ITEM 1.
Financial Statements (unaudited)
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31, 2018
|
|
(In thousands, except share and per share data)
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
12,157
|
|
|
$
|
13,043
|
|
Restricted cash
|
32
|
|
|
32
|
|
Accounts receivable, net
|
13,892
|
|
|
17,259
|
|
Prepaid expenses and other current assets
|
2,691
|
|
|
2,109
|
|
Inventory (Note 7)
|
2,141
|
|
|
2,405
|
|
Total current assets
|
30,913
|
|
|
34,848
|
|
NON-CURRENT ASSETS:
|
|
|
|
Property and equipment, net
|
1,095
|
|
|
1,355
|
|
Right of use assets, net
|
1,299
|
|
|
—
|
|
Intangible asset, net (Note 8)
|
15,761
|
|
|
16,723
|
|
Deferred tax asset
|
1,174
|
|
|
1,182
|
|
TOTAL ASSETS
|
$
|
50,242
|
|
|
$
|
54,108
|
|
CURRENT LIABILITIES:
|
|
|
|
Accounts payable
|
$
|
7,875
|
|
|
$
|
6,355
|
|
Accrued expenses (Note 9)
|
3,468
|
|
|
3,643
|
|
Finance lease obligations
|
247
|
|
|
236
|
|
Total current liabilities
|
11,590
|
|
|
10,234
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
Note payable (Note 11)
|
38,288
|
|
|
37,873
|
|
Finance lease obligations — less current portion
|
172
|
|
|
305
|
|
Other non-current liabilities
|
3,874
|
|
|
2,974
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY:
|
|
|
|
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2019 and December 31, 2018:
|
|
|
|
|
|
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $24,000 at June 30, 2019 and December 31, 2018
|
19,227
|
|
|
19,227
|
|
Series C Convertible Preferred Stock, 10,150 authorized issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $10,150 at June 30, 2019 and December 31, 2018
|
11,117
|
|
|
11,117
|
|
Common stock, $.01 par value — 150,000,000 shares authorized, 71,000,495 shares issued and outstanding at June 30, 2019 and 70,078,878 shares issued and outstanding at December 31, 2018
|
710
|
|
|
701
|
|
Additional paid-in capital
|
347,524
|
|
|
346,108
|
|
Common stock warrants
|
3,707
|
|
|
3,707
|
|
Accumulated deficit
|
(384,928
|
)
|
|
(377,127
|
)
|
Accumulated other comprehensive loss
|
(1,039
|
)
|
|
(1,011
|
)
|
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY
|
(3,682
|
)
|
|
2,722
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
50,242
|
|
|
$
|
54,108
|
|
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In thousands, except share and per share data)
|
NET REVENUE
|
$
|
10,855
|
|
|
$
|
10,717
|
|
|
$
|
23,745
|
|
|
$
|
20,347
|
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
(1,174
|
)
|
|
(913
|
)
|
|
(2,774
|
)
|
|
(2,017
|
)
|
GROSS PROFIT
|
9,681
|
|
|
9,804
|
|
|
20,971
|
|
|
18,330
|
|
|
|
|
|
|
|
|
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
2,834
|
|
|
2,777
|
|
|
5,561
|
|
|
5,599
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
3,675
|
|
|
3,229
|
|
|
7,068
|
|
|
7,084
|
|
SALES AND MARKETING EXPENSES
|
6,108
|
|
|
5,926
|
|
|
12,021
|
|
|
11,895
|
|
DEPRECIATION AND AMORTIZATION
|
654
|
|
|
650
|
|
|
1,306
|
|
|
1,299
|
|
OPERATING EXPENSES
|
13,271
|
|
|
12,582
|
|
|
25,956
|
|
|
25,877
|
|
NET LOSS FROM OPERATIONS
|
(3,590
|
)
|
|
(2,778
|
)
|
|
(4,985
|
)
|
|
(7,547
|
)
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE AND OTHER
|
(1,236
|
)
|
|
(1,178
|
)
|
|
(2,464
|
)
|
|
(2,329
|
)
|
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET
|
49
|
|
|
32
|
|
|
(20
|
)
|
|
34
|
|
LOSS ON EARLY EXTINGUISHMENT OF DEBT
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,766
|
)
|
NET LOSS BEFORE TAXES
|
(4,777
|
)
|
|
(3,924
|
)
|
|
(7,469
|
)
|
|
(11,608
|
)
|
PROVISION FOR TAXES
|
(261
|
)
|
|
(76
|
)
|
|
(332
|
)
|
|
(76
|
)
|
NET LOSS
|
(5,038
|
)
|
|
(4,000
|
)
|
|
(7,801
|
)
|
|
(11,684
|
)
|
NET LOSS PER SHARE — Basic and diluted
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.17
|
)
|
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted
|
70,990,340
|
|
|
70,022,100
|
|
|
70,866,285
|
|
|
69,952,940
|
|
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In thousands)
|
NET LOSS
|
$
|
(5,038
|
)
|
|
$
|
(4,000
|
)
|
|
$
|
(7,801
|
)
|
|
$
|
(11,684
|
)
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
55
|
|
|
(213
|
)
|
|
(27
|
)
|
|
(107
|
)
|
TOTAL OTHER COMPREHENSIVE INCOME
|
55
|
|
|
(213
|
)
|
|
(27
|
)
|
|
(107
|
)
|
COMPREHENSIVE LOSS
|
$
|
(4,983
|
)
|
|
$
|
(4,213
|
)
|
|
$
|
(7,828
|
)
|
|
$
|
(11,791
|
)
|
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
(In thousands)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net loss
|
$
|
(7,801
|
)
|
|
$
|
(11,684
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation and amortization
|
1,306
|
|
|
1,299
|
|
Inventory reserve
|
—
|
|
|
9
|
|
Unrealized foreign currency transaction loss (gain)
|
20
|
|
|
(34
|
)
|
Loss on early extinguishment of debt
|
—
|
|
|
1,766
|
|
Amortization of debt discount
|
415
|
|
|
421
|
|
Stock-based compensation expense
|
1,399
|
|
|
2,358
|
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable
|
3,332
|
|
|
(2,054
|
)
|
Prepaid expenses and other current assets
|
(963
|
)
|
|
(48
|
)
|
Inventory
|
256
|
|
|
(651
|
)
|
Accounts payable
|
1,532
|
|
|
167
|
|
Accrued expenses and other current liabilities
|
(603
|
)
|
|
84
|
|
Other long-term liabilities
|
431
|
|
|
(35
|
)
|
Net cash used in operating activities
|
(676
|
)
|
|
(8,402
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchases of property and equipment
|
(39
|
)
|
|
(123
|
)
|
Net cash used in investing activities
|
(39
|
)
|
|
(123
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds from exercise of stock options
|
—
|
|
|
2
|
|
Proceeds from issuance of common stock
|
26
|
|
|
49
|
|
Issuance of debt
|
—
|
|
|
40,000
|
|
Payment of principal on notes payable
|
—
|
|
|
(35,000
|
)
|
Payment of extinguishment of debt costs
|
—
|
|
|
(2,544
|
)
|
Payment of deferred financing costs
|
—
|
|
|
(1,142
|
)
|
Payment of finance lease obligations
|
(168
|
)
|
|
(187
|
)
|
Net cash (used in) provided by financing activities
|
(142
|
)
|
|
1,178
|
|
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
(29
|
)
|
|
(34
|
)
|
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
(886
|
)
|
|
(7,381
|
)
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period
|
13,075
|
|
|
24,101
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period
|
$
|
12,189
|
|
|
$
|
16,720
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
Cash paid for interest
|
$
|
2,048
|
|
|
$
|
1,579
|
|
Cash paid for income taxes
|
$
|
7
|
|
|
$
|
229
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
Property and equipment acquired under finance leases
|
$
|
64
|
|
|
$
|
432
|
|
Property and equipment acquired under operating leases
|
$
|
676
|
|
|
$
|
—
|
|
Note payable end of term payment accrued but unpaid
|
$
|
1,800
|
|
|
$
|
1,800
|
|
See Notes to Condensed Consolidated Financial Statements.
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Series A
Convertible
Preferred Stock
|
|
Series B
Convertible
Preferred Stock
|
|
Series C
Convertible
Preferred Stock
|
|
Additional
Paid-In
Capital
|
|
Common
Stock
Warrants
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
2019
|
(In thousands, except share data)
|
Balance, December 31, 2018
|
70,078,878
|
|
|
$
|
701
|
|
|
600,000
|
|
|
$
|
19,227
|
|
|
—
|
|
|
$
|
—
|
|
|
10,150
|
|
|
$
|
11,117
|
|
|
$
|
346,108
|
|
|
$
|
3,707
|
|
|
$
|
(377,127
|
)
|
|
$
|
(1,011
|
)
|
|
$
|
2,722
|
|
Issuance of common stock, net of issuance costs
|
889,752
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
770
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
770
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,763
|
)
|
|
—
|
|
|
(2,763
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(83
|
)
|
|
(83
|
)
|
Balance, March 31, 2019
|
70,968,630
|
|
|
$
|
710
|
|
|
600,000
|
|
|
$
|
19,227
|
|
|
—
|
|
|
$
|
—
|
|
|
10,150
|
|
|
$
|
11,117
|
|
|
$
|
346,869
|
|
|
$
|
3,707
|
|
|
$
|
(379,890
|
)
|
|
$
|
(1,094
|
)
|
|
$
|
646
|
|
Issuance of common stock, net of issuance costs
|
31,865
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
655
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
655
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,038
|
)
|
|
—
|
|
|
(5,038
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
55
|
|
Balance, June 30, 2019
|
71,000,495
|
|
|
$
|
710
|
|
|
600,000
|
|
|
$
|
19,227
|
|
|
—
|
|
|
$
|
—
|
|
|
10,150
|
|
|
$
|
11,117
|
|
|
$
|
347,524
|
|
|
$
|
3,707
|
|
|
$
|
(384,928
|
)
|
|
$
|
(1,039
|
)
|
|
$
|
(3,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
69,146,381
|
|
|
$
|
691
|
|
|
600,000
|
|
|
$
|
19,227
|
|
|
8,416
|
|
|
$
|
49,568
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
341,622
|
|
|
$
|
3,707
|
|
|
$
|
(399,074
|
)
|
|
$
|
(821
|
)
|
|
$
|
14,920
|
|
Issuance of common stock, net of issuance costs
|
839,285
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
1,563
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,207
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,207
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,684
|
)
|
|
—
|
|
|
(7,684
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
106
|
|
|
106
|
|
Balance, March 31, 2018
|
69,987,229
|
|
|
$
|
700
|
|
|
600,000
|
|
|
$
|
19,227
|
|
|
8,416
|
|
|
$
|
49,568
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
342,822
|
|
|
$
|
3,707
|
|
|
$
|
(406,758
|
)
|
|
$
|
(715
|
)
|
|
$
|
8,551
|
|
Issuance of common stock, net of issuance costs
|
51,182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,209
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,000
|
)
|
|
—
|
|
|
(4,000
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(213
|
)
|
|
(213
|
)
|
Balance, June 30, 2018
|
70,038,411
|
|
|
$
|
700
|
|
|
600,000
|
|
|
$
|
19,227
|
|
|
8,416
|
|
|
$
|
49,568
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
344,022
|
|
|
$
|
3,707
|
|
|
$
|
(410,758
|
)
|
|
$
|
(928
|
)
|
|
$
|
5,538
|
|
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Alimera Sciences, Inc., together with its wholly-owned subsidiaries (the Company), is a pharmaceutical company that specializes in the commercialization and development of ophthalmic pharmaceuticals. The Company was formed on June 4, 2003 under the laws of the State of Delaware.
