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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ________ to ________

Commission File Number 1-32302

 

ANTARES PHARMA, INC.

 

 

A Delaware Corporation

(State or Other Jurisdiction of Incorporation)

 

41-1350192

(I.R.S. Employer Identification No.)

 

100 Princeton South, Suite 300, Ewing, NJ

 

08628

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (609) 359-3020

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

ATRS

 

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non–accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

  

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.          

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of May 1, 2020, the registrant had 165,560,401 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


 

ANTARES PHARMA, INC.

INDEX

 

 

 

 

 

 

 

PAGE

 

 

 

 

 

 

 

PART I.

 

 

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited)

 

4

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019 (Unaudited)

 

5

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (Unaudited)

 

6

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)

 

7

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

 

 

 

 

Item 2.

 

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

 

15

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

22

 

 

 

 

 

 

 

PART II.

 

 

 

OTHER INFORMATION

 

23

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

23

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

23

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

 

 

 

 

 

 

 

 

 

Item 3.

 

Default Upon Senior Securities

 

24

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

24

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

24

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

25

 

 

 

 

 

 

 

 

 

 

 

SIGNATURES

 

26

 

 

 

2


 

PART I – FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

ANTARES PHARMA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,814

 

 

$

23,201

 

Short-term investments

 

 

16,503

 

 

 

22,520

 

Accounts receivable

 

 

31,412

 

 

 

35,074

 

Inventories

 

 

17,309

 

 

 

16,000

 

Contract assets

 

 

9,929

 

 

 

8,235

 

Prepaid expenses and other current assets

 

 

3,365

 

 

 

3,416

 

Total current assets

 

 

112,332

 

 

 

108,446

 

Equipment, molds, furniture and fixtures, net

 

 

16,223

 

 

 

15,961

 

Operating lease right-of-use assets

 

 

5,193

 

 

 

5,463

 

Goodwill

 

 

1,095

 

 

 

1,095

 

Intangibles, net

 

 

448

 

 

 

478

 

Other assets

 

 

1,513

 

 

 

1,308

 

Total Assets

 

$

136,804

 

 

$

132,751

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

18,184

 

 

$

12,905

 

Accrued expenses and other liabilities

 

 

15,743

 

 

 

16,523

 

Operating lease liabilities, current portion

 

 

1,286

 

 

 

1,249

 

Deferred revenue

 

 

2,048

 

 

 

1,738

 

Total current liabilities

 

 

37,261

 

 

 

32,415

 

Long-term debt

 

 

40,521

 

 

 

40,395

 

Operating lease liabilities, long-term

 

 

5,224

 

 

 

5,441

 

Total liabilities

 

 

83,006

 

 

 

78,251

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred Stock: $0.01 par; 3,000 shares authorized, none outstanding

 

 

 

 

 

 

Common Stock: $0.01 par; 300,000 shares authorized; 165,560 and

    165,221 issued and outstanding at March 31, 2020 and

   December 31, 2019, respectively

 

 

1,656

 

 

 

1,652

 

Additional paid-in capital

 

 

334,025

 

 

 

332,377

 

Accumulated deficit

 

 

(281,183

)

 

 

(278,827

)

Accumulated other comprehensive loss

 

 

(700

)

 

 

(702

)

 

 

 

53,798

 

 

 

54,500

 

Total Liabilities and Stockholders’ Equity

 

$

136,804

 

 

$

132,751

 

 

See accompanying notes to consolidated financial statements.

3


 

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Product sales

 

$

27,097

 

 

$

18,300

 

Licensing and development revenue

 

 

1,755

 

 

 

915

 

Royalties

 

 

4,227

 

 

 

4,071

 

Total revenue

 

 

33,079

 

 

 

23,286

 

Cost of revenue:

 

 

 

 

 

 

 

 

Cost of product sales

 

 

14,014

 

 

 

10,568

 

Cost of development revenue

 

 

1,033

 

 

 

378

 

Total cost of revenue

 

 

15,047

 

 

 

10,946

 

Gross profit

 

 

18,032

 

 

 

12,340

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

2,981

 

 

 

2,387

 

Selling, general and administrative

 

 

16,422

 

 

 

14,935

 

Total operating expenses

 

 

19,403

 

 

 

17,322

 

Operating loss

 

 

(1,371

)

 

 

(4,982

)

Interest expense

 

 

(1,061

)

 

 

(661

)

Other income

 

 

76

 

 

 

104

 

Net loss

 

$

(2,356

)

 

$

(5,539

)

Net loss per common share, basic and diluted

 

$

(0.01

)

 

$

(0.03

)

Weighted average common shares outstanding, basic and diluted

 

 

165,429

 

 

 

160,446

 

 

See accompanying notes to consolidated financial statements.

