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 submit and post such reports), and (2) has been subject
to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 S-T (§232.405 of this charter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files): Yes
þ
No
o
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:
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
þ
Indicate the number of shares outstanding of
each of the issuer’s classes of common stock, as of the latest practical date:
Common Stock, $0.01 par value Shares outstanding
as of August 13, 2018: 21,033,528
Unless otherwise indicated or the context otherwise
requires, references to the “Company”, “we”, “us” and “our” refer to Acura
Pharmaceuticals Inc. and its subsidiary. The Acura logo is our trademark and Acura Pharmaceuticals is our registered
trademark. All other trade names, trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property
of their respective owners. We have assumed that the reader understands that all such terms are source-indicating. Accordingly,
such terms, when first mentioned in this Quarterly Report on Form 10-Q, appear with the trade name, trademark or service mark
notice and then throughout the remainder of this Quarterly Report on Form 10-Q without the trade name, trademark or service
mark notices for convenience only and should not be construed as being used in a descriptive or generic sense.
Item 1. Financial Statements
ACURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands except par value)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
568
|
|
|
$
|
2,220
|
|
Royalty receivable
|
|
|
94
|
|
|
|
71
|
|
Prepaid expenses and other current assets
|
|
|
154
|
|
|
|
275
|
|
Refundable deposits
|
|
|
100
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
916
|
|
|
|
2,566
|
|
Income tax receivable
|
|
|
135
|
|
|
|
135
|
|
Property, plant and equipment, net (Note 6)
|
|
|
641
|
|
|
|
679
|
|
Intangible asset, (net of accumulated amortization of $879 and $776) (Note 3)
|
|
|
1,121
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,813
|
|
|
$
|
4,604
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
662
|
|
|
$
|
3
|
|
Accrued expenses (Note 7)
|
|
|
795
|
|
|
|
939
|
|
Accrued interest
|
|
|
767
|
|
|
|
700
|
|
Other current liabilities
|
|
|
19
|
|
|
|
41
|
|
Sales returns liability
|
|
|
254
|
|
|
|
254
|
|
Debt, (net of discounts) (Note 8)
|
|
|
1,505
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,002
|
|
|
|
4,631
|
|
Accrued interest
|
|
|
8
|
|
|
|
-
|
|
Notes payable – related party, (net of discounts)
|
|
|
1,429
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,439
|
|
|
|
4,631
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Common stock - $.01 par value per share; 100,000 shares authorized, 21,034 and 20,796 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
|
|
|
210
|
|
|
|
208
|
|
Additional paid-in capital
|
|
|
380,299
|
|
|
|
380,145
|
|
Accumulated deficit
|
|
|
(383,135
|
)
|
|
|
(380,380
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(2,626
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
2,813
|
|
|
$
|
4,604
|
|
See accompanying notes to unaudited consolidated
financial statements.
ACURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(Unaudited; in thousands except per share
amounts)
|
|
Three months Ended
June 30,
|
|
|
Six months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fee revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,500
|
|
Collaboration revenue
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
59
|
|
Royalty revenue
|
|
|
76
|
|
|
|
69
|
|
|
|
274
|
|
|
|
143
|
|
Product sales, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
Total revenues, net
|
|
|
76
|
|
|
|
92
|
|
|
|
274
|
|
|
|
2,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
Research and development
|
|
|
477
|
|
|
|
1,020
|
|
|
|
1,127
|
|
|
|
1,731
|
|
Selling, marketing, general and administrative
|
|
|
846
|
|
|
|
1,063
|
|
|
|
1,789
|
|
|
|
2,359
|
|
Total cost and expenses
|
|
|
1,323
|
|
|
|
2,083
|
|
|
|
2,916
|
|
|
|
4,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,247
|
)
|
|
|
(1,991
|
)
|
|
|
(2,642
|
)
|
|
|
(1,409
|
)
|
Interest expense, net (Note 10)
|
|
|
(14
|
)
|
|
|
(158
|
)
|
|
|
(113
|
)
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,261
|
)
|
|
|
(2,149
|
)
|
|
|
(2,755
|
)
|
|
|
(1,744
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(1,261
|
)
|
|
$
|
(2,149
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
(1,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.15
|
)
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.15
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,101
|
|
|
|
11,966
|
|
|
|
21,068
|
|
|
|
11,938
|
|
Diluted
|
|
|
21,101
|
|
|
|
11,966
|
|
|
|
21,068
|
|
|
|
11,938
|
|
ACURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN ACCUMULATED
STOCKHOLDERS' DEFICIT
(Unaudited; in thousands)
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Par Value
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
Balance at January 1, 2018
|
|
|
20,796
|
|
|
$
|
208
|
|
|
$
|
380,145
|
|
|
$
|
(380,380
|
)
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,755
|
)
|
|
|
(2,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
122
|
|
|
|
-
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net distribution of common stock pursuant to restricted stock unit award plan
|
|
|
238
|
|
|
|
2
|
|
|
|
32
|
|
|
|
-
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
|
21,034
|
|
|
$
|
210
|
|
|
$
|
380,299
|
|
|
$
|
(383,135
|
)
|
|
$
|
(2,626
|
)
|
See accompanying notes to unaudited consolidated
financial statements.
ACURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
|
|
Six months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,755
|
)
|
|
$
|
(1,744
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
38
|
|
|
|
47
|
|
Provision for sales returns
|
|
|
-
|
|
|
|
49
|
|
Non-cash share-based compensation
|
|
|
122
|
|
|
|
233
|
|
Capitalized debt discount
|
|
|
(74
|
)
|
|
|
-
|
|
Amortization of debt discount and deferred debt issue costs
|
|
|
34
|
|
|
|
56
|
|
Amortization of intangible asset
|
|
|
103
|
|
|
|
103
|
|
Gain on disposal of machinery & equipment
|
|
|
-
|
|
|
|
(3
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
-
|
|
|
|
23
|
|
Collaboration revenue receivable
|
|
|
-
|
|
|
|
78
|
|
Royalty receivable
|
|
|
(23
|
)
|
|
|
-
|
|
Inventory
|
|
|
-
|
|
|
|
103
|
|
Prepaid expenses and other current assets
|
|
|
121
|
|
|
|
(294
|
)
|
Refundable deposits
|
|
|
(100
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
659
|
|
|
|
505
|
|
Accrued expenses
|
|
|
(144
|
)
|
|
|
(12
|
)
|
Accrued interest
|
|
|
75
|
|
|
|
105
|
|
Other current liabilities
|
|
|
10
|
|
|
|
11
|
|
Sales returns liability
|
|
|
-
|
|
|
|
(49
|
)
|
Net cash used in operating activities
|
|
|
(1,934
|
)
|
|
|
(789
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from transfer of equipment to licensee
|
|
|
-
|
|
|
|
103
|
|
Proceeds from transfer of inventory to licensee
|
|
|
-
|
|
|
|
206
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
309
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from distribution of restricted stock units
|
|
|
2
|
|
|
|
-
|
|
Proceeds from loan maturing February 2, 2020
|
|
|
1,500
|
|
|
|
-
|
|
Principal payments on loan maturing December 1, 2018
|
|
|
(1,220
|
)
|
|
|
(1,122
|
)
|
Net cash provided by (used in) financing activities
|
|
|
282
|
|
|
|
(1,122
|
)
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
|
|
(1,652
|
)
|
|
|
(1,602
|
)
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
2,220
|
|
|
|
5,181
|
|
Cash, cash equivalents, and restricted cash at end of period
|
|
$
|
568
|
|
|
$
|
3,579
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash interest payments on loan maturing December 1, 2018
|
|
$
|
78
|
|
|
$
|
176
|
|
See accompanying notes to unaudited consolidated
financial statements.
ACURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited; in thousands)
The following table provides a reconciliation
of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same
such amounts shown in the consolidated statements of cash flows:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Cash
|
|
$
|
568
|
|
|
$
|
1,077
|
|
Cash equivalents
|
|
|
-
|
|
|
|
2
|
|
Restricted cash equivalents
|
|
|
-
|
|
|
|
2,500
|
|
Total cash, cash equivalents and restricted cash show in the consolidated statements of cash flows
|
|
$
|
568
|
|
|
$
|
3,579
|
|
Supplemental disclosures of noncash
investing and financing activities:
Six months Ended June 30, 2018
|
1.
|
The imputed interest on the below market rate element of the related party $1.5 million loan
amounted to $74 thousand recorded as a benefit to interest income with a corresponding like amount as debt discount against
the principal amount of the loan. The debt discount will be amortized to interest expense over the term on the loans.
|
Six months Ended June 30, 2017
|
1.
|
There are no supplemental disclosure activities.
|
See accompanying notes to unaudited consolidated
financial statements.
ACURA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2018 AND JUNE 30, 2017
NOTE 1 – OPERATIONS AND BASIS OF PRESENTATION
Principal Operations
Acura Pharmaceuticals, Inc., a New York corporation,
and its subsidiary (the “Company”, “Acura”, “We”, “Us” or “Our”) is
a specialty pharmaceutical company engaged in the research, development and commercialization of technologies and products intended
to address medication abuse and misuse. We have discovered and developed three proprietary platform technologies which can be used
to develop multiple products. Our Limitx™ Technology is intended to address methods of product tampering associated with
opioid abuse by retarding the release of active drug ingredients when too many tablets are accidently or purposefully ingested.
Our Aversion® Technology is intended to address methods of product tampering associated with opioid abuse by incorporating
gelling ingredients and irritants into tablets to discourage abuse by snorting and provide barriers to abuse by injection. Our
Impede® Technology is directed at minimizing the extraction and conversion of pseudoephedrine into methamphetamine.
|
·
|
Our Limitx Technology is in development with the immediate-release hydrocodone bitartrate and acetaminophen
as a lead Limitx product candidate due to its larger market size than our prior lead product and its known prevalence of oral excessive
tablet abuse.
|
|
·
|
Our Aversion Technology has been licensed to Egalet Corporation for use in Oxaydo® Tablets
(oxycodone HCl, CII), and is the first approved immediate-release oxycodone product in the United States with abuse deterrent labeling.
Oxaydo is currently approved by the FDA for marketing in the United States in 5mg and 7.5mg strengths. (see Note 3).
|
|
·
|
Our Impede Technology is used in Nexafed® Tablets (30mg pseudoephedrine HCl) and Nexafed®
Sinus Pressure + Pain Tablets (30/325mg pseudoephedrine HCl and acetaminophen). We have licensed to MainPointe Pharmaceuticals,
LLC our Impede Technology in the United States and Canada to commercialize our Nexafed products. (see Note 3).
|
Basis of Presentation and Substantial Doubt in Going Concern
The accompanying unaudited consolidated financial
statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally
accepted accounting principles in the United States of America for interim financial information, the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not contain all disclosures required by generally accepted accounting principles.
Reference should be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion
of the Company, all normal recurring adjustments have been made that are necessary to present fairly the results of operations
for the interim periods. Operating results for the six month period ended June 30, 2018 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2018.
The going
concern basis of presentation assumes that we will continue in operation one year after the date these financial statements are
issued and we will be able to realize our assets and discharge our liabilities and commitments in the normal course of business
.
As of June 30, 2018, we had cash and refundable deposits of $0.7 million, working capital deficit of $3.1 million and an accumulated
deficit of $383.1 million. As of August 13, 2018 we had cash and refundable deposits of $0.2 million. We had a loss from operations
of $2.6 million and a net loss of $2.8 million for the six months ended June 30, 2018.
We
have suffered recurring losses from operations and have not generated positive cash flows from operations.
We had a loss
from operations of $5.2 million and a net loss of $5.7 million for the year ended December 31, 2017.
We
anticipate operating losses to continue for the foreseeable future.
We have a term loan with Oxford Finance
LLC (“Oxford” or the “Lender”) and as of June 30, 2018 and August 13, 2018, the outstanding principal
balance is $1.5 million and $1.0 million, respectively. The $795 thousand balloon interest payment is due to Oxford on
December 1, 2018. Our term loan agreement with Oxford contains customary affirmative and negative covenants. One such
covenant is that the Company must submit on an annual basis to Oxford, within 120 days after the end of its fiscal year,
audited financial statements, together with an unqualified audit opinion from an independent registered public accounting
firm, or the Unqualified Audit Opinion Covenant. Per the term loan agreement an audit opinion with an explanatory paragraph
noting substantial doubt about the Company’s ability to continue in business (the “going concern opinion”)
is deemed to violate the Unqualified Audit Opinion Covenant. Failure to comply with the Unqualified Audit Opinion Covenant is
a breach of the term loan agreement and unless such covenant or breach is waived, Oxford would have the option of
accelerating the debt under the term loan agreement and initiating enforcement collection actions, foreclosing on collateral
(which includes most assets of the Company) and, among other things, preventing the Company from using any funds in its bank
or securities accounts. On March 16, 2017, we and Oxford entered into a third amendment to the loan agreement, or the Third
Amendment. Pursuant to the Third Amendment (i) we granted Oxford a lien on our intellectual property, (ii) Oxford provided a
waiver of compliance with the Unqualified Audit Opinion Covenant in connection with our receipt of our auditor’s going
concern opinion for our 2016 financial statements and (iii) Oxford consented to the terms of the MainPointe Agreement.
During the second quarter of 2018, we borrowed
a total of $1.5 million from John Schutte, a principal of MainPointe and our largest shareholder. In conjunction with such loans,
we entered into of a fourth amendment to our term loan agreement with Oxford, pursuant to which Oxford granted a similar waiver
of compliance with the Unqualified Audit Opinion Covenant for our 2017 financial statements and extended the period in which we
could deliver financial statements for 2017 to 160 days after year’s end (instead of 120 days).
(see
Notes 9 and 15). On June 7, 2018, we filed our 2017 financial statements as part of our annual report on Form 10-K.
We borrowed
another $400 thousand from John Schutte on August 2, 2018 and our total borrowing to date with John Schutte is $1.9 million.
With
the net proceeds to the Company resulting from the loans from Mr. Schutte, we expect our
cash will only be sufficient to
fund operations into late August 2018.
These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. We must seek sources to raise additional financing and seek to
enter into license or collaboration agreements with third parties relating to our technologies. The Company is exploring a variety
of capital raising and other transactions to provide additional funding to continue operations. These include potential private
offerings of common stock to accredited and/or institutional investors and licensing transactions with pharmaceutical company partners
for our proprietary technologies, including Limitx. We are actively seeking a licensing partner for our Limitx technology, with
the objective of receiving an upfront license fee, development milestone payments and royalties on the net sales of products utilizing
the Limitx technology, similar to the Egalet Agreement. We are also exploring licensing or selling select assets and intellectual
property in an effort to raise capital and reduce operating expenses. Finally, the Company continues to evaluate the potential
for a strategic transaction which may involve the Company being acquired in a merger or asset purchase transaction. No assurance
can be given that we will be successful in completing any one or more of such transactions on acceptable terms, if at all, or if
completed, that such transactions will provide payments to the Company sufficient to fund continued operations. In the absence
of the Company’s completion of one or more of such transactions, there will be substantial doubt about the Company’s
ability to continue as a going concern within one year after the date these financial statements are issued, and the Company will
be required to scale back or terminate operations and/or seek protection under applicable bankruptcy laws. An extended delay or
cessation of the Company’s continuing product development efforts will have a material adverse effect on the Company’s
financial condition and results of operations.
In view of the matters described above, management
has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one
year after the date the financial statements are issued. The recoverability of a major portion of the recorded asset amounts shown
in the Company’s accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent
upon the Company’s ability to meet its funding requirements on a continuous basis, to maintain existing financing and to
succeed in its future operations. The Company’s financial statements do not include any adjustment relating to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable
to continue in existence.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
New accounting standards which have been
adopted on or before June 30, 2018
Revenue from Contracts with Customers
The Company adopted Accounting Standards Codification
Topic 606—Revenue from Contracts with Customers, or Topic 606, on January 1, 2018, resulting in a change to its accounting
policy for revenue recognition. The Company used the modified retrospective method and the cumulative effect of initially applying
Topic 606 would be recognized as an adjustment to the opening accumulated deficit at January 1, 2018. Accordingly, comparative
information has not been adjusted and continues to be reported under the previous accounting standards. Refer to Note 4 for additional
information.
Scope of Modification Accounting, Stock
Based Compensation
In May 2017, the FASB issued ASU No. 2017-09
which provides guidance as to how an entity should apply modified accounting in Topic 718 when changing the terms and conditions
of its share-based payment awards. The guidance clarifies that modification accounting will be applied if the value, vesting conditions
or classification of the award changes. The ASU is effective for annual reporting periods, including interim periods within those
annual periods, beginning after December 15, 2017 but early adoption is permitted. The Company adopted this new standard on January
1, 2018 which did not have a material impact on the Company’s financial statements.
Statement of Cash Flows - Classification
of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU 2016-15
which clarifies existing guidance on how companies present and classify certain cash receipts and cash payments in the statement
of cash flows by addressing specific cash flow issues in an effort to reduce diversity in practice, including guidance on debt
prepayment or extinguishment costs and contingent consideration payments made after a business combination. This update is
effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this
new standard on January 1, 2018 which did not have a material impact on the Company’s financial statements.