The Company is presently focused on diseases affecting the back of the eye, or retina, because these diseases are not well treated with current therapies and affect millions of people in our aging populations. The Company’s only commercial product is ILUVIEN
®
, which has received marketing authorization in the U.S., Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Kuwait, Lebanon, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, the United Arab Emirates and the United Kingdom. In the U.S., Canada, Kuwait, Lebanon and the United Arab Emirates, ILUVIEN is indicated for the treatment of diabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure (IOP). In the European Economic Area (EEA) countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.
In addition, as explained in the following paragraph, ILUVIEN is now indicated for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIPU) in the EEA countries where the Company has satisfied the country’s labeling requirements. As of the date of this filing, the Company has satisfied the labeling requirements in the United Kingdom and expects to comply with the local labeling requirements of other EEA countries, but timelines for satisfying individual country requirements vary. Uveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness.
In July 2017, the Company amended its license with EyePoint Pharmaceuticals US, Inc. (EyePoint) formerly known as pSivida US, Inc. for the technology underlying ILUVIEN to include the treatment of uveitis, including NIPU in Europe, the Middle East and Africa (See Note 10). In December 2017, the Company filed an application for a new indication for ILUVIEN for NIPU in the
17
EEA countries where ILUVIEN is currently approved for the treatment of DME. In March 2019, the Company received the Final Variation Assessment Report (FVAR) for ILUVIEN from the Medicines and Healthcare products Regulatory Agency of the United Kingdom (MHRA) based on the Company’s submission to the MHRA through the Mutual Recognition Procedure. Under that procedure, the United Kingdom has acted as the Reference Member State and prepared an assessment report to share with the 16 other countries in the EEA in which the Company applied for an additional indication. The FVAR states that ILUVIEN is approved for the additional indication for prevention of relapse in NIPU. In June 2019, the United Kingdom's National Institute for Health and Care Excellence (NICE) recommended funding for ILUVIEN for NIPU. In the United Kingdom, a NICE recommendation for funding signifies that the country’s National Health Service (NHS) will pay for ILUVIEN prescriptions for the treatment of NIPU as part of its offering. Timing for receiving funding for ILUVIEN for NIPU, if received at all, in the other EEA countries in which the Company has applied for the additional indication can vary. The reimbursement process in each EEA country usually starts after the Company has satisfied the labeling requirements of each individual country.
The Company has completed enrollment into a
five
-year, post-authorization, open label registry study in patients treated with ILUVIEN. In total,
562
patients enrolled in this study, and the Company anticipates the follow up period to be completed in early 2020.
The Company commercially markets ILUVIEN directly in the U.S., Germany, the United Kingdom, Portugal, Austria and Ireland. In addition, the Company has entered into various agreements under which distributors will provide regulatory, reimbursement or sales and marketing support for commercialization or future commercialization of ILUVIEN in France, Italy, Spain, Australia, New Zealand, Canada and several countries in the Middle East. In 2016, the Company’s Middle East distributor launched ILUVIEN and initiated named patient sales in the United Arab Emirates. The Company’s Italian distributor launched ILUVIEN in Italy in 2017. The Company’s Spanish distributor began selling on a named patient basis in 2017 and is currently pursuing reimbursement at the national level. The Company’s French distributor received pricing and reimbursement approval in March 2019 for ILUVIEN for DME and began selling in April 2019. The Company’s Canadian distributor is currently pursuing reimbursement. As of
June 30, 2019
, the Company has recognized sales of ILUVIEN to the Company’s international distributors in the Middle East, France, Italy and Spain.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. BASIS OF PRESENTATION
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information, the instructions to Form 10-Q and Article 10-01 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.
The accompanying interim financial statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2018 and related notes included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 25, 2019. The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018.
Research and Development Expenses
Research and development expenses were
$166,000
and
$310,000
for the
three months ended June 30, 2019
and
2018
, respectively. Research and development expenses were
$363,000
and
$414,000
for the
six months ended June 30, 2019
and
2018
, respectively.
Prior period reclassification
An immaterial reclassification of prior period amounts related to revenue and cost of goods sold, excluding depreciation and amortization has been made to conform to the current period presentation. This reclassification did not have any impact on gross profit, net loss from operations or net loss.
Recent Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (FASB) or other standard setting bodies issue new accounting pronouncements that we adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
Adoption of New Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02,
Leases (ASC 842)
, to increase transparency and comparability among organizations for lease recognition and disclosure. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet, while recognizing expenses on the income statements in a manner similar to the guidance previously in effect. ASU 2016-02 became effective for fiscal years and interim periods for the Company in the first quarter of 2019. ASU 2016-02 requires that leases be recognized and measured as of the earliest period presented, using a modified retrospective approach, with all periods presented being adjusted and presented under the new standard. In July 2018, the FASB issued ASU 2018-11,
Leases (ASC 842)
:
Targeted Improvements,
which provides companies an optional adoption method to ASU 2016-02 whereby a company does not have to adjust comparative period financial statements for the new standard.
The Company adopted this ASU on January 1, 2019 and did not restate comparative periods. The Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification, or whether its contracts contain or are leases. The Company also made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. See Note 5 for expanded disclosures.
In February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, to allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted in December 2017. Upon adoption of the ASU, entities are required to describe the accounting policy for releasing income tax effects from accumulated other comprehensive income. The Company adopted this standard on January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In June 2018, the FASB issued ASU No. 2018-07,
Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting
, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. This ASU became effective on January 1, 2019, and the Company adopted it at that time. Entities will apply the ASU by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. The adoption of this guidance did not have an impact on the Company’s financial statements.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting Standards Issued but Not Yet Effective
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments
. This ASU replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption available. The Company is in the process of determining the effect that the adoption will have on its financial statements.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. REVENUE RECOGNITION
Net Revenue
The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (collectively, its Customers). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. All of the Company’s current contracts have a single performance obligation, as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
Currently, all of the Company’s revenue is derived from product sales. The Company recognizes revenues from product sales at a point in time when the Customer obtains control, typically upon delivery. The Company accrues for fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.
As of
June 30, 2019
, the Company had received a total of
$1,000,000
of milestone payments in connection with the Company's Canadian distributor that it has not recognized as revenue based on the Company’s analysis in connection with ASU 2014-09,
Revenue from Contracts with Customers (ASC 606)
. These deferred revenues are included as a component of other non-current liabilities on the Company’s balance sheets.
Estimates of Variable Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.
With respect to the Company’s international contracts with third party distributors, certain contracts have elements of variable consideration, and management reviews those contracts on a regular basis and makes estimates of revenue based on historical ordering patterns and known market events and data. The amount of variable consideration included in net sales in each period could vary depending on the terms of these contracts and the probability of reversal in future periods.
Consideration Payable to Customers
Distribution service fees are payments issued to distributors for compliance with various contractually-defined inventory management practices or services provided to support patient access to a product. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.
Product Returns
The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally,
returns for expired product are accepted three months before and up to one year after the expiration date of the related product
, and the related product is destroyed after it is returned. The Company may either refund the sales price paid by the Customer by issuing a credit or exchanging the returned product for replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products and product recalls, if any.
The estimation process for product returns involves, in each case, a number of interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
estimate as a reduction of revenue from product sales in the period the related revenue is recognized, and because this returned product cannot be resold, there is no corresponding asset for product returns. To date, product returns have been minimal.
Other Revenue
The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of these arrangements may include payment to the Company of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides; and a revenue share on net sales of licensed products. Each of these payments is recognized as other revenues.
As part of the accounting for these arrangements, the Company must develop estimates that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. Performance obligations are promises in a contract to transfer a distinct good or service to the Customer, and the Company recognizes revenue when, or as, performance obligations are satisfied. The Company uses key assumptions to determine the stand-alone selling price; these assumptions may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical, regulatory and commercial success.
Certain of these agreements include consideration in the form of milestone payments. At the inception of each arrangement that includes milestone payments, the Company evaluates the recognition of milestone payments. Typically, milestone payments are associated with events that are not entirely within the control of the Company or the licensee, such as regulatory approvals; are included in the transaction price; and are subject to a constraint until it is probable that there will not be a significant revenue reversal, typically upon achievement of the milestone. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.
Customer Payment Obligations
The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s locations, but generally range between 30 to 120 days.
Occasionally, the timing of receipt of payment for the Company’s international Customers can be extended. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that the Customer will pay for the product or services in one year or less of receiving those products or services.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. LEASES
The Company evaluates all of its contracts to determine whether it is or contains a lease at inception. The Company reviews its contracts for options to extend, terminate or purchase any right of use assets and accounts for these, as applicable, at inception of the contract. Upon adoption of ASC 842, the Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification, or whether its contracts contain or are leases. The Company made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of
12 months
or less, or those that do not meet the Company’s capitalization threshold, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. Lease costs associated with those leases are recognized as incurred. The Company has also chosen the practical expedient that allows it to combine lease and non-lease components as a single lease component.
Lease renewal options are not recognized as part of the lease liability until the Company determines it is reasonably certain it will exercise any applicable renewal options. The Company has determined it is not reasonably certain it will exercise any applicable renewal options. The Company has not recorded any liability for renewal options in these Interim Financial Statements. The useful lives of leased assets as well as leasehold improvements, if any, are limited by the expected lease term.
Operating Leases
The Company’s operating lease activities primarily consist of leases for office space in the U.S., the United Kingdom and Germany. Most of these leases include options to renew, with renewal terms generally ranging from
one
to
seven years
. The exercise of lease renewal options is at the Company’s sole discretion. Certain of the Company’s operating lease agreements include variable lease costs that are based on common area maintenance and property taxes. The Company expenses these payments as incurred. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information as of
June 30, 2019
for the Company’s operating leases is as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
NON-CURRENT ASSETS:
|
|
|
Right of use assets, net
|
|
$
|
1,299
|
|
Total lease assets
|
|
$
|
1,299
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
Accrued expenses (Note 9)
|
|
$
|
446
|
|
NON-CURRENT LIABILITIES:
|
|
|
Other non-current liabilities
|
|
1,050
|
|
Total lease liabilities
|
|
$
|
1,496
|
|
The Company’s operating lease cost for the three and six months ended
June 30, 2019
was
$120,000
and
$243,000
, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
June 30, 2019
, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:
|
|
|
|
|
|
Years Ending December 31
|
|
(In thousands)
|
2019 (remaining)
|
|
$
|
281
|
|
2020
|
|
569
|
|
2021
|
|
456
|
|
2022
|
|
156
|
|
2023
|
|
156
|
|
Thereafter
|
|
156
|
|
Total
|
|
1,774
|
|
Less amount representing interest
|
|
(278
|
)
|
Present value of minimum lease payments
|
|
1,496
|
|
Less current portion
|
|
(446
|
)
|
Non-current portion
|
|
$
|
1,050
|
|
Cash paid for operating leases was
$239,000
during the
six months ended June 30, 2019
. Right of use assets of
$676,000
were obtained in exchange for operating leases for the
six months ended June 30, 2019
.
