treated with TTFields in combination with nab-paclitaxel and gemcitabine. We finished enrollment of the second patient cohort in May 2016 and, with an expected six month follow-up period, we anticipate that phase 2 pilot data will be available in December 2016.
We also finished enrollment in our INNOVATE trial, a phase 2 pilot trial in recurrent ovarian cancer examining TTFields in combination with weekly paclitaxel, in May 2016 and, with an expected six month follow-up period, we anticipate that phase 2 pilot data will be available in December 2016.
In May 2016, we received FDA approval of our IDE application to initiate the METIS trial, a phase 3 pivotal trial studying radiosurgery plus TTFields compared to radiosurgery alone for brain metastases from non-small cell lung cancer. Given the recent advances in our METIS trial, in July 2016 we closed enrollment for COMET, our phase 2 pilot trial in brain metastases.
The table below presents the current status of our clinical pipeline. We anticipate expanding our clinical pipeline over time to study the safety and efficacy of TTFields for additional solid tumor indications.
We own all commercialization rights to TTFields in oncology. Our robust global patent and intellectual property portfolio consists of over 50 issued patents, with numerous additional patent applications pending worldwide. We believe we will maintain exclusive rights to market TTFields for all solid tumor indications in our key markets through the life of our patents.
Financial Overview.
We expect to continue to incur significant expenses and operating losses for at least the next several years. We expect our research, development and clinical trials expenses to increase in connection with our ongoing activities, and as additional indications enter late-stage clinical development. In addition, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We may need additional funding to support the continuation of our operating activities. Until we can generate substantial revenues (which may not occur), we expect to finance our cash needs through our existing cash, cash equivalents, and short-term investments, equity issuances or additional debt, and possibly also from collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We will need to generate significant revenues to achieve profitability, and we may never do so.
Critical accounting policies and estimates
In accordance with U.S. GAAP, in preparing our financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements
- 12 -
and the reported amounts of net revenues and expenses during the reporting period. We develop and periodically change these estimates and assumptions based on historical experienc
e and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.
The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements can be found in our 2015 10-K. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2015 10-K.
Results of Operations
We account for revenue when cash is collected and all other revenue recognition criteria have been met. We report certain operating statistics to provide additional insight into the commercial performance of Optune in our currently active markets.
Prescriptions are a leading indicator of Optune demand. The conversion of prescriptions to new patients is driven by the prescription fill rate and the time to fill. The prescription fill rate for the twelve months ended June 30, 2016 was 75%. The increase or decrease in active patients in any given period reflects the number of new patients starting on therapy, driven by filled prescriptions, as compared to the number of patients discontinuing therapy, which reflects the treatment duration for patients starting in prior periods.
The following table includes certain commercial operating statistics for and as of the end of the periods presented.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
Operating statistics
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Prescriptions received in period (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
547
|
|
|
|
390
|
|
|
|
1,231
|
|
|
|
801
|
|
Germany, Switzerland and other EMEA markets (2) (4)
|
|
|
110
|
|
|
|
38
|
|
|
|
181
|
|
|
|
64
|
|
Japan (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
657
|
|
|
|
428
|
|
|
|
1,412
|
|
|
|
865
|
|
Active patients at period end (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
736
|
|
|
|
391
|
|
|
|
736
|
|
|
|
391
|
|
Germany, Switzerland and other EMEA markets (2) (4)
|
|
|
155
|
|
|
|
34
|
|
|
|
155
|
|
|
|
34
|
|
Japan (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
891
|
|
|
|
425
|
|
|
|
891
|
|
|
|
425
|
|
(1)
|
A “prescription received” is a commercial order for Optune that is received from a physician certified to treat patients with TTFields therapy for a patient not previously on TTFields therapy. Orders to renew or extend treatment are not included in this total. In the future, we may have regulatory approvals and commercial programs for multiple clinical indications, at which time we will recognize a commercial order as a prescription for the same patient for each clinical indication treated. For example, in the future, a patient may have a prescription for the treatment of lung cancer and a prescription for the treatment of brain metastases from the lung cancer.