Intra-Entity Transfers of Assets Other than
Inventory
In October 2016, the FASB issued ASU 2016-16,
Intra-Entity
Transfers of Assets Other Than Inventory
. ASU 2016-16 eliminates from Topic 740, Income Taxes, the recognition exception for
intra-entity asset transfers other than inventory so that an entity’s financial statements reflect the current and deferred
tax consequences of those intra-entity asset transfers when they occur. The new standard will be effective for annual and interim
periods, within those fiscal years, beginning after December 15, 2017 but early adoption is permitted. The Company adopted this
new standard on January 1, 2018 which did not have a material impact on the Company’s financial statements.
New accounting standards which have not
been adopted on or before June 30, 2018
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases, which establishes a comprehensive new lease accounting model. The new standard will require most leases (with the exception
of leases with terms of one year or less) to be recognized on the balance sheet as a lease liability with a corresponding right-of-use
asset. Leases will be classified as an operating lease or a financing lease. Operating leases are expensed using the straight-line
method whereas financing leases will be treated similarly to a capital lease under the current standard. The new standard will
be effective for annual and interim periods, within those fiscal years, beginning after December 15, 2018 but early adoption is
permitted. The new standard must be presented using the modified retrospective transition method existing at or entered into after
the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting
for leases that expire prior to the date of initial application. Upon adoption, operating leases will be reported on the balance
sheet as a gross-up of assets and liabilities. The Company is currently evaluating the impact that the standard will have on the
financial statements and related footnote disclosures.
NOTE 3 – LICENSE AND COLLABORATION
AGREEMENTS
The Company’s revenues are comprised
of amounts earned under its license and collaboration agreements, royalties, and until March 2017 did previously include the Nexafed
products’ net product sales. Revenue recognition occurs when a customer obtains control of promised goods or services in
an amount that reflects the consideration the Company expects to receive in exchange for those goods or services based on a short-term
credit arrangement.
Egalet Agreement covering Oxaydo
In April 2014, we terminated an agreement with
Pfizer and the return to us of Aversion Oxycodone (formerly known as Oxecta®) and all Aversion product rights in exchange for
a one-time termination payment of $2.0 million. Our termination payment of $2.0 million has been recorded in our financial statements
as an intangible asset and is being amortized over the remaining useful life of the patent covering Aversion Oxycodone, which was
9.7 years as of the date the agreement was terminated. We have recorded amortization expense of $103 thousand in each of the six
month periods ending June 30, 2018 and 2017. Annual amortization of the patent for its remaining life through 2021 is expected
to approximate $208 thousand each year.
In January 2015, we and Egalet US, Inc. and
Egalet Ltd., each a subsidiary of Egalet Corporation, or collectively Egalet, entered into a Collaboration and License Agreement
(the “Egalet Agreement”) to commercialize Aversion Oxycodone (formerly known as Oxecta®) under our tradename Oxaydo.
Oxaydo is approved by the FDA for marketing in the United States in 5 mg and 7.5 mg strengths. Under the terms of the Egalet Agreement,
we transferred the approved New Drug Application, or NDA, for Oxaydo to Egalet and Egalet is granted an exclusive license under
our intellectual property rights for development and commercialization of Oxaydo worldwide (the “Territory”) in all
strengths, subject to our right to co-promote Oxaydo in the United States. Eaglet launched Oxaydo in the United States late in
the third quarter of 2015.
In accordance with the Egalet Agreement, we
and Egalet have formed a joint steering committee to coordinate commercialization strategies and the development of product line
extensions. Egalet is responsible for the fees and expenses relating to the Oxaydo NDA and product line extensions of Oxaydo, provided
that Egalet will pay a substantial majority of the fees and expenses and we will pay for the remaining fees and expense relating
to (i) annual NDA PDUFA product fees, (ii) expenses of the FDA required post-marketing study for Oxaydo and (iii) expenses of clinical
studies for product line extensions (additional strengths) of Oxaydo for the United States. Egalet will bear all of the expenses
of development and regulatory approval of Oxaydo for sale outside the United States. Egalet is responsible for all manufacturing
and commercialization activities in the Territory for Oxaydo. Subject to certain exceptions, Egalet will have final decision making
authority with respect to all development and commercialization activities for Oxaydo, including pricing, subject to our co-promotion
right. Egalet may develop Oxaydo for other countries and in additional strengths, in its discretion.
Egalet paid us a $5.0 million license fee upon
signing of the Egalet Agreement and on October 9, 2015, paid us a $2.5 million milestone in connection with the first commercial
sale of Oxaydo. We will be entitled to a one-time $12.5 million sales-based milestone payment when worldwide Oxaydo net sales reach
$150 million in a calendar year. We are receiving from Egalet a stepped royalty at percentage rates ranging from mid-single digits
to double-digits based on Oxaydo net sales during each calendar year (excluding net sales resulting from our co-promotion efforts).
In any calendar year of the agreement in which net sales exceed a specified threshold, we will receive a double digit royalty on
all Oxaydo net sales in that year (excluding net sales resulting from our co-promotion efforts). If we exercise our co-promotion
rights, we will receive a share of the gross margin attributable to incremental Oxaydo net sales from our co-promotion activities.
Egalet’s royalty payment obligations commence on the first commercial sale of Oxaydo and expire, on a country-by-country
basis, upon the expiration of the last to expire valid patent claim covering Oxaydo in such country (or if there are no patent
claims in such country, then upon the expiration of the last valid claim in the United States or the date when no valid and enforceable
listable patent in the FDA’s Orange Book remains with respect to Oxaydo). Royalties will be reduced upon the entry of generic
equivalents, as well as for payments required to be made by Egalet to acquire intellectual property rights to commercialize Oxaydo,
with an aggregate minimum floor.
The Egalet Agreement expires
upon the expiration of Egalet’s royalty payment obligations in all countries. Either party may terminate the Egalet Agreement
in its entirety if the other party breaches a payment obligation, or otherwise materially breaches the Egalet Agreement, subject
to applicable cure periods, or in the event the other party makes an assignment for the benefit of creditors, files a petition
in bankruptcy or otherwise seeks relief under applicable bankruptcy laws. We also may terminate the Egalet Agreement with respect
to the U.S. and other countries if Egalet materially breaches its commercialization obligations. Egalet may terminate the Egalet
Agreement for convenience on 120 days prior written notice, which termination may not occur prior to the second anniversary of
Egalet’s launch of Oxaydo. Termination does not affect a party’s rights accrued prior thereto, but there are no stated
payments in connection with termination other than payments of obligations previously accrued. For all terminations (but not expiration),
the Egalet Agreement provides for the transition of development and marketing of Oxaydo from Egalet to us, including the conveyance
by Egalet to us of the trademarks and all regulatory filings and approvals relating to Oxaydo, and for Egalet’s supply of
Oxaydo for a transition period.
MainPointe Agreement covering Nexafed products
In March 2017, we and MainPointe entered into
the MainPointe Agreement, pursuant to which we granted MainPointe an exclusive license to our Impede technology to commercialize
both of our Nexafed and Nexafed Sinus Pressure + Pain product (“Nexafed products”) in the U.S. and Canada. We also
conveyed to MainPointe our existing inventory and equipment relating to our Nexafed products. MainPointe is responsible for all
development, manufacturing and commercialization activities with respect to products covered by the Agreement.
On signing the MainPointe Agreement, MainPointe
paid us an upfront licensing fee of $2.5 million. The MainPointe Agreement also provides for our receipt of a 7.5% royalty on net
sales of the licensed products. The royalty payment for each product will expire on a country-by-country basis when the Impede®
patent rights for such country have expired or are no longer valid; provided that if no Impede patent right exists in a country,
then the royalty term for that country will be the same as the royalty term for the United States. After the expiration of a royalty
term for a country, MainPointe retains a royalty free license to our Impede® technology for products covered by the Agreement
in such country.
MainPointe has the option to expand the licensed
territory beyond the United States and Canada to the European Union (and the United Kingdom), Japan and South Korea for payments
of $1.0 million, $500 thousand and $250 thousand, respectively. In addition, MainPointe has the option to add to the MainPointe
Agreement certain additional products, or Option Products, containing PSE and utilizing the Impede technology for a fee of $500
thousand per product (for all product strengths). Such Option Products include the product candidate Loratadine with pseudoephedrine.
If the territory has been expanded prior to the exercise of a product option, the option fee will be increased to $750 thousand
per product. If the territory is expanded after the payment of the $500 thousand product option fee, a one-time $250 thousand fee
will be due for each product. If a third party is interested in developing or licensing rights to an Option Product, MainPointe
must exercise its option for that product or its option rights for such product will terminate.
The MainPointe Agreement may be terminated
by either party for a material breach of the other party, or by Acura if MainPointe challenges certain of its patents. Upon early
termination of the MainPointe Agreement, MainPointe’s licenses to the Impede technology and all products will terminate.
Upon termination, at Acura’s request the parties will use commercially reasonable efforts to transition the Nexafed®
and Nexafed® Sinus Pressure + Pain products back to Acura.
KemPharm Agreement Covering Certain Opioid Prodrugs
In October 2016, we and KemPharm Inc. (”KemPharm”)
entered into a worldwide License Agreement (the “KemPharm Agreement”) pursuant to which we licensed our Aversion®
technology to KemPharm for its use in the development and commercialization of three products using 2 of KemPharm’s prodrug
candidates. KemPharm has also been granted an option to extend the KemPharm Agreement to cover two additional prodrug candidates.
KemPharm is responsible for all development, manufacturing and commercialization activities.
Upon execution of the KemPharm Agreement, KemPharm
paid us an upfront payment of $3.5 million. If KemPharm exercises its option to use our Aversion technology with more than the
two licensed prodrugs, then KemPharm will pay us up to $1.0 million for each additional prodrug license. In addition, we will receive
from KemPharm a low single digit royalty on commercial sales by KemPharm of products developed using our Aversion technology under
the KemPharm Agreement. KemPharm’s royalty payment obligations commence on the first commercial sale of a product using our
Aversion technology and expire, on a country-by-country basis, upon the expiration of the last to expire patent claim of the Aversion
technology covering a product in such country, at which time the license for the particular product and country becomes fully paid
and royalty free.
The KemPharm Agreement expires upon the expiration
of KemPharm’s royalty payment obligations in all countries. Either party may terminate the KemPharm Agreement in its entirety
if the other party materially breaches the KemPharm Agreement, subject to applicable cure periods. Acura or KemPharm may terminate
the KemPharm Agreement with respect to the U.S. and other countries if the other party challenges the patents covering the licensed
products. KemPharm may terminate the KemPharm Agreement for convenience on ninety (90) days prior written notice. Termination does
not affect a party’s rights accrued prior thereto, but there are no stated payments in connection with termination other
than payments of obligations previously accrued. For all terminations (but not expiration), the KemPharm Agreement provides for
termination of our license grant to KemPharm.
Terminated Bayer Agreement Covering Methamphetamine Resistant
Pseudoephedrine-containing Product
In June 2015, we and Bayer
entered into a License and Development Agreement (the “Bayer Agreement”) granting Bayer an exclusive worldwide license
to our Impede Technology for use in an undisclosed methamphetamine resistant pseudoephedrine–containing product (the “Bayer
Licensed Product”) and providing for the joint development of such product utilizing our Impede Technology for the U.S. market.
In June 2017, we received Bayer’s notice of termination of the Bayer Agreement pursuant to its convenience termination right
exercised prior to the Company’s completion of its product development obligations under the Bayer Agreement. We have received
reimbursement of certain of our development costs under the Bayer Agreement. Following Bayer’s termination of the Bayer Agreement
the Bayer Licensed Product is now subject to MainPointe’s option rights under the MainPointe Agreement.
NOTE 4 – REVENUE FROM CONTRACTS WITH
CUSTOMERS
Adoption of ASC Topic 606, Revenue from
Contracts with Customers
The Company adopted ASC Topic 606 on January
1, 2018 applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. While the
timing of future revenues under ASC Topic 606 may differ from the Company’s historical accounting practices under ASC Topic
605, the cumulative effect recorded through the Consolidated Statement of Stockholder’s Deficit was zero because there was
no change in timing or measurement of revenues for open contracts at January 1, 2018.
Under ASC 606, revenue is recognized when,
or as, performance obligations under terms of a contract are satisfied, which occurs when control of the promised service is transferred
to a customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring services
to a customer (“transaction price”). The Company will then recognize as revenue the amount of the transaction price
that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied. When determining
the transaction price of the contract, an adjustment is made if payment from a customer occurs either significantly before or significantly
after performance, resulting in a significant financing component. None of the Company’s licenses and collaboration agreements
contained a significant financing component at June 30, 2018.
The Company’s existing license and collaboration
agreements may contain a single performance obligation or may contain multiple performance obligations. Those which contain multiple
performance obligations will require an allocation of the transaction price based on the estimated relative standalone selling
prices of the promised services underlying each performance obligation.
The Company’s existing license and collaboration
agreements contain customer options for the license of additional products and territories. We determined the option’s standalone
selling prices based on the option product’s potential market size in the option territory as compared to the currently licensed
product and U.S. territory. Some of our existing license and collaboration agreements contain a license to the technology as well
as licenses to tradenames or trademarks. The Company determined that the licenses to the tradenames or trademarks were immaterial
in context of the contract.
Net Product Sales
Prior to the licensing the Nexafed products
to MainPointe in March 2017, we sold our Nexafed products in the United States to wholesale pharmaceutical distributors as well
as directly to chain drug stores. Our Nexafed products were sold subject to the right of return usually for a period of up to twelve
months after the product expiration. Both products had an initial shelf life of twenty-four months from the date of manufacture,
which shelf life had been extended to thirty-six months for Nexafed product supplied to us during 2016 from one of the Company’s
contract manufacturers. We recognized revenue from our Nexafed products sales when the price was fixed and determinable at the
date of sale, title and risk of ownership were transferred to the customer, and returns could be reasonably estimated, which generally
occurred at the time of product shipment. ASC 606 did not change the practice under which the Company previously recognized the
product revenue from sales of the Nexafed products, which was at the time the product was shipped to a customer. As a result of
the Company’s license agreement with MainPointe completed in March 2017, the Company no longer sold the Nexafed products.
There was a $0 effect to the recognition of revenue for Nexafed product sales under the adoption of ASC 606.
Sales-based Milestones and Royalty Revenues
The commercial sales-based milestones and sales
royalties earned under the license and collaboration for Oxaydo and sales royalties earned under the license for the Nexafed products,
are recorded in the period of the related sales by Egalet and MainPointe. Payments of sales-based milestones are generally due
within 30 days after the end of a calendar year. Payments of royalties are generally due within 45 days after the end of a calendar
quarter.
License and Collaboration Agreement Revenues
The achievement of milestones under the Company’s
license and collaboration agreements will be recorded during the period the milestone’s achievement becomes probable, which
may result in earlier recognition as compared to the previous accounting standards. The license fee of an option product or option
territory under the Company’s license and collaboration agreements will be recorded when the option is exercised and any
obligations on behalf of the Company, such as to transfer know-how, has been fulfilled, which may result in later recognition as
compared to the previous accounting standards.
Disaggregation of Total Revenues
The Company has two licenses for currently
marketed products containing its technologies; the Nexafed products containing the Impede Technology to MainPointe and Oxaydo containing
the Aversion Technology to Egalet. All of the Company’s royalty revenues are earned from these two licenses and from the
licensee’s sale of products in the U.S. Royalty revenues by licensee are summarized below:
|
|
Three months
Ended June
30, 2018
|
|
|
Six months
Ended June
30, 2018
|
|
|
|
(in thousands)
|
|
Egalet
|
|
$
|
70
|
|
|
$
|
260
|
|
MainPointe
|
|
|
6
|
|
|
|
14
|
|
Royalty revenues
|
|
$
|
76
|
|
|
$
|
274
|
|
Contract Balance and Performance Obligations
The Company’s reported contract assets
and contract liability balances under the license and collaboration agreements at either June 30, 2018 or December 31, 2017 was
$0.00. Contract assets may be reported in future periods under prepaid expenses or other current assets on the balance sheet. Contract
liabilities may be reported in future periods consisting of deferred revenue as presented on the balance sheet.
