Notes to the Consolidated Financial Statements
(Unaudited)
Note 1. Business
Amicus Therapeutics, Inc. (the "Company") is a global patient-dedicated biotechnology company engaged in the discovery, development and commercialization of a diverse set of novel treatments for patients living with rare metabolic diseases. With one medicine for Fabry disease that has achieved widespread global approval, a differentiated biologic for Pompe disease in the clinic and the recent addition of fourteen new gene therapy programs into the pipeline, including two clinical stage gene therapies for Batten disease, the Company has a leading portfolio of therapies for lysosomal storage disorders ("LSDs").
The cornerstone of the Company's portfolio is Galafold
®
(also referred to as "migalastat"), the first and only approved oral precision medicine for people living with Fabry disease who have amenable genetic variants. Migalastat is currently approved under the trade name Galafold
®
in the United States ("U.S."), European Union ("EU") and Japan, with additional approvals granted and applications pending in several other geographies. During the third quarter of 2018, the Company initiated the commercial launch of Galafold
®
in the U.S. for the treatment of adult patients with a confirmed diagnosis of Fabry disease and an amenable genetic variant.
The lead biologics program of the Company's pipeline is Amicus Therapeutics GAA ("AT-GAA", also known as ATB200/AT2221), a novel, clinical-stage, potential best-in-class treatment paradigm for Pompe disease. In February 2019, the U.S. Food and Drug Administration ("FDA") granted Breakthrough Therapy Designation to AT-GAA for the treatment of late onset Pompe disease. The Company's Chaperone-Advanced Replacement Therapy ("CHART
®
") platform technology is leveraged to develop novel products for Pompe disease and potentially other LSDs in the future.
With
14
new gene therapy programs, the Company has established a leading portfolio of medicines for people living with rare metabolic disorders. Through a license with NCH and collaboration with Penn, the Company's pipeline includes gene therapy programs in rare, neurologic LSDs with lead programs in CLN6, CLN3, and CLN8 Batten disease, Pompe disease, Fabry disease, CDKL5 deficiency disorder ("CDD") and one additional undisclosed rare metabolic disorder.
The Company believes that its platform technologies and product pipeline uniquely positions it and drives its commitment to advancing and expanding a robust pipeline of cutting-edge, first- or best-in-class medicines for rare metabolic diseases.
During the first quarter of 2019, the Company entered into separate, privately negotiated exchange agreements with a limited number of holders (the "Holders") of the Convertible Notes. Under the terms of the exchange agreements, the Holders agreed to exchange an aggregate principal amount of approximately
$219.3 million
of Convertible Notes held by them in exchange for an aggregate of approximately
39.0 million
shares of the our common stock, par value
$0.01
per share.
The Company had an accumulated deficit of approximately
$1.5 billion
as of
March 31, 2019
and anticipates incurring losses through the fiscal year ending
December 31, 2019
and beyond. The Company has been able to fund its operating losses to date through stock offerings, debt issuances, payments from partners during the terms of the collaboration agreements, other financing arrangements.
The current cash position, including expected Galafold
®
revenues, is sufficient to fund ongoing Fabry, Pompe and gene therapy program operations into at least mid-2021. Potential future business development collaborations, pipeline expansion, and investment in manufacturing capabilities could impact the Company's future capital requirements.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's interim financial information
The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company's financial statements and related notes as contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
. For a complete description of the Company's accounting policies, please refer to the Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
.
Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Foreign Currency Transactions
The functional currency for most of the Company's foreign subsidiaries is their local currency. For non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of the financial statements of the Company's foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income, a separate component of stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified for comparative purposes. The reclassifications did not affect results of operations, net assets or cash flows.
Cash, Cash Equivalents, Marketable Securities and Restricted Cash
The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition, to be cash equivalents. Marketable securities consist of fixed income investments with a maturity of greater than three months and other highly liquid investments that can be readily purchased or sold using established markets. These investments are classified as available-for-sale and are reported at fair value on the Company's consolidated balance sheet. Unrealized holding gains and losses are reported within comprehensive income (loss) in the statements of comprehensive loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations or other observable inputs.
Restricted cash consists primarily of funds held to satisfy the requirements of certain agreements that are restricted in their use and is included in non-current assets on the Company's consolidated balance sheet.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains its cash and cash equivalents in bank accounts, which, at times, exceed federally insured limits. The Company invests its marketable securities in high-quality commercial financial instruments. The Company has not recognized any losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on cash and cash equivalents or its marketable securities.