4


 

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(2,356

)

 

$

(5,539

)

Foreign currency translation adjustment

 

 

2

 

 

 

(3

)

Comprehensive loss

 

$

(2,354

)

 

$

(5,542

)

 

See accompanying notes to consolidated financial statements.

5


 

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Other

Comprehensive

Loss

 

 

Total

Stockholders’

Equity

 

December 31, 2019

 

 

165,221

 

 

$

1,652

 

 

$

332,377

 

 

$

(278,827

)

 

$

(702

)

 

$

54,500

 

Common stock issued under equity

   compensation plan, net of

   shares withheld for taxes

 

 

218

 

 

 

2

 

 

 

(599

)

 

 

 

 

 

 

 

 

(597

)

Exercise of options

 

 

121

 

 

 

2

 

 

 

269

 

 

 

 

 

 

 

 

 

271

 

Share-based compensation

 

 

 

 

 

 

 

 

1,978

 

 

 

 

 

 

 

 

 

1,978

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,356

)

 

 

 

 

 

(2,356

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

March 31, 2020

 

 

165,560

 

 

$

1,656

 

 

$

334,025

 

 

$

(281,183

)

 

$

(700

)

 

$

53,798

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Other

Comprehensive

Loss

 

 

Total

Stockholders’

Equity

 

December 31, 2018

 

 

159,721

 

 

$

1,597

 

 

$

314,907

 

 

$

(276,800

)

 

$

(703

)

 

$

39,001

 

Issuance of common stock

 

 

2,307

 

 

$

23

 

 

$

7,762

 

 

 

 

 

 

 

 

 

7,785

 

Common stock issued under equity

   compensation plan, net of

   shares withheld for taxes

 

 

288

 

 

 

3

 

 

 

(411

)

 

 

 

 

 

 

 

 

(408

)

Exercise of options

 

 

212

 

 

 

2

 

 

 

348

 

 

 

 

 

 

 

 

 

350

 

Share-based compensation

 

 

 

 

 

 

 

 

1,366

 

 

 

 

 

 

 

 

 

1,366

 

Cumulative effect of change in

   accounting principle

 

 

 

 

 

 

 

 

 

 

 

116

 

 

 

 

 

 

116

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,539

)

 

 

 

 

 

(5,539

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

March 31, 2019

 

 

162,528

 

 

$

1,625

 

 

$

323,972

 

 

$

(282,223

)

 

$

(706

)

 

$

42,668

 

 

 

 

See accompanying notes to consolidated financial statements.

6


 

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,356

)

 

$

(5,539

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,978

 

 

 

1,366

 

Depreciation and amortization

 

 

570

 

 

 

678

 

Other

 

 

144

 

 

 

67

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,663

 

 

 

(10,799

)

Inventories

 

 

(1,309

)

 

 

(2,028

)

Contract assets

 

 

(1,694

)

 

 

997

 

Prepaid expenses and other assets

 

 

(154

)

 

 

(1,364

)

Accounts payable

 

 

5,479

 

 

 

4,137

 

Accrued expenses and other liabilities

 

 

(1,051

)

 

 

(25

)

Deferred revenue

 

 

310

 

 

 

520

 

Net cash provided by (used in) operating activities

 

 

5,580

 

 

 

(11,990

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of equipment, molds, furniture and fixtures

 

 

(641

)

 

 

(391

)

Proceeds from maturities of investment securities

 

 

6,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

5,359

 

 

 

(391

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

 

 

 

7,785

 

Proceeds from exercise of stock options

 

 

271

 

 

 

350

 

Taxes paid related to net share settlement of equity awards

 

 

(597

)

 

 

(408

)

Net cash provided by (used in) financing activities

 

 

(326

)

 

 

7,727

 

Effect of exchange rate changes on cash

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

10,613

 

 

 

(4,654

)

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

23,201

 

 

 

27,892

 

End of period

 

$

33,814

 

 

$

23,238

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

935

 

 

$

594

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Purchases of equipment, molds, furniture and fixtures recorded in accounts payable

   and accrued expenses

 

$

1,131

 

 

$

399

 

 

See accompanying notes to consolidated financial statements.