As of
June 30, 2019
, the weighted average remaining lease terms of the Company’s operating leases was
3.8 years
. The weighted average discount rate used to determine the lease liabilities was
10.2%
. When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. In using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and apply the rates to a portfolio of leases with similar underlying assets and terms. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
Finance Leases
The Company’s finance lease activities primarily consist of leases for office equipment and automobiles. The property and equipment is capitalized at the lesser of fair market value or the present value of the minimum lease payments at the inception of the leases using the Company’s incremental borrowing rate. The Company’s finance lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information as of
June 30, 2019
and
December 31, 2018
for the Company’s finance leases is as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
NON-CURRENT ASSETS:
|
|
|
|
Property and equipment, net
|
$
|
508
|
|
|
$
|
615
|
|
Total lease assets
|
$
|
508
|
|
|
$
|
615
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Finance lease obligations
|
$
|
247
|
|
|
$
|
236
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
Finance lease obligations — less current portion
|
172
|
|
|
305
|
|
Total lease liabilities
|
$
|
419
|
|
|
$
|
541
|
|
Depreciation expense associated with property and equipment under finance leases was approximately
$77,000
and
$53,000
for the
three months ended June 30, 2019
and
2018
, respectively. Depreciation expense associated with property and
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equipment under finance leases was approximately
$153,000
and
$102,000
for the
six months ended June 30, 2019
and
2018
, respectively. Interest expense associated with finance leases was
$8,000
and
$9,000
for the
three months ended June 30, 2019
and
2018
, respectively. Interest expense associated with finance leases was
$17,000
and
$15,000
for the
six months ended June 30, 2019
and
2018
, respectively.
As of
June 30, 2019
, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:
|
|
|
|
|
|
Years Ending December 31
|
|
(In thousands)
|
2019 (remaining)
|
|
$
|
136
|
|
2020
|
|
243
|
|
2021
|
|
65
|
|
2022
|
|
3
|
|
Total
|
|
447
|
|
Less amount representing interest
|
|
(28
|
)
|
Present value of minimum lease payments
|
|
419
|
|
Less current portion
|
|
(247
|
)
|
Non-current portion
|
|
$
|
172
|
|
Cash paid for finance leases was
$190,000
during the
six months ended June 30, 2019
. The Company acquired
$64,000
of property and equipment in exchange for finance leases for the
six months ended June 30, 2019
.
As of
June 30, 2019
, the weighted average remaining lease terms of the Company’s financing leases was
1.5 years
. The weighted average discount rate used to determine the financing lease liabilities was
7.0%
. When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. In using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and applies the rates to a portfolio of leases with similar underlying assets and terms.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. GOING CONCERN
The accompanying Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
To date, the Company has incurred recurring losses and negative cash flow from operations and has accumulated a deficit of
$384,928,000
from inception through
June 30, 2019
. As of
June 30, 2019
, the Company had approximately
$12,157,000
in cash and cash equivalents. The Company’s ability to achieve profitability and positive cash flow depends upon its ability to increase revenue and contain its expenses.
Further, the Company must maintain compliance with the debt covenants of its
$40,000,000
Loan and Security Agreement dated January 5, 2018 with Solar Capital Ltd. as Collateral Agent, and the parties signing such agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (see Note 11). In management’s opinion, the uncertainty regarding future revenues raises substantial doubt about the Company’s ability to continue as a going concern without access to additional debt and/or equity financing, over the course of the next twelve months.
To meet the Company’s future working capital needs, the Company may need to raise additional debt or equity financing. While the Company has historically been able to raise additional capital through issuance of equity and/or debt financing, and while the Company has implemented a plan to control its expenses to satisfy its obligations due within one year from the date of issuance of these Interim Financial Statements, the Company cannot guarantee that it will be able to maintain debt compliance, raise additional equity, contain expenses, or increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these Interim Financial Statements are issued.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. INVENTORY
Inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31, 2018
|
|
(In thousands)
|
Component parts (1)
|
$
|
469
|
|
|
$
|
129
|
|
Work-in-process (2)
|
470
|
|
|
924
|
|
Finished goods
|
1,202
|
|
|
1,352
|
|
Total Inventory
|
$
|
2,141
|
|
|
$
|
2,405
|
|
(1) Component parts inventory consists of manufactured components of the ILUVIEN applicator.
(2) Work-in-process consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing or stability testing as required by U.S. or EEA regulatory authorities.
8. INTANGIBLE ASSET
As a result of the approval of ILUVIEN by the U.S. Food and Drug Administration (FDA) in 2014, the Company was required to pay EyePoint a milestone payment of
$25,000,000
(the EyePoint Milestone Payment) (see Note 10).
The gross carrying amount of the intangible asset is
$25,000,000
, which is being amortized over approximately
13 years
from the acquisition date. The amortization expense related to the intangible asset was approximately
$484,000
for both the
three months ended June 30, 2019
and
2018
, respectively. The amortization expense related to the intangible asset was approximately
$962,000
for both the
six months ended June 30, 2019
and
2018
, respectively. The net book value of the intangible asset was
$15,761,000
and
$16,723,000
as of
June 30, 2019
and
December 31, 2018
, respectively.
The estimated future amortization expense as of
June 30, 2019
for the remaining periods in the next five years and thereafter is as follows:
|
|
|
|
|
Years Ending December 31
|
(In thousands)
|
2019 (remaining)
|
$
|
978
|
|
2020
|
1,946
|
|
2021
|
1,940
|
|
2022
|
1,940
|
|
2023
|
1,940
|
|
Thereafter
|
7,017
|
|
Total
|
$
|
15,761
|
|
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. ACCRUED EXPENSES
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Accrued clinical investigator expenses
|
$
|
853
|
|
|
$
|
781
|
|
Accrued compensation expenses
|
1,666
|
|
|
1,427
|
|
Accrued rebate, chargeback and other revenue reserves
|
414
|
|
|
346
|
|
Accrued lease liabilities (Note 5)
|
446
|
|
|
—
|
|
Other accrued expenses
|
89
|
|
|
1,089
|
|
Total accrued expenses
|
$
|
3,468
|
|
|
$
|
3,643
|
|
10. LICENSE AGREEMENTS
EyePoint Agreement
In February 2005, the Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in EyePoint’s proprietary insert technology. This agreement was subsequently amended a number of times (as amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.
Second Amended and Restated Collaboration Agreement
On July 10, 2017, the Company and EyePoint entered into a Second Amended and Restated Collaboration Agreement (the New Collaboration Agreement), which amended and restated the EyePoint Agreement.
Prior to entering into the New Collaboration Agreement, the Company held the worldwide license from EyePoint for the use of EyePoint’s proprietary insert technology for the treatment of all ocular diseases other than uveitis. The New Collaboration Agreement expanded the license to include uveitis, including NIPU, in Europe, the Middle East and Africa and also allows the Company to pursue an indication for posterior uveitis for ILUVIEN in those territories.
The New Collaboration Agreement converted the Company’s previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. The Company began paying a
2%
royalty on net revenues and other related consideration to EyePoint on July 1, 2017. This royalty amount increased to
6%
effective December 12, 2018. Pursuant to the New Collaboration Agreement, the Company is required to pay an additional
2%
royalty on global net revenues and other related consideration in excess of
$75,000,000
in any year. During the
three and six months ended June 30, 2019
, the Company recognized approximately
$434,000
and
$950,000
of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of
June 30, 2019
, approximately
$434,000
of this royalty expense was included in the Company’s accounts payable. During the
three and six months ended June 30, 2018
, the Company recognized approximately
$218,000
and
$411,000
of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with a previous agreement with EyePoint, the Company was entitled to recover commercialization costs that were incurred prior to profitability of ILUVIEN and offset a portion of future payments owed to EyePoint in connection with sales of ILUVIEN with those accumulated commercialization costs. (The Company’s future rights to recover these amounts from EyePoint are referred to as the Future Offset.) Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to
$15,000,000
of the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave
$5,000,000
of the Future Offset in connection with the approval of ILUVIEN for NIPU in the United Kingdom. As of
June 30, 2019
, the balance of the Future Offset was approximately
$9,603,000
. The Company will be able to recover the balance of the Future Offset as a reduction of future royalties that would otherwise be owed to EyePoint as follows:
|
|
•
|
From December 12, 2018 through December 12, 2020, the royalty has been and will continue to be reduced from
6%
to
4%
for net revenues and other related consideration up to
$75,000,000
annually and from
8%
to
5%
for net revenues and other related consideration in excess of
$75,000,000
on an annual basis; and
|
|
|
•
|
Beginning December 13, 2020, the royalty will be reduced from
6%
to
5.2%
for net revenues and other related consideration up to
$75,000,000
annually and from
8%
to
6.8%
for net revenues and other related consideration in excess of
$75,000,000
on an annual basis.
|
Possible Reversion of the Company’s License Rights to EyePoint
The Company’s license rights to EyePoint’s proprietary delivery device could revert to EyePoint if the Company were to:
|
|
(i)
|
fail twice to cure its breach of an obligation to make certain payments to EyePoint following receipt of written notice thereof;
|
|
|
(ii)
|
fail to cure other breaches of material terms of the New Collaboration Agreement within
30
days after notice of such breaches or such longer period (up to
90 days
) as may be reasonably necessary if the breach cannot be cured within such
30
-day period;
|
|
|
(iii)
|
file for protection under the bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee over its property, file a petition under any bankruptcy or insolvency act or have any such petition filed against it and such proceeding remains undismissed or unstayed for a period of more than
60 days
; or
|
|
|
(iv)
|
notify EyePoint in writing of its decision to abandon its license with respect to a certain product using EyePoint’s proprietary delivery device.
|
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. LOAN AGREEMENTS
Hercules Loan Agreement
In April 2014, Alimera Sciences Limited (Alimera UK), a subsidiary of the Company, entered into a loan and security agreement (Hercules Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to
$35,000,000
(Hercules Loan). The Company amended the Hercules Loan Agreement several times. On January 5, 2018, the Company paid off the Hercules Loan on behalf of Alimera UK.
Under the Hercules Loan Agreement, when the Company prepaid the Hercules Loan Agreement on January 5, 2018, (a) the Company paid a prepayment penalty of
2.0%
of the principal amount prepaid, or
$709,000
, which is included in loss on early extinguishment of debt for the six months ended June 30, 2018; and (b) Alimera UK paid an end of term payment of
$1,400,000
.
Extinguishment of Debt
In accordance with the guidance in ASC 470-50,
Debt
, the Company accounted for the extinguishment of the Hercules Loan Agreement as an extinguishment and recognized a loss on early extinguishment of debt of approximately
$1,766,000
within the condensed consolidated statements of operations for the six months ended June 30, 2018. The loss on early extinguishment consisted primarily of the prepayment penalty paid to Hercules and unamortized debt discounts including the remaining portion of warrant values and debt issuance costs.