The Company is subject to credit risk from its accounts receivable related to its product sales of Galafold
®
. The Company's accounts receivable at
March 31, 2019
have arisen from product sales primarily in the EU and U.S. The Company will periodically assess the financial strength of its customers to establish allowances for anticipated losses, if any. For accounts receivable that have arisen from named patient sales, the payment terms are predetermined and the Company evaluates the creditworthiness of each customer on a regular basis. During the three months ended
March 31, 2019
, the Company recorded an allowance for doubtful accounts of
$0.3 million
.
Revenue Recognition
The Company's net product sales consist of sales of Galafold
®
for the treatment of Fabry disease. The Company has recorded revenue on sales where Galafold
®
is available either on a commercial basis or through a reimbursed early access program ("EAP"). Orders for Galafold
®
are generally received from distributors and pharmacies with the ultimate payor often a government authority.
The Company recognizes revenue when its performance obligations to its customers have been satisfied, which occurs at a point in time when the pharmacies or distributors obtain control of Galafold
®
. The transaction price is determined based on fixed consideration in the Company's customer contracts and is recorded net of estimates for variable consideration, which are third party discounts and rebates. The identified variable consideration is recorded as a reduction of revenue at the time revenues from sales of Galafold
®
are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
The following table summarizes the Company's net product sales from Galafold
®
disaggregated by geographic area:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
2019
|
|
2018
|
U.S.
|
$
|
9,068
|
|
|
$
|
—
|
|
Ex-U.S.
|
24,978
|
|
|
16,696
|
|
Total net product sales
|
$
|
34,046
|
|
|
$
|
16,696
|
|
Inventories and Cost of Goods Sold
Inventories are stated at the lower of cost and net realizable value, determined by the first-in, first-out method. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on projected sales activity as well as product shelf-life. In evaluating the recoverability of inventories produced, the probability that revenue will be obtained from the future sale of the related inventory is considered and inventory value is written down for inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of goods sold in the consolidated statements of operations.
Cost of goods sold includes the cost of inventory sold, manufacturing and supply chain costs, product shipping and handling costs, provisions for excess and obsolete inventory, as well as royalties payable. A portion of the inventory available for sale was expensed as research and development costs prior to regulatory approval and as such the cost of goods sold and related gross margins are not necessarily indicative of future cost of goods sold and gross margin.
Leases
In the ordinary course of business, the Company enters into lease agreements for office space as well as leases for certain property and equipment. The leases have varying terms and expirations and have provisions to extend or renew the lease agreement, among other terms and conditions, as negotiated. The Company determines if an arrangement is a lease at inception. Operating and finance leases are included in right-of-use ("ROU") assets and lease liabilities on the Company's consolidated balance sheets.
ROU assets represent the Company's right to control the use of an explicitly or implicitly identified fixed asset for a period of time and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
Lease payments included in the measurement of the lease liability are comprised of fixed payments. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments are incurred. Variable lease payments are presented in the Company's consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases. The Company has lease agreements which include lease and non-lease components, which the Company accounts for as a single lease component for all underlying asset categories.
A lessee is required to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The lease term for all the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company applies this policy to all underlying asset categories.
The information presented for the periods prior to January 1, 2019 has not been restated and is reported under the accounting standard in effect for those periods. For additional information, see " —Note 9. Leases" and "—Note 2. Summary of Significant Accounting Policies, Recent Accounting Developments - Guidance Adopted in 2019."
Recent Accounting Developments - Guidance Adopted in 2019
ASU 2016-02 - In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet for all lease obligations and disclosing key information about leasing arrangements. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous generally accepted accounting principles. ASU 2016-02 will be effective for the Company for all annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. In August 2018, the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, ("ASU 2018-11"). ASU 2018-11 provide entities with an additional transition method for adoption, whereby, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Effective January 1, 2019 the Company adopted ASU 2016-02, along with the amendments issued in 2017 and 2018, and elected the transition method in ASU 2018-11. The Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to carry forward its historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs. In addition, the Company applied the short-term lease recognition exemption for leases with terms at inception not greater than 12 months and will apply the practical expedient not to separate lease and non-lease components for new and modified leases commencing after adoption. The information presented for the periods prior to January 1, 2019 has not been restated and is reported under the accounting standard in effect for those periods. Upon adoption, the Company recorded a lease liabilities with a corresponding right-of-use assets of
$17.6 million
. The adoption did not have a material impact on the consolidated results of operations and cash flows for the three-months ended March 31, 2019.
In August 2018, the Securities Exchange Commission ("SEC") issued Final Rule 33-10532,
Disclosure Update and Simplification
, which amends certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders' equity in interim periods. The rule is effective 30 days after its publication in the Federal Register. The rule was posted on October 4, 2018. On September 25, 2018, the SEC released guidance advising it will not object to a registrant adopting the requirement to include changes in stockholders' equity in the Form 10-Q for the first quarter beginning after the effective date of the rule. The Company adopted the guidance in this Form 10-Q for the period ended March 31, 2019.