 

 

7


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

 

 

1.

Description of Business

Antares Pharma, Inc. (“Antares,” “we,” “our,” “us” or the “Company”) is a pharmaceutical technology company focused primarily on the development and commercialization of self-administered parenteral pharmaceutical products and technologies.  We develop, manufacture and commercialize, for ourselves or with partners, novel therapeutic products using advanced drug delivery technology to enhance existing drug compounds and delivery methods. Our injection technology platforms include the VIBEX® and VIBEX® QuickShot® pressure-assisted auto injector systems suitable for branded and generic injectable drugs in unit dose containers and disposable multi-dose pen injectors. We have a portfolio of proprietary and partnered commercial products and ongoing product development programs in various stages of development. We have formed several significant strategic alliances with partners including Teva Pharmaceutical Industries, Ltd. (“Teva”), AMAG Pharmaceuticals, Inc. (“AMAG”), Pfizer Inc. (“Pfizer”) and Idorsia Pharmaceuticals Ltd (“Idorsia”).

The Company markets and sells in the U.S. its proprietary products XYOSTED® (testosterone enanthate) injection, which is indicated for testosterone replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone, and OTREXUP® (methotrexate) injection, which is indicated for adults with severe active rheumatoid arthritis, children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis.  

Through our commercialization partner Teva, we sell Sumatriptan Injection USP, indicated in the U.S. for the acute treatment of migraine and cluster headache in adults.  

In collaboration with AMAG, we developed a subcutaneous auto injector and are the exclusive supplier of devices and the final assembled and packaged commercial product of AMAG’s Makena® (hydroxyprogesterone caproate injection) subcutaneous auto injector, which is a ready-to-administer treatment indicated to reduce the risk of preterm birth in women pregnant with one baby and who spontaneously delivered at least one preterm baby in the past.

Through a license, development and supply agreement with Teva, Antares developed and is the exclusive supplier of the device for Teva’s Epinephrine Injection USP, which is indicated for emergency treatment of severe allergic reactions in adults and certain pediatric patients.

The Company is also developing two multi-dose pen injector products in collaboration with Teva, a combination drug device rescue pen in collaboration with Pfizer, a combination drug device product with Idorsia, and has other ongoing internal and partnered research and development programs.

 

 

2.

Basis of Presentation and Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.  Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Accounting Pronouncements Recently Adopted

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2018-15 Customers’ Accounting for Implementation Costs Incurred in Cloud Computing Arrangement that is a Service Contract, effective January 1, 2020. This ASU provides new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, entities apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The Company’s adoption of this standard did not have a material impact on its consolidated financial statements.

The Company adopted ASU No. 2018-18 Clarifying the Interaction Between Topic 808 and 606, effective January 1, 2020. The guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for under the revenue guidance, adds unit of account guidance to the collaborative arrangement guidance to align with the revenue standard, and clarifies presentation guidance for transactions with a collaborative arrangement participant that is not accounted for under

8


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

the revenue standard. The Company’s adoption of this standard did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables, and requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The original effective date for ASU 2016-13 was for annual and interim periods beginning after December 15, 2019.

However, in October 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses, Derivatives and Hedging, and Leases: Effective Dates, which deferred the effective date of ASU 2016-13 for certain entities, including those that are eligible to be smaller reporting companies. A company’s determination about whether it is eligible for the deferral is a one-time assessment as of November 15, 2019 based on its most recent determination of its small reporting company eligibility as of the last business day of the most recently completed second quarter. Based on this determination, the Company qualifies as a smaller reporting entity and is therefore eligible for the deferral of adoption of ASU 2016-13, resulting in a new effective date of January 1, 2023. The Company has historically had minimal credit losses on financial instruments and is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.