2014 Warrant
In connection with Alimera UK entering into the Hercules Loan Agreement, the Company issued a warrant that granted Hercules the right to purchase up to
285,016
shares of the Company’s common stock at an exercise price of
$6.14
per share (the 2014 Warrant). The Company amended the 2014 Warrant a number of times to increase the number of shares issuable upon exercise to
1,258,993
and decrease the exercise price to
$1.39
per share. The right to exercise this warrant expires on November 2, 2020.
2016 Warrant
In connection with Alimera UK entering into an amendment to the Hercules Loan Agreement on October 20, 2016, the Company agreed to issue a new warrant to Hercules (the 2016 Warrant) that granted Hercules the right to purchase up to
458,716
shares of the Company’s common stock at an exercise price of
$1.09
per share. The right to exercise this warrant expires on October 20, 2021.
Solar Capital Loan Agreement
On January 5, 2018, the Company entered into a
$40,000,000
Loan and Security Agreement (2018 Loan Agreement) with Solar Capital Ltd. (Solar Capital), as Collateral Agent (Agent), and the parties signing the 2018 Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2018 Loan Agreement, the Company borrowed the entire
$40,000,000
as a term loan that matures on July 1, 2022.
The Company used the proceeds of the term loan to extinguish the Hercules Loan Agreement and pay related expenses. The Company used the remaining loan proceeds to provide additional working capital for general corporate purposes.
Interest on the 2018 Loan Agreement is payable at one-month LIBOR plus
7.65%
per annum. The 2018 Loan Agreement provides for interest only payments for the first
30
months ending on July 1, 2020, followed by
24
months of payments of principal and interest. If the Company meets certain revenue thresholds and no event of default shall have occurred and is continuing, the Company can extend the interest only period an additional
six
months to end on January 1, 2021, followed by
18
months of payments of principal and interest. As of
June 30, 2019
, the interest rate on the 2018 Loan Agreement was approximately
10.1%
.
As part of the fees and expenses incurred in conjunction with the 2018 Loan Agreement discussed above, the Company paid Solar Capital a
$400,000
fee at closing. The Company is obligated to pay a
$1,800,000
fee upon repayment of the term loan in full (
$2,000,000
if the interest only period has been extended to
36 months
). The Company may elect to prepay the outstanding principal balance of the 2018 Loan Agreement in increments of
$10,000,000
or more. The Company must pay a prepayment premium upon any prepayment of the 2018 Loan Agreement before its maturity date, whether by mandatory or voluntary prepayment, acceleration or otherwise, equal to:
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
a.
|
1.00%
of the principal amount prepaid for a prepayment made after January 5, 2019 through and including January 5, 2020; and
|
|
|
b.
|
0.50%
of the principal amount prepaid for a prepayment made after January 5, 2020 and greater than
30
days before the maturity date.
|
The Company is also obligated to pay additional fees under the Exit Fee Agreement (Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, Solar Capital as Agent, and the Lenders. The Exit Fee Agreement survives the termination of the 2018 Loan Agreement and has a term of
10
years. The Company is obligated to pay up to, but no more than,
$2,000,000
in fees under the Exit Fee Agreement.
Specifically, the Company is obligated to pay an exit fee of
$2,000,000
upon a “change in control” (as defined in the Exit Fee Agreement). To the extent that Alimera has not already paid the
$2,000,000
fee, the Company is also obligated to pay a fee of
$1,000,000
on achieving each of the following milestones:
|
|
a.
|
first, if the Company achieves revenues of
$80,000,000
or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and
|
|
|
b.
|
second, if the Company achieves revenues of
$100,000,000
or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.
|
The Company agreed, for itself and its subsidiaries, to customary affirmative and negative covenants and events of default in connection with the 2018 Loan Agreement. The occurrence of an event of default could result in the acceleration of the Company’s obligations under the 2018 Loan Agreement and an increase to the applicable interest rate, and would permit Solar Capital to exercise remedies with respect to the collateral under the 2018 Loan Agreement.
The Company’s obligations to Solar Capital as Agent and the Lenders are secured by a first priority security interest in substantially all of the assets, excluding intellectual property, of the Company and its wholly owned subsidiary, Alimera Sciences (DE), LLC (Alimera DE), which is a guarantor of the loan, provided that only
65%
of the voting interests in AS C.V., a Dutch subsidiary owned by the Company and Alimera DE, are pledged to the Lenders, and no assets or equity interests in the direct or indirect subsidiaries of AS C.V. are subject to the Lenders’ security interests. The Lender does, however, maintain a negative pledge on the property of the Company and all of its subsidiaries, including the Company’s intellectual property, requiring the Lender’s consent for any liens (other than typical permitted liens) on, or the sale of, such property.
Fair Value of Debt
The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at
June 30, 2019
and
December 31, 2018
.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. EARNINGS (LOSS) PER SHARE (EPS)
The Company follows ASC 260,
Earnings Per Share
(ASC 260), which requires the reporting of both basic and diluted earnings per share. Because the Company’s preferred stockholders participate in dividends equally with common stockholders (if the Company were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, the Company’s preferred stockholders are not contractually obligated to share in losses.
Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating or would have been anti-dilutive, were as follows:
|
|
|
|
|
|
|
|
Three and Six Months Ended
June 30,
|
|
2019
|
|
2018
|
Series A convertible preferred stock
|
9,022,556
|
|
|
9,022,556
|
|
Series B convertible preferred stock
|
—
|
|
|
8,416,251
|
|
Series C convertible preferred stock
|
10,150,000
|
|
|
—
|
|
Common stock warrants
|
1,795,663
|
|
|
1,795,663
|
|
Stock options
|
13,682,709
|
|
|
12,514,650
|
|
Restricted stock units
|
551,400
|
|
|
1,023,630
|
|
Total
|
35,202,328
|
|
|
32,772,750
|
|
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. PREFERRED STOCK
Series A Convertible Preferred Stock
On October 2, 2012, the Company closed its preferred stock financing in which it sold units consisting of
1,000,000
shares of Series A Convertible Preferred Stock (Series A Preferred Stock) and warrants to purchase
300,000
shares of Series A Preferred Stock for gross proceeds of
$40,000,000
, prior to the payment of approximately
$560,000
of related issuance costs. The powers, preferences and rights of the Series A Preferred Stock are set forth in the certificate of designation for the Series A Preferred Stock filed by the Company with the Delaware Secretary of State as part of the Company’s certificate of incorporation. Each share of Series A Preferred Stock is convertible into shares of the Company’s common stock at any time at the option of the holder at the rate equal to
$40.00
divided by
$2.66
(Conversion Price). The initial Conversion Price was subject to adjustment based on certain customary price based anti-dilution adjustments. These adjustment features lapsed in September 2014. Each share of Series A Preferred Stock shall automatically be converted into shares of common stock at the then-effective Conversion Price upon the date on which the Company consummates an equity financing transaction pursuant to which the Company sells to one or more third party investors either (a) shares of common stock or (b) other equity securities that are convertible into shares of common stock and that have rights, preference or privileges, senior to or on a parity with, the Series A Preferred Stock, in each case having an as-converted per share of common stock price of not less than
$10.00
and that results in total gross proceeds to the Company of at least
$30,000,000
. The rights and preferences of Series A Preferred Stock also place limitations on the Company’s ability to declare or pay any dividend or distribution on any shares of capital stock.
Each unit sold in the preferred stock financing included a warrant to purchase additional shares of Series A Preferred Stock. The rights to exercise these warrants expired on October 1, 2017.
In 2014, the Company issued
6,015,037
shares of common stock pursuant to the conversion of
400,000
shares of Series A Preferred Stock. As of
June 30, 2019
, there were
600,000
shares of Series A Preferred Stock issued and outstanding.
Series B Convertible Preferred Stock
On December 12, 2014, the Company closed a preferred stock financing in which it sold
8,291.873
shares of Series B Convertible Preferred Stock (Series B Preferred Stock) for a purchase price of
$6,030
per share, or an aggregate purchase price of
$50,000,000
, prior to the payment of approximately
$432,000
of related issuance costs. The Company issued an additional
124.378
shares of Series B Preferred Stock as a subscription premium to the purchasers. On September 4, 2018, all of the outstanding shares of Series B Preferred Stock were exchanged for shares of Series C Convertible Preferred Stock (see below).
On September 4, 2018, following the closing of the exchange of all outstanding shares of Series B Preferred Stock for shares of Series C Convertible Preferred Stock, the Company filed with the Delaware Secretary of State a Certificate of Elimination of Series B Convertible Preferred Stock of Alimera Sciences, Inc., which eliminated from the Company’s amended and restated certificate of incorporation, as amended, the Alimera Sciences, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock. As a result, all shares of the Company’s preferred stock previously designated as Series B Convertible Preferred Stock were eliminated and returned to the status of authorized but unissued shares of preferred stock, without designation as to series.
Series C Convertible Preferred Stock
On September 4, 2018, the Company entered into and closed a Series B Preferred Stock Exchange Agreement (Exchange Agreement) with the holders of all of the outstanding approximately
8,416
shares of Series B Preferred Stock. Under the Exchange Agreement, the holders of Series B Preferred Stock exchanged their shares of Series B Preferred Stock for an aggregate of
10,150
shares of Series C Convertible Preferred Stock, par value
$0.01
per share (Series C Preferred Stock). The powers, preferences and rights of the Series C Preferred Stock are set forth in the certificate of designation filed by the Company with the Delaware Secretary of State as part of the Company’s certificate of incorporation, as amended. All of the outstanding shares of Series B Preferred Stock were canceled in the exchange. The Company incurred approximately
$122,000
in legal costs related to the Exchange Agreement.
The
10,150
issued and outstanding shares of Series C Preferred Stock have an aggregate stated value of
$10,150,000
and are convertible into shares of the Company’s common stock at
$1.00
per share, or
10,150,000
shares of the Company’s common stock in total, at any time at the option of the holder, provided that the holder will be prohibited from converting shares of Series C Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than
9.98%
of the total number of shares of the Company’s common stock then issued and outstanding. The Series C Preferred Stock is not redeemable at the option of the holder. In the event of a liquidation, dissolution or winding up of the Company and in the event of certain mergers, tender offers and asset sales, the holders of the Series C
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Preferred Stock will receive the greater of (a) the liquidation preference equal to
$10,150,000
in the aggregate, plus any declared but unpaid dividends, or (b) the amount such holders would receive had all shares of the Series C Preferred Stock been converted into the Company’s common stock immediately before such event. With respect to rights upon liquidation, the Series C Preferred Stock ranks junior to the Company’s Series A Preferred Stock and senior to the Company’s common stock. The Series C Preferred Stock ranks junior to all existing and future indebtedness. Except as otherwise required by law (or with respect to approval of certain actions), the Series C Preferred Stock does not have voting rights. The Series C Preferred Stock is not subject to any price-based anti-dilution protections and does not provide for any accruing dividends.