|
(2)
|
As we enter each new market, our commercial activities focus initially on establishing the required in-market infrastructure, certifying physicians to prescribe Optune and obtaining a defined reimbursement pathway. Once established, our commercial efforts turn to increasing adoption.
|
(3)
|
An “active patient” is a patient who is on TTFields therapy under a commercial prescription order as of the measurement date, including patients who may be on a temporary break from treatment and who plan to resume treatment in less than 60 days.
|
(4)
|
EMEA refers to Europe, the Middle East and Africa.
|
We view our operations and manage our business in one operating segment. For the three and six months ended June 30, 2016, our net revenues were $17.9 million and $31.0 million, respectively, and our net losses were $40.6 million and $76.1 million, respectively. Our net loss for the three and six month period ended June 30, 2016 includes $5.6 million and $11.1.million, respectively, in non-cash share-based compensation expense. As of June 30, 2016, we had an accumulated deficit of $464.1 million.
Three months ended June 30, 2016 compared to three months ended June 30, 2015
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
Net revenues
|
|
$
|
17,919
|
|
|
$
|
6,543
|
|
|
$
|
11,376
|
|
|
|
174
|
%
|
- 13 -
Net revenues.
Substantially all of our revenues are derived from patients using our TTFields delivery system, marketed as Optune in our currently active markets. We charge patients or their third-party healthcare payers directly on a monthly basis and bear the financial risk of securing payment in the United States and Europe.
We account for revenue when cash is collected and other revenue recognition criteria have been met as we have not yet built up sufficient history with each individual third-party payer to reliably estimate their individual payment patterns. As a result, revenue in the reported periods is a mixture of amounts collected from patients using Optune in the period and amounts collected for use of Optune in prior periods.
Net revenues increased by $11.4 million, or 174%, to $17.9 million for the three months ended June 30, 2016 from $6.5 million for the three months ended June 30, 2015. The increase was primarily due to an increase of $9.9 million in commercial sales of Optune in the United States, driven by an increase in Optune adoption, as well as to an increase of $1.4 million in commercial sales of Optune in our other currently active markets, also driven by an increase in Optune adoption.
Cost of revenues.
Our cost of revenues is comprised primarily of (i) cost of the disposable transducer arrays purchased from third-party manufacturers, (ii) depreciation expense for field equipment, including the electric field generator used by patients and (iii) personnel, warranty and overhead costs such as facilities, freight and depreciation of property, plant and equipment associated with managing our inventory, warehousing and order fulfillment functions. Our cost of revenues (excluding the impairment of field equipment described below) increased by $5.0 million, or 106%, to $9.8 million for the three months ended June 30, 2016 from $4.8 million for the three months ended June 30, 2015. The change was due to an increase in Optune adoption which caused a $2.7 million increase in the cost of transducer array shipments and a $0.4 million increase in field equipment depreciation expenses. In addition, there was a $1.7 million increase in personnel costs to establish the infrastructure necessary to support an increasing volume of shipments.
We received FDA approval on our PMA supplement application to market our second generation Optune System in the United States in July 2016. We have begun converting patients in the United States from the first generation Optune System to the second generation Optune System and expect to complete the conversion over the next few months. Manufacturing of the first generation Optune System has been terminated. For the three months ended June 30, 2016, we recorded an impairment loss with respect to the write-off of our first generation Optune System field equipment (finished goods and production stage) in the amount of $6.4 million that is not recoverable and is presented in cost of revenues.
We do not expect the conversion to result in an additional material impairment charge in the future
.
Operating Expenses.
Our operating expenses consist of research, development and clinical trials, sales and marketing and general and administrative expenses. Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses. Personnel costs also include share-based compensation.