NOTE 5 – RESEARCH AND DEVELOPMENT ACTIVITIES
Research and Development (“R&D”)
costs include internal R&D activities, external Contract Research Organization (“CRO”) services and their clinical
research and investigative sites, and other activities. Internal R&D activity costs can include facility overhead, equipment
and facility maintenance and repairs, laboratory supplies, pre-clinical laboratory experiments, formulation work, depreciation,
salaries, benefits, insurance and share-based compensation expenses. CRO activity costs can include preclinical laboratory experiments
and clinical trial studies. Other activity costs can include regulatory consulting, regulatory legal counsel, cost of acquiring,
developing and manufacturing pre-clinical trial materials, costs of manufacturing scale-up, and cost sharing expenses under license
agreements. Internal R&D costs and other activity costs are charged to expense as incurred. We make payments to CROs based
on agreed upon terms and may include payments in advance of a study starting date. Payments in advance will be reflected in the
financial statements as prepaid expenses. We review and charge to expense the amounts for CRO costs and clinical trial study costs
based on services performed and rely on estimates of those costs applicable to the stage of completion of a study as provided by
the CRO to us. The accrued CRO costs are subject to revisions by us as the study progresses towards completion. Revisions are charged
to expense in the period in which the facts that give rise to the revision become known to us. We did not have any remaining obligations
under cancelable arrangements, nor did we have any prepaid CRO costs or prepaid clinical trial study expenses at June 30, 2018
or December 31, 2017.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 2018 and December 31,
2017 are summarized as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Building and improvements
|
|
$
|
1,273
|
|
|
$
|
1,273
|
|
Scientific equipment
|
|
|
598
|
|
|
|
598
|
|
Computer hardware and software
|
|
|
107
|
|
|
|
107
|
|
Machinery and equipment
|
|
|
275
|
|
|
|
275
|
|
Land and improvements
|
|
|
162
|
|
|
|
162
|
|
Other personal property
|
|
|
70
|
|
|
|
70
|
|
Office equipment
|
|
|
27
|
|
|
|
27
|
|
Total
|
|
|
2,512
|
|
|
|
2,512
|
|
Less: accumulated depreciation
|
|
|
(1,871
|
)
|
|
|
(1,833
|
)
|
Net property, plant and equipment
|
|
$
|
641
|
|
|
$
|
679
|
|
We do not have leasehold improvements nor do
we have capitalized leases. Costs of betterments are capitalized while maintenance costs and repair costs are charged to operations
as incurred. When a depreciable asset is retired from service, the cost and accumulated depreciation will be removed from the respective
accounts.
NOTE 7 – ACCRUED EXPENSES
Accrued expenses at June 30, 2018 and December 31, 2017 are summarized
as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Cost sharing expenses under license agreement
|
|
$
|
412
|
|
|
$
|
328
|
|
Other fees and services
|
|
|
34
|
|
|
|
36
|
|
Payroll, payroll taxes and benefits
|
|
|
77
|
|
|
|
70
|
|
Professional services
|
|
|
127
|
|
|
|
149
|
|
Clinical, non-clinical and regulatory services
|
|
|
118
|
|
|
|
326
|
|
Property taxes
|
|
|
13
|
|
|
|
16
|
|
Franchise taxes
|
|
|
14
|
|
|
|
14
|
|
Total
|
|
$
|
795
|
|
|
$
|
939
|
|
NOTE 8 – DEBT
Loan due December 1, 2018
In December 2013, we entered into a Loan and
Security Agreement (the “Oxford Loan Agreement”) with Oxford Finance LLC (“Oxford” or the “Lender”),
for a term loan to the Company in the principal amount of $10.0 million (the “Term Loan”). The Term Loan accrues interest
at a fixed rate of 8.35% per annum (with a default rate of 13.35% per annum). The Company was required to make monthly interest−only
payments until April 1, 2015 (“Amortization Date”) and on the Amortization Date, the Company began to make payments
of principal and accrued interest in equal monthly installments of $260 thousand sufficient to amortize the Term Loan through the
maturity date of December 1, 2018. All unpaid principal and accrued and unpaid interest with respect to the Term Loan is due and
payable in full on December 1, 2018. As security for its obligations under the initial Oxford Loan Agreement (prior to the Third
Amendment), the Company granted Lender a security interest in substantially all of its existing and after−acquired assets,
exclusive of its intellectual property assets. Pursuant to the Oxford Loan Agreement, the Company is not allowed to pledge its
intellectual property assets to others. Upon the execution of the Oxford Loan Agreement, we issued to the Lender warrants to purchase
an aggregate of up to 60 thousand shares of our common stock at an exercise price equal to $7.98 per share (after adjustment for
our one-for-five reverse stock split) (the “Warrants”). We recorded $400 thousand as debt discount associated with
the relative fair value of the Warrants and are amortizing it to interest expense over the term of the loan using the loan’s
effective interest rate. The Warrants are immediately exercisable for cash or by net exercise and will expire December 27, 2020.
In January 2015, we and Oxford entered into
an amendment to the Oxford Loan Agreement. Pursuant to the amendment, (i) the exercise price of the warrants was lowered from $7.98
to $2.52 per share (the average closing price of our common stock on Nasdaq for the 10 trading days preceding the date of the amendment
and after giving effect to our one-for-five reverse stock split) and we recorded additional debt discount of $33 thousand representing
the fair value of the warrant modification, (ii) we agreed to maintain $2.5 million cash reserves until such time as we have repaid
$5.0 million in principal of the Term Loan, and (iii) the Lender consented to the terms of our Collaboration and License Agreement
with Egalet relating to our Oxaydo product.
In October 2016, we and Oxford entered into
a second amendment to the Oxford Loan Agreement (the “Second Amendment”). Pursuant to the Second Amendment, (i) the
requirement that we maintain a $2.5 million cash balance reserve until such time as $5.0 million in principal was repaid under
the Term Loan has been modified so that the $2.5 million cash balance reserve remains in place until we raise an additional $6.0
million (excluding payments received under the KemPharm Agreement) through the issuance of equity securities and from upfront payments
under license, joint venture, collaboration or other partnering transactions, provided that at least $3.0 million of such amount
must be raised through the issuance and sale of our equity securities, and (ii) the Lender consented to the terms of our Agreement
with KemPharm. In July 2017, the Company completed a private placement of its equity units to an investor, each unit consisting
of one share of common stock and a warrant to purchase one-fifth of a share of common stock. The net proceeds to the Company from
the private offering was approximately $4.0 million. Giving effect to the $2.5 million upfront payment received from MainPointe
pursuant to the MainPointe Agreement and the approximate $4.0 million in net proceeds from the July 2017 private offering, the
Company has satisfied the condition in the Second Amendment to the Oxford Loan Agreement to waive the $2.5 million cash reserve
requirement.
In March 2017, we and Oxford entered into a
third amendment to the Oxford Loan Agreement (the “Third Amendment”). Pursuant to the Third Amendment (i) we granted
Oxford a lien on our intellectual property, (ii) Oxford provided a waiver of compliance with the Unqualified Audit Opinion Covenant
in connection with our receipt of our auditor’s going concern opinion for our 2016 financial statements and (iii) Oxford
consented to the terms of the MainPointe Agreement. Under the Oxford Loan Agreement, an audit opinion with an explanatory paragraph
noting substantial doubt about the Company’s ability to continue in business is deemed to violate the Unqualified Audit Opinion
Covenant.
During the second quarter 2018, in connection
with $1.5 million loans extended to us by John Schutte, we and Oxford entered into a fourth amendment to the Oxford Loan Agreement
(the “Fourth Amendment”). Pursuant to the Fourth Amendment, Oxford provided a waiver of compliance with the Unqualified
Audit Opinion Covenant in connection with our receipt of our auditor’s opinion with a going concern explanatory paragraph
for our 2017 financial statements and allowed us to deliver financial statements up to 160 days after year end, instead of 120
days after year end. On June 7, 2018 we filed our 2017 financial statements.
The Company may voluntarily prepay the Term
Loan in full, but not in part, and any prepayment is subject to a prepayment premium equal to 1% of the principal prepaid. In addition,
at the maturity, termination or upon voluntary or mandatory prepayment of the Term Loan the Company must pay the Lender an additional
one-time interest payment of $795 thousand. We are accruing additional monthly interest expense over the term of the loan for this
additional one-time interest payment using the loan’s effective cash interest rate. As of June 30, 2018 and December 31,
2017, we have accumulated and accrued $767 thousand and $700 thousand of additional interest, respectively.
The Company was obligated to pay customary
lender fees and expenses, including a one-time facility fee of $50 thousand and the Lender’s expenses in connection with
the Oxford Loan Agreement. Combined with the Company’s own expenses and a $100 thousand consulting placement fee, the Company
incurred $231 thousand in deferred debt issue costs. We are amortizing these costs, including debt modification additional costs,
into interest expense over the term of the loan using the loan’s effective interest rate of 10.16%.
The Oxford Loan Agreement contains customary
representations and warranties and customary affirmative and negative covenants, including, among others, limits or restrictions
on the Company’s ability to incur liens, incur indebtedness, pay dividends, redeem stock, and merge or consolidate and dispose
of assets. In addition, it contains customary events of default that entitles the Lender to cause any or all of the Company’s
indebtedness under the Oxford Loan Agreement to become immediately due and payable. The events of default (some of which are subject
to applicable grace or cure periods), include, among other things, non−payment defaults, covenant defaults (including breach
of the Unqualified Audit Opinion Covenant), a material adverse change in the Company, bankruptcy and insolvency defaults and material
judgment defaults.
Loan due January 2, 2020
During the second quarter 2018, we borrowed
$1.5 million from John Schutte, a related-party, and issued two promissory notes (the Schutte Notes), in that aggregate principal
amount to him. The Schutte Notes bear interest at prime plus 2.0%, and mature on January 2, 2020, at which time all principal and
interest is due, and are unsecured until all obligations to Oxford are satisfied at which time we are required to grant a security
interest to Mr. Schutte in all of our assets. Because we believe the promissory note’s rate of interest is below current
market rates for us, we imputed interest on the below market rate element of the loan using the 10.16% interest rate under the
Oxford Loan Agreement which amounted to $74 thousand. We recorded the $74 thousand as a benefit to interest income in the three
month period ended June 30, 2018 with a corresponding like amount as debt discount against the principal amount of the loan. The
debt discount will be amortized to interest expense over the term on the loans.
The events of default under the Schutte Notes
are limited to bankruptcy defaults and failure to pay interest and principal when due on January 2, 2020. In addition, Mr. Schutte
and Oxford entered into a subordination agreement, approved by us and our subsidiary, pursuant to which Mr. Schutte subordinated
the Schutte Notes to our obligations to Oxford under the Oxford Loan Agreement. The Schutte Notes may be prepaid at any time in
whole or in part, however while Oxford’s loan is outstanding such prepayment will require Oxford’s consent.
Our debt at June 30, 2018 is summarized below
(in thousands):
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
Loan Due December 1, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Jan. 1, 2018
|
|
$
|
2,740
|
|
|
$
|
-
|
|
|
$
|
2,740
|
|
Principal payments
|
|
|
(1,220
|
)
|
|
|
-
|
|
|
|
(1,220
|
)
|
Balance at Jun. 30, 2018
|
|
$
|
1,520
|
|
|
$
|
-
|
|
|
$
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Due January 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Jan. 1, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Borrowings
|
|
|
-
|
|
|
|
1,500
|
|
|
|
1,500
|
|
Balance at Jun. 30, 2018
|
|
$
|
-
|
|
|
$
|
1,500
|
|
|
$
|
1,500
|
|
Debt Discount
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
Balance at Jan. 1, 2018
|
|
$
|
(32
|
)
|
|
$
|
-
|
|
|
$
|
(32
|
)
|
Additions
|
|
|
-
|
|
|
|
(74
|
)
|
|
|
(74
|
)
|
Amortization expense
|
|
|
21
|
|
|
|
3
|
|
|
|
24
|
|
Balance at Jun. 30, 2018
|
|
$
|
(11
|
)
|
|
$
|
(71
|
)
|
|
$
|
(82
|
)
|
Deferred Debt Issuance Costs
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
Balance at Jan. 1, 2018
|
|
$
|
(14
|
)
|
|
$
|
-
|
|
|
$
|
(14
|
)
|
Amortization expense
|
|
|
10
|
|
|
|
-
|
|
|
|
10
|
|
Balance at Jun. 30, 2018
|
|
$
|
(4
|
)
|
|
$
|
-
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net at Jun. 30, 2018
|
|
$
|
1,505
|
|
|
$
|
1,429
|
|
|
$
|
2,934
|
|
Our debt interest expense for the three and six months ended June
30, 2018 and 2017 consisted of the following (in thousands):
|
|
Three months Ended
June 30,
|
|
|
Six months Ended
June 30,
|
|
Interest expense:
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Term loan – due December 1, 2018
|
|
$
|
63
|
|
|
$
|
133
|
|
|
$
|
145
|
|
|
$
|
281
|
|
Term loans – due January 2, 2020
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
Debt discount
|
|
|
13
|
|
|
|
17
|
|
|
|
24
|
|
|
|
37
|
|
Debt issue costs
|
|
|
4
|
|
|
|
9
|
|
|
|
10
|
|
|
|
19
|
|
Total interest expense
|
|
$
|
88
|
|
|
$
|
159
|
|
|
$
|
187
|
|
|
$
|
337
|
|
Less: imputed interest income on related party loan
|
|
|
(74
|
)
|
|
|
-
|
|
|
|
(74
|
)
|
|
|
-
|
|
Less: interest income
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
Total interest expense, net
|
|
$
|
14
|
|
|
$
|
158
|
|
|
$
|
113
|
|
|
$
|
335
|
|
NOTE 9 – RELATED PARTY TRANSACTIONS
In July 2017, we completed a $4.0 million private
placement with John Schutte (sometimes referred to as the “Investor”), consisting of 8,912,655 units (“Units”)
of the Company, at a price of $0.4488 per Unit (the “Transaction”). Each Unit consists of one share of Common Stock and a
Warrant to purchase one fifth (0.2) of a share of Common Stock. The issue price of the Units was equal to 85% of the average last
sale price of our Common Stock for the five trading days prior to completion of the Transaction. The Warrants are immediately exercisable
at a price of $0.528 per share (which equals the average last sale price of the Company’s Common Stock for the five trading
days prior to completion of the Transaction) and expire five years after issuance (subject to earlier expiration in event of certain
acquisitions). We have assigned a relative fair value of $495 thousand to the warrants out of the total $4.0 million proceeds from
the private placement transaction and have accounted these warrants as equity. The Transaction was completed through a private
placement to an accredited investor and was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended and/or Regulation D promulgated under the Securities Act of 1933.
Investor is a principal of MainPointe, a Kentucky
limited liability company. In March 2017, we granted MainPointe an exclusive license to our Impede technology to commercialize
our Nexafed® and Nexafed® Sinus Pressure + Pain Products in the United States and Canada for an upfront licensing fee of
$2.5 million plus approximately $309 thousand for transferred inventory and equipment. The Company will receive a 7.5% royalty
on sales of licensed products. MainPointe also has options to expand the territory and products covered for additional sums. Included
in the reported revenue for the six month period ending June 30, 2018 is $8 thousand of royalty revenue from MainPointe. (See Note
3).
As part of the
closing of the Transaction, the Company, Essex Woodlands Health Ventures V, L.P. (“Essex”) and Galen Partners III,
L.P. (“Galen”) amended and restated the existing Voting Agreement including such parties to provide for the Investor
to join as a party (as so amended, the “Second Amended and Restated Voting Agreement”). The Second Amended and Restated
Voting Agreement provides that our Board of Directors shall remain comprised of no more than seven members (subject to certain
exceptions), (i) one of whom is the Company’s Chief Executive Officer, (ii) three of whom are independent under Nasdaq standards,
and (iii) one of whom shall be designated by each of Essex, Galen and Investor, and the parties to such agreement would vote for
such persons. The right of each of Essex, Galen and Investor to designate one director to our Board will continue as long as he
or it and their affiliates collectively hold at least 600,000 shares of our Common Stock (including warrants exercisable for such
shares). Immanuel Thangaraj is the designee of Essex. Galen has not designated a director and lost that right in December 2017
when it disposed of its shares. Investor has not designated a director as of the date of filing of this Report
.
Once
such shareholder no longer holds such securities, the additional forfeited seat would become a seat for an independent director
to thereafter be nominated to the Board of Directors from time to time by the then current directors and as applicable, to be elected
by the directors to fill the vacancy created by the forfeited seat or submitted to the vote of shareholders at the Company’s
next annual meeting.
During the second quarter of 2018, we borrowed
$1.5 million from John Schutte and issued two promissory notes in that aggregate principal amount to him. See Note 8 for a discussion
of this transaction.
NOTE 10 – COMMON STOCK WARRANTS
We had no activity in our warrants for either
the six months ended June 30, 2018 or 2017. Our warrants consisted of the following (in thousands except price data):
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Number
|
|
|
WAvg
Exercise
Price
|
|
|
Number
|
|
|
WAvg
Exercise
Price
|
|
Outstanding, Jan. 1,
|
|
|
1,842
|
|
|
$
|
0.59
|
|
|
|
60
|
|
|
$
|
2.52
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
|
|
|
|
--
|
|
|
|
-
|
|
|
|
-
|
|
Modification
|
|
|
|
|
|
|
--
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, Jun. 30,
|
|
|
1,842
|
|
|
$
|
0.59
|
|
|
|
60
|
|
|
$
|
2.52
|
|
In connection with the issuance of the $10.0
million secured promissory notes in December 2013, we issued common stock purchase warrants (“warrants”) exercisable
for 60 thousand shares of our common stock having an exercise price of $2.52 per share (after giving effect to our one-for-five
reverse stock split) with an expiration date in December 2020. See Note 8 for a discussion of the reduction of the exercise price
of these warrants to $2.52 per share. These warrants contain a cashless exercise feature.
As part of our July 2017 private placement
transaction with John Schutte, we issued warrants to purchase 1,782,531 shares of our common stock. The Warrants are immediately
exercisable at a price of $0.528 per share and expire five years after issuance (see Note 9). We have assigned a relative fair
value of $495 thousand to the warrants out of the total $4.0 million proceeds from the private placement transaction and have accounted
these warrants as equity.