The Company determined that the Exchange Agreement resulted in an extinguishment of the Series B Preferred Stock. As a result, the Company recognized a gain of
$38,330,000
on the extinguishment of preferred stock during the third quarter of 2018. As of the transaction date, the Company made an assessment of the fair market value of the Series C Preferred Stock and calculated the value to be
$11,239,000
, prior to the payment of approximately
$122,000
of related transaction costs. The Company recorded this gain within stockholders’ equity and as an increase to earnings available to stockholders during the third quarter of 2018. The
$38,330,000
gain on extinguishment of preferred stock was derived by the difference in the fair market value of the Series C Preferred Stock and the carrying value of the Series B Preferred Stock.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14. STOCK INCENTIVE PLANS
Stock Option Plans
During the
three months ended June 30, 2019
and
2018
, the Company recorded compensation expense related to stock options of approximately
$463,000
and
$888,000
, respectively. During the
six months ended June 30, 2019
and
2018
, the Company recorded compensation expense related to stock options of approximately
$1,062,000
and
$1,754,000
, respectively. As of
June 30, 2019
, the total unrecognized compensation cost related to non-vested stock options granted was
$2,801,000
and is expected to be recognized over a weighted average period of
2.43 years
. The following table presents a summary of stock option activity for the
three months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
Options outstanding at beginning of period
|
13,407,536
|
|
|
$
|
2.48
|
|
|
12,343,820
|
|
|
$
|
2.75
|
|
Grants
|
648,000
|
|
|
0.95
|
|
|
320,625
|
|
|
0.88
|
|
Forfeitures
|
(372,827
|
)
|
|
2.79
|
|
|
(149,795
|
)
|
|
2.70
|
|
Exercises
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options outstanding at period end
|
13,682,709
|
|
|
2.40
|
|
|
12,514,650
|
|
|
2.70
|
|
Options exercisable at period end
|
9,722,530
|
|
|
2.93
|
|
|
8,578,358
|
|
|
3.19
|
|
Weighted average per share fair value of options granted during the period
|
$
|
0.58
|
|
|
|
|
$
|
0.56
|
|
|
|
The following table presents a summary of stock option activity for the
six months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
Options outstanding at beginning of period
|
12,447,355
|
|
|
$
|
2.63
|
|
|
11,595,510
|
|
|
$
|
2.90
|
|
Grants
|
1,822,750
|
|
|
0.90
|
|
|
1,553,625
|
|
|
1.10
|
|
Forfeitures
|
(587,396
|
)
|
|
2.50
|
|
|
(632,922
|
)
|
|
2.43
|
|
Exercises
|
—
|
|
|
—
|
|
|
(1,563
|
)
|
|
1.06
|
|
Options outstanding at period end
|
13,682,709
|
|
|
2.40
|
|
|
12,514,650
|
|
|
2.70
|
|
Options exercisable at period end
|
9,722,530
|
|
|
2.93
|
|
|
8,578,358
|
|
|
3.19
|
|
Weighted average per share fair value of options granted during the period
|
$
|
0.56
|
|
|
|
|
$
|
0.73
|
|
|
|
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides additional information related to outstanding stock options, exercisable stock options and stock options that were expected to vest as of
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
(In thousands)
|
Outstanding
|
13,682,709
|
|
|
$
|
2.40
|
|
|
6.15 years
|
|
$
|
42
|
|
Exercisable
|
9,722,530
|
|
|
2.93
|
|
|
5.03 years
|
|
12
|
|
Outstanding, vested and expected to vest
|
13,190,204
|
|
|
2.45
|
|
|
6.04 years
|
|
37
|
|
The following table provides additional information related to outstanding stock options, exercisable stock options and stock options that were expected to vest as of
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
(In thousands)
|
Outstanding
|
12,447,355
|
|
|
$
|
2.63
|
|
|
6.25 years
|
|
$
|
—
|
|
Exercisable
|
9,138,544
|
|
|
3.09
|
|
|
5.37 years
|
|
—
|
|
Outstanding, vested and expected to vest
|
12,044,311
|
|
|
2.67
|
|
|
6.16 years
|
|
—
|
|
As of
June 30, 2019
, the Company was authorized to grant stock options and restricted stock units (RSUs) to acquire up to an additional
7,142,000
shares under the 2019 Omnibus Incentive Plan.
Employee Stock Purchase Plan
During the
three months ended June 30, 2019
and
2018
, the Company recorded compensation expense related to its employee stock purchase plan of approximately
$4,000
and
$8,000
, respectively. During the
six months ended June 30, 2019
and
2018
, the Company recorded compensation expense related to its employee stock purchase plan of approximately
$11,000
and
$18,000
, respectively.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock Units
A summary of RSU transactions under the plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
Restricted stock units outstanding at beginning of period
|
480,400
|
|
|
$
|
0.86
|
|
|
1,039,370
|
|
|
$
|
1.16
|
|
Grants
|
71,000
|
|
|
0.99
|
|
|
19,660
|
|
|
0.88
|
|
Vested units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeitures
|
—
|
|
|
—
|
|
|
(44,300
|
)
|
|
1.16
|
|
Restricted stock units outstanding at period end
|
551,400
|
|
|
0.88
|
|
|
1,014,730
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
Restricted stock units outstanding at beginning of period
|
900,252
|
|
|
$
|
1.15
|
|
|
839,285
|
|
|
$
|
1.21
|
|
Grants
|
551,400
|
|
|
0.88
|
|
|
1,080,830
|
|
|
1.15
|
|
Vested units
|
(889,752
|
)
|
|
1.15
|
|
|
(839,285
|
)
|
|
1.21
|
|
Forfeitures
|
(10,500
|
)
|
|
1.16
|
|
|
(66,100
|
)
|
|
1.16
|
|
Restricted stock units outstanding at period end
|
551,400
|
|
|
0.88
|
|
|
1,014,730
|
|
|
1.15
|
|
As of June 30, 2019, there was approximately
$324,000
of total unrecognized compensation cost related to outstanding RSUs that will be recognized through the first quarter of 2020. Employee stock-based compensation expense related to RSUs recognized in accordance with ASC 718,
Compensation - Stock Compensation
(ASC 718) was
$99,000
and
$256,000
for the
three months ended June 30, 2019
and
2018
, respectively. Employee stock-based compensation expense related to RSUs recognized in accordance with ASC 718 was
$326,000
and
$587,000
for the
six months ended June 30, 2019
and
2018
, respectively.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. INCOME TAXES
In accordance with ASC 740,
Income Taxes,
the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized.
At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates. The Company’s quarterly income tax rate may differ from its estimated annual effective tax rate because accounting standards require the Company to exclude the actual results of certain entities expected to generate a pretax loss when applying the estimated annual effective tax rate to the Company’s consolidated pretax results in interim periods. In estimating the annual effective tax rate, the Company does not include the estimated impact of unusual and/or infrequent items, including the reversal of valuation allowances, which may cause significant variations in the customary relationship between income tax expense (benefit) and pretax income (loss) in quarterly periods. The income tax expense (benefit) for such unusual and/or infrequent items is recorded in the quarterly period such items are incurred.
The Company’s income tax expense and resulting effective tax rate are based upon the respective estimated annual effective tax rates applicable for the respective periods adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items. The Company’s effective tax rate for the
three and six months ended June 30, 2019
properly excluded tax benefits associated with year-to-date pre-tax losses generated in the U.S., Ireland and the Netherlands. Income tax positions are considered for uncertainty in accordance with ASC 740-10. The Company has recorded unrecognized tax benefits related to research and development tax credits. In accordance with ASC 740-10, such attributes are reduced to the amount that is expected to be recognized in the future. The Company has not accrued interest or penalties as no research and development credits have been utilized due to significant net operating losses (NOLs) available. The Company does not expect any decreases to the unrecognized tax benefits within the next twelve months due to any lapses in statute of limitations. Tax years remain subject to examination at the U.S. federal level between 2010 and 2017, and subject to examinations at various state levels between 2005 and 2017. The statute of limitations on these years will close when the NOLs expire or when the statute closes on the years in which the NOLs are utilized. Tax years since 2012 remain subject to examination in the United Kingdom and the Netherlands. Tax years since 2013 remain subject to examination in Germany.
Significant management judgment is involved in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Due to uncertainties with respect to the realization of deferred tax assets due to the history of operating losses, a valuation allowance has been established against the net deferred tax asset balance in the U.S., Ireland and the Netherlands. The valuation allowance is based on management’s estimates of taxable income in the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance may be needed, which could materially impact the Company’s financial position and results of operations.
At
December 31, 2018
, the Company had federal NOL carry-forwards of approximately
$122,455,000
and state NOL carry-forwards of approximately
$153,333,000
available to reduce future taxable income. The Company’s federal NOL carry-forwards remain fully reserved as of
June 30, 2019
. If not utilized, the federal NOL carry-forwards will expire at various dates between 2029 and 2037 and the state NOL carry-forwards will expire at various dates between 2020 and 2037.
Sections 382 and 383 of the Internal Revenue Code (IRC) limit the annual use of NOL carry-forwards and tax credit carry-forwards, respectively, following an ownership change. NOL carry-forwards may be subject to annual limitations under IRC Section 382 (Section 382) (or comparable provisions of state law) if certain changes in ownership were to occur. The Company periodically evaluates its NOL carry-forwards and whether certain changes in ownership have occurred that would limit the Company’s ability to utilize a portion of its NOL carry-forwards. If it is determined that significant ownership changes have occurred since the Company generated its NOL carry-forwards, it may be subject to annual limitations on the use of these NOL carry-forwards under Section 382 (or comparable provisions of state law). The Company determined that a Section 382 change in ownership occurred in late 2015. As a result of this change in ownership, the Company preliminarily estimated that approximately
$18.6 million
of the Company’s federal NOLs and approximately
$382,000
of federal tax credits generated prior to the change in ownership will not be utilized in the future. The Company is currently in the process of refining and finalizing these calculations, and upon finalization, will determine if a write-off is necessary. The reduction to the Company’s NOL
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
deferred tax asset due to the annual Section 382 limitation and the NOL carryforward period would result in an offsetting reduction in valuation allowance recorded against the NOL deferred tax asset.
As of December 31, 2018, the Company had cumulative book losses in foreign subsidiaries of
$126,648,000
. The Company has not recorded a deferred tax asset for the excess of tax over book basis in the stock of its foreign subsidiaries. The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries do have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings of and original investments in such subsidiaries. As a result, the Company has not recorded a deferred tax liability related to excess of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. SEGMENT INFORMATION
During the
three months ended June 30, 2019
and
2018
,
two
customers within the U.S. segment that are large pharmaceutical distributors accounted for
67%
and
73%
, respectively, of the Company’s consolidated revenues. During the
six months ended June 30, 2019
and
2018
, these same
two
customers accounted for
59%
and
72%
, respectively, of the Company’s consolidated revenues. These same
two
customers within the U.S. segment accounted for approximately
75%
and
73%
of the Company’s consolidated accounts receivable at
June 30, 2019
and at
December 31, 2018
, respectively.
The Company’s chief operating decision maker is the Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics and information, the business is principally managed and organized based upon geographic and regulatory environment. Each segment is separately managed and is evaluated primarily upon segment loss from operations. Non-cash items including stock-based compensation expense and depreciation and amortization are categorized as Other within the table below. The Company does not report balance sheet information by segment because the Company’s chief operating decision maker does not review that information.