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
Research, development and clinical trials
|
|
$
|
11,318
|
|
|
$
|
12,765
|
|
|
$
|
(1,447
|
)
|
|
|
-11
|
%
|
Sales and marketing
|
|
|
14,598
|
|
|
|
8,866
|
|
|
|
5,732
|
|
|
|
65
|
%
|
General and administrative
|
|
|
13,031
|
|
|
|
7,368
|
|
|
|
5,663
|
|
|
|
77
|
%
|
Total operating expenses
|
|
$
|
38,947
|
|
|
$
|
28,999
|
|
|
$
|
9,948
|
|
|
|
|
|
Non-cash expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
$
|
5,467
|
|
|
$
|
2,626
|
|
|
$
|
2,841
|
|
|
|
108
|
%
|
Other non-cash expenses
|
|
|
709
|
|
|
|
196
|
|
|
|
513
|
|
|
|
262
|
%
|
Total non-cash expenses
|
|
$
|
6,176
|
|
|
$
|
2,822
|
|
|
$
|
3,354
|
|
|
|
119
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses, net of non-cash expenses
|
|
$
|
32,771
|
|
|
$
|
26,177
|
|
|
$
|
6,594
|
|
|
|
25
|
%
|
Research, development and clinical trials expenses.
Research, development and clinical trials expenses decreased by $1.5 million, or 11%, to $11.3 million for the three months ended June 30, 2016 from $12.8 million for the three months ended June 30, 2015. The change was primarily due to a decrease of $2.5 million in clinical trial expenses primarily related to the conclusion of our EF-14 trial, and a decrease of $0.5 million in clinical trial expenses primarily related to clinical education and investigator-sponsored trials, partially offset by an increase of $1.2 million in personnel costs (including an increase of $0.2 million in share-based compensation) and clinical trial expenses for our other ongoing phase 2 pilot trials.
- 14 -
Sales and marketing expenses.
Sales and marketing expenses increased by $5.7 million, or 65%, to $14.6 million for the three months ended June 30, 2016 from $8.9 million for the three months ended June 30, 2015. The change
was primarily due to an increase of $3.6 million in personnel costs (including an increase of $0.8 million in share-based compensation) and an increase of $2.0 million in marketing expenses, reflecting our increased commercial operations in the United Stat
es and Germany and our ongoing efforts to establish commercial operations in Switzerland and Japan.
General and administrative expenses.
General and administrative expenses increased by $5.7 million, or 77%, to $13 million for the three months ended June 30, 2016 from $7.3 million for the three months ended June 30, 2015. The change was primarily due to an increase of $3.4 million in personnel costs (including an increase of $1.9 million in share-based compensation) and $1.8 million in professional services to support our enterprise resource planning system implementation and public company-related activities.
Financial expenses, net.
Financial expenses, net primarily consists of interest expense and related debt issuance costs under our
Loan and Security Agreement dated as of January 7, 2015, between us, as borrower, and Biopharma Secured Investments III Holdings Cayman LP, as lender (the “Term Loan Credit Facility”)
, interest income from cash balances and short-term investments and gains (losses) from foreign currency transactions.
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
Income tax expenses
|
|
$
|
2,820
|
|
|
$
|
1,275
|
|
|
$
|
1,545
|
|
|
|
121
|
%
|
Income taxes.
Income taxes increased by $1.5 million to $2.8 million for the three months ended June 30, 2016 compared to the same period of 2015. The change was primarily attributable to an increase in the statutory tax provisions for Switzerland and the United States as well as an increase in our provision for uncertain tax positions.
Six months ended June 30, 2016 compared to six months ended June 30, 2015
Net revenues.
Substantially all of our revenues are derived from patients using our TTFields delivery system, marketed as Optune in our currently active markets. We charge patients or their third-party healthcare payers directly on a monthly basis and bear the financial risk of securing payment in the United States and Europe.