Investments

From time to time, the Company invests in U.S. Treasury bills and government agency notes that are classified as held-to-maturity because of the Company’s intent and ability to hold the securities to maturity. Investments with maturities of one year or less are classified as short-term.  The securities are carried at their amortized cost and the fair value is determined by quoted market prices.  The Company’s short-term investments had a carrying value of $16,503 and $22,520 as of March 31, 2020 and December 31, 2019, respectively, which approximated fair value.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Certain components of the Company’s products are provided by a limited number of vendors, and the Company’s production, assembly, warehousing and distribution operations are outsourced to third-parties where substantially all of the Company’s inventory is located.  Disruption of supply from key vendors or third-party suppliers may have a material adverse impact on the Company’s operations.  The Company provides a reserve for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales, which was $350, and $464 at March 31, 2020 and December 31, 2019, respectively.  Inventories consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Inventories:

 

 

 

 

 

 

 

 

Raw material

 

$

325

 

 

$

325

 

Work in process

 

 

8,383

 

 

 

8,390

 

Finished goods

 

 

8,601

 

 

 

7,285

 

 

 

$

17,309

 

 

$

16,000

 

Equipment, Molds, Furniture, and Fixtures

Equipment, molds, furniture, and fixtures are stated at cost, net of accumulated depreciation, and are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years. As of March 31, 2020 and December 31, 2019, the Company’s equipment, molds, furniture and fixtures totaled $16,223 and $15,961, respectively, which is presented net of accumulated depreciation of $10,309 and $9,769 as of March 31, 2020 and December 31, 2019, respectively.

9


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

Revenue Recognition

The Company generates revenue from proprietary and partnered product sales, license and development activities and royalty arrangements.  Revenue is recognized when or as the Company transfers control of the promised goods or services to its customers at the transaction price, which is the amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services.

At inception of each contract, the Company identifies the goods and services that have been promised to the customer and each of those that represent a distinct performance obligation, determines the transaction price including any variable consideration, allocates the transaction price to the distinct performance obligations and determines whether control transfers to the customer at a point in time or over time. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company reassesses its reserves for variable consideration at each reporting date and makes adjustments, if necessary, which may affect revenue and earnings in periods in which any such changes become known.

The Company has elected to recognize the cost for freight and shipping activities as fulfilment cost. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying goods are transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of revenue.

Proprietary Product Sales

The Company sells its proprietary products XYOSTED® and OTREXUP® primarily to wholesale and specialty distributors. Revenue is recognized when control has transferred to the customer, which is typically upon delivery, at the net selling price, which reflects the variable consideration for which reserves and sales allowances are established for estimated returns, wholesale distribution fees, prompt payment discounts, government rebates and chargebacks, plan rebate arrangements and patient discount and support programs.

The determination of certain of these reserves and sales allowances require management to make a number of judgements and estimates to reflect the Company’s best estimate of the transaction price and the amount of consideration to which it believes it is ultimately entitled to receive. The expected value is determined based on unit sales data, contractual terms with customers and third-party payers, historical and expected utilization rates, any new or anticipated changes in programs or regulations that would impact the amount of the actual rebates, customer purchasing patterns, product expiration dates and levels of inventory in the distribution channel. Reserves for prompt payment discounts are recorded as a reduction in accounts receivable. Reserves for returns, rebates and chargebacks, distributor fees and customer co-pay support programs are included within current liabilities in the consolidated balance sheets.

Partnered Product Sales

The Company is party to several license, development, supply and distribution arrangements with pharmaceutical partners, under which the Company produces and is the exclusive supplier of certain products, devices and/or components. Revenue is recognized when or as control of the goods transfers to the customer as follows:

The Company is the exclusive supplier of the Makena® subcutaneous auto injector product to AMAG. Because the product is custom manufactured for AMAG with no alternative use and the Company has a contractual right to payment for performance completed to date, control is continuously transferred to the customer as product is produced pursuant to firm purchase orders. Revenue is recognized over time using the output method based on the contractual selling price and number of units produced.  The amount of revenue recognized in excess of the amount shipped/billed to the customer, if any, is recorded as contract assets due to the short-term nature in which the amount is ultimately expected to be billed and collected from the customer.

All other partnered product sales are recognized at the point in time in which control is transferred to the customer, which is typically upon shipment. Sales terms and pricing are governed by the respective supply and distribution agreements, and there is generally no price protection or right of return. Revenue is recognized at the transaction price, which includes the contractual per unit selling price and estimated variable consideration, if any.  For example, the Company sells Sumatriptan Injection USP

10


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

to Teva at cost and is entitled to receive 50 percent of the net profits from commercial sales made by Teva, payable to the Company within 45 days after the end of the quarter in which the commercial sales are made. The Company recognizes revenue, including the estimated variable consideration it expects to receive for contract margin on future commercial sales, upon shipment of the goods to Teva.  The estimated variable consideration is recognized at an amount the Company believes is not subject to significant reversal based on historical experience, and is adjusted at each reporting period if the most likely amount of expected consideration changes or becomes fixed.

