NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
1.
|
Description of Business
|
Antares Pharma, Inc. (“Antares” or the “Company”) is a combination drug device company focused primarily on the development and commercialization of self-administered parenteral pharmaceutical products and technologies. The Company develops and commercializes, for itself or with partners, novel therapeutic products using its advanced drug delivery technology to enhance existing drug compounds and delivery methods. The Company’s intramuscular and subcutaneous injection technology platforms include the VIBEX® and VIBEX® QuickShot® pressure-assisted auto injector systems suitable for branded and generic injectable drugs in unit dose containers and disposable multi-dose pen injectors. The Company has a portfolio of proprietary and partnered commercial products and ongoing product development programs in various stages of development. The Company has formed significant strategic alliances with Teva Pharmaceutical Industries, Ltd. (“Teva”), AMAG Pharmaceuticals, Inc. (“AMAG”) and Pfizer Inc. (“Pfizer”).
The Company markets and sells its proprietary product XYOSTED® (testosterone enanthate) injection in the U.S., which is indicated for testosterone replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone. XYOSTED® was approved by the U.S. Food and Drug Administration (“FDA”) on September 28, 2018 and launched for commercial sale in November 2018.
The Company also markets and sells its proprietary product OTREXUP® (methotrexate) injection in the U.S., which is indicated for adults with severe active rheumatoid arthritis, children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis.
Through its commercialization partner Teva, the Company sells Sumatriptan Injection USP, indicated in the U.S. for the acute treatment of migraine and cluster headache in adults.
In collaboration with AMAG, the Company developed a subcutaneous auto injector for use with AMAG’s progestin hormone drug Makena® (hydroxyprogesterone caproate injection) under an exclusive license and development agreement. The Makena® subcutaneous auto injector drug-device combination product, which is a ready-to-administer treatment indicated to reduce the risk of preterm birth in women pregnant with one baby and who spontaneously delivered at least one preterm baby in the past, was approved by the FDA in February 2018 and launched for commercial sale by AMAG in the first quarter of 2018. The Company is the exclusive supplier of the devices and final assembled and packaged commercial product to AMAG.
Through a license, development and supply agreement with Teva, Antares developed and is the exclusive supplier of the device for Teva’s Epinephrine Injection USP, which is indicated for emergency treatment of severe allergic reactions in adults and certain pediatric patients. The product was approved by the FDA in August 2018 and launched for commercial sale in late fourth quarter of 2018.
The Company is also developing two multi-dose pen injector products in collaboration with Teva, a combination drug device rescue pen in collaboration with Pfizer, and has other ongoing internal research and development programs.
2.
|
Basis of Presentation and Significant Accounting Policies
|
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
9
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
Revisions of Prior Period Financial Statements
During the preparation of the consolidated financial statements for the year ended December 31, 2018, management revised the presentation of certain regulatory fees between research and development expenses and selling, general and administrative expenses. As a result, the Company also made revisions to its prior period interim consolidated statements of operations as follows:
|
Three months ended
|
|
|
Nine months ended
|
|
|
September 30,
|
|
|
September 30,
|
|
|
2018
|
|
|
2018
|
|
Research and development, as reported
|
$
|
3,611
|
|
|
$
|
10,581
|
|
Research and development, as revised
|
|
3,191
|
|
|
|
9,321
|
|
Selling, general and administrative, as reported
|
|
8,327
|
|
|
|
23,606
|
|
Selling, general and administrative, as revised
|
|
8,747
|
|
|
|
24,866
|
|
These revisions had no impact on the Company’s total operating expenses or net loss. The revisions also had no impact on the consolidated balance sheets or the consolidated statements of comprehensive income (loss), stockholders’ equity or cash flows. Management evaluated the materiality of the revisions from a quantitative and qualitative perspective and concluded that the revisions are immaterial to the consolidated financial statements.
Accounting Pronouncements Recently Adopted
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02 Leases (“Topic 842”) effective January 1, 2019, electing the package of practical expedients and applying the transition provisions as of the effective date. Reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts, as reported under previous GAAP, were not adjusted. As of December 31, 2018, the Company had non-cancellable operating leases for its corporate headquarters facility in Ewing, New Jersey, and its office, research and development facility in Plymouth, Minnesota, a suburb of Minneapolis, which were not required to be recorded on the balance sheet. As a result of the adoption of Topic 842, the Company recognized approximately $1.0 million in right-of-use assets and lease liabilities in connection with its existing operating leases. The adoption of Topic 842 on January 1, 2019 did not have a significant impact on the Company’s consolidated results of operations or cash flows.