NOTE 11 – FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist
primarily of cash and cash equivalents, receivables from trade, royalties and collaboration, trade accounts payable, and our debt.
The carrying amounts of these financial instruments, other than our long-term debt, are representative of their respective fair
values due to their relatively short maturities.
NOTE 12 – SHARE-BASED COMPENSATION EXPENSE
Share-based Compensation
We have four share-based compensation plans
covering stock options and RSUs for our employees and directors.
We measure our compensation cost related to
share-based payment transactions based on fair value of the equity or liability instrument issued. For purposes of estimating the
fair value of each stock option unit on the date of grant, we utilize the Black-Scholes option-pricing model. Option valuation
models require the input of highly subjective assumptions including the expected volatility factor of the market price of our common
stock (as determined by reviewing our historical public market closing prices). Our accounting for share-based compensation for
RSUs is based on the market price of our common stock on the date of grant, less its exercise cost.
Our share-based compensation expense recognized in the Company’s
results of operations from all types of issued instruments comprised the following:
|
|
Three months Ended
June 30,
|
|
|
Six months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Research and development costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
11
|
|
|
$
|
34
|
|
|
$
|
24
|
|
|
$
|
68
|
|
Restricted stock units
|
|
|
7
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Subtotal
|
|
$
|
18
|
|
|
$
|
34
|
|
|
$
|
38
|
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
19
|
|
|
$
|
53
|
|
|
$
|
53
|
|
|
$
|
106
|
|
Restricted stock units
|
|
|
29
|
|
|
|
42
|
|
|
|
51
|
|
|
|
84
|
|
Subtotal
|
|
$
|
48
|
|
|
$
|
95
|
|
|
$
|
104
|
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66
|
|
|
$
|
129
|
|
|
$
|
142
|
|
|
$
|
258
|
|
Included in the table’s reported totals
for general and administrative costs is share-based compensation expense from the marked-to-market accounting of a portion of the
RSUs granted to our directors is approximately $7 thousand and $13 thousand for the three month periods ended June 30, 2018 and
2017, respectively and approximately $20 thousand and $25 thousand for the six month periods ended June 30, 2018 and 2017, respectively.
Stock Option Award Plans
We maintain various stock option plans. A summary
of our stock option plan activity during the six month periods ending June 30, 2018 and 2017 is shown below (in thousands except
price data):
|
|
Six months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Number
of
Options
(000’s)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Options
(000’s)
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, Jan. 1,
|
|
|
1,494
|
|
|
$
|
12.33
|
|
|
|
1,397
|
|
|
$
|
13.57
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(0.92
|
)
|
Forfeited or expired
|
|
|
(145
|
)
|
|
|
(46.39
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding, Jun. 30,
|
|
|
1,349
|
|
|
$
|
8.68
|
|
|
|
1,396
|
|
|
$
|
13.58
|
|
Options exercisable
|
|
|
1,129
|
|
|
$
|
10.26
|
|
|
|
1,190
|
|
|
$
|
15.71
|
|
The following table summarizes information about nonvested stock
options outstanding at June 30, 2018 (in thousands except price data):
|
|
Number of
Options Not
Exercisable
|
|
|
Weighted
Average
Fair Value
|
|
Outstanding, Jan. 1, 2018
|
|
|
270
|
|
|
$
|
0.46
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(46
|
)
|
|
|
0.77
|
|
Forfeited
|
|
|
(4
|
)
|
|
|
0.41
|
|
Outstanding, Jun. 30, 2018
|
|
|
220
|
|
|
$
|
0.39
|
|
We estimate the option’s fair value on
the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to expected term, forfeitures,
volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as we have not paid any cash dividends)
and employee exercise behavior. Expected volatilities utilized in the Black-Scholes model are based on the historical volatility
of our common stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant.
The expected life of the grants is derived from historical exercise activity.
The intrinsic value of the option awards which
were vested and outstanding at each of June 30, 2018 and 2017 was $0 thousand. The total remaining unrecognized compensation cost
on unvested option awards outstanding at June 30, 2018 was $34 thousand, and is expected to be recognized in operating expense
in varying amounts over the 5 months remaining in the requisite service period.
Restricted Stock Unit Award Plans
We have two Restricted Stock Unit Award Plans
for our employees and non-employee directors, a 2017 Restricted Stock Unit Award Plan (the “2017 RSU Plan”) and a 2014
Restricted Stock Unit Award Plan (the “2014 RSU Plan”). Vesting of an RSU entitles the holder to receive a share of
our common stock on a distribution date. Our non-employee director awards allow for non-employee directors to receive payment in
cash, instead of stock, for up to 40% of each RSU award. The portion of the RSU awards subject to cash settlement are recorded
as a liability in the Company’s balance sheet as they vest and being marked-to-market each reporting period until they are
distributed. The liability was $19 thousand and $41 thousand at June 30, 2018 and December 31, 2017, respectively.
The compensation cost to be incurred on a granted
RSU without a cash settlement option is the RSU’s fair value, which is the market price of our common stock on the date of
grant, less its exercise cost. The compensation cost is amortized to expense and recorded to additional paid-in capital over the
vesting period of the RSU award. The total remaining unrecognized compensation cost on unvested RSU awards outstanding at June
30, 2018 was $27 thousand, and is expected to be recognized in operating expense over the 6 months remaining in the requisite service
period.
A summary of the award activity under the RSU
Plans as of June 30, 2018 and 2017, and for each of the six month period then ended consisted of the following:
|
|
Six months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
|
|
Number of
RSUs
|
|
|
Number of
Vested
RSUs
|
|
|
Number of
RSUs
|
|
|
Number of
Vested
RSUs
|
|
Outstanding, Jan. 1
|
|
|
462
|
|
|
|
262
|
|
|
|
91
|
|
|
|
91
|
|
Granted
|
|
|
267
|
|
|
|
-
|
|
|
|
238
|
|
|
|
-
|
|
Distributed
|
|
|
(262
|
)
|
|
|
(262
|
)
|
|
|
(67
|
)
|
|
|
(67
|
)
|
Vested
|
|
|
-
|
|
|
|
133
|
|
|
|
-
|
|
|
|
118
|
|
Forfeited or expired
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, Jun. 30
|
|
|
459
|
|
|
|
133
|
|
|
|
262
|
|
|
|
142
|
|
2017 Restricted
Stock Unit Award Plan
Our 2017 RSU Plan was approved by shareholders
in November 2017 and permits the grant of up to 1.5 million shares of our common stock pursuant to awards under the 2017 RSU Plan.
As of June 30, 2018, approximately 1.0 million shares are available for award under the 2017 RSU Plan.
Information about the awards under the 2017
RSU Plan is as follows:
|
·
|
In December 2017, we awarded
200 thousand RSUs to our employees. Such RSU awards will vest 100% after one full year of service. Distributions of the vested
RSU awards to the employees will be made in three equal installments on the first business day of each of January 2020, 2021,
and 2022 or earlier upon a qualifying change of control.
|
|
·
|
In January 2018, we awarded approximately 67 thousand RSUs to each
of our 4 non-employee directors which also allow for them to receive payment in cash, instead of stock, for up to 40% of each RSU
award. Such awards vest 25% at the end of each calendar quarter in 2018. Distributions of stock under the January 2018 award will
be distributed on January 2, 2019, the first business day of the year after vesting.
|
2014 Restricted
Stock Unit Award Plan
Our 2014 RSU Plan was approved by shareholders
in May 2014 and permits the grant of up to 400 thousand shares of our common stock pursuant to awards under the 2014 RSU Plan.
As of June 30, 2018, approximately 3 thousand shares are available for award under the 2014 RSU Plan.
Information about the awards under the 2014
RSU Plan during 2017 and 2018 is as follows:
|
·
|
In January 2017, we awarded approximately 60 thousand RSUs to each
of our 4 non-employee directors which also allow for them to receive payment in cash, instead of stock, for up to 40% of each RSU
award. Such awards vest 25% at the end of each calendar quarter in 2017. The portion of the RSU awards which are subject to cash
settlement are also subject to marked-to market accounting and the liability recorded in the Company’s balance sheet as an
estimate for such cash settlement was $41 thousand at December 31, 2017. Distributions of stock under this award was distributed
on January 2, 2018.
|
Information about
the distribution of shares under the 2014 RSU Plan is as follows:
|
·
|
In January 2017, 1 thousand RSUs from the May 2014 award and 66 thousand
RSUs from the January 2016 award were distributed. There were 1 thousand RSUs from the May 1 2014 award and 22 thousand RSUs from
the January 2016 award which remained deferred until a future distribution date, which occurred on January 1, 2018. Of the 67 thousand
RSUs distributed, 49 thousand RSUs were distributed in common stock and 18 thousand RSUs were settled in cash.
|
|
·
|
In January 2018, all outstanding 262 thousand RSUs from the 2014
RSU Plan were distributed. Of the approximately 262 thousand RSUs distributed, 238 thousand RSUs were distributed in common stock
and 24 thousand RSUs were settled in cash.
|
NOTE 13 – INCOME TAXES
We account for income taxes under the liability
method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting
and income tax basis of assets and liabilities and are accounted for using the enacted income tax rates and laws that will be in
effect when the differences are expected to reverse. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”)
was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate
tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and requiring adjustment to 2017 deferred
taxes.
Deferred tax assets reflect the tax effects
of net operating losses (“NOLs”), tax credit carryovers, and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The most significant item
of our deferred tax assets is derived from our Federal NOLs. We have approximately $169 million gross Federal NOLs at June 30,
2018 (of which approximately $168 million were generated prior to 2018). Because we believe the ability for us to use the Federal
NOLs generated prior to January 1, 2018 to offset future taxable income is severely limited, as prescribed under Internal Revenue
Code (“IRC”) Section 382, we have estimated and recorded an amount for the likely limitation to our deferred tax asset.
The amount we recorded thereby reduced the aggregate estimated benefit of the Federal NOLs generated prior to January 1, 2018 to
approximately $1.0 million. We believe the gross Federal NOL benefit we generated prior to January 1, 2018 to offset future taxable
income is less than $150 thousand annually. As prescribed under Internal Revenue Code, any unused Federal NOL benefit from the
annual limitation can be accumulated and carried forward to the subsequent year and will expire if not used in accordance with
the NOL carried forward term of 20 years or 2037, if generated before January 1, 2018 and Federal NOLs generated after December
31, 2017 can be carried forward indefinitely. Future common stock transactions may cause another qualifying event under IRC 382
which may further limit our utilization of our NOLs.
The realization of deferred income tax assets
is dependent upon future earnings. A valuation allowance is required against deferred income tax assets if, based on the weight
of available evidence, it is more likely than not that some or all of the deferred income tax assets may not be realized. At both
June 30, 2018 and December 31, 2017, all our remaining net deferred income tax assets were offset by a valuation allowance due
to uncertainties with respect to future utilization of NOL carryforwards. If in the future it is determined that additional amounts
of our deferred income tax assets would likely be realized, the valuation allowance would be reduced in the period in which such
determination is made and an additional benefit from income taxes in such period would be recognized.
NOTE 14 – NET LOSS PER SHARE
Basic EPS is computed by dividing net income
or loss by the weighted average common shares outstanding during a period, including shares weighted related to vested Restricted
Stock Units (“RSUs”) (see Note 12). Diluted EPS is based on the treasury stock method and computed based on the same
number of shares used in the basic share calculation and includes the effect from potential issuance of common stock, such as shares
issuable pursuant to the exercise of stock options and stock warrants, assuming the exercise of all in-the-money stock options
and warrants. Common stock equivalents are excluded from the computation where their inclusion would be anti-dilutive. No such
adjustments were made for 2018 as the Company reported a net loss for the six month period, and including the effects of the common
stock equivalents in the diluted EPS calculations would have been antidilutive. The weighted-average common shares outstanding
diluted computation is not impacted during any period where the exercise price of a stock option or common stock warrant is greater
than the average market price.
A reconciliation of the numerators and denominators
of basic and diluted EPS consisted of the following (in thousands except per share data):
|
|
Three months Ended
June 30,
|
|
|
Six months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
EPS – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: net loss
|
|
$
|
(1,261
|
)
|
|
$
|
(2,149
|
)
|
|
$
|
(2,755
|
)
|
|
$
|
(1,744
|
)
|
Denominator (weighted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
21,034
|
|
|
|
11,883
|
|
|
|
21,034
|
|
|
|
11,884
|
|
Vested RSUs
|
|
|
67
|
|
|
|
83
|
|
|
|
34
|
|
|
|
54
|
|
Basic and diluted weighted average shares outstanding
|
|
|
21,101
|
|
|
|
11,966
|
|
|
|
21,068
|
|
|
|
11,938
|
|
EPS – basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluded securities (non-weighted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issuable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options – vested and nonvested
|
|
|
1,349
|
|
|
|
1,396
|
|
|
|
1,349
|
|
|
|
1,396
|
|
RSUs - nonvested
|
|
|
326
|
|
|
|
120
|
|
|
|
326
|
|
|
|
120
|
|
Common stock purchase warrants
|
|
|
1,842
|
|
|
|
60
|
|
|
|
1,842
|
|
|
|
60
|
|
Total excluded common shares
|
|
|
3,517
|
|
|
|
1,576
|
|
|
|
3,517
|
|
|
|
1,576
|
|
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Reglan
®
/Metoclopramide
Litigation
Halsey Drug Company, as predecessor to us,
was named along with numerous other companies as a defendant in cases filed in three separate state coordinated litigations pending
in Pennsylvania, New Jersey and California, respectively captioned In re: Reglan®/Metoclopramide Mass Tort Litigation, Philadelphia
County Court of Common Pleas, January Term, 2010, No. 01997; In re: Reglan Litigation, Superior Court of New Jersey, Law Division,
Atlantic County, Case No. 289, Master Docket No. ATL-L-3865-10; and Reglan/Metoclopramide Cases, Superior Court of California,
San Francisco County, Judicial Council Coordination Proceeding No. 4631, Superior Court No.: CJC-10-004631. In addition,
we were served with a similar complaint by two individual plaintiffs in Nebraska federal court, which plaintiffs voluntarily dismissed
in December 2014. In this product liability litigation against numerous pharmaceutical product manufacturers and distributors,
including Acura, plaintiffs claim injuries from their use of the Reglan brand of metoclopramide and generic metoclopramide.
In the lawsuits filed to date, plaintiffs have
not confirmed they ingested any of the generic metoclopramide manufactured by us. We discontinued manufacture and distribution
of generic metoclopramide more than 20 years ago. In addition, we believe the June 23, 2011 decision by the U.S. Supreme
Court in
PLIVA v. Mensing (“Mensing
decision”) holding that state tort law failure to warn claims against generic
drug companies are pre-empted by the 1984 Hatch-Waxman Act Amendments and federal drug regulations will assist us in favorably
resolving these cases.
In New Jersey, Generic Defendants, including
Acura, filed dispositive motions based on the
Mensing
decision, which the Court granted with a limited exception.
In June 2012, the New Jersey trial court dismissed all of the New Jersey cases pending against us with prejudice.
In Pennsylvania, the trial court proceedings
were stayed on January 12, 2017. On June 15, 2017, the Court entered an Order approving a stipulation which dismisses nearly
all of the individual cases against us based upon lack of product identification without prejudice and provides for these cases
to be dismissed finally, with prejudice, as of June 15, 2018. We expect that the Court will finally dismiss the Pennsylvania-based
litigation against us with prejudice in 2018. Legal fees related to this matter are currently covered by our insurance carrier.
In California, on May 24, 2016, the Court entered
an Order approving a stipulation which stays the individual cases against us and provides for an agreed upon dismissal protocol
for all cases where is a lack of product identification. On January 13, 2017, the Court also entered a general stay of this
entire litigation. To date, none of these plaintiffs have confirmed they ingested any of the generic metoclopramide manufactured
by us. Therefore, we expect that the lawsuits filed against us will be dismissed voluntarily with prejudice later in 2018.
Legal fees related to this matter are currently covered by our insurance carrier.
As any potential loss is neither probable nor
estimable, we have not accrued for any potential loss related to these matters as of June 30, 2018 and we are presently unable
to determine if any potential loss would be covered by our insurance carrier.
DES Litigation
On April 12, 2018, an action was commenced
against the Company and over twenty-five other pharmaceutical manufacturers in New York State Supreme Court, New York County, captioned
Cotto et al. v. Abbott Laboratories, Inc., et al
(index 153339/2018). The Complaint contains seven causes of action, including
negligence, strict liability, and breach of warranty, wrongful death, among others, in connection with the alleged exposure of
the deceased plaintiff in utero to diethylstilbestrol (DES) in approximately 1956 as the result of the ingestion of the drug by
her mother. The plaintiffs are the personal representative of the deceased and her two daughters, individually. The plaintiffs
were unable to determine which of the defendants produced the DES used by the deceased, but regardless seeks to hold all defendants
jointly and severally liable. The Complaint seeks $10.0 million in compensatory and $10.0 million in punitive damages on each of
five counts and damages in an amount to be determined for wrongful death and additional punitive damages in an unstated amount.