Licensing and Development Revenue

The Company has entered into several license, development and supply arrangements with pharmaceutical partners under which the Company grants a license to its device technology and know-how and provides research and development services that often involve multiple performance obligations and highly customized deliverables. For such arrangements, the Company identifies each of the promised goods and services within the contract and the distinct performance obligations at inception, and allocates consideration to each performance obligation based on relative standalone selling price, which is generally determined based on the expected cost plus margin.

If the contract includes an enforceable right to payment for performance completed to date and performance obligations are satisfied over time, the Company recognized revenue over the development period using either the input or output method depending on which is most appropriate given the nature of the distinct deliverable. For other contracts that do not contain an enforceable right to payment for performance completed to date, revenue is recognized when control is transferred to the customer. Factors that may indicate that the transfer of control has occurred include the transfer of legal title, transfer of physical possession, the customer has obtained the significant risks and rewards of ownership of the assets and the Company has a present right to payment.

The Company’s typical payment terms for development contracts may include an upfront payment equal to a percentage of the total contract value with the remaining portion to be billed upon completion and transfer of the individual deliverables or satisfaction of the individual performance obligations. The Company records a liability for cash received in advance of performance, which is presented within deferred revenue on the consolidated balance sheet and recognized as revenue when the associated performance obligations have been satisfied. The Company recognized $780 in licensing and development revenue in connection with contract liabilities that were outstanding as of December 31, 2019 and satisfied during the three months ended March 31, 2020.

License fees and milestones received in exchange for the grant of a license to the Company’s functional intellectual property such as patented technology and know-how in connection with a partnered development arrangement are generally recognized at inception of the arrangement, or over the development period depending on the facts and circumstances, as the license is not generally distinct from the non-licensed goods or services to be provided under the contract. Milestone payments that are contingent upon the occurrence of future events are evaluated and recorded at the most likely amount, and to the extent that it is probable that a significant reversal will not occur when the associated uncertainty is resolved.

Royalties

The Company earns royalties in connection with licenses granted under license and development arrangements with partners. Royalties are based upon a percentage of commercial sales of partnered products with rates ranging from mid-single digit to low double digit and are tiered based on levels of net sales. These sales-based royalties, for which the license was deemed the predominant element to which the royalties relate, are estimated and recognized in the period in which the partners’ commercial sales occur.  The royalties are generally reported and payable to the Company within 45 to 60 days of the end of the period in which the commercial sales are made.  The Company bases its estimates of royalties earned on actual sales information from its partners when available or estimated prescription sales from external sources and estimated net selling price. If actual royalties received are different than amounts estimated, the Company would adjust the royalty revenue in the period in which the adjustment becomes known.

Remaining Performance Obligations

Remaining performance obligations represents the allocation of transaction price of firm orders and development contract deliverables for which work has not been completed or orders fulfilled, and excludes potential purchase orders under ordering-type supply contracts with indefinite delivery or quantity.  As of March 31, 2020, the aggregate value of remaining performance obligations, excluding contracts with an original expected length of one year or less, was $25.2 million. The Company expects to recognize revenue on the remaining performance obligations over the next five years.

 

11


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

3.

Share-Based Compensation

The Company has an Equity Compensation Plan (the “Plan”), which allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards. The Company also has a long-term incentive program (“LTIP”), pursuant to which the Company’s senior executives have been awarded stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”).

The following is a summary of stock option activity under the Plan as of and for the three months ended March 31, 2020:   

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

Term (Years)

 

 

Value

 

Outstanding at December 31, 2019

 

 

13,861

 

 

$

2.41

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

121

 

 

 

2.23

 

 

 

 

 

 

 

 

 

Cancelled/Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

13,740

 

 

 

2.41

 

 

 

6.4

 

 

$

3,532

 

Exercisable at March 31, 2020

 

 

10,255

 

 

$

2.24

 

 

 

5.6

 

 

$

3,530

 

 

The following is a summary of PSU and RSU award activity under the Plan as of and for the three months ended March 31, 2020: 

 

 

 

Performance Stock Units

 

 