Recent Accounting Developments - Guidance Not Yet Adopted
ASU 2018-13 — In August 2018, the FASB issued ASU 2018-03,
Fair Value Measurement (Topic 820):
Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
("ASU 2018-13"). The amendments modify the disclosure requirements in Topic 820. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently assessing the impact that this standard will have on its consolidated financial statements upon adoption.
ASU 2017-08 — In March 2017, the FASB issued ASU 2017-08,
Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities
("ASU 2017-08")
.
The amendments in ASU 2017-08 shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
ASU 2017-04 — In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
("ASU 2017-04"). To simplify the subsequent measurement of goodwill, ASU 2017-04 eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. A public business entity that is a U.S. SEC filer should adopt ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
ASU 2016-13 —
I
n June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
("ASU 2016-13"). ASU 2016-13 requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected and amends guidance on the impairment of financial instruments. ASU 2016-13 is effective for public companies who are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company expects to adopt this guidance when effective and is currently assessing the impact that this standard will have on its consolidated financial statements.
Note 3. Cash, Cash Equivalents, Marketable Securities and Restricted Cash
As of
March 31, 2019
, the Company held
$96.3 million
in cash and cash equivalents and
$342.0 million
of available-for-sale debt securities which are reported at fair value on the Company's consolidated balance sheets. Unrealized holding gains and losses are reported within accumulated other comprehensive loss in the statements of comprehensive loss. If a decline in the fair value of a marketable security below the Company's cost basis is determined to be other-than-temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge.
The Company regularly invests excess operating cash in deposits with major financial institutions, money market funds, notes issued by the U.S. government, as well as fixed income investments and U.S. bond funds, both of which can be readily purchased and sold using established markets. The Company believes that the market risk arising from its holdings of these financial instruments is mitigated as many of these securities are either government backed or of the highest credit rating. Investments that have original maturities greater than three months but less than one year are classified as current, while investments that have maturities greater than one year are classified as long-term.
Cash, cash equivalents and marketable securities are classified as current unless mentioned otherwise below and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
(in thousands)
|
Cost
|
|
Gross
unrealized
Gain
|
|
Gross
unrealized
Loss
|
|
Fair
Value
|
Cash and cash equivalents
|
$
|
96,349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,349
|
|
Corporate debt securities, current portion
|
138,194
|
|
|
96
|
|
|
(6
|
)
|
|
138,284
|
|
Commercial paper
|
134,948
|
|
|
52
|
|
|
(7
|
)
|
|
134,993
|
|
Asset-backed securities
|
68,278
|
|
|
30
|
|
|
(8
|
)
|
|
68,300
|
|
Money market
|
350
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Certificates of deposit
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
$
|
438,170
|
|
|
$
|
178
|
|
|
$
|
(21
|
)
|
|
$
|
438,327
|
|
Included in cash and cash equivalents
|
$
|
96,349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,349
|
|
Included in marketable securities, current and non-current
|
341,821
|
|
|
178
|
|
|
(21
|
)
|
|
341,978
|
|
Total cash, cash equivalents and marketable securities
|
$
|
438,170
|
|
|
$
|
178
|
|
|
$
|
(21
|
)
|
|
$
|
438,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
(in thousands)
|
Cost
|
|
Gross
unrealized
Gain
|
|
Gross
unrealized
Loss
|
|
Fair
Value
|
Cash and cash equivalents
|
$
|
79,749
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79,749
|
|
Corporate debt securities, current portion
|
240,969
|
|
|
7
|
|
|
(250
|
)
|
|
240,726
|
|
Commercial paper
|
115,245
|
|
|
—
|
|
|
(104
|
)
|
|
115,141
|
|
Asset-backed securities
|
68,215
|
|
|
4
|
|
|
(84
|
)
|
|
68,135
|
|
Money market
|
350
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Certificates of deposit
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
$
|
504,579
|
|
|
$
|
11
|
|
|
$
|
(438
|
)
|
|
$
|
504,152
|
|
Included in cash and cash equivalents
|
$
|
79,749
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79,749
|
|
Included in marketable securities
|
424,830
|
|
|
11
|
|
|
(438
|
)
|
|
424,403
|
|
Total cash, cash equivalents and marketable securities
|
$
|
504,579
|
|
|
$
|
11
|
|
|
$
|
(438
|
)
|
|
$
|
504,152
|
|
For the
three
months ended
March 31, 2019
there were
no
realized gains. For the fiscal year ended
December 31, 2018
, there were
no
minal realized gains. The cost of securities sold is based on the specific identification method.