The following table presents a summary of the Company’s reporting segments for the
three months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2018
|
|
U.S.
|
|
International
|
|
Other
|
|
Consolidated
|
|
U.S.
|
|
International
|
|
Other
|
|
Consolidated
|
|
(In thousands)
|
NET REVENUE
|
$
|
7,320
|
|
|
$
|
3,535
|
|
|
$
|
—
|
|
|
$
|
10,855
|
|
|
$
|
7,799
|
|
|
$
|
2,918
|
|
|
$
|
—
|
|
|
$
|
10,717
|
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
(808
|
)
|
|
(366
|
)
|
|
—
|
|
|
(1,174
|
)
|
|
(656
|
)
|
|
(257
|
)
|
|
—
|
|
|
(913
|
)
|
GROSS PROFIT
|
6,512
|
|
|
3,169
|
|
|
—
|
|
|
9,681
|
|
|
7,143
|
|
|
2,661
|
|
|
—
|
|
|
9,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
1,630
|
|
|
1,090
|
|
|
114
|
|
|
2,834
|
|
|
1,602
|
|
|
954
|
|
|
221
|
|
|
2,777
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
2,150
|
|
|
946
|
|
|
579
|
|
|
3,675
|
|
|
1,866
|
|
|
723
|
|
|
640
|
|
|
3,229
|
|
SALES AND MARKETING EXPENSES
|
4,217
|
|
|
1,779
|
|
|
112
|
|
|
6,108
|
|
|
4,142
|
|
|
1,493
|
|
|
291
|
|
|
5,926
|
|
DEPRECIATION AND AMORTIZATION
|
—
|
|
|
—
|
|
|
654
|
|
|
654
|
|
|
—
|
|
|
—
|
|
|
650
|
|
|
650
|
|
OPERATING EXPENSES
|
7,997
|
|
|
3,815
|
|
|
1,459
|
|
|
13,271
|
|
|
7,610
|
|
|
3,170
|
|
|
1,802
|
|
|
12,582
|
|
SEGMENT LOSS FROM OPERATIONS
|
(1,485
|
)
|
|
(646
|
)
|
|
(1,459
|
)
|
|
(3,590
|
)
|
|
(467
|
)
|
|
(509
|
)
|
|
(1,802
|
)
|
|
(2,778
|
)
|
OTHER INCOME AND EXPENSES, NET
|
—
|
|
|
—
|
|
|
(1,187
|
)
|
|
(1,187
|
)
|
|
—
|
|
|
—
|
|
|
(1,146
|
)
|
|
(1,146
|
)
|
NET LOSS BEFORE TAXES
|
|
|
|
|
|
|
$
|
(4,777
|
)
|
|
|
|
|
|
|
|
$
|
(3,924
|
)
|
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents a summary of the Company’s reporting segments for the
six months ended June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2018
|
|
U.S.
|
|
International
|
|
Other
|
|
Consolidated
|
|
U.S.
|
|
International
|
|
Other
|
|
Consolidated
|
|
(In thousands)
|
NET REVENUE
|
$
|
14,086
|
|
|
$
|
9,659
|
|
|
$
|
—
|
|
|
$
|
23,745
|
|
|
$
|
14,604
|
|
|
$
|
5,743
|
|
|
$
|
—
|
|
|
$
|
20,347
|
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
(1,493
|
)
|
|
(1,281
|
)
|
|
—
|
|
|
(2,774
|
)
|
|
(1,369
|
)
|
|
(648
|
)
|
|
—
|
|
|
(2,017
|
)
|
GROSS PROFIT
|
12,593
|
|
|
8,378
|
|
|
—
|
|
|
20,971
|
|
|
13,235
|
|
|
5,095
|
|
|
—
|
|
|
18,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
3,057
|
|
|
2,261
|
|
|
243
|
|
|
5,561
|
|
|
3,242
|
|
|
1,904
|
|
|
453
|
|
|
5,599
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
4,084
|
|
|
1,933
|
|
|
1,051
|
|
|
7,068
|
|
|
4,159
|
|
|
1,630
|
|
|
1,295
|
|
|
7,084
|
|
SALES AND MARKETING EXPENSES
|
8,258
|
|
|
3,484
|
|
|
279
|
|
|
12,021
|
|
|
8,514
|
|
|
2,771
|
|
|
610
|
|
|
11,895
|
|
DEPRECIATION AND AMORTIZATION
|
—
|
|
|
—
|
|
|
1,306
|
|
|
1,306
|
|
|
—
|
|
|
—
|
|
|
1,299
|
|
|
1,299
|
|
OPERATING EXPENSES
|
15,399
|
|
|
7,678
|
|
|
2,879
|
|
|
25,956
|
|
|
15,915
|
|
|
6,305
|
|
|
3,657
|
|
|
25,877
|
|
SEGMENT (LOSS) INCOME FROM OPERATIONS
|
(2,806
|
)
|
|
700
|
|
|
(2,879
|
)
|
|
(4,985
|
)
|
|
(2,680
|
)
|
|
(1,210
|
)
|
|
(3,657
|
)
|
|
(7,547
|
)
|
OTHER INCOME AND EXPENSES, NET
|
—
|
|
|
—
|
|
|
(2,484
|
)
|
|
(2,484
|
)
|
|
—
|
|
|
—
|
|
|
(4,061
|
)
|
|
(4,061
|
)
|
NET LOSS BEFORE TAXES
|
|
|
|
|
|
|
$
|
(7,469
|
)
|
|
|
|
|
|
|
|
$
|
(11,608
|
)
|
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the sections entitled “Risk Factors” in our most recent annual report on Form 10-K and in Part II, Item 1A of this report below. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.
Alimera Sciences, Inc., and its subsidiaries (we, our, Alimera or the Company), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We presently focus on diseases affecting the back of the eye, or retina, because these diseases are not well treated with current therapies and affect millions of people in our aging populations.
Our only commercial product is ILUVIEN
®
, which has received marketing authorization in the U.S., Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Kuwait, Lebanon, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, the United Arab Emirates and the United Kingdom. In the U.S., Canada, Kuwait, Lebanon and the United Arab Emirates, ILUVIEN is indicated for the treatment of diabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure (IOP). In the European Economic Area (EEA) countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.
In addition, as explained in the following paragraph, ILUVIEN is now indicated for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIPU) in the EEA countries where we have satisfied the country’s labeling requirements. As of the date of this filing, we have satisfied the labeling requirements in the United Kingdom and expect to comply with the local labeling requirements of other EEA countries, but timelines for satisfying individual country requirements vary. Uveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness.
In July 2017, we amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the technology underlying ILUVIEN now includes the treatment of uveitis, including NIPU, in Europe, the Middle East and Africa. In December 2017, we filed an application for a new indication for ILUVIEN for the treatment of NIPU in the 17 EEA countries where ILUVIEN is currently approved for the treatment of DME. In March 2019, we received the Final Variation Assessment Report (FVAR) for ILUVIEN from the Medicines and Healthcare products Regulatory Agency of the United Kingdom (MHRA) based on our submission to the MHRA through the Mutual Recognition Procedure. Under that procedure, the United Kingdom has acted as the Reference Member State and prepared an assessment report to share with the 16 other countries in the EEA in which we applied for an additional indication. The FVAR states that ILUVIEN is approved for the additional indication for prevention of relapse in NIPU. In June 2019, the United Kingdom's National Institute for Health and Care Excellence (NICE) recommended funding for ILUVIEN for NIPU. In the United Kingdom, a NICE recommendation for funding signifies that the country’s National Health Service (NHS) will pay for ILUVIEN prescriptions for the treatment of NIPU as part of its offering. Timing for receiving funding for ILUVIEN for NIPU, if received at all, in the other EEA countries in which we have applied for the additional indication can vary. The reimbursement process in each EEA country usually starts after we have satisfied the labeling requirements of each individual country.
The New Collaboration Agreement converted our previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. We began paying a 2% royalty on net revenues and other related consideration to EyePoint effective July 1, 2017. The royalty amount increased to 6% as of December 12, 2018. We will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year. During the
three and six months ended June 30, 2019
, we recognized approximately
$434,000
and
$950,000
of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of
June 30, 2019
, approximately
$434,000
of this royalty expense was included in our accounts payable. During the
three and six months ended June 30, 2018
, we recognized approximately
$218,000
and
$411,000
of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization.
Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty payments. In March 2019, pursuant to the New Collaboration Agreement, we forgave
$5,000,000
of the Future Offset in connection with the approval of ILUVIEN for NIPU in the United Kingdom. As of
June 30, 2019
, the balance of the Future Offset was approximately
$9,603,000
. (See Note 10 of our notes to the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements).)
We commercially market ILUVIEN in the U.S., Germany, the United Kingdom, Portugal, Austria and Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement or sales and marketing support for ILUVIEN in France, Italy, Spain, Australia, New Zealand, Canada and several countries in the Middle East. In 2016, our Middle East distributor launched ILUVIEN and initiated named patient sales in the United Arab Emirates. Our Italian distributor launched ILUVIEN in Italy in 2017. Our Spanish distributor began selling on a named patient basis in 2017 and upon receiving reimbursement, plans a full-scale launch in 2019. Our French distributor received pricing and reimbursement approval in March 2019 for ILUVIEN for DME and began selling in April 2019. Our Canadian distributor is currently pursuing reimbursement. As of
June 30, 2019
, we have recognized sales of ILUVIEN to the Company’s international distributors in the Middle East, France, Italy and Spain.
We commenced operations in June 2003. Since our inception we have incurred significant losses. As of
June 30, 2019
, we had accumulated a deficit of
$384.9 million
. We expect to incur additional expenses as we:
|
|
•
|
continue the commercialization of ILUVIEN in the U.S. and EEA, where we sell direct;
|
|
|
•
|
continue to seek regulatory approval of ILUVIEN for other indications and in other jurisdictions;
|
|
|
•
|
evaluate the use of ILUVIEN for the treatment of other diseases; and
|
|
|
•
|
advance the clinical development of any future products or product candidates either currently in our pipeline, or that we may license or acquire in the future.
|
As of
June 30, 2019
, we had approximately
$12.2 million
in cash and cash equivalents.