Restricted Stock Units

 

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value

 

Outstanding at December 31, 2019

 

 

1,841

 

 

$

3.00

 

 

 

1,401

 

 

$

2.82

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Incremental shares earned

 

 

77

 

 

 

 

 

 

 

 

 

 

Vested/settled

 

 

(388

)

 

 

3.11

 

 

 

 

 

 

 

Forfeited/expired

 

 

(351

)

 

 

3.13

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

1,179

 

 

$

3.01

 

 

 

1,401

 

 

$

2.82

 

 

The PSUs granted to senior executives under the LTIP are expressed as a target number of shares in the table above and may be earned based upon the Company’s achievement of certain corporate development goals, net revenue goals and total shareholder return (“TSR”) relative to the Nasdaq Biotechnology Index over the performance period, which is generally a three-year period. Depending on the outcome of the performance goals, a recipient may ultimately earn a number of shares greater or less than the target number of shares granted, ranging from 0% to 150%. The fair value of the TSR PSUs are expensed over the performance period and determined using a Monte Carlo simulation. The grant date fair value of PSUs that are not tied to market-based performance are expensed over the remaining performance period when it becomes probable that the related goal will be achieved.

 

The LTIP awards that vested during the three months ended March 31, 2020 and 2019 were net-share settled such that the Company withheld shares with a value equivalent to the employees’ tax obligations for applicable income and other employment taxes, and remitted cash to the appropriate taxing authorities. The Company withheld 170 and 127 shares during the three months ended March 31, 2020 and 2019, respectively, to satisfy tax obligations, which was determined based on the fair value of the shares on their vesting date equal to the Company’s closing stock price on such date. The Company paid $597 and $408 during the three months ended March 31, 2020 and 2019, respectively, to taxing authorities for the employees’ tax obligations, which is reflected as a cash outflow from financing activities within the consolidated statements of cash flows. Net-

12


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

share settlements have the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued as a result of the vesting.

 

In connection with Plan awards, the Company recognized share-based compensation expense for the three months ended March 31, 2020 and 2019 as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Stock options

 

$

882

 

 

$

908

 

Restricted stock units

 

 

557

 

 

 

331

 

Performance stock units

 

 

539

 

 

 

127

 

Total share-based compensation expense

 

$

1,978

 

 

$

1,366

 

 

 

4.

Revenues, Significant Customers and Concentrations of Risk

The following table presents the Company’s revenue on a disaggregated basis by types of goods and services and major product lines:

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Proprietary product sales

 

$

12,566

 

 

$

4,771

 

Partnered product sales

 

 

14,531

 

 

 

13,529

 

Total product revenue

 

 

27,097

 

 

 

18,300

 

Licensing and development revenue

 

 

1,755

 

 

 

915

 

Royalties

 

 

4,227

 

 

 

4,071

 

Total revenue

 

$

33,079

 

 

$

23,286

 

 

Revenues disaggregated by customer location are as follows: 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

United States of America

 

$

32,470

 

 

$

21,185

 

Europe

 

 

609

 

 

 

2,090

 

Other

 

 

 

 

 

11

 

 

 

$

33,079

 

 

$

23,286

 

 

The following table identifies customers from which the Company derived 10% or more of its total revenue in any of the periods presented:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Teva

 

42%

 

 

46%

 

AMAG

 

16%

 

 

20%

 

AmerisourceBergen Corporation

 

12%

 

 

<10%

 

McKesson Corporation

 

11%

 

 

<10%

 

Cardinal Health

 

10%

 

 

<10%

 

Ferring

 

<10%

 

 

13%

 

 

13


ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(UNAUDITED)

 

5.

Loss Per Share

Basic loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per common share reflects the potential dilution from the exercise or conversion of securities into common stock. The potentially dilutive stock options and other share-based awards excluded from the calculation of loss per share because their effect was anti-dilutive totaled 16,320 and 16,332 at March 31, 2020 and 2019, respectively.

 

 

6.

Commitments and Contingencies

Pending Litigation

From time to time, the Company may be involved in various legal matters generally incidental to its business. Although the results of litigation and claims cannot be predicted with certainty, after discussion with legal counsel, management is not aware of any matters for which the likelihood of a loss is probable and reasonably estimable and which could have a material impact on its consolidated financial condition, liquidity, or results of operations.