As any potential loss is neither probable nor estimable, we have not accrued for any potential loss related to these matters as
of June 30, 2018. We are presently unable to determine if any potential loss would be covered by any of our insurance carriers.
Purdue Pharma Settlement
In April 2015, Purdue Pharma L.P., Purdue Pharmaceuticals
L.P. and The P.F. Laboratories, Inc. (collectively, “Purdue”) commenced a patent infringement lawsuit against us and
our Oxaydo product licensee Egalet US, Inc. and its parent Egalet Corporation in the United States District Court for the District
of Delaware alleging our Oxaydo product infringes Purdue’s U.S. Patent No. 8,389,007 (the “ 007 patent”). In
April 2016, Purdue commenced a second patent infringement lawsuit against us and Egalet in the United States District Court for
the District of Delaware alleging our Oxaydo product infringes Purdue’s newly issued U.S. Patent No. 9,308,171 (the “171
Patent”). The actions regarding the 007 Patent and the 171 Patent are collectively referred to as the “Actions”.
On April 6, 2016, we filed a petition for Inter Partes Review (the “IPR Review”) with the U.S. Patent and Trademark
Office (“USPTO”) seeking to invalidate Purdue’s 007 Patent.
On May 20, 2016, Purdue
on behalf of themselves and certain affiliates, Egalet Corporation, on behalf of itself and its affiliates and we, on behalf of
ourselves and our affiliates entered into a settlement agreement (the “Settlement Agreement”) to settle the Actions
and the IPR Review. Under the Settlement Agreement the parties dismissed or withdrew the Actions, requested that the USPTO terminate
the IPR Review and exchanged mutual releases. No payments were made under the Settlement Agreement.
The Settlement Agreement also provides that
Purdue will not, in the future, assert certain Purdue U.S. patents, including the 007 Patent, the 171 Patent and related technologies
(the “Purdue Patents”) against any Acura Settlement Product or Egalet Settlement Product (except generally in an action
or interference by Acura or Egalet challenging a Purdue Patent). Acura Settlement Products and Egalet Settlement Products are certain
immediate-release and extended-release products, including Oxaydo. In addition, the Settlement Agreement provides that Purdue will
not challenge, with certain exceptions, the Acura/Egalet Patents with respect to the Purdue Settlement Products (as defined below)
and that Purdue provides Acura and/or Egalet certain waivers of non-patent marketing exclusivity with respect to Purdue Settlement
Products.
The Settlement Agreement also provides that
Acura and Egalet will not, in the future, assert certain Acura and/or Egalet U.S. patents (the “Acura/Egalet Patents”),
including Acura’s Aversion® Technology patents, against any Purdue Settlement Products (except generally in an action
or interference by Purdue challenging an Acura/Egalet Patent). Purdue Settlement Products are certain immediate-release and extended-release
products. In addition, the Settlement Agreement provides that Acura and Egalet will not challenge, with certain exceptions, the
Purdue Patents with respect to the Acura Settlement Products and Egalet Settlement Products and that Acura and Egalet provide Purdue
certain waivers of non-patent marketing exclusivity with respect to the Acura Settlement Products and Egalet Settlement Products.
In addition, Purdue has certain rights to negotiate to exclusively distribute an authorized generic version of certain Egalet Settlement
Products, including, in some circumstances, Oxaydo® and other products using Acura’s Aversion® Technology if licensed
to Egalet.
The Settlement Agreement specifically excludes
our patents related to our Impede® and Limitx™ technologies from the scope of the Acura/Egalet Patents under the Settlement
Agreement.
In December 2014, the Company entered into
an agreement with Purdue Pharma L.P. to settle a patent interference action regarding certain intellectual property held by Acura
(U.S. Patent No. 8,101,630). The dispute centered upon the issue of which company has priority in developing the invention. The
parties agreed to forgo protracted litigation and the uncertainties arising therefrom by entering an agreement whereby the Company
conceded Purdue Pharma’s claim of priority in exchange for certain financial consideration to us including an immediate non-refundable
payment of $500 thousand. In June 2015, the Company received an additional $250 thousand payment from Purdue Pharma relating to
the December 2014 agreement.
Egalet Agreement covering Oxaydo
On January 7, 2015, we and Egalet entered into
a Collaboration and License Agreement (the “Egalet Agreement”) to commercialize Aversion Oxycodone (formerly known
as Oxecta®) under our tradename Oxaydo. Oxaydo is approved by the FDA for marketing in the United States in 5 mg and 7.5 mg
strengths. Under the terms of the Egalet Agreement, we transferred the approved New Drug Application, or NDA, for Oxaydo to Egalet
and Egalet is granted an exclusive license under our intellectual property rights for development and commercialization of Oxaydo
worldwide (the “Territory”) in all strengths, subject to our right to co-promote Oxaydo in the United States. Eaglet
launched Oxaydo in the United States late in the third quarter of 2015.
In accordance with the
Egalet Agreement, we and Egalet have formed a joint steering committee to coordinate commercialization strategies and the development
of product line extensions. Egalet is responsible for the fees and expenses relating to the Oxaydo NDA and product line extensions
of Oxaydo, provided that Egalet will pay a substantial majority of the expenses and we will pay for the remaining fees and expenses
relating to (i) annual NDA PDUFA product fees, (ii) expenses of the FDA required post-marketing study for Oxaydo and (iii) expenses
of clinical studies for product line extensions (additional strengths) of Oxaydo for the United States. Egalet will bear all of
the expenses of development and regulatory approval of Oxaydo for sale outside the United States. Egalet is responsible for all
manufacturing and commercialization activities in the Territory for Oxaydo. Subject to certain exceptions, Egalet will have final
decision making authority with respect to all development and commercialization activities for Oxaydo, including pricing, subject
to our co-promotion right. Egalet may develop Oxaydo for other countries and in additional strengths, in its discretion. At June
30, 2018 we have accrued approximately $412 thousand of these potential cost sharing reimbursable expenses under the Egalet Agreement.
NOTE 16 – SUBSEQUENT EVENT
Loan Due January 2, 2020
On August 2, 2018 we borrowed $0.4 million
from John Schutte and issued a promissory note in that aggregate principal amount to him. To date we have borrowed $1.9 million
from him (the Schutte Notes). The Schutte Notes bear interest at prime plus 2.0%, and mature on January 2, 2020, at which time
all principal and interest is due, and are unsecured until all obligations to Oxford are satisfied at which time we are required
to grant a security interest to Mr. Schutte in all of our assets. Events of default under the Schutte Notes are limited to bankruptcy
defaults and failure to pay interest and principal when due on January 2, 2020. During the second quarter 2018, Mr. Schutte and
Oxford entered into a subordination agreement, approved by us and our subsidiary, pursuant to which Mr. Schutte subordinated the
Schutte Notes to our obligations to Oxford under the Oxford Loan Agreement. The Schutte Notes may be prepaid at any time in whole
or in part, however while Oxford’s loan is outstanding such prepayment will require Oxford’s consent.
Facility Lease
The Company leases administrative office space
in Palatine, Illinois on a month to month basis at the rate of approximately $2 thousand per month.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read
in conjunction with the Company's financial statements and accompanying notes included elsewhere in this Report. Historical operating
results are not necessarily indicative of results in future periods.
Forward-Looking Statements
Certain statements in this Report constitute
“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking
statements. Forward-looking statements may include, but are not limited to:
|
·
|
our ability to fund or obtain funding for our continuing operations, including the development
of our products utilizing our Limitx and Impede technologies;
|
|
·
|
our ability to comply with our obligations under our term loan with Oxford Finance LLC, or to obtain
a waiver from Oxford Finance LLC for our failure to comply with our covenants contained in such term loan agreement;
|
|
·
|
the expected results of clinical studies relating to LTX-03 or any successor product candidate,
the date by which such studies will be complete and the results will be available and whether LTX-03 will ultimately receive FDA
approval;
|
|
·
|
whether Limitx will retard the release of opioid active ingredients as dose levels increase;
|
|
·
|
whether the extent to which products formulated with the Limitx technology deter abuse will be
determined sufficient by the FDA to support approval or labelling describing abuse deterrent features;
|
|
·
|
whether our Limitx technology can be expanded into extended-release formulations;
|
|
·
|
our and our licensee’s ability to successfully launch and commercialize our products and
technologies, including Oxaydo® Tablets and our Nexafed® products;
|
|
·
|
the pricing and price discounting that may be offered by Egalet for Oxaydo;
|
|
·
|
the results of our development of our Limitx Technology;
|
|
·
|
our or our licensees’ ability to obtain necessary regulatory approvals and commercialize
products utilizing our technologies;
|
|
·
|
the market acceptance of, timing of commercial launch and competitive environment for any of our
products;
|
|
·
|
expectations regarding potential market share for our products;
|
|
·
|
our ability to develop and enter into additional license agreements for our product candidates
using our technologies;
|
|
·
|
our exposure to product liability and other lawsuits in connection with the commercialization of
our products;
|
|
·
|
the increasing cost of insurance and the availability of product liability insurance coverage;
|
|
·
|
the ability to avoid infringement of patents, trademarks and other proprietary rights of third
parties;
|
|
·
|
the ability of our patents to protect our products from generic competition and our ability to
protect and enforce our patent rights in any paragraph IV patent infringement litigation;
|
|
·
|
whether the FDA will agree with or accept the results of our studies for our product candidates;
|
|
·
|
the ability to fulfill the FDA requirements for approving our product candidates for commercial
manufacturing and distribution in the United States, including, without limitation, the adequacy of the results of the laboratory
and clinical studies completed to date, the results of laboratory and clinical studies we may complete in the future to support
FDA approval of our product candidates and the sufficiency of our development process to meet over-the-counter (“OTC”)
Monograph standards, as applicable;
|
|
·
|
the adequacy of the development program for our product candidates, including whether additional
clinical studies will be required to support FDA approval of our product candidates;
|
|
·
|
changes in regulatory requirements;
|
|
·
|
adverse safety findings relating to our commercialized products or product candidates in development;
|
|
·
|
whether the FDA will agree with our analysis of our clinical and laboratory studies;
|
|
·
|
whether further studies of our product candidates will be required to support FDA approval;
|
|
·
|
whether or when we are able to obtain FDA approval of labeling for our product candidates for the
proposed indications and whether we will be able to promote the features of our abuse discouraging technologies; and
|
|
·
|
whether Oxaydo or our Aversion and Limitx product candidates will ultimately deter abuse in commercial
settings and whether our Nexafed products and Impede technology product candidates will disrupt the processing of pseudoephedrine
into methamphetamine.
|
In some cases, you can identify forward-looking
statements by terms such as “may,” “will,” “should,” “could,” “would,”
“expects,” “plans,” “anticipates,” “believes,” “indicates,” “estimates,”
“projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking
statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to
risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We
discuss many of these risks in greater detail in Item 1A of this Report. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially
and adversely from those anticipated or implied in the forward-looking statements.
Unless required by law, we undertake no obligation
to update or revise any forward-looking statements to reflect new information or future events or developments. Accordingly, you
should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking
statements.
Company Overview
We are a specialty pharmaceutical company engaged
in the research, development and commercialization of technologies and products intended to address medication abuse and misuse.
We have discovered and developed three proprietary platform technologies which can be used to develop multiple products. Our Aversion®
and Limitx™ Technologies are intended to address methods of abuse associated with opioid analgesics while our Impede®
Technology is directed at minimizing the extraction and conversion of pseudoephedrine, or PSE, into methamphetamine. Oxaydo Tablets
(oxycodone HCl, CII), which utilizes the Aversion Technology, is the first approved immediate-release oxycodone product in the
United States with abuse deterrent labeling. On January 7, 2015, we entered into a Collaboration and License Agreement with Egalet
US, Inc. and Egalet Ltd., each a subsidiary of Egalet Corporation, or collectively Egalet, pursuant to which we exclusively licensed
to Egalet worldwide rights to manufacture and commercialize Oxaydo. Oxaydo is currently approved by the U. S. Food and Drug Administration,
or FDA, for marketing in the United States in 5mg and 7.5mg strengths. Egalet launched Oxaydo in the United States late in the
third quarter of 2015.
We launched our first Impede Technology product,
Nexafed, into the United States market in December 2012 and launched our Nexafed Sinus Pressure + Pain product in the United States
in February 2015. On March 16, 2017, we and MainPointe Pharmaceuticals, LLC, or MainPointe, entered into a License, Commercialization
and Option Agreement, or the MainPointe Agreement, pursuant to which we granted MainPointe an exclusive license to our Impede technology
in the U.S. and Canada to commercialize our Nexafed products. The MainPointe Agreement also grants MainPointe the option to expand
the licensed territory to the European Union, Japan and South Korea and to add additional pseudoephedrine-containing products utilizing
our Impede technology. MainPointe is controlled by John Schutte, who became our largest shareholder pursuant to a private placement
completed in July 2017 and also became a creditor in May 2018.
On June 28, 2017, Bayer Healthcare LLC, or
Bayer, terminated a 2015 License and Development Agreement in which we granted Bayer an exclusive worldwide license to our Impede
technology for use in an undisclosed methamphetamine resistant PSE containing product. As a result of the termination, MainPointe
has the option to license our Impede Technology with respect to such product in the United States and Canada upon payment of a
fee. MainPointe has not yet exercised this option.
Our third abuse deterrent technology, Limitx,
is designed to retard the release of active drug ingredients when too many tablets are accidently or purposefully ingested by neutralizing
stomach acid with buffer ingredients but deliver efficacious amounts of drug when taken as a single tablet with a nominal buffer
dose. We have completed four clinical studies of various product formulations utilizing the Limitx technology which have demonstrated
proof-of-concept for the Limitx technology and will allow us to advance a product to development for a New Drug Application, or
NDA. Studies AP-LTX-400, or Study 400, and Study AP-LTX-401, or Study 401, both utilizing our LTX-04 hydromorphone formulation
demonstrated the mean maximum drug concentration, or Cmax, was reduced in healthy adult fasted subjects by 50% to 65% when excessive
buffer levels were ingested or a situation consistent with over-ingestion of tablets. Study AP-LTX-301, or Study 301, the results
for which were announced in January 2018, demonstrated drug Cmax from LTX-03, a Limitx hydrocodone bitartrate and acetaminophen
combination product, in healthy adult fasted subjects trended toward bioequivalence in test formulations A through E while showed
an increasing reduction in Cmax for formulations F through H; in which formulations A though H had increasing incremental amounts
of buffer starting with no buffer in formulation A. We believe the results of Study 301 demonstrated that LTX-03 is a formulation
that optimizes the balance between effective blood levels of drug for pain relief at a single tablet dose while retarding bioavailability
of drug when multiple tablets are ingested. Study AP-LTX-300, or Study 300, was inconclusive in its results due to observed issues
with drug release from over-encapsulated test product. The FDA has designated the development program for LTX-04 as Fast Track,
which is designed to facilitate the development, and expedite the review of drugs to treat serious conditions and fill an unmet
medical need. However, we intend to advance LTX-03, which combines the hydrocodone micro-particles, acetaminophen and buffer ingredients
into a single tablet, as our lead Limitx product candidate due to its larger market size and its known prevalence of oral excessive
tablet abuse, and we voluntarily placed the Investigational New Drug Application, or IND, for LTX-04 on inactive status. We submitted
an IND for LTX-03 to the FDA in the first quarter of 2018 in order to advance to NDA development, which became effective in April
2018.
We are actively seeking a licensing partner
for our Limitx product candidates.
According to the 2017 CDC Drug Surveillance
Report, opioid analgesics are one of the largest prescription drug markets in the United States with 214 million prescriptions
dispensed in 2016. Prescription opioids are also the most widely abused drugs with 12 million people abusing or misusing these
products annually. Oxaydo will compete in the immediate-release opioid product segment. Because immediate-release opioid products
are used for both acute and chronic pain, a prescription, on average, contains 66 tablets or capsules. According to IMS Health,
in 2016, sales in the immediate-release opioid product segment were approximately 194 million prescriptions, of which approximately
95% was attributable to generic products. Immediate-release oxycodone tablets represent approximately 30 million of these prescriptions
or almost 1.7 billion tablets. The FDA approved label for our Oxaydo product describes the unique, and we believe promotable, abuse
deterrent features of our product which we believe makes prescribing our product attractive to some healthcare providers.
In 2014, the United States retail market for
over-the-counter market, or OTC, cold and allergy products containing the pseudoephedrine oral nasal decongestant was approximately
$0.7 billion. In 2014, the DEA reported 9,339 laboratory incidents involving the illegal use of OTC pseudoephedrine products to
manufacture the highly addictive drug methamphetamine, or meth. According to the Substance Abuse and Mental Health Services Administration,
users of methamphetamine surged in 2016 to 684,000 people up from 440,000 people in 2012. As of March 16, 2017, sales of Nexafed
and Nexafed Sinus are covered under the MainPointe Agreement, for which we receive a royalty.