Recent Accounting Pronouncements Not Yet Adopted
In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts, and is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019. The Company has historically had little to no credit losses on financial instruments and is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
In 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This standard will be effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In 2018, the FASB issued new guidance to clarify the interaction between Collaborative Arrangements and Revenue from Contracts with Customers standards. The guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for under revenue guidance, adds unit of account guidance to the collaborative arrangement guidance to align with the revenue standard, and clarifies presentation guidance for transactions with a collaborative arrangement participant that is not accounted for under the revenue standard. The guidance is effective for annual reporting
10
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Certain components of the Company’s products are provided by a limited number of vendors, and the Company’s production, assembly, warehousing and distribution operations are outsourced to third-parties where substantially all of the Company’s inventory is located. Disruption of supply from key vendors or third-party suppliers may have a material adverse impact on the Company’s operations. The Company provides a reserve for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales, which was $1,074, and $847 at September 30, 2019 and December 31, 2018, respectively. Inventories consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
325
|
|
|
$
|
26
|
|
Work in process
|
|
|
8,467
|
|
|
|
7,622
|
|
Finished goods
|
|
|
7,711
|
|
|
|
3,702
|
|
|
|
$
|
16,503
|
|
|
$
|
11,350
|
|
Equipment, Molds, Furniture, and Fixtures
Equipment, molds, furniture, and fixtures are stated at cost, net of accumulated depreciation, and are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years. As of September 30, 2019 and December 31, 2018, the Company’s equipment, molds, furniture and fixtures totaled $15,409 and $14,895, respectively, which is presented net of accumulated depreciation of $9,163 and $7,570 as of September 30, 2019 and December 31, 2018, respectively.
Leases
The Company recognizes right-of-use (“ROU”) assets and lease liabilities when it obtains the right to control an asset under a leasing arrangement with an initial term greater than twelve months. The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the right-of-use asset and lease liabilities based on the present value of future minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments. Certain of the Company’s lease arrangements contain renewal options that have not been included in the determination of the lease term, as they are not reasonably certain of exercise. For contracts that contain lease and non-lease components, the Company accounts for both components as a single lease component. Variable lease payments are expensed as incurred.
Revenue Recognition
The Company generates revenue from proprietary and partnered product sales, license and development activities and royalty arrangements. Revenue is recognized when or as the Company transfers control of the promised goods or services to its customers at the transaction price, which is the amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services.
At inception of each contract, the Company identifies the goods and services that have been promised to the customer and each of those that represent a distinct performance obligation, determines the transaction price including any variable consideration, allocates the transaction price to the distinct performance obligations and determines whether control transfers to the customer at a point in time or over time. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company reassesses its reserves for variable consideration at each
11
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
reporting date and makes adjustments, if necessary, which may affect revenue and earnings in periods in which any such changes become known.
The Company has elected to recognize the cost for freight and shipping activities as fulfilment cost. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying goods are transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of revenue.
Proprietary Product Sales
The Company sells its proprietary products XYOSTED® and OTREXUP® primarily to wholesale and specialty distributors. Revenue is recognized when control has transferred to the customer, which is typically upon delivery, at the net selling price, which reflects the variable consideration for which reserves and sales allowances are established for estimated returns, wholesale distribution fees, prompt payment discounts, government rebates and chargebacks, plan rebate arrangements and patient discount and support programs.
The determination of certain of these reserves and sales allowances require management to make a number of judgements and estimates to reflect the Company’s best estimate of the transaction price and the amount of consideration to which it believes it is ultimately entitled to receive. The expected value is determined based on unit sales data, contractual terms with customers and third-party payers, historical and expected utilization rates, any new or anticipated changes in programs or regulations that would impact the amount of the actual rebates, customer purchasing patterns, product expiration dates and levels of inventory in the distribution channel. Reserves for prompt payment discounts are recorded as a reduction in accounts receivable. Reserves for returns, rebates and chargebacks, distributor fees and customer co-pay support programs are included within current liabilities in the consolidated balance sheets.