On October 23, 2017, Randy Smith filed a complaint in the District of New Jersey, captioned Randy Smith, Individually and on Behalf of All Others Similarly Situated v. Antares Pharma, Inc., Robert F. Apple and Fred M. Powell (“Smith”), Case No. 3:17-cv-08945-MAS-DEA, on behalf of a putative class of persons who purchased or otherwise acquired Antares securities between December 21, 2016 and October 12, 2017, inclusive, asserting claims for purported violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, against Antares, Robert F. Apple and Fred M. Powell.  The Smith complaint contends that defendants made false and/or misleading statements and/or failed to disclose that: (i) Antares had provided insufficient data to the FDA in connection with the NDA for XYOSTED®; and (ii) accordingly, Antares had overstated the approval prospects for XYOSTED®.  On July 27, 2018, the court entered an order appointing Serghei Lungu as lead plaintiff, Pomerantz LLP as lead counsel, and Lite DePalma Greenberg, LLC as liaison counsel for plaintiff.  On August 3, 2018, the parties submitted a stipulation and proposed order, setting forth an agreed-upon schedule for responding to the complaint, which the court granted. Pursuant to that order, plaintiff filed a Consolidated Amended Class Action Complaint on October 9, 2018. On November 26, 2018, defendants filed a motion to dismiss. Plaintiff filed an opposition to the motion on January 10, 2019 and defendants filed a reply in support of their motion on February 25, 2019. On July 2, 2019, the court dismissed the complaint in its entirety without prejudice. On July 29, 2019, plaintiff filed a Consolidated Second Amended Class Action Complaint against the same parties alleging substantially similar claims. On September 12, 2019, defendants filed a motion to dismiss the Consolidated Second Amended Class Action Complaint. Plaintiffs’ opposition was filed on October 28, 2019 and defendants’ reply in support of their motion was filed on November 27, 2019. On April 28, 2020, the court dismissed the Consolidated Second Amended Class Action Complaint in its entirety. The court further ordered that plaintiff may file an amended complaint by May 29, 2020 and provide the court with a form of the amended complaint that indicates in what respect(s) it differs from the complaint which it proposes to amend. The Company believes that the claims in the Smith action lack merit and intends to defend them vigorously.

On January 12, 2018, a stockholder of the Company filed a derivative civil action, captioned Chiru Mackert, derivatively on behalf of Antares Pharma, Inc., v. Robert F. Apple, et al., in the Superior Court of New Jersey Chancery Division, Mercer County (Case No. C-000011-18).  On January 17, 2018, another stockholder filed a derivative action in the same court, captioned Vikram Rao, Derivatively on Behalf of Antares Pharma, Inc. v. Robert F. Apple, et al. (Case No. C-000004-18). Both complaints name Robert F. Apple, Fred M. Powell, Thomas J. Garrity, Jacques Gonella, Anton Gueth, Leonard S. Jacob, Marvin Samson and Robert P. Roche, Jr. as defendants, and the Company as nominal defendant, and they assert claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets arising from the same facts underlying the Smith securities class action.  The plaintiffs seek damages, corporate governance and internal procedure reforms and improvements, restitution, reasonable attorneys’ fees, experts’ fees, costs, and expenses. The parties have filed a stipulation consolidating the two actions and staying the proceedings pending the court’s decision on defendants’ motion to dismiss the Smith action.

On January 17, 2018, a stockholder of the Company filed a derivative civil action, captioned Robert Clark, Derivatively on Behalf of Antares Pharma, Inc. v. Robert F. Apple, et al. (“Clark”) (Case No. 3:18-cv-00703-MAS-DEA), against Robert F. Apple, Thomas J. Garrity, Jacques Gonella, Leonard S. Jacob, Marvin Samson, Anton G. Gueth and Robert P. Roche, Jr. as defendants, and Company as a nominal defendant.  The action was filed in the U.S. District Court for the District of New Jersey and asserts claims for breach of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and a violation of Section 14(a) of the Securities Exchange Act of 1934.  This complaint relates to the same facts underlying the Smith securities class action and the other derivative actions.  The plaintiff in Clark seeks damages, corporate governance and internal procedure reforms and improvements, reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses.   The parties have filed a stipulation staying the action pending the court’s decision on defendants’ motion to dismiss the Smith action.