On March 23, 2015, we announced preliminary
top line results from our pilot clinical study demonstrating bioequivalence of our Nexafed extended release tablets to Johnson
& Johnson’s Sudafed® 12-hour Tablets. In October 2016, we received FDA recommendations on our meth-resistant testing
protocols for our Nexafed extended release tablets which utilizes our Impede 2.0 enhanced meth-resistant technology. Our Impede
2.0 Technology has demonstrated, in the direct conversion, or “one-pot”, methamphetamine conversion process performed
by an independent pharmaceutical services company, the ability to reduce meth-yields, on average, by 75% compared to Sudafed®
Tablets. We can now scale-up our manufacture batch size at a contract manufacturer which will allow us to submit an IND to the
FDA for our Nexafed extended release tablets, however, we have not yet committed to that level of development.
In March 2017, we completed a pilot pharmacokinetic
study for a PSE and loratadine-combination product using our Impede 1.0 technology. The study in 24 healthy adult subjects demonstrated
sufficient, but not bioequivalent blood levels of PSE to the comparator while the second active ingredient achieved bioequivalence.
Based on the product profile, we believe this formulation can be moved into final development for a 5050(b)(2) NDA submission.
The Company intends to upgrade this formulation with its Impede 2.0 technology before determining any advancement in development,
however, we have not yet committed to that level of development.
Our objective is to establish, either directly
or through third-party licensees, the Nexafed franchise in the United States with multiple product offerings, including both immediate
and extended release products utilizing both single and combinations of active ingredients. We aim to make meth-resistant PSE product
the standard of care in all U.S. pharmacies. In addition to the MainPointe Agreement, we may license our Impede technology to commercial
partners to extend our internal development resources to develop difficult to formulate products, such as extended-release.
We conduct research, development, laboratory,
manufacturing, and warehousing activities at our operations facility in Culver, Indiana and lease an administrative office in Palatine,
Illinois. In addition to internal capabilities and activities, we engage numerous clinical research organizations, or CROs, with
expertise in regulatory affairs, clinical trial design and monitoring, clinical data management, biostatistics, medical writing,
laboratory testing and related services. Our Supply Agreements with two third-party pharmaceutical product manufacturers and packagers
to supply our commercial requirements for our Nexafed and Nexafed Sinus Pressure + Pain products were assigned to MainPointe in
accordance with the MainPointe Agreement.
Abuse of Prescription Opioid Products and
Development of Abuse Deterrent Formulations
Prescription opioids drugs, such as morphine
and oxycodone, have a long history of use for the management of pain. Because they are highly effective, they are one of the largest
prescribed drug categories in the U.S. However, a side effect of high doses of opioids is euphoria, or “a high”. For
these reasons, opioids are the most misused or abused prescription drugs in the U.S. Opioids are offered in a variety of dosages
including immediate-release tablets (or capsules), extended-release tablets (or capsules), patches and other formats. Abusers will
often manipulate or tamper with the formulations to achieve their high, including:
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Oral Excessive Tablet Abuse (ETA). Generally recognized as the most prevalent route of administration
by abusers, the abuser simply orally ingests more tablets (or capsules) than is recommended for pain relief.
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Oral Manipulated Tablet Abuse (MTA). Extended-release tablets or patches are sometimes crushed,
chewed or otherwise physically or chemically manipulated to defeat the extended-release mechanism and provide an immediate-release
of the opioid for oral ingestion.
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Nasal snorting. Crushed tablets are insufflated for absorption of the drug through the nasal tissues.
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Injection. The opioid is physically or chemically removed from the dosage and injected into the
vein using a syringe.
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Poly-pharmacy. Opioids are sometimes used in conjunction with alcohol, methamphetamine, or other
drugs to accentuate the high.
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Abuse deterrent formulations of opioid dosages
incorporate physical and/or chemical barriers or functionality in the formulations to prevent or discourage an abuser from inappropriately
administering the product. The extent and manner in which any of the features of abuse deterrent opioids may be described in the
FDA approved label for our pipeline products will be dependent on the results of and the acceptance by the FDA of our and our licensees’
studies for each product.
Development of our Limitx and Aversion (if
recommenced) product candidates will require one or more abuse deterrent studies consistent with the FDA 2015 published guidance
for industry on the evaluation and labeling of abuse-deterrent opioids (the “2015 Guidance”). These studies may include
in vitro laboratory studies to determine, among other things, syringeability of the formulation, extractability of the opioid,
and particle size of the crushed product. It is also expected that development will include human abuse liability studies comparing
the abuse liability of our product candidates to currently marketed products. Because our products use known active ingredients
in approved dosage strengths, the safety and efficacy of the opioid will need to be established by a series of pharmacokinetic
studies demonstrating: (a) bioequivalence to an approved reference drug, (b) food effect of our formulations, and (c) dose proportionality
of our formulation. A product candidate that does not achieve satisfactory pharmacokinetic results may require a phase III clinical
pain study.
Further development will likely also entail
additional safety and/or efficacy assessment as may be identified by the FDA for each specific formulation during the Investigational
New Drug application, or IND, or NDA phase of development. In accordance with the FDA’s 2015 Guidance, we will likely have
a post-approval requirement for each of our products, if approved, to perform an epidemiology study to assess the in-market impact
on abuse of our formulation.
Limitx™ Technology
Limitx Technology is intended to address oral
ETA or accidental consumption of multiple tablets and provide a margin of safety during accidental over-ingestion of tablets. Limitx
is also expected to exhibit barriers to abuse by snorting and injection.
The FDA’s 2015 Guidance singles out immediate-release
combination products with acetaminophen as being predominately abused by the oral route and that reducing nasal snorting of these
products may not be meaningful. The initial Limitx formulation (LTX-04) utilizes hydromorphone as its sole active ingredient. During
2017 we redirected our development focus from LTX-04 to a hydrocodone/APAP product utilizing our Limitx Technology (LTX-03). In
August 2015, April 2016, and May 2017 the United States Patent and Trademark Office, or USPTO, issued to us patents 9,101,636,
9,320,796 and 9,662,393, respectively, covering, among other things, our Limitx Technology.
Development of our Limitx Technology was supported
by a $300 thousand grant by the National Institute on Drug Abuse of the National Institutes of Health for Phase I development,
which entailed the development of an optimized formulation of LTX-04 suitable for commercial manufacture and human testing.
NIDA
Disclaimer: Research on LTX-04 was supported by the National Institute On Drug Abuse of the National Institutes of Health under
Award Number R44DA037921. The results and content of any such research is solely the responsibility of Acura and does not necessarily
represent the official views of the National Institutes of Health.
The LTX-04
development program was also designated as Fast Track by the FDA for its potential to address an unmet medical need but we have
voluntarily placed the IND for LTX-04 on inactive status to pursue development of LTX-03.
Limitx Technology Products in Development
We have
the following products in development utilizing our Limitx Technology:
Limitx Technology Product
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Status
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Immediate-release hydromorphone HCI (LTX-04)
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Two Phase I exploratory pharmacokinetic studies completed. IND no longer active.
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Immediate-release hydrocodone bitartrate with acetaminophen (LTX-03)
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Initial buffer dose ranging study completed October 2017
Follow on dose ranging study completed in January 2018
Manufacturing scale-up in process
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Immediate-release oxycodone HCl (LTX-01) & (LTX-02)
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Formulation development in process
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Immediate-release non-opioid drug (LTX-09)
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Formulation development in process
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Study 400
Study 400 was a two cohort, open label, crossover
design pharmacokinetic study in healthy adult subjects. Study 400 measured the rate and extent of absorption of the active drug
ingredient into the bloodstream with the maximum concentration, or Cmax, typically associated with an increase in drug abuse. Cohort
1 enrolled 30 subjects who were randomized into three subgroups of 10 taking either 1, 2 or 3 tablets. Each subgroup subject orally
swallowed the planned number of tablets in a randomized manner taking single doses of two different test formulations of LTX-04
(designated as LTX-04P and LTX-04S and distinguished by their respective acid neutralizing capacity) and Purdue Pharma’s
marketed drug Dilaudid® as a comparator. The 1, 2 and 3 tablets subgroups in Cohort 1 completed 8, 10 and 8 subjects, respectively.
Cohort 2 enrolled 30 subjects who were randomized
into three subgroups of 10 taking either 4, 6 or 8 tablets. Each subgroup subject orally swallowed the planned number of tablets
in a randomized manner taking single doses of LTX-04P and the marketed drug Dilaudid as a comparator. The 4, 6 and 8 tablets subgroups
in Cohort 2 completed 8, 9 and 8 subjects, respectively.
All tablets contained 2mg of hydromorphone
hydrochloride. All subjects received doses of naltrexone and there was a one week washout between doses. Blood samples were taken
at pre-designated time-points after dosing and were subsequently analyzed for the concentration of hydromorphone contained in the
sample. All subjects in Cohort 1 had continuous pH (a measure of acid concentration) monitoring of their gastric fluid. The objective
of Cohort 1 was to determine if adequate active drug entered the blood stream when one or two Limitx tablets were swallowed and
to begin assessing the ability of the Limitx Technology to start retarding the release of active ingredients when three tablets
are ingested. The objective of Cohort 2 was to further explore the extent the release of the hydromorphone active ingredient from
LTX-04P tablets is retarded as the dose level increases to abusive levels. A safety assessment of Limitx Hydromorphone will be
made from both study cohorts.
The topline results from Study 400 demonstrated
that a single tablet dose delivered a Cmax of 45% and 50% lower than the reference drug for LTX-04S and LTX-04P, respectively.
For an 8 tablet dose, the Cmax for LTX-04P was 59% lower than the reference drug. Doses between 1 and 8 tablets had similar reduction
in Cmax compared to the reference. The extent of drug absorption, measure by area under the curve (AUC) was consistent between
the Limitx products and the reference.
On December 14, 2016, we announced that we
had received advice from the FDA on the continued development of LTX-04 following the FDA’s review of summary data from Study
400. The FDA confirmed our intention to reformulate LTX-04 to provide increased drug levels following an intended 1 or 2 tablet
dose, noting that a scientific bridge of bioequivalence to the reference product will support a finding of safety and efficacy.
The FDA also recommended that we identify studies to measure the clinical impact on abuser behavior and overdose outcome (such
as drug liking and respiratory depression) associated with the reduction in Cmax when three or more LTX-04 tablets were ingested.
The FDA’s advice also identified longer term studies necessary for submitting a NDA for LTX-04, including in vitro extraction
studies, drug interaction studies, additional pharmacokinetic studies assessing the impact of food and beverages, and a category
3 abuse liability study.
Study 401
Study 401, completed in June 2017, also was
a two cohort, open label, crossover design pharmacokinetic study in fasted, health adult subjects. Study 401 utilized a modified
LTX-04 formulation containing micro-particles intended to improve drug delivery with one and two tablet dosing (LTX-04P3). Study
401 measured the rate and extent of absorption of the active drug ingredient into the blood stream with the Cmax typically associated
with an increase in drug abuse. 27 subjects completed Cohort 1 swallowing a single dose tablet of LTX-04 compared to a generic
hydromorphone tablet. 13 subjects completed Cohort 2 swallowing 7 LTX-04 and generic tablets doses. 15 subjects followed an undisclosed,
exploratory protocol.
All tablets contained 2 mg of hydromorphone
hydrochloride. All subjects received dosages of naltrexone and/or naloxone and there was a one week washout between dosages. Blood
samples were taken at pre-designated time-points after dosing and were subsequently analyzed for the concentration of hydromorphone
contained in the sample. The objective of Cohort 1 was to determine if adequate active drug entered the bloodstream when one Limitx
tablet was swallowed. The objective of Cohort 2 was to explore the extent to which the release of the hydromorphone active ingredient
from LTX-04 tablets is retarded at a seven tablet dose (oral excess abuse levels). A safety assessment of Limitx hydromorphone
would be made from both study cohorts.
The topline results from Study 401 demonstrated
that Cmax for a one tablet LTX-04P3 dose was approximately 50% less than the active comparator. The Cmax for the 7 tablet LTX-04P3
dose was 65% below the comparator. Study 401 also included a 7 tablet dose of LTX-04P3 taken simultaneously with an agent known
to increase gastric emptying time (i.e. increase retention time of the ingredients in the stomach) which demonstrated an increase
in Tmax (time of Cmax) of over 1 hour compared to LTX-04P3 taken without this agent. Since the micro-particles used in Study 401
release drug much faster than the micro-particles used in Study 400, we have concluded that the buffer levels used in both studies
were excessive and is retarding the release of drug even with a single dose. Also, given that manipulating the duration of stomach
acidity with a gastric emptying agent produced a significant increase in Tmax which is indicative of a delayed release of drug
from LTX-04P3, we concluded the Limitx micro-particles are working as designed in that when we neutralize the stomach acid we are
slowing the release of drug and subsequent absorption of drug into the blood stream.
We believe the results from Study 400 and 401
indicate the micro-particle are working as designed but that we used too much buffer for even a single tablet and did not achieve
full release of the drug at a 1 tablet dose.
Study 300
Study 300, completed in October 2017, yielded
unreliable and inconclusive results due to inconsistent drug release from over-encapsulated test product.
Study 301
Study 301 was an open-label, parallel design
pharmacokinetic study testing our LIMITx formulation LTX-03 in 72 fasted healthy adult subjects randomized into 9 groups (8 subjects
per group). One group swallowed a single Norco® 10/325mg tablet, the marketed comparator or reference drug. The remaining 8
groups swallowed a single LTX-03 tablet with increasing buffering amounts starting with no buffer, LTX-03 formulations A through
H, respectively. All 72 subjects completed the study and the doses were generally well tolerated with no serious adverse events.
One subject in the Formulation E group was not analyzed due to emesis. LTX-03 is a combination of hydrocodone bitartrate and acetaminophen.
In Study 301 bioequivalence (BE) was examined
to generate information for future registration studies. Results demonstrated a trend toward BE for both active ingredients in
LTX-03 formulations A through E. Formulation E had BE ratios (log transformed) for hydrocodone of 0.89 and 0.97 for Cmax and Area
Under the Curve (AUC), respectively. In this small sample size study both hydrocodone BE confidence intervals were below the acceptable
lower BE range of 0.80 at 0.74 and 0.79 for Cmax and AUC, respectively. For acetaminophen, Formulation E’s BE Ratios were
1.15 and 1.03 for Cmax and AUC, respectively. While the acetaminophen AUC’s met the BE standards, the Cmax upper confidence
interval of 1.61 was above the acceptable upper BE range of 1.25. We believe that bioequivalence of this formulation may be achieved
by reducing data variability that can be achieved through an adequately powered crossover study design with sufficient numbers
of subjects in the study. For LTX-03 Formulations F though H, the higher buffer level tablets, Study 301 demonstrated a progressively
increasing reduction in hydrocodone Cmax culminating in a 34% Cmax reduction associated with Formulation H, the highest level evaluated.
The Cmax for acetaminophen did not decline in Formulations F through H in Study 301.
We believe that Study 301 identified a formulation
that optimizes the balance between providing therapeutic blood levels of drug for pain relief at a single tablet dose while retarding
the bioavailability of drug when higher buffer levels are ingested.
We intend to advance LTX-03 to clinical development
for a New Drug Application (NDA). Therefore, we submitted an Investigational New Drug Application, or IND with respect to LTX-03,
to the FDA in the first quarter of 2018, which became effective in April 2018. We commenced the scale-up of the commercial manufacturing
process in the second quarter of 2018 as to-be-marketed formulations are required for all NDA development work. We may run additional
exploratory studies before manufacturing scale-up is complete to further understand the Limitx technology.
Aversion Technology
Aversion Technology incorporates gelling ingredients
and irritants into tablets to discourage abuse by snorting and provide barriers to abuse by injection. Our Aversion Technology
and related opioid products, like Oxaydo, are covered by claims in six issued U.S. patents, which expire between November 2023
and November 2024. Our Aversion Technology products are intended to provide the same therapeutic benefits of the active drug ingredient
as currently marketed products containing the same active pharmaceutical ingredient.
Oxaydo Tablets
Oxaydo (oxycodone HCI tablets) is a Schedule
II narcotic indicated for the management of acute and chronic moderate to severe pain where the use of an opioid analgesic is appropriate.
On January 7, 2015, we entered into a Collaboration and License Agreement with Egalet pursuant to which we exclusively licensed
to Egalet worldwide rights to manufacture and commercialize Oxaydo. Oxaydo is approved in 5mg and 7.5mg strengths. Egalet launched
Oxaydo in the United States late in the third quarter of 2015.