Partnered Product Sales
The Company is party to several license, development, supply and distribution arrangements with pharmaceutical partners, under which the Company produces and is the exclusive supplier of certain products, devices and/or components. Revenue is recognized when or as control of the goods transfers to the customer as follows:
The Company is the exclusive supplier of the Makena® subcutaneous auto injector product to AMAG. Because the product is custom manufactured for AMAG with no alternative use and the Company has a contractual right to payment for performance completed to date, control is continuously transferred to the customer as product is produced pursuant to firm purchase orders. Revenue is recognized over time using the output method based on the contractual selling price and number of units produced. The amount of revenue recognized in excess of the amount shipped/billed to the customer, if any, is recorded as contract assets due to the short-term nature in which the amount is ultimately expected to be billed and collected from the customer.
All other partnered product sales are recognized at the point in time in which control is transferred to the customer, which is typically upon shipment. Sales terms and pricing are governed by the respective supply and distribution agreements, and there is generally no price protection or right of return. Revenue is recognized at the transaction price, which includes the contractual per unit selling price and estimated variable consideration, if any. For example, the Company sells Sumatriptan Injection USP to Teva at cost and is entitled to receive 50 percent of the net profits from commercial sales made by Teva, payable to the Company within 45 days after the end of the quarter in which the commercial sales are made. The Company recognizes revenue, including the estimated variable consideration it expects to receive for contract margin on future commercial sales, upon shipment of the goods to Teva. The estimated variable consideration is recognized at an amount the Company believes is not subject to significant reversal based on historical experience, and is adjusted at each reporting period if the most likely amount of expected consideration changes or becomes fixed.
Licensing and Development Revenue
The Company has entered into several license, development and supply arrangements with pharmaceutical partners under which the Company grants a license to its device technology and know-how and provides research and development services that often involve multiple performance obligations and highly customized deliverables. For such arrangements, the Company identifies each of the promised goods and services within the contract and the distinct performance obligations at inception, and allocates
12
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
consideration to each performance obligation based on relative standalone selling price, which is generally determined based on the expected cost plus margin.
If the contract includes an enforceable right to payment for performance completed to date and performance obligations are satisfied over time, the Company recognized revenue over the development period using either the input or output method depending on which is most appropriate given the nature of the distinct deliverable. For other contracts that do not contain an enforceable right to payment for performance completed to date, revenue is recognized when control is transferred to the customer. Factors that may indicate that the transfer of control has occurred include the transfer of legal title, transfer of physical possession, the customer has obtained the significant risks and rewards of ownership of the assets and the Company has a present right to payment.
The Company’s typical payment terms for development contracts may include an upfront payment equal to a percentage of the total contract value with the remaining portion to be billed upon completion and transfer of the individual deliverables or satisfaction of the individual performance obligations. The Company records a liability for cash received in advance of performance, which is presented within deferred revenue on the consolidated balance sheet and recognized as revenue when the associated performance obligations have been satisfied. The Company recognized $575 in licensing and development revenue in connection with contract liabilities that were outstanding as of December 31, 2018 and satisfied during the nine months ended September 30, 2019.
License fees and milestones received in exchange for the grant of a license to the Company’s functional intellectual property such as patented technology and know-how in connection with a partnered development arrangement are generally recognized at inception of the arrangement, or over the development period depending on the facts and circumstances, as the license is not generally distinct from the non-licensed goods or services to be provided under the contract. Milestone payments that are contingent upon the occurrence of future events, are evaluated and recorded at the most likely amount, and to the extent that it is probable that a significant reversal will not occur when the associated uncertainty is resolved.
Royalties
The Company earns royalties in connection with licenses granted under license and development arrangements with partners. Royalties are based upon a percentage of commercial sales of partnered products with rates ranging from mid-single digit to low double digit and are tiered based on levels of net sales. These sales-based royalties, for which the license was deemed the predominant element to which the royalties relate, are estimated and recognized in the period in which the partners’ commercial sales occur. The royalties are generally reported and payable to the Company within 45 to 60 days of the end of the period in which the commercial sales are made. The Company bases its estimates of royalties earned on actual sales information from its partners when available or estimated prescription sales from external sources and estimated net selling price. If actual royalties received are different than amounts estimated, the Company would adjust the royalty revenue in the period in which the adjustment becomes known.