We account for revenue when cash is collected and other revenue recognition criteria have been met as we have not yet built up sufficient history with each individual third-party payer to reliably estimate their individual payment patterns. As a result, revenue in the reported periods is a mixture of amounts collected from patients using Optune in the period and amounts collected for use of Optune in prior periods.
Net revenues increased by $19.2 million, or 164%, to $ 31.0 million for the six months ended June 30, 2016 from $11.8 million for the six months ended June 30, 2015. The increase was primarily due to an increase of $17.0 million in commercial sales of Optune in the United States, driven by an increase in Optune adoption as well as to an increase of $2.2 million in commercial sales of Optune in our other currently active markets, also driven by an increase in Optune adoption.
Cost of revenues.
Our cost of revenues is comprised primarily of (i) cost of the disposable transducer arrays purchased from third-party manufacturers, (ii) depreciation expense for field equipment, including the electric field generator used by patients and (iii) personnel, warranty and overhead costs such as facilities, freight and depreciation of property, plant and equipment associated with managing our inventory, warehousing and order fulfillment functions. Our cost of revenues (excluding the impairment of field equipment described below) increased by $9.1 million, or 106%, to $17.8 million for the six months ended June 30, 2016 from $8.7 million for the six months ended June 30, 2015. The change was due to an increase in Optune adoption, which caused a $5.0 million increase in the cost of transducer array shipments and a $0.7 million increase in field equipment depreciation expenses. In addition, there was a $3.4 million increase in personnel costs to establish the infrastructure necessary to support an increasing volume of shipments.
We received FDA approval on our PMA supplement application to market our second generation Optune System in the United States in July 2016. We have begun converting patients in the United States from the first generation Optune System to the second generation Optune System and expect to complete the conversion over the next few months. Manufacturing of the first generation Optune System has been terminated. For the six months ended June 30, 2016, we recorded an impairment loss with respect to the write-off of first generation Optune System field equipment (finished goods and production stage) in the amount of $6.4 million that is
- 15 -
not recoverable and is presented in cost of revenues.
We do not expect the conversion to result in an additional material impairment charge in the future
.
Operating Expenses.
Our operating expenses consist of research, development and clinical trials, sales and marketing and general and administrative expenses. Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses. Personnel costs also include share-based compensation.
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
Research, development and clinical trials
|
|
$
|
22,763
|
|
|
$
|
22,692
|
|
|
$
|
71
|
|
|
|
0
|
%
|
Sales and marketing
|
|
|
27,906
|
|
|
|
15,221
|
|
|
|
12,685
|
|
|
|
83
|
%
|
General and administrative
|
|
|
25,287
|
|
|
|
14,343
|
|
|
|
10,944
|
|
|
|
76
|
%
|
Total operating expenses
|
|
$
|
75,956
|
|
|
$
|
52,256
|
|
|
$
|
23,700
|
|
|
|
|
|
Non-cash expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
$
|
10,782
|
|
|
$
|
4,425
|
|
|
$
|
6,357
|
|
|
|
144
|
%
|
Other non-cash expenses
|
|
|
1,315
|
|
|
|
367
|
|
|
|
948
|
|
|
|
258
|
%
|
Total non-cash expenses
|
|
$
|
12,097
|
|
|
$
|
4,792
|
|
|
$
|
7,305
|
|
|
|
152
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses, net of non-cash expenses
|
|
$
|
63,859
|
|
|
$
|
47,464
|
|
|
$
|
16,395
|
|
|
|
35
|
%
|
Research, development and clinical trials expenses.
Research, development and clinical trials expenses increased by $0.1 million, or 0.3%, to $22.8 million for the six months ended June 30, 2016 from $22.7 million for the six months ended June 30, 2015. The change was primarily due to an increase of $2.7 million in personnel costs (including an increase of $0.6 million in share-based compensation) and clinical trial expenses for our ongoing phase 2 pilot trials, offset by a decrease of $2.6 million in clinical trial materials and expenses primarily related to the conclusion of our EF-14 trial.