 

 

14


 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements in this report, including statements in the management’s discussion and analysis section set forth below, may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties.  Forward-looking statements can be identified by the words “expect,” “estimate,” “plan”, “project,” “anticipate,” “should,” “intend,” “may,” “will,” “believe,” “continue” or other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development. In particular, these forward-looking statements include, among others, statements about:

 

our expectations regarding the continued successful commercialization of XYOSTED® (testosterone enanthate) injection for testosterone replacement therapy, including the continued success of our marketing and reimbursement strategies, the continued growth in prescriptions and sales, and continued growth in revenues related thereto;

 

our expectations regarding continued sales of OTREXUP® (methotrexate) injection;

 

our expectations regarding continued sales of Sumatriptan Injection USP to our partner, Teva Pharmaceutical Industries, Ltd. (“Teva”), and Teva’s ability to successfully distribute and sell Sumatriptan Injection USP;

 

our expectations regarding AMAG Pharmaceuticals, Inc. (“AMAG”) ability to continue to successfully commercialize the Makena® subcutaneous auto injector, whether the FDA will pursue the withdrawal of approval for the Makena® subcutaneous auto injector following the October 2019 FDA advisory committee meeting, and continued future sales to AMAG and royalty revenue from the same;

 

our expectations regarding the ability of our partner, Teva, to continue to successfully commercialize the generic equivalent version of Mylan’s EpiPen® (“generic epinephrine injection”), and any future revenue related thereto;

 

our expectations regarding continued product development with Teva of the teriparatide disposable pen injector and exenatide disposable pen injector, and Teva’s ability to obtain FDA approval and AB-rating for each of those products;

 

our expectations about the development of a rescue pen for an undisclosed drug and our intention to enter into a separate supply agreement with Pfizer, Inc. (“Pfizer”) for the same;

 

our expectations about our development activities with Idorsia Pharmaceuticals Ltd (“Idorsia”), including the timing and results of the clinical bridging and Phase 3 clinical trial of the drug device combination product for Selatogrel, a new chemical entity (“NCE”) being developed for the treatment of a suspected acute myocardial infarction (“AMI”) in adult patients with a history of AMI, and the potential future FDA and global regulatory approval of the same;

 

our expectations about our research and development projects, including but not limited to ATRS-1901 and ATRS-1902, the timing and results of clinical trials, and our anticipated continued reliance on third parties in conducting studies, trials and other research and development activities;

 

our expectations about the timing and outcome of pending or potential claims and litigation, including without limitation, the pending securities class action and derivative actions;

 

our anticipated continued reliance on contract manufacturers to manufacture our products;

 

our anticipated continued reliance on third parties to provide certain services for our products including logistics, warehousing, distribution, invoicing, contract administration and chargeback processing;

 

our sales and marketing plans;

 

our expectation about our future revenues, including the 2020 revenue guidance, our cash flows and our ability to support our operations and achieve or maintain profitability;

 

our estimates and expectations regarding the sufficiency of our cash resources, anticipated capital requirements and our need for and ability to obtain additional financing;

 

our expectations and estimates with regard to current accounting practices and the potential impact of new accounting pronouncements and tax legislation;

 

our expectations about the COVID-19 pandemic and any potential disruption or impact to our operations or cash flows;

 

other statements regarding matters that are not historical facts or statements of current condition.

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These forward-looking statements are based on assumptions that we have made in light of our industry experience as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of performance results. Forward-looking statements involve known and unknown risks, uncertainties and assumptions, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.  While we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and projections of the future about which we cannot be certain.  Many factors may affect our ability to achieve our objectives, including:

 

delays in product introduction or unsuccessful marketing and commercialization efforts by us or our partners;

 

business interruptions and any financial or operational impact as a result of COVID-19;

 

interruptions in supply or an inability to adequately manage third party contract manufacturers to meet customer supply requirements;

 

our inability to obtain or maintain adequate third-party payer coverage of marketed products;

 

the timing and results of our or our partners’ research projects or clinical trials of product candidates in development including projects with Teva and Pfizer and Idorsia;

 

actions by the FDA or other regulatory agencies with respect to our products or product candidates of our partners;

 

our inability to generate or sustain continued growth in product sales and royalties;

 

the lack of market acceptance of our and our partners’ products and future revenues from these products;

 

a decrease in business from our major customers and partners;

 

our inability to compete successfully against new and existing competitors or to leverage our research and development capabilities or our marketing capabilities;