Remaining Performance Obligations
Remaining performance obligations represents the allocation of transaction price of firm orders and development contract deliverables for which work has not been completed or orders fulfilled, and excludes potential purchase orders under ordering-type supply contracts with indefinite delivery or quantity. As of September 30, 2019, the aggregate value of remaining performance obligations, excluding contracts with an original expected length of one year or less, was $9.1 million. The Company expects to recognize revenue on the remaining performance obligations over the next three years.
As of January 1, 2019, the Company had operating leases for its corporate headquarters in Ewing, New Jersey and its research and development facilities in Plymouth, Minnesota. In connection with the adoption of Topic 842 on January 1, 2019, the Company recognized approximately $1.0 million in right-of-use assets and lease liabilities. During the first quarter of 2019, the Company also entered into a master operating lease arrangement for a fleet of vehicles for use by its sales force.
In May 2019, the Company amended its existing lease of the Company’s corporate headquarters to extend the lease term for an additional two years. The lease extension period commences on November 1, 2019 and expires on October 31, 2021.
On July 1, 2019, the Company entered into a new operating lease for approximately 75,000 square feet of office, laboratory, manufacturing and warehousing space in Minnetonka, Minnesota. The initial lease term is 12.5 years and the Company may renew the lease, at its option, for one additional renewal period of three years. The landlord delivered possession of the premises
13
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
to the Company on July 1, 2019 and payment of rent will commence on January 1, 2020. The lease provides for the payment of fixed base rent and additional rent for operating expenses, insurance premiums and taxes. The Company is performing the build-out of the premises at the Company’s cost with an allowance for tenant improvement to be reimbursed by the landlord up to $1.2 million.
Operating lease costs were $520 and $1,025 for the three and nine months ended September 30, 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $337 and $1,053 for the three and nine months ended September 30, 2019. During the nine months ended September 30, 2019, operating lease ROU assets obtained in exchange for operating lease obligations were $5,208. As of September 30, 2019, the weighted average discount rate was approximately 9% and the weighted average remaining lease term was 7.8 years.
The following table summarizes the Company’s operating lease maturities as of September 30, 2019:
2019
|
|
$
|
258
|
|
2020
|
|
|
663
|
|
2021
|
|
|
1,097
|
|
2022
|
|
|
631
|
|
2023
|
|
|
638
|
|
Thereafter
|
|
|
5,583
|
|
Total remaining lease payments
|
|
|
8,870
|
|
Less: Interest
|
|
|
(3,533
|
)
|
Total lease liabilities
|
|
$
|
5,337
|
|
Under the prior leasing standard, future minimum payments under non-cancellable operating leases as of December 31, 2018 were as follows:
2019
|
|
$
|
566
|
|
2020
|
|
|
233
|
|
2021
|
|
|
238
|
|
2022
|
|
|
60
|
|
2023
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
Total future minimum lease payments
|
|
$
|
1,097
|
|
In June 2017, the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc., for a term loan of up to $35.0 million (the “Term Loan”), under which the Company initially borrowed $25.0 million (“Tranche I”.) The amortizing Term Loan is secured by substantially all of the Company’s assets, excluding intellectual property, accrues interest at a prime-based variable rate with a maximum of 9.5%, provided for payments of interest-only until August 1, 2019 and matures on July 1, 2022.
On June 26, 2019, the Company entered into a First Amendment (the “Amendment”) to the Loan Agreement, which increased the aggregate principal amount available under the Term Loan from $35.0 million to $50.0 million. Upon signing of the Amendment, an additional $15.0 million (“Tranche II”) was funded to the Company. The Company may, but is not obligated to, request one or more additional advances of at least $5.0 million, not to exceed $10.0 million in the aggregate (“Tranche III”). The Company’s option to request additional advances is available between January 1, 2020 and September 15, 2020. The Amendment extended the interest-only payment period of the Term Loan to August 1, 2021, which may be further extended to August 1, 2022 if the Company achieves a certain loan extension milestone. The Term Loan maturity date remains July 1, 2022, but may be extended to July 1, 2024 contingent upon satisfaction of a certain loan extension milestone.