Sales and marketing expenses.
Sales and marketing expenses increased by $12.7 million, or 83%, to $27.9 million for the six months ended June 30, 2016 from $15.2 million for the six months ended June 30, 2015. The change was primarily due to an increase of $7.3 million in personnel costs (including an increase of $1.7 million in share-based compensation) and an increase of $3.5 million in marketing expenses, reflecting our increased commercial operations in the United States and Germany and our ongoing efforts to establish commercial operations in Switzerland and Japan.
General and administrative expenses.
General and administrative expenses increased by $10.9 million, or 76%, to $25.3 million for the six months ended June 30, 2016 from $14.4 million for the six months ended June 30, 2015. The change was primarily due to an increase of $7.0 million in personnel costs (including an increase of $4.1 million in share-based compensation), and an increase of $2.7 million in professional services to support our enterprise resource planning system implementation and public company-related activities.
Financial expenses, net.
Financial expenses, net primarily consists of interest expense and related debt issuance costs under our
Term Loan Credit Facility
, interest income from cash balances and short-term investments and gains (losses) from foreign currency transactions.
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
Income tax expenses
|
|
$
|
5,770
|
|
|
$
|
2,011
|
|
|
$
|
3,759
|
|
|
|
187
|
%
|
Income taxes.
Income taxes increased by $3.8 million to $5.8 million for the six months ended June 30, 2016. The change was primarily attributable to an increase in the statutory tax provisions for Switzerland and the United States as well as an increase in our provision for uncertain tax positions.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have financed our operations primarily through the issuance and sale of equity and the proceeds from long-term loans. As of June 30, 2016, we had received a total of $615.6
million from these activities. As of June 30, 2016, we had an accumulated deficit of $464.1 million since inception.
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Our net losses were $76.1
million
for the six months ended June 30, 2016 and $111.6 million for the year ended December 31, 2015. Our net losses primarily resulted from costs incurred in connection with our pre-clinical and clinical trial programs, costs incurred in our commercial launch
efforts, and general and administrative costs necessary to operate as a multi-national oncology business.
As of June 30, 2016, we had $80.9 million of cash and cash equivalents and $120.0 million of short-term investments. We believe our cash and cash equivalents and short term investments as of June 30, 2016, in addition to the $75.0 million that we drew under our Term Loan Credit Facility in July 2016, are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments. We expect that our research, development and clinical trials expenses, sales and marketing expenses and general and administrative expenses will continue to increase over the next several years. As a result, we may need to raise additional capital in the future to fund our operations.
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Six Months Ended
June 30,
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|
|
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2016
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|
|
2015
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|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(60,371
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)
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|
$
|
(51,657
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)
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Net cash provided by (used in) investing activities
|
|
|
20,820
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|
|
|
(16,622
|
)
|
Net cash provided by financing activities
|
|
|
943
|
|
|
|
117,174
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(38,608
|
)
|
|
|
48,895
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|
Effect of exchange rates on cash and cash equivalents
|
|
|
56
|
|
|
|
-
|
|
Changes in short-term investments (included in investing
activities)
|
|
|
(30,022
|
)
|
|
|
11,997
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|
Net increase (decrease) in cash, cash equivalents and short-term
investments
|
|
$
|
(68,574
|
)
|
|
$
|
60,892
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Operating activities
Net cash used in operating activities primarily represents our net loss for the periods presented. Adjustments to net loss for non-cash items include depreciation, share-based compensation, accrued interest and impairments. Operating cash flows are also impacted by changes in operating assets and liabilities, principally inventories, prepaid expenses, trade payables and accrued expenses.
Net cash used in operating activities was $60.4 million for the six months ended June 30, 2016, as compared to $51.7 million for the six months ended June 30, 2015, reflecting a net loss of $76.1 million and a change of $4.3 million in our net operating assets and liabilities, partially offset by non-cash charges of $19.9 million, which includes $6.4 million of field equipment impairment.