Unrealized loss positions in the available-for-sale debt securities as of
March 31, 2019
and
December 31, 2018
reflect temporary impairments that have been in a loss position for less than twelve months and as such are recognized in other comprehensive gain (loss). The fair value of these available-for-sale debt securities in unrealized loss positions was
$100.4 million
and
$403.1 million
as of
March 31, 2019
and
December 31, 2018
, respectively.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the Company's consolidated statements of cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2019
|
|
December 31, 2018
|
|
March 31, 2018
|
|
December 31, 2017
|
Cash and cash equivalents
|
$
|
96,349
|
|
|
$
|
79,749
|
|
|
$
|
114,322
|
|
|
$
|
49,060
|
|
Restricted cash
|
2,579
|
|
|
2,626
|
|
|
2,230
|
|
|
2,177
|
|
Cash and cash equivalents and restricted cash shown in the statement of cash flows
|
$
|
98,928
|
|
|
$
|
82,375
|
|
|
$
|
116,552
|
|
|
$
|
51,237
|
|
Note 4. Inventories
Inventories consist of raw materials, work-in-process and finished goods related to the manufacture of Galafold
®
. The following table summarizes the components of inventories:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2019
|
|
December 31, 2018
|
Raw materials
|
|
$
|
1,321
|
|
|
$
|
1,291
|
|
Work-in-process
|
|
$
|
3,041
|
|
|
3,485
|
|
Finished goods
|
|
3,805
|
|
|
3,614
|
|
Total inventories
|
|
$
|
8,167
|
|
|
$
|
8,390
|
|
The Company recorded a reserve for inventory of
$0.2 million
as of March 31, 2019 and December 31, 2018.
Note 5. Debt
Senior Secured Term Loan due 2023
In September 2018, the Company entered into a loan agreement with BioPharma Credit PLC as the lender. The loan agreement provides for a
$150 million
senior secured term loan ("Senior Secured Term Loan") with an interest rate equal to the 3-month LIBOR plus
7.50%
per annum and matures
5 years
from the maturity date. The Senior Secured Term Loan will be repaid in four quarterly payments equal to
12.50%
thereof starting on the forty-eight month anniversary of the date of the first credit extension with the balance due on the Maturity Date. Interest is payable quarterly in arrears. The Senior Secured Term Loan contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to the Company and certain of its subsidiaries, but does not include any financial covenants relating to the achievement or maintenance of revenue or cash flow. If an event of default occurs and is continuing, the lender may declare all amounts outstanding under the Senior Secured Term Loan to be immediately due and payable. The Company received net proceeds of
$146.6 million
in September 2018, after deducting fees and estimated expenses payable by the Company
.
Convertible Notes due 2023
In December 2016, the Company issued at par value
$250 million
aggregate principal amount of unsecured Convertible Senior Notes due 2023 (the "Convertible Notes"), which included the exercise in full of the
$25 million
over-allotment option granted to the initial purchasers of the Convertible Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act (the "Note Offering"). Interest is payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2017. The Convertible Notes will mature on December 15, 2023, unless earlier repurchased, redeemed, or converted in accordance with their terms. The Convertible Notes are convertible at the option of the holders, under certain circumstances and during certain periods, into cash, shares of the Company's common stock or a combination thereof. The net proceeds from the Note Offering were
$243.0 million
, after deducting fees and estimated expenses payable by the Company. In addition, the Company used approximately
$13.5 million
of the net proceeds from the issuance of the Convertible Notes to pay the cost of the capped call transactions ("Capped Call Confirmations") that the Company entered into in connection with the issuance of the Convertible Notes. In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components based on their relative values. The Convertible Notes are initially convertible into approximately
40,849,675
shares of the Company's common stock under certain circumstances prior to maturity at a conversion rate of
163.3987
shares per
$1,000
principal amount of Convertible Notes, which represents a conversion price of approximately
$6.12
per share of the Company's common stock, subject to adjustment under certain conditions. The last reported sale price of the Company's common stock was equal to or more than
130%
of the conversion price of the Convertible Notes for at least
20
trading days of the
30
consecutive trading days ending on the last day of the second quarter. As a result, the Convertible Notes are currently convertible into the Company's common stock.
On February 15, 2018, the Company entered into an underwriting agreement relating to an underwritten public offering of
19,354,839
shares of the Company's common stock. Under the terms of the underwriting agreement, the Company granted the underwriters an option, exercisable for
30
days after February 16, 2018, to purchase up to an additional
2,903,225
shares of the Company's common stock, which was exercised with respect to
885,000
shares of the Company's common stock.