The Company is required to pay an end of term fee (“End of Term Charge”) equal to 4.25% of Tranche I and 3.95% of the borrowings under Tranche II and Tranche III, payable upon the earlier of July 1, 2022 or repayment of the loan.
14
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
As of September 30, 2019 and December 31, 2018, the carrying value of the Term Loan was $40,269 and $25,126, respectively, which consisted of the principal amounts outstanding and the End of Term Charge accrual, less unamortized debt issuance costs that are being amortized/accrued to interest expense over the term of the Term Loan using the effective interest method. Future principal payments under the Term Loan, excluding the contractual End of Term Charges, are due in the following periods:
2019
|
|
$
|
—
|
|
2020
|
|
|
—
|
|
2021
|
|
|
16,179
|
|
2022
|
|
|
23,821
|
|
|
|
$
|
40,000
|
|
In August 2017, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company could offer and sell, from time to time and at its sole discretion, shares of its common stock having an aggregate offering price of up to $30.0 million through Cowen as the Company’s sales agent and/or as principal. Cowen was permitted to sell the common stock through any method deemed an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended (the “ATM Facility”).
On June 26, 2019, the Company delivered written notice to Cowen that it was terminating its Sales Agreement effective July 6, 2019, and accordingly the ATM Facility is no longer available for use. During the nine months ended September 30, 2019, the Company sold 2.3 million shares of common stock under the ATM Facility. The sale of common stock resulted in aggregate gross proceeds of $8.1 million, less sales commission and payment of offering costs, resulting in net offering proceeds to the Company of $7.8 million.
6.
|
Share-Based Compensation
|
The Company has an Equity Compensation Plan (the “Plan”), which was amended and restated pursuant to stockholder approval on June 13, 2019 in order to increase the number of shares available for issuance under the Plan, extend the term of the Plan and modify certain provisions. The Plan allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards. All of the Company’s officers, directors, employees, consultants and advisors are eligible to receive grants under the Plan. The maximum number of shares authorized for issuance under the Plan is 40.2 million and the maximum number of shares of stock that may be granted to any one employee for qualified performance-based compensation during a calendar year is four million shares. Options to purchase shares of common stock are granted at exercise prices not less than 100% of fair market value on the dates of grant. The term of each option is ten years and the options typically vest over a three-year period with a minimum vesting period of one year. As of September 30, 2019, the Plan had approximately 7.5 million shares available for grant. Stock option exercises are satisfied through the issuance of new shares.
The Company’s Board of Directors (the “Board”) has also approved a long-term incentive program (“LTIP”), pursuant to which the Company’s senior executives have been awarded stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) with targeted values based on values granted to similarly situated senior executives in the Company’s peer group. The stock options have a ten-year term, have an exercise price equal to the closing price of the Company’s common stock on the date of grant, vest in annual installments over three years, and are granted on the same standard terms and conditions as other stock options granted pursuant to the Plan. The RSU awards made to senior executives vest and convert into shares of the Company’s stock in three equal annual installments. The PSU awards vest and convert into shares of the Company’s common stock based on the Company’s attainment of certain performance goals as established by the Board over a performance period, which is typically three years. A portion of the compensation provided to non-employee members of the Board is awarded in the form of stock options and RSUs, which vest in full one year from the date of grant and are otherwise granted on the same standard terms and conditions as other awards granted under the Plan.
15
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
The following is a summary of stock option activity under the Plan as of and for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
Outstanding at December 31, 2018
|
|
|
14,079
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,380
|
|
|
|
2.93
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(512
|
)
|
|
|
1.32
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(110
|
)
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
15,837
|
|
|
|
2.33
|
|
|
|
6.5
|
|
|
$
|
16,472
|
|
Exercisable at September 30, 2019
|
|
|
11,736
|
|
|
$
|
2.15
|
|
|
|
5.5
|
|
|
$
|
14,368
|
|
The weighted average grant date fair value per share for options granted during the nine months ended September 30, 2019 and 2018 was $1.50 and $1.44, respectively, which was estimated using the Black-Scholes option pricing model based on the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Company’s stock price. The weighted average expected life is based on both historical and anticipated employee behavior.