Our revenues for the three and six months ended
June 30, 2019
and
2018
were generated from product sales primarily in the U.S., Germany and the United Kingdom. In the U.S., two large pharmaceutical distributors accounted for
67%
and
73%
of our consolidated revenues for the
three months ended June 30, 2019
and
2018
, respectively, and
59%
and
72%
of our consolidated revenues for the
six months ended June 30, 2019
and
2018
, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In thousands, except share and per share data)
|
NET REVENUE
|
$
|
10,855
|
|
|
$
|
10,717
|
|
|
$
|
23,745
|
|
|
$
|
20,347
|
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
(1,174
|
)
|
|
(913
|
)
|
|
(2,774
|
)
|
|
(2,017
|
)
|
GROSS PROFIT
|
9,681
|
|
|
9,804
|
|
|
20,971
|
|
|
18,330
|
|
|
|
|
|
|
|
|
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
2,834
|
|
|
2,777
|
|
|
5,561
|
|
|
5,599
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
3,675
|
|
|
3,229
|
|
|
7,068
|
|
|
7,084
|
|
SALES AND MARKETING EXPENSES
|
6,108
|
|
|
5,926
|
|
|
12,021
|
|
|
11,895
|
|
DEPRECIATION AND AMORTIZATION
|
654
|
|
|
650
|
|
|
1,306
|
|
|
1,299
|
|
OPERATING EXPENSES
|
13,271
|
|
|
12,582
|
|
|
25,956
|
|
|
25,877
|
|
NET LOSS FROM OPERATIONS
|
(3,590
|
)
|
|
(2,778
|
)
|
|
(4,985
|
)
|
|
(7,547
|
)
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE AND OTHER
|
(1,236
|
)
|
|
(1,178
|
)
|
|
(2,464
|
)
|
|
(2,329
|
)
|
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET
|
49
|
|
|
32
|
|
|
(20
|
)
|
|
34
|
|
LOSS ON EARLY EXTINGUISHMENT OF DEBT
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,766
|
)
|
NET LOSS BEFORE TAXES
|
(4,777
|
)
|
|
(3,924
|
)
|
|
(7,469
|
)
|
|
(11,608
|
)
|
PROVISION FOR TAXES
|
(261
|
)
|
|
(76
|
)
|
|
(332
|
)
|
|
(76
|
)
|
NET LOSS
|
$
|
(5,038
|
)
|
|
$
|
(4,000
|
)
|
|
$
|
(7,801
|
)
|
|
$
|
(11,684
|
)
|
NET LOSS PER SHARE — Basic and diluted
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.17
|
)
|
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted
|
70,990,340
|
|
|
70,022,100
|
|
|
70,866,285
|
|
|
69,952,940
|
|
Net Revenue
We began generating revenue from ILUVIEN in 2013. Revenue from our U.S. distributors and revenue from our partners in the markets in our international segment where we do not sell direct fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.
Net revenue increased by approximately $200,000, or 2%, to approximately $10.9 million for the three months ended June 30, 2019, compared to approximately $10.7 million for the three months ended June 30, 2018. The increase was primarily attributable to a $600,000 revenue increase in our international segment, including an increase in the international markets where we sell to distributors, partially offset by a $500,000 revenue decrease in our U.S. segment, which is partly attributable to turnover in our U.S. sales force.
Net revenue increased by approximately $3.4 million, or 17%, to approximately $23.7 million for the six months ended June 30, 2019, compared to approximately $20.3 million for the six months ended June 30, 2018. The increase was primarily attributable to a revenue increase in our international segment, including increases of approximately $1.7 million in the international markets where we sell direct and $2.2 million in the international markets where we sell to distributors, partially offset by a $500,000 revenue decrease in our U.S. segment, which is partly attributable to turnover in our U.S. sales force.
Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit
Gross profit is affected by costs of goods sold, which includes (a) costs of manufactured goods sold and (b) payments to EyePoint in the form of royalty payments under the New Collaboration Agreement. Additionally, cost of goods sold from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to the distributor.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $290,000, or 32%, to approximately $1.2 million for the three months ended June 30, 2019, compared to approximately $910,000 for the three
months ended June 30, 2018. The increase was primarily attributable to an increase in our royalty expense on our global net revenue.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $800,000, or 40%, to approximately $2.8 million for the six months ended June 30, 2019, compared to approximately $2.0 million for the six months ended June 30, 2018. The increase was primarily attributable to an increase in our royalty expense on our global net revenue.
Gross profit decreased by approximately $100,000, or 1%, to approximately $9.7 million for the three months ended June 30, 2019, compared to approximately $9.8 million for the three months ended June 30, 2018. Gross margin was 89% and 91% for the three months ended June 30, 2019 and 2018, respectively.
Gross profit increased by approximately $2.7 million, or 14%, to approximately $21.0 million for the six months ended June 30, 2019, compared to approximately $18.3 million for the six months ended June 30, 2018. Gross margin was 88% and 90% for the six months ended June 30, 2019 and 2018, respectively.
Research, Development and Medical Affairs Expenses
Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and includes salaries and related expenses for research and development and medical affairs personnel, including medical sales liaisons, costs related to the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. We expense both internal and external development costs as they are incurred.
Research, development and medical affairs expenses were approximately $2.8 million for both the three months ended June 30, 2019 and 2018.
Research, development and medical affairs expenses were approximately $5.6 million for both the six months ended June 30, 2019 and 2018.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, information technology and human resources. Other significant costs include facilities costs and professional fees for accounting and legal services. We expect to continue to incur significant costs to comply with the corporate governance, internal control and similar requirements applicable to public companies.
General and administrative expenses increased by approximately $500,000, or 16%, to approximately $3.7 million for the three months ended June 30, 2019, compared to approximately $3.2 million for the three months ended June 30, 2018. The increase was primarily attributable to increases in professional fees and logistics costs, some of which are attributable to Brexit preparation.
General and administrative expenses were approximately $7.1 million for both the six months ended June 30, 2019 and 2018.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion, the assessment of the commercial opportunity of, the development of market awareness for, the pursuit of market reimbursement for and the execution of launch plans for ILUVIEN. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.
Sales and marketing expenses increased by approximately $200,000, or 3%, to approximately $6.1 million for the three months ended June 30, 2019, compared to approximately $5.9 million for the three months ended June 30, 2018. The increase was primarily attributable to increases in marketing costs associated with the launch of our direct-to-patient advertising program and market access costs.
Sales and marketing expenses increased by approximately $100,000, or 1%, to approximately $12.0 million for the six months ended June 30, 2019, compared to approximately $11.9 million for the six months ended June 30, 2018.
Operating Expenses
As a result of the increases in various expenses described above, total operating expenses increased by approximately $700,000, or 6%, to approximately $13.3 million for the three months ended June 30, 2019, compared to approximately $12.6 million for the three months ended June 30, 2018. The increase was primarily attributable to an approximately $500,000 increase in general and administrative expenses and a $200,000 increase in sales and marketing expenses.
Total operating expenses increased by approximately $100,000, or 0.4%, to approximately $26.0 million for the six months ended June 30, 2019, compared to approximately $25.9 million for the six months ended June 30, 2018. The increase was primarily attributable to an approximately $100,000 increase in sales and marketing expenses.
Interest Expense and Other
Interest expense and other was approximately $1.2 million for the three months ended June 30, 2019 and 2018. Interest expense and other increased by approximately $200,000, or 9%, to approximately $2.5 million for the six months ended June 30, 2019, compared to approximately $2.3 million for the six months ended June 30, 2018. For these periods, interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the 2018 Loan Agreement with Solar Capital. As discussed in Note 11 of our notes to Interim Financial Statements, we entered into a new loan facility with Solar Capital on January 5, 2018 and refinanced the Hercules Loan Agreement with the proceeds.
Loss on early extinguishment of debt
We recorded a loss on early extinguishment of debt of approximately $1.8 million for the six months ended June 30, 2018 as a result of refinancing the Hercules Loan Agreement by entering into the 2018 Loan Agreement with Solar Capital on January 5, 2018.
Basic and Diluted Net Income (Loss) Applicable to Common Stockholders per Share of Common Stock
We follow FASB Accounting Standards Codification,
Earnings Per Share
(ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common stockholders (if we were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, our preferred stockholders are not contractually obligated to share in losses.
Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating or would have been anti-dilutive, were approximately
35,202,328
for the three and six months ended June 30, 2019 and
32,772,750
for the three and six months ended June 30, 2018. Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periods of net loss because of their anti-dilutive effect. Therefore, for the three and six months ended June 30, 2019 and 2018, the weighted average shares used to calculate both basic and diluted loss per share are the same.
Results of Operations - Segment Review
The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how executive management monitors the performance of our reporting segments.
We have three segments: U.S., International and Other. Each segment is separately managed and is evaluated primarily upon segment loss from operations. Non-cash items including stock-based compensation expense, depreciation and amortization are categorized as Other. We allocate certain operating expenses between our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation methodology during 2019 or 2018.
U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In thousands)
|
NET REVENUE
|
$
|
7,320
|
|
|
$
|
7,799
|
|
|
$
|
14,086
|
|
|
$
|
14,604
|
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
(808
|
)
|
|
(656
|
)
|
|
(1,493
|
)
|
|
(1,369
|
)
|
GROSS PROFIT
|
6,512
|
|
|
7,143
|
|
|
12,593
|
|
|
13,235
|
|
|
|
|
|
|
|
|
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
1,630
|
|
|
1,602
|
|
|
3,057
|
|
|
3,242
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
2,150
|
|
|
1,866
|
|
|
4,084
|
|
|
4,159
|
|
SALES AND MARKETING EXPENSES
|
4,217
|
|
|
4,142
|
|
|
8,258
|
|
|
8,514
|
|
OPERATING EXPENSES
|
7,997
|
|
|
7,610
|
|
|
15,399
|
|
|
15,915
|
|
SEGMENT LOSS FROM OPERATIONS
|
$
|
(1,485
|
)
|
|
$
|
(467
|
)
|
|
$
|
(2,806
|
)
|
|
$
|
(2,680
|
)
|
U.S. Segment - three months ended June 30, 2019 compared to the three months ended June 30, 2018
Net revenue.
Net revenue decreased by approximately $500,000, or 6%, to approximately $7.3 million for the three months ended June 30, 2019, compared to approximately $7.8 million for the three months ended June 30, 2018. The decrease was primarily attributable to a decrease in end user demand, which represents units purchased by physicians and pharmacies from our distributors, partly due to turnover in our U.S. sales force. End user demand decreased by approximately 4% to 917 units for the three months ended June 30, 2019, compared to 955 units for the three months ended June 30, 2018.
Cost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $150,000, or 23%, to approximately $810,000 for the three months ended June 30, 2019, compared to approximately $660,000 for the three months ended June 30, 2018. The increase was primarily attributable to royalties paid on ILUVIEN.
Research, development and medical affairs expenses
. Research, development and medical affairs expenses was approximately $1.6 million for both the three months ended June 30, 2019 and 2018.
General and administrative expenses.
General and administrative expenses increased by approximately $300,000, or 16%, to approximately $2.2 million for the three months ended June 30, 2019, compared to approximately $1.9 million for the three months ended June 30, 2018. The increase was primarily attributable to an increase of approximately $360,000 in professional fees offset with a decrease of $130,000 in personnel costs.
Sales and marketing expenses
. Sales and marketing expenses increased by approximately $100,000, or 2%, to approximately $4.2 million for the three months ended June 30, 2019, compared to approximately $4.1 million for the three months ended June 30, 2018.
U.S. Segment - six months ended June 30, 2019 compared to the six months ended June 30, 2018
Net revenue.
Net revenue decreased by approximately $500,000, or 3%, to approximately $14.1 million for the six months ended June 30, 2019, compared to approximately $14.6 million for the six months ended June 30, 2018. However, end user demand, which represents units purchased by physicians and pharmacies from our distributors, increased 3% in the six months ended June 30, 2019, increasing to 1,856 units compared to 1,806 units in the six months ended June 30, 2018.
Cost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $100,000, or 7%, to approximately $1.5 million for the six months ended June 30, 2019, compared to approximately $1.4 million for the six months ended June 30, 2018.