Subsequent to the underwritten public offering on February 15, 2018, the Company did not have sufficient unissued authorized shares to cover a conversion of the Convertible Notes. As a result, the Company accounted for the portion of the bifurcated conversion feature and of the Capped Call Confirmations that would not be able to be net share settled as a current derivative liability and as a derivative asset, respectively. The fair value of the derivative liability for the conversion feature and derivative asset for the Capped Call Confirmations at February 15, 2018 was determined to be
$507.4 million
and
$13.6 million
, respectively, of which the portion that was determined to not be able to be net share settled was recorded with a corresponding impact to additional-paid-in-capital. Subsequent changes to fair value of the derivatives were recorded through earnings on the Company's consolidated statements of operations resulting in a change in fair value of derivatives for the three months ended March 31, 2018 of
$4.9 million
. As of March 31, 2018, the Company recorded the fair value of the derivative liability of
$80.6 million
as a current liability and the fair value of the Capped Call Confirmation of
$2.2 million
as a current asset within Other Current Assets on the consolidated balance sheets.
During the first quarter of 2019, the Company entered into separate, privately negotiated exchange agreements with a limited number of holders (the "Holders") of the Convertible Notes. Under the terms of the exchange agreements (the "Exchange Agreements"), the Holders agreed to exchange an aggregate principal amount of approximately
$219.3 million
of Convertible Notes held by them in exchange for an aggregate of approximately
39.0 million
shares of the our common stock, par value
$0.01
per share. In addition, pursuant to the Exchange Agreements, the Company made aggregate cash payments of approximately
$1.0 million
to the Holders to satisfy accrued and unpaid interest to the closing date of the transaction, along with cash in lieu of fractional shares. As a result of this exchange, the Company recognized a loss on exchange of debt of
$36.1 million
in the consolidated statement of operations, and
$190.4 million
in additional paid-in-capital and common stock of $
0.4 million
in the consolidated balance sheets for the three months ended March 31, 2019.
During the first quarter of 2019, the Company also terminated the proportion of the Capped Call Confirmations related to the exchange of the Convertible Notes during the first quarter of 2019 for proceeds of approximately
$14.6 million
.
The Convertible Notes and Senior Secured Term Loan consist of the following:
|
|
|
|
|
|
|
|
|
|
Liability component (in thousands)
|
|
March 31, 2019
|
|
December 31, 2018
|
Principal
|
|
180,702
|
|
|
$
|
400,000
|
|
Less: debt discount (1)
|
|
(11,076
|
)
|
|
(74,145
|
)
|
Less: deferred financing (1)
|
|
(808
|
)
|
|
(4,115
|
)
|
Net carrying value of the debt
|
|
$
|
168,818
|
|
|
$
|
321,740
|
|
______________________________________
(1) Included in the consolidated balance sheets within Convertible Notes and Senior Secured Term Loan and amortized to interest expense over the remaining life of the Convertible Notes and Senior Secured Term Loan using the effective interest rate method.
The following table sets forth total interest expense recognized related to the Convertible Notes and Senior Secured Term Loan for the
three
months ended
March 31, 2019
and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Interest component (in thousands)
|
|
2019
|
|
2018
|
Contractual interest expense
|
|
4,813
|
|
|
$
|
1,887
|
|
Amortization of debt discount
|
|
1,559
|
|
|
2,472
|
|
Amortization of deferred financing
|
|
83
|
|
|
129
|
|
Total
|
|
$
|
6,455
|
|
|
$
|
4,488
|
|
Note 6. Stockholders' Equity
During the three months ended March 31, 2019,
101,787
warrants were exercised at
$7.98
per share of common stock resulting in gross cash proceeds of
$0.8 million
.
As discussed in ''— Note 5. Debt'' during the first quarter of 2019, the Company entered into separate, privately negotiated exchange agreements with a limited number of holders (the "Holders") of the Convertible Notes. Under the terms of the exchange agreements (the "Exchange Agreements"), the Holders agreed to exchange an aggregate principal amount of approximately
$219.3 million
of Convertible Notes held by them in exchange for an aggregate of approximately
39.0 million
shares of the our common stock, par value
$0.01
per share.
As further discussed in "— Note 8. Assets and Liabilities Measured at Fair Value," the Company reached a clinical milestone, which was the dosing of the first patient in a Phase 3 study, related to the contingent consideration from the acquisition of Callidus. The milestone for this event was
$9.0 million
which was paid in Company stock during the three months ended March 31, 2019, resulting in
$9.3 million
impact on stockholder's equity.