The 2017 market for immediate-release oxycodone
products was approximately 30 million dispensed prescriptions or 1.7 billion tablets. The current market is predominately serviced
by generic formulations that contain no abuse deterrent features and sell for approximately $0.10 to $0.40 per tablet, depending
on strength. Immediate-release opioids are prescribed by a broad cross-section of healthcare providers including primary care physicians,
surgeons and pain specialists. We believe Oxaydo, given its differentiated label compared to generic products, can offer an alternative
for opioid prescribing physicians concerned with the abuse or diversion for abuse of their prescriptions even at premium pricing
to generics
The safety and efficacy of Oxaydo 5mg and 7.5mg
tablets was established by demonstrating bioequivalence to commercially available oxycodone immediate-release tablets in the fasted
state. Oxaydo differs from oxycodone tablets when taken with a high fat meal though these differences are not considered clinically
relevant, and Oxaydo can be taken without regard to food. The FDA-approved label for Oxaydo describes elements unique to our Aversion
Technology, which differs from current commercially available oxycodone immediate-release tablets. The label for Oxaydo includes
the results from a clinical study that evaluated the effects of nasally snorting crushed Oxaydo and commercially available oxycodone
tablets, and limitations on exposing Oxaydo tablets to water and other solvents and administration through feeding tubes. The clinical
study evaluated 40 non-dependent recreational opioid users, who self-administered the equivalent of 15mg of oxycodone. After accounting
for a first sequence effect, the study demonstrated:
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30% of subjects exposed to Oxaydo responded that they would not take the drug again compared to
5% of subjects exposed to immediate-release oxycodone;
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subjects taking Oxaydo reported a higher incidence of nasopharyngeal and facial adverse events
compared to immediate-release oxycodone;
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a decreased ability to completely insufflate two crushed Oxaydo tablets within a fixed time period
(21 of 40 subjects), while all subjects were able to completely insufflate the entire dose of immediate-release oxycodone; and
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small numeric differences in the median and mean drug liking scores, which were lower in response
to Oxaydo than immediate-release oxycodone.
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Although we believe these abuse deterrent characteristics
differentiate Oxaydo from immediate-release oxycodone products currently on the market, consistent with FDA guidance which requires
epidemiology studies to support a claim of abuse deterrence, the clinical significance of the difference in drug liking and difference
in response to taking the drug again in this study has not been established. There is no evidence that Oxaydo has a reduced abuse
liability compared to immediate release oxycodone. We and Egalet have a post-approval commitment with the FDA to perform an epidemiology
study to assess the actual impact on abuse of Oxaydo tablets.
Further, the Oxaydo product label guides patients
not to crush and dissolve the tablets or pre-soak, lick or otherwise wet the tablets prior to administration. Similarly, caregivers
are advised not to crush and dissolve the tablets or otherwise use Oxaydo for administration via nasogastric, gastric or other
feeding tubes as it may cause an obstruction. Our laboratory studies demonstrated that the Oxaydo tablet may gel when Oxaydo is
exposed to certain solvents, including water.
Egalet has advised that late in the fourth
quarter of 2016 it filed a supplemental NDA for Oxaydo with the FDA to support an abuse-deterrent label claim for the intravenous
route of abuse. Egalet reported that it submitted a prior approval supplement to support approval of 10 and
15 mg dosage strengths which was accepted by the FDA on April 18, 2017. On June 20, 2017, Egalet announced that it had received
a complete response letter from the FDA in response to this prior approval supplement. Eaglet has advised that the FDA is requesting
more information regarding the effect of food on Oxaydo 15mg and the intranasal abuse-deterrent properties of Oxaydo 10mg and 15mg
and have publicly stated that it is working to determine next steps to respond to such letter.
Egalet commenced shipping Oxaydo in October
2015 and we are advised that Egalet is actively promoting Oxaydo to targeted opioid prescribing physicians.
Egalet Agreement Covering Oxaydo
On January 7, 2015, we and Egalet US, Inc.
and Egalet Ltd., each a subsidiary of Egalet Corporation, or Egalet, entered into a Collaboration and License Agreement, or the
Egalet Agreement, to commercialize Oxaydo tablets containing our Aversion® Technology. Oxaydo is approved by the FDA for marketing
in the United States in 5 mg and 7.5 mg strengths. Under the terms of the Egalet Agreement, we transferred the approved NDA for
Oxaydo to Egalet and Egalet is granted an exclusive license under our intellectual property rights for development and commercialization
of Oxaydo worldwide, or the Territory, in all strengths, subject to our right to co-promote Oxaydo in the United States.
In accordance with the Egalet Agreement, we
and Egalet have formed a joint steering committee to oversee commercialization strategies and the development of product line extensions.
Egalet will pay a significant portion of the expenses relating to (i) annual NDA PDUFA program fees, (ii) expenses of the FDA required
post-marketing study for Oxaydo and (iii) expenses of clinical studies for product line extensions (additional strengths) of Oxaydo
for the United States and will bear all of the expenses of development and regulatory approval of Oxaydo for sale outside the United
States. Egalet is responsible for all manufacturing and commercialization activities in the Territory for Oxaydo. Subject to certain
exceptions, Egalet will have final decision making authority with respect to all development and commercialization activities for
Oxaydo, including pricing, subject to our co-promotion right. Egalet may develop Oxaydo for other countries and in additional strengths,
in its discretion.
Egalet paid us an upfront payment of $5.0 million
upon signing of the Egalet Agreement and a $2.5 million milestone in October 2015 in connection with the launch of Oxaydo. In addition,
we will be entitled to a one-time $12.5 million milestone payment when worldwide Oxaydo net sales reach $150.0 million in a calendar
year. In addition, we will receive from Egalet a stepped royalty at percentage rates ranging from mid-single digits to double-digits
on net sales during a calendar year based on Oxaydo net sales during such year (excluding net sales resulting from our co-promotion
efforts). In any calendar year in which net sales exceed a specified threshold, we will receive a double digit royalty on all Oxaydo
net sales in that year (excluding net sales resulting from our co-promotion efforts). If we exercise our co-promotion rights, we
will receive a share of the gross margin attributable to incremental Oxaydo net sales from our co-promotion activities. Egalet’s
royalty payment obligations commenced on the first commercial sale of Oxaydo and expire, on a country-by-country basis, upon the
expiration of the last to expire valid patent claim covering Oxaydo in such country (or if there are no patent claims in such country,
then upon the expiration of the last valid claim in the United States or the date when no valid and enforceable listable patent
in the FDA’s Orange Book remains with respect to the Product). Royalties will be reduced upon the entry of generic equivalents,
as well as for payments required to be made by Egalet to acquire intellectual property rights to commercialize Oxaydo, with an
aggregate minimum floor.
The Egalet Agreement expires upon the expiration
of Egalet’s royalty payment obligations in all countries. Either party may terminate the Egalet Agreement in its entirety
if the other party breaches a payment obligation, or otherwise materially breaches the Egalet Agreement, subject to applicable
cure periods, or in the event the other party makes an assignment for the benefit of creditors, files a petition in bankruptcy
or otherwise seeks relief under applicable bankruptcy laws. We also may terminate the Egalet Agreement with respect to the U.S.
and other countries if Egalet materially breaches its commercialization obligations. Egalet may terminate the Egalet Agreement
for convenience on 120 days prior written notice, which termination may not occur prior to the second anniversary of Egalet’s
launch of Oxaydo. Termination does not affect a party’s rights accrued prior thereto, but there are no stated payments in
connection with termination other than payments of obligations previously accrued. For all terminations (but not expiration), the
Egalet Agreement provides for the transition of development and marketing of Oxaydo from Egalet to us, including the conveyance
by Egalet to us of the trademarks and all regulatory filings and approvals relating to Oxaydo, and for Egalet’s supply of
Oxaydo for a transition period.
KemPharm Agreement Covering Opioid Prodrugs
On October 13, 2016, we and KemPharm Inc.,
or KemPharm, entered into a worldwide License Agreement, or the KemPharm Agreement, pursuant to which we licensed our Aversion®
technology to KemPharm for its use in the development and commercialization of three products using 2 of KemPharm’s prodrug
candidates. KemPharm has also been granted an option to extend the KemPharm Agreement to cover two additional prodrug candidates.
KemPharm is responsible for all development, manufacturing and commercialization activities, although we may provide initial technical
assistance.
Upon execution of the KemPharm Agreement, KemPharm
paid us an upfront payment of $3.5 million. If KemPharm exercises its option to use our Aversion technology with more than the
2 prodrugs licensed, then KemPharm will pay us up to $1.0 million for each additional prodrug license. In addition, we will receive
from KemPharm a low single digit royalty on commercial sales by KemPharm of products developed using our Aversion technology under
the KemPharm Agreement. KemPharm’s royalty payment obligations commence on the first commercial sale of a product using our
Aversion technology and expire, on a country-by-country basis, upon the expiration of the last to expire patent claim of the Aversion
technology covering a product in such country, at which time the license for the particular product and country becomes fully paid
and royalty free.
The KemPharm Agreement expires upon the expiration
of KemPharm’s royalty payment obligations in all countries. Either party may terminate the KemPharm Agreement in its entirety
if the other party materially breaches the KemPharm Agreement, subject to applicable cure periods. Acura or KemPharm may terminate
the KemPharm Agreement with respect to the U.S. and other countries if the other party challenges the patents covering the licensed
products. KemPharm may terminate the KemPharm Agreement for convenience on ninety (90) days prior written notice. Termination does
not affect a party’s rights accrued prior thereto, but there are no stated payments in connection with termination other
than payments of obligations previously accrued. For all terminations (but not expiration), the KemPharm Agreement provides for
termination of our license grant to KemPharm.
Aversion Technology Development Opioid Products
On April 9, 2015, we announced the indefinite
suspension of further development of our Aversion hydrocodone/APAP product candidate, in order to focus our time and available
resources on the development of our Limitx technology product candidates. We currently have 6 additional opioids at various stages
of formulation development using the Aversion Technology which are not being actively developed.
Abuse of Pseudoephedrine Products
The chemical structure of pseudoephedrine,
or PSE, is very similar to methamphetamine, facilitating a straight-forward chemical conversion to methamphetamine. OTC PSE products
are sometimes purchased and used for this conversion. There are multiple known processes to convert PSE to methamphetamine, all
of which are not complex and do not require specialized equipment; however, many do require readily available but uncommon ingredients.
Two of the three most popular processes follow two general processing steps: (1) dissolving the PSE tablets in a solvent to isolate,
by filtration, purified PSE and (2) a chemical reduction of the PSE into methamphetamine for drying into crystals. The third method,
or the “one-pot” method, involves the direct chemical reduction of the PSE to methamphetamine in the presence of the
tablet’s inactive ingredients. All the solvents used are ultimately dried off or otherwise removed, so a wide range of solvents
are amenable to the process.
Impede 1.0 Technology
Our Impede 1.0 Technology, a proprietary mixture
of inactive ingredients, prevents the extraction of PSE from tablets using known extraction methods and disrupts the direct conversion
of PSE from tablets into methamphetamine.
Studies sponsored by us at an international,
independent laboratory demonstrated our Impede 1.0 Technology prevents the extraction of PSE from tablets for conversion into methamphetamine
using what we believe are the two most common extraction methods, each requiring extraction of PSE as an initial step. Laboratory
tests conducted on our behalf by an independent Clinical Research Organization, or CRO, using the “one-pot” method
demonstrated that our Impede Technology disrupted the direct conversion of PSE from the tablets into methamphetamine. The study
compared the amount of pure methamphetamine hydrochloride produced from Nexafed and Johnson & Johnson’s Sudafed®
tablets. Using one hundred 30 mg tablets of both products, multiple one-pot tests and a variety of commonly used solvents, the
study demonstrated an average of 38% of the maximum 2.7 grams of pure methamphetamine hydrochloride was recovered from Nexafed.
Comparatively, approximately twice as much pure methamphetamine hydrochloride was recovered from Sudafed tablets. Both products
yielded a substantial amount of additional solids such that the purity of the total powder provided contained approximately 65%
methamphetamine hydrochloride.
Impede 2.0 Technology
We have previously developed a next generation,
or Impede 2.0 Technology to improve the meth-resistance of our technology. We have previously completed one-pot, direct conversion
meth testing performed by our CRO on the following commercially available products and on our Nexafed Impede 2.0 extended-release
product, with the following results:
Product/Formulation
|
|
Meth Resistant
Technology
|
|
Meth Recovery
1
|
|
|
Purity
2
|
|
Sudafed® 30mg Tablets
|
|
none
|
|
|
67
|
%
|
|
|
62
|
%
|
Nexafed 30mg Technology
|
|
Impede® 1.0
|
|
|
38
|
%
|
|
|
65
|
%
|
Zephrex-D® 30mg Pills
|
|
Tarex®
|
|
|
28
|
%
|
|
|
51
|
%
|
Nexafed 120mg Extended-release tablets
|
|
Impede® 2.0
|
|
|
17
|
%
|
|
|
34
|
%
|
1
Total
methamphetamine HCl recovered from the equivalent of 100 PSE 30mg tablets divided by the maximum theoretical yield of 2.7 grams.
2
Total
methamphetamine HCl recovered from the equivalent of 100 PSE 30mg tablets divided by the total weight of powder recovered.
We have previously demonstrated in a pilot
clinical study the bioequivalence of a formulation of our Nexafed extended release tablets utilizing our Impede 2.0 Technology
to Sudafed® 12-hour Tablets. Prior to the completion of the MainPointe Agreement in March 2017, we previously completed a project
to integrate Impede 2.0 Technology into our commercially available Nexafed 30mg tablet while moving supply to an alternate contract
manufacturer. We believe MainPointe launched the new formulation into the market in the 3
rd
quarter of 2017.
Nexafed Products
The Nexafed products currently marketed, Nexafed
and Nexafed Sinus Pressure + Pain, consist of immediate release tablets. Nexafed is a 30mg pseudoephedrine tablet which until the
third quarter of 2017 incorporated our patented Impede 1.0 technology and commencing in such quarter incorporated our Impede 2.0
technology and Nexafed Sinus Pressure + Pain is a 30/325mg pseudoephedrine and acetaminophen tablet which incorporates our Nexafed
1.0 technology. PSE is a widely-used nasal decongestant available in many non-prescription and prescription cold, sinus and allergy
products. While the 30mg PSE tablet is not the largest selling PSE product on the market, we believe it is the most often used
product to make meth due to: (a) its relatively low selling price and (b) its simpler formulation provides better meth yields.
However, as meth-resistant products become pervasive, we believe meth cooks will migrate to other, larger selling, PSE containing
products.
We have demonstrated that our Nexafed 30mg
tablets are bioequivalent to Johnson & Johnson’s Sudafed 30mg Tablets when a single 2 tablet dose is administered. Commencing
in 2006, the CMEA, required all non-prescription PSE products to be held securely behind the pharmacy counter, has set monthly
consumer purchase volume limits, and has necessitated consumer interaction with pharmacy personnel to purchase PSE-containing products.
Prior to the MainPointe Agreement completed in March 2017, we capitalized on this consumer-pharmacist interaction at the point
of sale by soliciting distribution to pharmacies and educating and encouraging pharmacists to recommend Nexafed to their customers.
Under the terms of the MainPointe Agreement, MainPointe controls the marketing and sale of our Nexafed products.
We launched Nexafed commercially in mid-December
2012 into the United States OTC market for cold and allergy products. Prior to the MainPointe Agreement, we distributed our Nexafed
products through several regional and national drug wholesalers for redistribution to pharmacies, which included the three largest
U.S. drug wholesalers: McKesson, Cardinal Health and AmerisourceBergen and we also shipped directly to the warehouses of certain
pharmacy chains. Prior to the MainPointe Agreement, Nexafed was stocked in approximately 13,900 pharmacies or about approximately
21% of the estimated 65,000 U.S. pharmacy outlets. Initial adoption was primarily in independent pharmacies in predominately rural
communities with high meth awareness. Chain pharmacies, with more centralized control of the pharmacy operations, began adopting
in mid-2013, including Kroger, Publix, Fruth and Bartells. Some pharmacists actively recommended Nexafed to their customers while
some replaced all 30mg PSE products, brand and generic, with Nexafed. Rite Aid, the nation’s fourth largest pharmacy operator,
began purchasing Nexafed in late 2013. In late 2014, Kmart and Kroger initiated chain-wide stocking of Nexafed.
In February 2015, we began initial shipments
of Nexafed Sinus Pressure + Pain. Prior to the MainPointe Agreement, we were marketing this product consistent with our Nexafed
marketing efforts to pharmacists concerned with meth abuse of their products. We are not aware of any branded non-prescription
product that contains PSE and acetaminophen believing that brands containing these ingredients have either been discontinued or
reformulated with phenylephrine. We expect Nexafed Sinus Pressure + Pain to compete primarily against Advil® Cold and Sinus
(PSE/ibuprofen) and to a lesser extent Aleve®-D and Sudafed® Pressure + Pain which are extended-release products.
Nexafed and Nexafed Sinus Pressure + Pain products
are marketed under FDA’s regulations applicable to OTC Monograph products. Nexafed and Nexafed Sinus Pressure + Pain tablets
are offered in 24-count blister packaged cartons.
MainPointe Agreement covering Nexafed Products
On March 16, 2017, we and MainPointe entered
into a License, Commercialization and Option Agreement, or the MainPointe Agreement, pursuant to which we granted MainPointe an
exclusive license to our Impede technology to commercialize our Nexafed products in the U.S. and Canada. We also conveyed to MainPointe
our existing inventory and equipment relating to our Nexafed products. MainPointe is responsible for all development, manufacturing
and commercialization activities with respect to products covered by the Agreement.
On signing the MainPointe Agreement, MainPointe
paid us an upfront licensing fee of $2.5 million plus approximately $425 thousand for inventory and equipment being transferred.
The MainPointe Agreement also provides for our receipt of a 7.5% royalty on net sales of licensed products. The royalty payment
for each product will expire on a country-by-country basis when the Impede® patent rights for such country have expired or
are no longer valid; provided that if no Impede patent right exists in a country, then the royalty term for that country will be
the same as the royalty term for the United States. After the expiration of a royalty term for a country, MainPointe retains a
royalty free license to our Impede® technology for products covered by the Agreement in such country.