Research, development and medical affairs expenses
. Research, development and medical affairs expenses decreased by approximately $100,000, or 3%, to approximately $3.1 million for the six months ended June 30, 2019, compared to approximately $3.2 million for the six months ended June 30, 2018.
General and administrative expenses.
General and administrative expenses decreased by approximately $100,000, or 2%, to approximately $4.1 million for the six months ended June 30, 2019, compared to approximately $4.2 million for the six months ended June 30, 2018.
Sales and marketing expenses
. Sales and marketing expenses decreased by approximately $200,000, or 2%, to approximately $8.3 million for the six months ended June 30, 2019, compared to approximately $8.5 million for the six months ended June 30, 2018. The decrease was primarily attributable to a decrease of approximately $410,000 in personnel costs offset by an increase of approximately $170,000 in marketing costs.
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In thousands)
|
NET REVENUE
|
$
|
3,535
|
|
|
$
|
2,918
|
|
|
$
|
9,659
|
|
|
$
|
5,743
|
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
(366
|
)
|
|
(257
|
)
|
|
(1,281
|
)
|
|
(648
|
)
|
GROSS PROFIT
|
3,169
|
|
|
2,661
|
|
|
8,378
|
|
|
5,095
|
|
|
|
|
|
|
|
|
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
1,090
|
|
|
954
|
|
|
2,261
|
|
|
1,904
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
946
|
|
|
723
|
|
|
1,933
|
|
|
1,630
|
|
SALES AND MARKETING EXPENSES
|
1,779
|
|
|
1,493
|
|
|
3,484
|
|
|
2,771
|
|
OPERATING EXPENSES
|
3,815
|
|
|
3,170
|
|
|
7,678
|
|
|
6,305
|
|
SEGMENT INCOME (LOSS) FROM OPERATIONS
|
$
|
(646
|
)
|
|
$
|
(509
|
)
|
|
$
|
700
|
|
|
$
|
(1,210
|
)
|
International Segment - three months ended June 30, 2019 compared to the three months ended June 30, 2018
Net revenue.
Net revenue increased by approximately $600,000, or 21%, to approximately $3.5 million for the three months ended June 30, 2019, compared to approximately $2.9 million for the three months ended June 30, 2018. The increase was primarily attributable to sales in our international markets where we sell to distributors. Net revenue decreased by approximately $2.6 million, or 43%, to approximately $3.5 million for the three months ended June 30, 2019, compared to $6.1 million for the three months ended March 31, 2019. The decrease was primarily attributable to the timing and size of our international distributor ordering patterns, which can vary materially from quarter to quarter. For example, net revenue for the three months ended June 30, 2019 was adversely affected by initial orders related to our expansion into Spain and France during the three months ended March 31, 2019.
Cost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $110,000, or 42%, to approximately $370,000 for the three months ended June 30, 2019, compared to approximately $260,000 for the three months ended June 30, 2018. The increase was primarily attributable to our increased international net revenue.
Research, development and medical affairs expenses
. Research, development and medical affairs expenses increased by approximately $150,000, or 16%, to approximately $1.1 million for the three months ended June 30, 2019, compared to approximately $950,000 for the three months ended June 30, 2018. The increase was primarily related to an increase of approximately $130,000 in personnel costs.
General and administrative expenses.
General and administrative expenses increased by approximately $230,000, or 32%, to approximately $950,000 for the three months ended June 30, 2019, compared to approximately $720,000 for the three months ended June 30, 2018. The increase was primarily attributable to an increase of approximately $240,000 in logistics costs, some of which are attributable to Brexit preparation.
Sales and marketing expenses
. Sales and marketing expenses increased by approximately $300,000, or 20%, to approximately $1.8 million for the three months ended June 30, 2019, compared to approximately $1.5 million for the three months ended June 30, 2018. The increase was primarily attributable to an increase of approximately $250,000 in marketing costs.
International Segment - six months ended June 30, 2019 compared to the six months ended June 30, 2018
Net revenue.
Net revenue increased by approximately $4.0 million, or 70%, to approximately $9.7 million for the six months ended June 30, 2019, compared to approximately $5.7 million for the six months ended June 30, 2018. The increase was primarily attributable to sales increases of $2.2 million in markets where we sell to distributors and $1.7 million in the markets in Europe where we sell direct. The increase was primarily attributable to the timing and size of our international distributor ordering patterns, which can vary materially from period to period. For example, net revenue for the six months ended June 30, 2019 was significantly higher due to initial orders related to our expansion into Spain and France during the three months ended March 31, 2019.
Cost of goods sold, excluding depreciation and amortization.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $650,000, or 100%, to approximately $1.3 million for the six months ended June 30, 2019, compared to approximately $650,000 for the six months ended June 30, 2018. The increase was primarily attributable to increased sales in both the markets where we sell direct and the markets where we sell to distributors.
Research, development and medical affairs expenses
. Research, development and medical affairs expenses increased by approximately $400,000, or 21%, to approximately $2.3 million for the six months ended June 30, 2019, compared to approximately $1.9 million for the six months ended June 30, 2018. The increase was primarily attributable to increases of approximately $260,000 in personnel costs and $100,000 in costs associated with our ongoing clinical studies.
General and administrative expenses.
General and administrative expenses increased by approximately $300,000, or 19%, to approximately $1.9 million for the six months ended June 30, 2019, compared to approximately $1.6 million for the six months ended June 30, 2018. The increase was primarily attributable to increases of approximately $260,000 in logistics costs and $120,000 in professional fees, some of which are attributable to Brexit preparation.
Sales and marketing expenses
. Sales and marketing expenses increased by approximately $700,000, or 25%, to approximately $3.5 million for the six months ended June 30, 2019, compared to approximately $2.8 million for the six months ended June 30, 2018. The increase was primarily attributable to increases of approximately $280,000 in personnel costs, $260,000 in marketing costs and $160,000 in market access costs.
Other Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(In thousands)
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
$
|
114
|
|
|
$
|
221
|
|
|
$
|
243
|
|
|
$
|
453
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
579
|
|
|
640
|
|
|
1,051
|
|
|
1,295
|
|
SALES AND MARKETING EXPENSES
|
112
|
|
|
291
|
|
|
279
|
|
|
610
|
|
DEPRECIATION AND AMORTIZATION
|
654
|
|
|
650
|
|
|
1,306
|
|
|
1,299
|
|
OPERATING EXPENSES
|
1,459
|
|
|
1,802
|
|
|
2,879
|
|
|
3,657
|
|
SEGMENT LOSS FROM OPERATIONS
|
$
|
(1,459
|
)
|
|
$
|
(1,802
|
)
|
|
$
|
(2,879
|
)
|
|
$
|
(3,657
|
)
|
Our chief operating decision maker manages and evaluates our U.S. and International segments based on net loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, these non-cash expenses included in research, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses are classified within the Other segment within our Interim Financial Statements.
Within the respective financial statement line items included in the Other segment, stock-based compensation expense, collectively, decreased by approximately $570,000, or 48%, to $630,000 for the three months ended June 30, 2019, compared to approximately $1.2 million for the three months ended June 30, 2018. Stock-based compensation expense, collectively, decreased by approximately $1.0 million, or 42%, to $1.4 million for the six months ended June 30, 2019, compared to approximately $2.4 million for the six months ended June 30, 2018.
Additionally, within general and administrative expenses for the three and six months ended June 30, 2019, we had an increase of approximately $175,000 of non-cash accrued severance expenses.
Depreciation and amortization was approximately $650,000 for both the three months ended June 30, 2019 and 2018, and approximately $1.3 million for both the six months ended June 30, 2019 and 2018.
Liquidity and Capital Resources
Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit of
$384.9 million
through
June 30, 2019
. We have funded our operations through the public and private placement of common stock, convertible preferred stock, warrants, the sale of certain assets of the non-prescription business in which we were previously engaged and certain debt facilities.
On January 5, 2018, we entered into the $40.0 million 2018 Loan Agreement with Solar Capital. Under this agreement, we borrowed the entire $40.0 million as a term loan that matures on July 1, 2022. We used the proceeds of the 2018 Loan Agreement to repay the Hercules Loan Agreement and pay related expenses. We used the remaining loan proceeds in 2018 to provide additional working capital for general corporate purposes. (See Note 11 of our notes to Interim Financial Statements.)
As of
June 30, 2019
, we had approximately
$12.2 million
in cash and cash equivalents. Due to the limited revenue generated by ILUVIEN to date, we may have to raise additional capital to fund the continued commercialization of ILUVIEN. If we are unable to raise additional financing, we will need to adjust our commercial plans so that we can continue to operate with our existing cash resources. The actual amount of funds that we will need will depend on many factors, some of which are beyond our control. We may need funds sooner than currently anticipated.
We cannot be sure that additional financing will be available when needed or that, if available, the additional financing would be obtained on terms favorable to us or our stockholders. If we were to raise additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result and the terms of any new equity securities may have a preference over our common stock. If we were to attempt to raise additional funds through strategic collaboration agreements we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under them. If we were to attempt to raise additional funds through debt financing, (a) the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to commercialize ILUVIEN or any future products or product candidates or operate our business; and (b) we would be required to obtain the permission or participation of Solar Capital, which we might not be able to obtain. Our capital raising efforts may be hindered by the fact that we are currently not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1), which could ultimately lead to our delisting from Nasdaq if we are unable to regain compliance. See Part II, Item 1A, Risk Factors. Our recurring losses and any potential needs to raise capital create substantial doubt about our ability to continue as a going concern for the next 12 months following the issuance of the financial statements.
For the six months ended June 30, 2019, cash used in our operations was approximately $680,000. The cash used in our operations was primarily due to our net loss of $7.8 million and an increase in prepaid expenses and other current assets of $960,000, offset by a $3.3 million decrease in accounts receivable, $1.4 million of non-cash stock-based compensation expense, $1.3 million for non-cash depreciation and amortization and a $930,000 net increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2019 was further offset by a $430,000 increase in other long-term liabilities, $420,000 for non-cash interest expense associated with the amortization of our debt discount and $260,000 of inventory.
For the six months ended June 30, 2018, cash used in our operations was $8.4 million. The cash used in our operations was primarily due to our net loss of $11.7 million, offset by $2.4 million of non-cash stock-based compensation expense, $1.8 million loss on our early extinguishment of debt, $1.3 million for non-cash depreciation and amortization, $420,000 for non-cash interest expense associated with the amortization of our debt discount and a $250,000 increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2018 was further affected by an increase in accounts receivable of $2.1 million and an increase of $650,000 of inventory.
For the six months ended June 30, 2019, net cash used in our investing activities was approximately $40,000.
For the six months ended June 30, 2018, net cash used in our investing activities was approximately $120,000, which was due to the purchase of property and equipment, primarily the purchase of additional software.
For the six months ended June 30, 2019, net cash used in our financing activities was approximately $140,000, which is primarily due to payments of
finance lease obligations.
For the six months ended June 30, 2018, net cash provided by our financing activities was approximately $1.2 million, which is primarily due to entering into the $40.0 million 2018 Loan Agreement with Solar Capital, offset by paying off the $35.0 million Hercules Loan Agreement and payment of related debt costs of $3.7 million.
Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 25, 2019.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
Impact of Recent Accounting Pronouncements
See Note 3 of our notes to Interim Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.