Note 7. Share based Compensation
The Company's Equity Incentive Plans consist of the Amended and Restated 2007 Equity Incentive Plan (the "Plan") and the 2007 Director Option Plan (the "2007 Director Plan"). The Plan provides for the granting of restricted stock units and options to purchase common stock in the Company to employees, directors, advisors and consultants at a price to be determined by the Company's Board of Directors. The Plan is intended to encourage ownership of stock by employees and consultants of the Company and to provide additional incentives for them to promote the success of the Company's business. The 2007 Director Plan is intended to promote the recruiting and retention of highly qualified eligible directors and strengthen the commonality of interest between directors and stockholders by encouraging ownership of common stock of the Company. The Board of Directors, or its committee, is responsible for determining the individuals to be granted options, the number of options each individual will receive, the option price per share, and the exercise period of each option.
Stock Option Grants
The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Expected stock price volatility
|
74.2
|
%
|
|
81.2
|
%
|
Risk free interest rate
|
2.5
|
%
|
|
2.3
|
%
|
Expected life of options (years)
|
5.68
|
|
|
5.67
|
|
Expected annual dividend per share
|
$
|
—
|
|
|
$
|
—
|
|
The average expected life is determined using our actual historical data.
A summary of the Company's stock options for the
three
months ended
March 31, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
(in thousands)
|
|
|
|
|
|
(in millions)
|
Options outstanding, December 31, 2018
|
15,810
|
|
|
$
|
8.63
|
|
|
|
|
|
|
Granted
|
3,315
|
|
|
$
|
10.15
|
|
|
|
|
|
|
Exercised
|
(578
|
)
|
|
$
|
6.83
|
|
|
|
|
|
|
Forfeited
|
(195
|
)
|
|
$
|
10.33
|
|
|
|
|
|
|
Expired
|
(21
|
)
|
|
$
|
10.77
|
|
|
|
|
|
Options outstanding, March 31, 2019
|
18,331
|
|
|
$
|
8.94
|
|
|
6.9 years
|
|
$
|
90.2
|
|
Vested and unvested expected to vest, March 31, 2019
|
17,325
|
|
|
$
|
8.84
|
|
|
6.8 years
|
|
$
|
87.1
|
|
Exercisable at March 31, 2019
|
10,538
|
|
|
$
|
7.84
|
|
|
5.5 years
|
|
$
|
62.8
|
|
As of
March 31, 2019
, the total unrecognized compensation cost related to non-vested stock options granted was
$44.1 million
and is expected to be recognized over a weighted average period of
three
years.
Restricted Stock Units
and Performance-Based Restricted Stock Units (collectively "RSUs")
RSUs awarded under the Plan are generally subject to graded vesting and are contingent on an employee's continued service. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. A summary of non-vested RSU activity under the Plan for the
three
months ended
March 31, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted
Average Grant Date
Fair Value
|
|
Weighted Average
Remaining Years
|
|
Aggregate Intrinsic
Value
|
|
(in thousands)
|
|
|
|
|
|
(in millions)
|
Non-vested units as of December 31, 2018
|
3,712
|
|
|
$
|
10.59
|
|
|
|
|
|
|
Granted
|
3,031
|
|
|
$
|
10.91
|
|
|
|
|
|
|
Vested
|
(600
|
)
|
|
$
|
9.07
|
|
|
|
|
|
|
Forfeited
|
(133
|
)
|
|
$
|
12.73
|
|
|
|
|
|
|
Non-vested units as of March 31, 2019
|
6,010
|
|
|
$
|
10.86
|
|
|
3.0 years
|
|
$
|
81.7
|
|
For the
three
months ended
March 31, 2019
,
599,734
RSUs have vested and all non-vested units are expected to vest over their normal term. As of
March 31, 2019
, there was
$48.2 million
of total unrecognized compensation cost related to unvested RSUs with service-based vesting conditions. These costs are expected to be recognized over a weighted average period of
three
years.
Compensation Expense Related to Equity Awards
The following table summarizes information related to compensation expense recognized in the statements of operations related to the equity awards:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Equity compensation expense recognized in:
|
|
|
|
|
|
|
Research and development expense
|
|
$
|
5,032
|
|
|
$
|
3,057
|
|
Selling, general and administrative expense
|
|
7,712
|
|
|
4,421
|
|
Total equity compensation expense
|
|
$
|
12,744
|
|
|
$
|
7,478
|
|
Note 8. Assets and Liabilities Measured at Fair Value
The Company's financial assets and liabilities are measured at fair value and classified within the fair value hierarchy, which is defined as follows:
Level 1
— Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2
— Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3
— Inputs that are unobservable for the asset or liability.