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
1.9%
|
|
|
2.8%
|
|
Annualized volatility
|
|
55.8%
|
|
|
53.7%
|
|
Weighted average expected life, in years
|
|
|
5.5
|
|
|
|
6.0
|
|
Expected dividend yield
|
|
0.0%
|
|
|
0.0%
|
|
The following is a summary of PSU and RSU award activity under the Plan as of and for the nine months ended September 30, 2019:
|
|
Performance Stock Units
|
|
|
Restricted Stock Units
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Outstanding at December 31, 2018
|
|
|
1,842
|
|
|
$
|
2.41
|
|
|
|
1,226
|
|
|
$
|
2.44
|
|
Granted
|
|
|
593
|
|
|
|
2.99
|
|
|
|
789
|
|
|
|
2.92
|
|
Vested/settled
|
|
|
(415
|
)
|
|
|
1.18
|
|
|
|
(614
|
)
|
|
|
2.19
|
|
Forfeited/expired
|
|
|
(178
|
)
|
|
|
1.12
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2019
|
|
|
1,842
|
|
|
$
|
3.01
|
|
|
|
1,401
|
|
|
$
|
2.82
|
|
The PSUs granted to senior executives under the LTIP may be earned based upon the Company’s achievement of certain corporate development goals, net revenue goals and total shareholder return (“TSR”) relative to the Nasdaq Biotechnology Index over the performance period, which is generally a three-year period. Depending on the outcome of the performance goals, a recipient may ultimately earn a number of shares greater or less than the target number of shares granted, ranging from 0% to 150%. The fair value of the TSR PSUs are expensed over the performance period and determined using a Monte Carlo simulation. The grant date fair value of PSUs that are not tied to market-based performance are expensed over the remaining performance period when it becomes probable that the related goal will be achieved.
The LTIP awards that vested during the nine months ended September 30, 2019 and 2018 were net-share settled such that the Company withheld shares with a value equivalent to the employees’ tax obligations for applicable income and other employment taxes, and remitted cash to the appropriate taxing authorities. The Company withheld 365 and 211 shares during the nine months ended September 30, 2019 and 2018, respectively, to satisfy tax obligations, which was determined based on the fair value of the shares on their vesting date equal to the Company’s closing stock price on such date. The Company paid $1,077 and $543 during the nine months ended September 30, 2019 and 2018, respectively, to taxing authorities for the employees’ tax obligations, which is reflected as a cash outflow from financing activities within the consolidated statements of
16
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
cash flows. Net-share settlements have the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued as a result of the vesting.
In connection with Plan awards, the Company recognized share-based compensation expense for the three and nine months ended September 30, 2019 and 2018 as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
$
|
888
|
|
|
$
|
811
|
|
|
$
|
2,555
|
|
|
$
|
2,158
|
|
Restricted stock units
|
|
|
565
|
|
|
|
338
|
|
|
|
1,267
|
|
|
|
861
|
|
Performance stock units
|
|
|
192
|
|
|
|
456
|
|
|
|
823
|
|
|
|
636
|
|
Total share-based compensation expense
|
|
$
|
1,645
|
|
|
$
|
1,605
|
|
|
$
|
4,645
|
|
|
$
|
3,655
|
|
7.