The change in our net operating assets and liabilities was primarily the result of an increase in our inventories of $7.6 million necessary to meet anticipated demand offset by an increase in trade payables of $4.1 million, other payables of $0.8 million and other receivables of $2.2 million. Non-cash charges included $11.1 million of share-based compensation, $6.4 million of field equipment impairment and $2.5 million of depreciation.
Investing activities
Our investing activities consist primarily of capital expenditures to purchase property and equipment and field equipment, as well as investments in and redemptions of our short-term investments.
Net cash provided by investing activities was $20.8 million in the six months ended June 30, 2016 attributable to our receipt of $150.0 million from the maturity of short-term investments, partially offset by the purchase of $120.0 million of new short-term investments, purchases of $3.3 million of property and equipment and purchases of $6.1 million of field equipment. Net cash used in investing activities for the same period in 2015 was $16.6 million, attributable to the receipt of $47.0 million from the maturity of short-term investments, offset by the purchase of $59.0 million of short-term investments, purchases of $2.4 million of property and equipment and purchases of $2.2 million of field equipment.
Financing activities
To date, our primary financing activities have been the sale of equity and the proceeds from long-term loans.
Net cash provided by financing activities consist primarily of approximately $1.0 million received from the exercise of warrants and options by investors and employees during the six months ended June 30, 2016. Net cash provided by financing activities was $117.2
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million in the same period of 2015, attributable to a draw under our Term Loan Credit Facility and consideration received from the sale of Series J preferred shares in the second quarter of 2015.
Our material outstanding indebtedness consists of our Term Loan Credit Facility, which provides for up to $100.0 million of borrowings in up to four draws, the first of which was made on January 30, 2015 in the amount of $25.0 million of principal resulting in $23.8 million of proceeds net of discount and issuance costs, net. On June 30, 2016, we provided to the lender a drawdown notice for the remaining $75.0 million. In July 2016, we closed on a draw in the amount of $75.0 million of principal, resulting in $72.9 million of proceeds net of discount and issuance costs, net. Following the July 2016 closing, our material outstanding indebtedness under the Term Loan Credit Facility is $100.0 million.
Interest on the outstanding loan is 10% annually, payable quarterly in arrears. As of June 30, 2016, the aggregate principal balance of amounts outstanding under the Term Loan Credit Facility was approximately $25.0 million. We may prepay the term loans, in whole, at any time, and must prepay in the event of a change of control, in each case, subject to a pay-down fee, prepayment premium and/or make-whole payment. The funding fee payable on the amount drawn on the funding date is 1.5%, the placement fee payable on the amount drawn on the funding date is 1.25%, the pay-down fee on all principal payments to be paid on the date such payments are made is 0.75% and the pre-payment fee if we prepay outstanding loan amounts prior to the first, second or third year from the initial funding date is 3.0%, 2.0% or 1.0%, respectively.
All obligations under the Term Loan Credit Facility are guaranteed by certain of our current and future domestic direct and indirect subsidiaries. In addition, the obligations under the Term Loan Credit Facility are secured by a first-priority security interest in substantially all of the property and assets of, as well as the equity interests owned by, us and the other guarantors.
The Term Loan Credit Facility has a minimum liquidity covenant, which is tested quarterly. In addition, we must meet certain pro forma net sales requirements. The Term Loan Credit Facility contains other customary covenants.
Contractual Obligations and Commitments
There were no material changes in our commitments under contractual obligations during the three months ended June 30, 2016.
The total amount of unrecognized tax benefits for uncertain tax positions was $2.2 million and $1.6 million at June 30, 2016 and December 31, 2015, respectively. Payment of these obligations would result from settlements with taxing authorities. We do not expect a significant tax payment related to these obligations within the next year.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
JOBS Act Election
The Jumpstart our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected to “opt out” of the exemption for the delayed adoption of certain accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.