A summary of the fair value of the Company's recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of
March 31, 2019
are identified in the following table:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
134,993
|
|
|
$
|
134,993
|
|
Asset-backed securities
|
|
68,300
|
|
|
68,300
|
|
Corporate debt securities
|
|
138,284
|
|
|
138,284
|
|
Money market funds
|
|
3,963
|
|
|
3,963
|
|
|
|
$
|
345,540
|
|
|
$
|
345,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent consideration payable
|
|
$
|
—
|
|
|
$
|
20,767
|
|
|
$
|
20,767
|
|
Deferred compensation plan liability
|
|
3,613
|
|
|
—
|
|
|
3,613
|
|
|
|
$
|
3,613
|
|
|
$
|
20,767
|
|
|
$
|
24,380
|
|
A summary of the fair value of the Company's recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of
December 31, 2018
are identified in the following table:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
Commercial paper
|
$
|
115,141
|
|
|
$
|
115,141
|
|
Asset-backed securities
|
68,135
|
|
|
68,135
|
|
Corporate debt securities
|
240,726
|
|
|
240,726
|
|
Money market funds
|
3,082
|
|
|
3,082
|
|
|
$
|
427,084
|
|
|
$
|
427,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration payable
|
$
|
—
|
|
|
$
|
19,700
|
|
|
$
|
19,700
|
|
Deferred compensation plan liability
|
2,732
|
|
|
—
|
|
|
2,732
|
|
|
$
|
2,732
|
|
|
$
|
19,700
|
|
|
$
|
22,432
|
|
The Company's Convertible Notes fall into the Level 2 category within the fair value level hierarchy. The fair value was determined using broker quotes in a non-active market for valuation. The fair value of the debt at
March 31, 2019
was approximately
$71.6 million
.
The Company's Senior Secured Term Loan fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals. The carrying value of the Senior Secured Term Loan approximates the fair value.
The Company did not have any Level 3 assets as of
March 31, 2019
or
December 31, 2018
.
Cash, Money Market Funds and Marketable Securities
The Company classifies its cash within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in an active market for identical assets at the measurement date. The Company considers its investments in marketable securities as available for sale debt securities and classifies these assets and the money market funds within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities.
No
changes in valuation techniques or inputs occurred during the
three
months ended
March 31, 2019
.
No
transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the
three
months ended
March 31, 2019
.
Contingent Consideration Payable
The contingent consideration payable resulted from the acquisition of Callidus Biopharma, Inc. ("Callidus") in November 2013. The most recent valuation was determined using a probability weighted discounted cash flow valuation approach. Using this approach, expected future cash flows are calculated over the expected life of the agreement, are discounted, and then exercise scenario probabilities are applied. The valuation is performed quarterly. Gains and losses are included in the statement of operations.
The contingent consideration payable for Callidus has been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, the estimated fair value could be significantly higher or lower than the fair value the Company determined. The Company may be required to record losses in future periods.
The following significant unobservable inputs were used in the valuation of the contingent consideration payable of Callidus for the ATB200 Pompe program:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
Liability
|
|
Fair Value as of
March 31, 2019
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
10.3%
|
|
|
|
|
|
|
|
|
|
|
Clinical and regulatory milestones
|
|
$
|
20,538
|
|
|
Probability weighted discounted cash flow
|
|
Probability of achievement of milestones
|
|
75%-78%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected year of payments
|
|
2021-2022
|
Contingent consideration liabilities are remeasured to fair value each reporting period using discount rates, probabilities of payment and projected payment dates. Projected contingent payment amounts related to clinical and regulatory based milestones are discounted back to the current period using a discounted cash flow model. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs together, or in isolation, may result in a significantly lower or higher fair value measurement. There is no assurance that any of the conditions for the milestone payments will be met.
The Company reached a clinical milestone, which was the dosing of the first patient in a Phase 3 study, related to the contingent consideration from the acquisition of Callidus. The milestone for this event was
$9.0 million
which was paid in Company stock during the three months ended March 31, 2019, resulting in
$9.3 million
impact on stockholder's equity.