|
Revenues, Significant Customers and Concentrations of Risk
|
The following table presents the Company’s revenue on a disaggregated basis by types of goods and services and major product lines:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Proprietary product sales
|
|
$
|
11,458
|
|
|
$
|
4,094
|
|
|
$
|
25,213
|
|
|
$
|
11,820
|
|
Partnered product sales
|
|
|
13,229
|
|
|
|
7,503
|
|
|
|
38,394
|
|
|
|
21,821
|
|
Total product revenue
|
|
|
24,687
|
|
|
|
11,597
|
|
|
|
63,607
|
|
|
|
33,641
|
|
Licensing and development revenue
|
|
|
1,211
|
|
|
|
2,554
|
|
|
|
4,365
|
|
|
|
5,624
|
|
Royalties
|
|
|
8,408
|
|
|
|
3,717
|
|
|
|
18,053
|
|
|
|
5,468
|
|
Total revenue
|
|
$
|
34,306
|
|
|
$
|
17,868
|
|
|
$
|
86,025
|
|
|
$
|
44,733
|
|
Revenues disaggregated by customer location are as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
United States of America
|
|
$
|
33,684
|
|
|
$
|
16,027
|
|
|
$
|
82,411
|
|
|
$
|
39,448
|
|
Europe
|
|
|
566
|
|
|
|
1,830
|
|
|
|
3,444
|
|
|
|
5,044
|
|
Other
|
|
|
56
|
|
|
|
11
|
|
|
|
170
|
|
|
|
241
|
|
|
|
$
|
34,306
|
|
|
$
|
17,868
|
|
|
$
|
86,025
|
|
|
$
|
44,733
|
|
The following table identifies customers from which the Company derived 10% or more of its total revenue in any of the periods presented:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Teva
|
|
41%
|
|
|
34%
|
|
|
43%
|
|
|
33%
|
|
AMAG
|
|
20%
|
|
|
30%
|
|
|
19%
|
|
|
27%
|
|
McKesson
|
|
<10%
|
|
|
<10%
|
|
|
<10%
|
|
|
11%
|
|
AmerisourceBergen
|
|
10%
|
|
|
11%
|
|
|
<10%
|
|
|
11%
|
|
Ferring
|
|
<10%
|
|
|
12%
|
|
|
<10%
|
|
|
13%
|
|
17
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
In October 2017, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Ferring International Center S.A. (together with Ferring Pharmaceuticals Inc. and Ferring B.V. individually and collectively referred to as “Ferring”) to sell the worldwide rights, including certain assets, related to the needle-free auto injector device product line for a total purchase price of $14.5 million. The purchase price was to be paid in four installments consisting of the following: a $2.0 million upfront payment, which was received upon entry into the Asset Purchase Agreement and the transfer of certain assets; a second installment of $2.75 million received upon delivery of certain documentation and satisfaction of certain conditions primarily related to product manufacturing; a third installment of $4.75 million received upon satisfaction of certain conditions, including further document transfer, the successful completion of a regulatory audit by a notified body, and a pilot manufacturing run under Ferring’s supervision; and a final installment of $5.0 million due upon Ferring’s receipt of the CE Mark needed to continue to commercialize the product in certain territories and the final transfer of certain product-related inventory, equipment and agreements to Ferring (the “Completion Date”).
On May 1, 2019, the Company and Ferring entered into the First Amendment of the Asset Purchase Agreement (the “First Amendment”) to extend the term of the agreement to the third anniversary, to provide for the manufacture and delivery of additional product by Antares to Ferring prior to the Completion Date, and to bifurcate the payment of the final installment of the purchase price such that $2.5 million was paid to the Company upon the First Amendment effective date, with the final remaining payment of $2.5 million to be paid at the Completion Date, which was received in October 2019.
The Company previously recorded the gain on sale of assets as it was determined that, based on the satisfaction of certain conditions and the status of remaining closing requirements, it was probable that a significant reversal of the gain will not occur. The receipt of the $2.5 million in the nine months ended September 30, 2019 was recorded as a reduction in the related contract asset balance and a cash inflow from investing activities in the consolidated statement of cash flows.
Basic earnings or loss per common share is computed by dividing the net income or loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed in a similar manner, except that the weighted average number of shares outstanding is increased to reflect the potential dilution from the exercise or conversion of securities into common stock. Diluted earnings per share contemplate a complete conversion to common shares of all convertible instruments only if such instruments are dilutive in nature with respect to earnings per share. The dilutive effect of stock options and other equity-based awards included in the diluted weighted average common shares outstanding used in the computation of diluted earnings per share for the three months ended September 30, 2019 was 5,385. The potentially dilutive stock options and other share-based awards excluded from the calculation of loss per share for the nine months ended September 30, 2019 and the three and nine months ended September 30, 2018 because their effect was anti-dilutive totaled 19,080 and 17,386 at September 30, 2019 and 2018, respectively.
10.
|
Commitments and Contingencies
|
Pending Litigation
From time to time, the Company may be involved in various legal matters generally incidental to its business. Although the results of litigation and claims cannot be predicted with certainty, after discussion with legal counsel, management is not aware of any matters for which the likelihood of a loss is probable and reasonably estimable and which could have a material impact on its consolidated financial condition, liquidity, or results of operations.