The following table shows the change in the balance of contingent consideration payable for the
three
months ended
March 31, 2019
and
2018
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Balance, beginning of the period
|
|
$
|
28,700
|
|
|
$
|
25,400
|
|
Payment of contingent consideration in stock
|
|
(9,316
|
)
|
|
—
|
|
Changes in fair value during the period, included in Statement of Operations
|
|
1,383
|
|
|
1,100
|
|
Balance, end of the period
|
|
$
|
20,767
|
|
|
$
|
26,500
|
|
Deferred Compensation Plan - Investment and Liability
The Deferred Compensation Plan (the "Deferral Plan") provides certain key employees and members of the Board of Directors with an opportunity to defer the receipt of such participant's base salary, bonus and director's fees, as applicable. Deferral Plan assets are classified as trading securities and recorded at fair value with changes in the investment's fair value recognized in the period they occur. The asset investments consist of market exchanged mutual funds. The Company considers its investments in marketable securities as available-for-sale and classifies these assets and related liability within the fair value hierarchy as Level 2, primarily utilizing broker quotes in a non-active market for valuation of these securities.
Derivative asset and liability
As of March 31, 2018, as further discussed in "— Note 5. Debt," the Company did not have sufficient unissued authorized shares to cover a conversion of the Convertible Notes. As a result, the Company accounted for the portion of the bifurcated conversion feature and the Capped Call Confirmations that would not be able to be net share settled as a current derivative liability and as a current derivative asset, respectively. The fair value of the debt portion was determined using the discounted cash flow method of the income approach and the fair value of the Capped Call Confirmations was determined using the Black-Scholes model. The derivative asset and liability have been classified as Level 3 recurring as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, the estimated fair value could be significantly higher or lower that the fair value determined by the Company.
Note 9. Leases
The Company currently has operating and finance leases for office and research laboratory space, equipment and vehicles under agreements expiring at various dates through 2044. Certain of the Company's leases contain renewal options to extend the lease for up to
25
years.
For the three months ended March 31, 2019, lease expense was
$2.1 million
and
$0.1 million
for operating and finance leases, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was
$1.4 million
for the three months ended March 31, 2019. For the three months ended March 31, 2019, the Company recorded
$19.5 million
of right-of-use assets obtained in exchange for new operating lease liabilities.
Commitments under finance leases are not significant.
Supplemental balance sheet information related to operating leases was as follows.
|
|
|
|
|
|
(in thousands, except year and discount rate amounts)
|
|
March 31, 2019
|
Operating lease ROU asset
|
|
$
|
36,208
|
|
|
|
|
Current portion of the operating lease liabilities
|
|
$
|
2,421
|
|
Non-current portion of the operating lease liabilities
|
|
35,991
|
|
Total operating lease liability
|
|
$
|
38,412
|
|
|
|
|
Weighted-average remaining lease terms (years)
|
|
14.6
|
|
Weighted-average discount rate
|
|
12.8
|
%
|
At
March 31, 2019
, the future minimum lease payments were as follows:
|
|
|
|
|
|
( in thousands)
|
|
Operating Leases
|
2019 (excludes the three months ended March 31, 2019)
|
|
$
|
4,494
|
|
2020
|
|
9,776
|
|
2021
|
|
10,516
|
|
2022
|
|
10,418
|
|
2023
|
|
10,830
|
|
Thereafter
|
|
174,006
|
|
Total lease payments
|
|
$
|
220,040
|
|
Less lease incentives
|
|
(28,939
|
)
|
Less imputed interest
|
|
(152,689
|
)
|
Total operating lease liability
|
|
$
|
38,412
|
|
At
December 31, 2018
, the future minimum lease payments were as follows:
|
|
|
|
|
|
( in thousands)
|
|
Operating Leases
|
2019
|
|
$
|
6,244
|
|
2020
|
|
4,063
|
|
2021
|
|
3,560
|
|
2022
|
|
3,371
|
|
2023
|
|
3,611
|
|
Thereafter
|
|
10,038
|
|
Total lease payments
|
|
$
|
30,887
|
|
Note 10. Basic and Diluted Net Loss per Common Share
The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss attributable to common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands, except per share amounts)
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(120,299
|
)
|
|
$
|
(49,916
|
)
|
Denominator:
|
|
|
|
|
Weighted average common shares outstanding — basic and diluted
|
|
213,519,287
|
|
|
175,977,700
|
|
Dilutive common stock equivalents would include the dilutive effect of common stock options, convertible debt units, RSUs and warrants for common stock equivalents. Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periods because of their anti-dilutive effect.
The table below presents potential shares of common stock that were excluded from the computation as they were anti-dilutive using the treasury stock method:
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Options to purchase common stock
|
|
18,331
|
|
|
16,176
|
|
Convertible notes
|
|
5,017
|
|
|
40,850
|
|
Outstanding warrants, convertible to common stock
|
|
2,554
|
|
|
3,110
|
|
Unvested restricted stock units
|
|
6,010
|
|
|
3,541
|
|
Vested restricted stock units, unissued
|
|
189
|
|
|
90
|
|
Total number of potentially issuable shares
|
|
32,101
|
|
|
63,767
|
|