On October 23, 2017, Randy Smith filed a complaint in the District of New Jersey, captioned Randy Smith, Individually and on Behalf of All Others Similarly Situated v. Antares Pharma, Inc., Robert F. Apple and Fred M. Powell (“Smith”), Case No. 3:17-cv-08945-MAS-DEA, on behalf of a putative class of persons who purchased or otherwise acquired Antares securities between December 21, 2016 and October 12, 2017, inclusive, asserting claims for purported violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, against Antares, Robert F. Apple and Fred M. Powell. The Smith complaint contends that defendants made false and/or misleading statements and/or failed to disclose that: (i) Antares had provided insufficient data to the FDA in connection with the NDA for XYOSTED®; and (ii) accordingly, Antares had overstated the approval prospects for XYOSTED®. On July 27, 2018, the court entered an order appointing Serghei Lungu as lead plaintiff, Pomerantz LLP as lead counsel, and Lite DePalma Greenberg, LLC as liaison counsel for plaintiff. On August 3, 2018, the parties submitted a stipulation and proposed order, setting forth an agreed-upon schedule for responding to the complaint, which
18
ANTARES PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(UNAUDITED)
the court granted. Pursuant to that order, plaintiff filed a Consolidated Amended Class Action Complaint on October 9, 2018. On November 26, 2018, defendants filed a motion to dismiss. Plaintiff filed an opposition to the motion on January 10, 2019 and defendants filed a reply in support of their motion on February 25, 2019. On July 2, 2019, the court dismissed the complaint in its entirety without prejudice. On July 29, 2019, plaintiff filed a Consolidated Second Amended Class Action Complaint against the same parties alleging substantially similar claims. On September 12, 2019, defendants filed a motion to dismiss the Consolidated Second Amended Class Action Complaint. Plaintiffs’ opposition was filed on October 28, 2019 and defendants’ reply in support of their motion is due November 27, 2019. The Company believes that the claims in the Smith action lack merit and intends to defend them vigorously.
On January 12, 2018, a stockholder of the Company filed a derivative civil action, captioned Chiru Mackert, derivatively on behalf of Antares Pharma, Inc., v. Robert F. Apple, et al., in the Superior Court of New Jersey Chancery Division, Mercer County (Case No. C-000011-18). On January 17, 2018, another stockholder filed a derivative action in the same court, captioned Vikram Rao, Derivatively on Behalf of Antares Pharma, Inc. v. Robert F. Apple, et al. (Case No. C-000004-18). Both complaints name Robert F. Apple, Fred M. Powell, Thomas J. Garrity, Jacques Gonella, Anton Gueth, Leonard S. Jacob, Marvin Samson and Robert P. Roche, Jr. as defendants, and the Company as nominal defendant, and they assert claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets arising from the same facts underlying the Smith securities class action. The plaintiffs seek damages, corporate governance and internal procedure reforms and improvements, restitution, reasonable attorneys’ fees, experts’ fees, costs, and expenses. The parties have filed a stipulation consolidating the two actions and staying the proceedings pending the court’s decision on defendants’ motion to dismiss the Smith action.
On January 17, 2018, a stockholder of the Company filed a derivative civil action, captioned Robert Clark, Derivatively on Behalf of Antares Pharma, Inc. v. Robert F. Apple, et al. (“Clark”) (Case No. 3:18-cv-00703-MAS-DEA), against Robert F. Apple, Thomas J. Garrity, Jacques Gonella, Leonard S. Jacob, Marvin Samson, Anton G. Gueth and Robert P. Roche, Jr. as defendants, and Company as a nominal defendant. The action was filed in the U.S. District Court for the District of New Jersey and asserts claims for breach of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and a violation of Section 14(a) of the Securities Exchange Act of 1934. This complaint relates to the same facts underlying the Smith securities class action and the other derivative actions. The plaintiff in Clark seeks damages, corporate governance and internal procedure reforms and improvements, reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses. The parties have filed a stipulation staying the action pending the court’s decision on defendants’ motion to dismiss the Smith action.
19