MainPointe has the option to expand the licensed
territory beyond the United States and Canada to the European Union (and the United Kingdom), Japan and South Korea for payments
of $1.0 million, $500 thousand and $250 thousand, respectively. In addition, MainPointe has the option to add to the MainPointe
Agreement certain additional products, or Option Products, containing PSE and utilizing the Impede technology for a fee of $500
thousand per product (for all product strengths), including the product candidate Loratadine with pseudoephedrine (following termination
of the Bayer Agreement). If the territory has been expanded prior to the exercise of a product option, the option fee will be increased
to $750 thousand per product. If the territory is expanded after the payment of the $500 thousand product option fee, a one-time
$250 thousand fee will be due for each product. If a third party is interested in developing or licensing rights to an Option Product,
MainPointe must exercise its option for that product or its option rights for such product will terminate.
The MainPointe Agreement may be terminated
by either party for a material breach of the other party, or by Acura if MainPointe challenges certain of its patents. Upon early
termination of the MainPointe Agreement, MainPointe’s licenses to the Impede technology and all products will terminate.
Upon termination, at Acura’s request the parties will use commercially reasonable efforts to transition the Nexafed®
and Nexafed® Sinus Pressure + Pain products back to Acura.
Impede Technology Products in Development
Given the fragmented nature of the PSE market
with products containing multiple active ingredients, we are developing additional products for our Nexafed franchise:
Impede Technology
Product
|
|
Status
|
|
|
|
Nexafed 30mg with Impede 2.0 Technology
|
|
Manufacturing validation complete. We believe MainPointe launched commercial shipments in third quarter of 2017
|
|
|
|
Immediate-release pseudoephedrine HCl in combination with other cold and allergy active ingredients
|
|
Nexafed Sinus Pressure + Pain launched and licensed to MainPointe
|
|
|
|
Extended-release formulation utilizing Impede 2.0 Technology
|
|
Pilot pharmacokinetic testing demonstrated bioequivalence to Sudafed® 12-hour Tablets. Pre-IND meeting held with the FDA. No imminent development planned
|
|
|
|
Extended-release combination products
|
|
No imminent development planned
|
|
|
|
Loratadine with pseudoephedrine
|
|
Final formulation development ready. No imminent development planned
|
In July 2015, we had a pre-IND meeting with
the FDA to discuss the results from our pharmacokinetic and meth-resistance testing studies to determine the development path for
our extended-release development product. The FDA acknowledged the potential value of the development of risk-mitigating strategies
for new formulations of pseudoephedrine products while also recognizing an approved “meth-deterrent” extended release
pseudoephedrine product would be novel in the over-the-counter (OTC) setting. The FDA did not make a formal determination whether
“meth-resistant” claims would be appropriate but is open to consider such an appropriately worded, evidence-based claim
directed to the consumer and/or retailer. As recommended by the FDA, we have submitted additional “meth-resistant”
testing information to the FDA for review prior to submitting an IND. In October 2016, we received FDA recommendations on our meth-resistant
testing protocols for our Nexafed extended release tablets. We can now scale-up our manufacture batch size at a contract manufacturer
which allows us to submit an IND to the FDA for our Nexafed extended release tablets, however, we have not yet committed to that
level of development.
In March 2017, we completed a pilot pharmacokinetic
study for the PSE and loratadine combination product using our Impede 1.0 technology. The study in 24 healthy adult subjects demonstrated
sufficient, but not bioequivalent blood levels of PSE to the comparator while the second active ingredient achieved bioequivalence.
Based on the product profile, we believe this formulation can be moved into final development for a 505(b)(2) NDA submission. The
Company intends to upgrade this formulation with its Impede 2.0 technology before determining any advancement in development.
Our objective is to establish, either directly
or through third-party licensees, the Nexafed franchise in the United States with multiple product offerings, including both immediate
and extended release products utilizing both single and combinations of active ingredients. We aim to make meth-resistant PSE product
the standard of care in all U.S. pharmacies. In addition to the MainPointe Agreement, we may license our Impede technology to commercial
partners to extend our internal development resources to develop difficult to formulate products, such as extended-release.
Bayer Agreement
On June 15, 2015, we and Bayer entered into
a License and Development Agreement, or the Bayer Agreement, pursuant to which we granted Bayer an exclusive worldwide license
to our Impede® Technology for use in an undisclosed methamphetamine resistant pseudoephedrine-containing product and providing
for the joint development of such product using our Impede Technology for the U.S. market. We received reimbursement of certain
our development expenses, and were entitled to success-based development and regulatory milestone payments, and low mid-single
digit royalties on the net sales of the developed product. On June 28, 2017, we received Bayer’s written notice terminating
the Bayer Agreement. Bayer exercised its convenience termination right prior to the completion of our development obligations under
the Bayer Agreement, which we believe is as a result of Bayer’s de-prioritization of development of the methamphetamine resistant
PSE-containing product contemplated in the Agreement. As a result of the termination, MainPointe has the option to license such
product in the U.S. and Canada upon payment to us of $500 thousand, (additional amounts would be due for expansion of the territory
– See “–MainPointe Agreement covering Nexafed Products”, above), together with royalty of 7.5% of net sales
of such product, under the MainPointe Agreement.
U.S. Market Opportunity for Impede PSE Products
PSE is a widely-used nasal
decongestant available in many non-prescription and prescription cold, sinus and allergy products. PSE is sold in products as the
only active ingredient in both immediate and extended-release products. In addition, PSE is combined with other cold, sinus and
allergy ingredients such as pain relievers, cough suppressants and antihistamines. PSE also competes against phenylephrine, an
alternate nasal decongestant available in non-prescription products. In 2014, a data service reported approximately $0.7 billion
in retail sales of non-prescription products containing PSE. The top retail selling PSE OTC cold/allergy products in 2014 were:
Reference Brand
1
|
|
Brand Company
|
|
Active
Ingredient(s)
|
|
2014 Retail Sales
($ Millions)
|
|
Claritin-D
|
|
Bayer
|
|
PSE & Loraditine
2
|
|
$
|
208.0
|
|
Allegra-D
|
|
Chattem
|
|
PSE & Fexofenadine
2
|
|
$
|
101.3
|
|
Zyrtec-D
|
|
Pfizer
|
|
PSE & Ceterizine
2
|
|
$
|
101.7
|
|
Advil Sinus
|
|
Pfizer
|
|
PSE & Ibuprofen
|
|
$
|
58.4
|
|
Sudafed 12 Hour
|
|
J&J
|
|
PSE
2
|
|
$
|
82.3
|
|
Sudafed 30mg
|
|
J&J
|
|
PSE
|
|
$
|
70.4
|
|
1
Branded product
only. Does not include store brand sales.
2
Extended release
PSE formulations
The 2014 market for 30mg PSE tablets, including
store brands was approximately 470 million tablets or 19 million boxes of 24 tablets. Prior to the MainPointe Agreement, we priced
Nexafed at $4.39 for a box of 24 tablets and Nexafed Sinus Pressure + Pain at $7.95 for a box of 24 tablets. MainPointe controls
the price of Nexafed and Nexafed Sinus under the terms of the MainPointe Agreement.
The market for cold, sinus and allergy products
is highly competitive and many products have strong consumer brand recognition and, in some cases, prescription drug heritage.
Category leading brands are often supported by national mass marketing and promotional efforts. Consumers often have a choice to
purchase a less expensive store brand. Store brands contain the same active ingredients as the more popular national brands but
are not supported by large marketing campaigns and are offered at a lower price. Non-prescription products are typically distributed
through retail outlets including drug store chains, food store chains, independent pharmacies and mass merchandisers. The distribution
outlets for PSE products are highly consolidated. According to Chain Drug Review, the top 50 drug, food and mass merchandising
chains operate approximately 40,000 pharmacies in the U.S., of which 58% are operated by the four largest chains. Stocking decisions
and pharmacists recommendations for these chain pharmacies are often centralized at the corporate headquarters.
Product Labeling for Impede Technology Products
Nexafed and Nexafed Sinus Pressure + Pain products
are marketed pursuant to the FDA’s OTC Monograph regulations, which require that our product have labeling as specified in
the regulations. Marketing for the Nexafed products includes advertising the extraction characteristics and methamphetamine-resistant
benefits of these products which is supported by our published research studies.
We expect that any of our other Impede Technology
products that are marketed pursuant to an NDA or ANDA will be subject to a label approved by the FDA. We expect that such a label
will require submission of our scientifically derived abuse liability data and we intend to seek descriptions of our abuse liability
studies in the FDA approved product label, although there can be no assurance that this will be the case.
U.S. Market Opportunity for Opioid Analgesic
Products
The misuse and abuse of opioid analgesics continues
to constitute a dynamic and challenging threat to the United States and is the nation’s fastest growing drug problem. During
2017, the US Government declared opioid abuse as an epidemic and national health emergency. According to the 2017 Centers on Disease
Control Drug Surveillance Report, 11.8 million Americans aged 12 and over abused or misused prescription opioids in 2016. Further,
this Report calculates that, on average, 115 Americans die every day from an opioid overdose. The majority of drug overdose deaths
(66%) involve an opioid. Immediate release, or IR, opioid products comprise the vast majority of this abuse compared with extended
release, or ER, opioid products
.
It is estimated that more than 75 million people
in the United States suffer from pain and the FDA estimates more than 61 million people receive a prescription for the opioid hydrocodone
annually. For many pain sufferers, opioid analgesics provide their only pain relief. As a result, opioid analgesics are among the
largest prescription drug classes in the United States with over 214 million tablet and capsule prescriptions dispensed in 2016
of which approximately 194 million were for IR opioid products and 204 million were for ER opioid products. However, physicians
and other health care providers at times are reluctant to prescribe opioid analgesics for fear of misuse, abuse, and diversion
of legitimate prescriptions for illicit use.
We expect our Aversion and Limitx Technology
opioid products, to compete primarily in the IR opioid product segment of the United States opioid analgesic market. Because IR
opioid products are used for both acute and chronic pain, a prescription, on average, contains 66 tablets or capsules. According
to IMS Health, in 2016, sales in the IR opioid product segment were approximately $2.7 billion, of which ~98% was attributable
to generic products. Due to fewer identified competitors and the significantly larger market for dispensed prescriptions for IR
opioid products compared to ER opioid products, we have initially focused on developing IR opioid products utilizing our Aversion
and Limitx Technologies. A summary of the IR opioid product prescription data for 2016 is provided below:
IR Opioid Products
(1)
|
|
2016 US
Prescriptions
(Millions)
(2)
|
|
|
%
of Total
|
|
Hydrocodone
|
|
|
90
|
|
|
|
43
|
%
|
Oxycodone
|
|
|
55
|
|
|
|
26
|
%
|
Tramadol
|
|
|
43
|
|
|
|
21
|
%
|
Codeine
|
|
|
15
|
|
|
|
7
|
%
|
4 Others
|
|
|
5
|
|
|
|
3
|
%
|
Total
|
|
|
208
|
|
|
|
100
|
%
|
1
Includes all salts and
esters of the opioid and opioids in combination with other active ingredients such as acetaminophen.
2
IMS
Health, 2016
Despite considerable publicity regarding the
abuse of OxyContin® extended-release tablets and other ER opioid products, U.S. government statistics suggest that far more
people have used IR opioid products non-medically than ER opioid products. These statistics estimate that nearly four times as
many people have misused the IR opioid products Vicodin®, Lortab® and Lorcet® (hydrocodone bitartrate/acetaminophen
brands and generics) than OxyContin®.
Product Labeling for Abuse-Deterrent Opioid
Products
In April 2015, the FDA published guidance for
industry on the evaluation and labeling of abuse-deterrent opioids. While the 2015 FDA Guidance is non-binding on the FDA, it outlines
FDA’s current thinking on the development and labeling of abuse-deterrent products. The 2015 FDA Guidance provides for three
distinct levels of pre-marketing studies that are potentially eligible for inclusion in the labeling: (1) laboratory-based in vitro
manipulation and extraction studies, (2) pharmacokinetic studies, and (3) clinical abuse potential studies. The 2015 FDA Guidance
further prescribes additional post-approval or epidemiology studies to determine whether the marketing of a product with abuse-deterrent
properties results in meaningful reductions in abuse, misuse, and related adverse clinical outcomes, including addiction, overdose,
and death in the post-approval setting, which can also be included in the labeling. FDA notes “the science of abuse deterrence
is relatively new. Both the technologies involved and the analytical, clinical, and statistical methods for evaluating those technologies
are rapidly evolving. For these reasons, FDA will take a flexible, adaptive approach to the evaluation and labeling of potentially
abuse-deterrent opioid products”.
We or our licensee may seek to include descriptions
of studies that characterize the abuse-deterrent properties in the label for our Aversion and Limitx Technology products in development.
Although the FDA approved label for Oxaydo contains limitations on exposing Oxaydo tablets to water and other solvents and administration
through feeding tubes, the FDA approved Oxaydo label does not contain a description of the I.V. injection studies we performed
to characterize the abuse deterrent properties of Oxaydo. Egalet has committed to the FDA to undertake epidemiological studies
to assess the actual consequences of abuse of Oxaydo in the market. Under the terms of the Egalet Agreement, we share a minority
portion of the fees and expenses relating to such FDA required epidemiological studies, provided Egalet complies with the sections
of the agreement relating thereto. The extent to which a description of the abuse-deterrent properties or results of epidemiological
or other studies will be added to or included in the FDA approved product label for our products in development will be the subject
of our discussions with the FDA as part of the NDA review process, even after having obtained approval of Oxaydo. Further, because
the FDA closely regulates promotional materials, even if FDA initially approves labeling that includes a description of the abuse
deterrent properties of the product, the FDA’s Office of Prescription Drug Promotion, or OPDP, will continue to review the
acceptability of promotional labeling claims and product advertising campaigns for our marketed products.
Patents and Patent Applications
We have the following issued patents covering,
among other things, our Limitx Technology:
Patent No. (Jurisdiction)
|
|
Subject matter
|
|
Issued
|
|
Expires
|
9,101,636 (US)
|
|
Abuse deterrent products wherein the release of active ingredient is retarded when 3 or more doses are consumed
|
|
Aug. 2015
|
|
Nov. 2033
|
9,320,796 (US)
|
|
Abuse deterrent products wherein the release of active ingredient is retarded when 3 or more doses are consumed
|
|
Apr. 2016
|
|
Nov. 2033
|
9,662,393 (US)
|
|
Abuse deterrent products wherein the release of active ingredient is retarded when 3 or more doses are consumed
|
|
May 2017
|
|
Nov. 2033
|
2,892,908 (CAN)
|
|
Abuse deterrent products wherein the release of active ingredient is retarded when excessive doses are consumed
|
|
Apr. 2016
|
|
Nov. 2033
|
5,922,851 (JAPAN)
|
|
Abuse deterrent products wherein the release of active ingredient is retarded when excessive doses are consumed
|
|
Apr. 2016
|
|
Nov. 2033
|
We have the following issued patents covering,
among other things, Oxaydo and our Aversion Technology:
Patent No. (Jurisdiction)
|
|
Subject Matter
|
|
Issued
|
|
Expires
|
7,201,920 (US)
|
|
Pharmaceutical compositions including a mixture of functional inactive ingredients and specific opioid analgesics
|
|
Apr. 2007
|
|
Mar. 2025
|
7,510,726 (US)
|
|
A wider range of compositions than those described in the 7,201,920 Patent
|
|
Mar. 2009
|
|
Nov. 2023
|
7,981,439 (US)
|
|
Pharmaceutical compositions including any water soluble drug susceptible to abuse
|
|
Jul. 2011
|
|
Aug. 2024
|
8,409,616 (US)
|
|
Pharmaceutical compositions of immediate-release abuse deterrent dosage forms
|
|
Apr. 2013
|
|
Nov. 2023
|
8,637,540 (US)
|
|
Pharmaceutical compositions of immediate-release abuse deterrent opioid products
|
|
Jan. 2014
|
|
Nov. 2023
|
9,492,443 (US)
|
|
Pharmaceutical compositions of immediate-release abuse deterrent opioid products
|
|
Nov. 2016
|
|
Nov. 2023
|
We have the following additional issued patents
relating to our Aversion Technology:
Patent No. (Jurisdiction)
|
|
Subject Matter
|
|
Issued
|
|
Expires
|
7,476,402 (US)
|
|
Pharmaceutical compositions of certain combinations of kappa and mu opioid receptor agonists and other ingredients intended to deter opioid analgesic product misuse and abuse
|
|
Jan. 2009
|
|
Nov. 2023
|
8,822,489 (US)
|
|
Pharmaceutical compositions of certain abuse deterrent products that contain polymers, surfactant and polysorb 80
|
|
Jul. 2014
|
|
Nov. 2023
|
2,004,294,953 (AUS)
|
|
Abuse deterrent pharmaceuticals
|
|
Apr. 2010
|
|
Nov. 2024
|
2,010,200,979 (AUS)
|
|
Abuse deterrent pharmaceuticals
|
|
Aug. 2010
|
|
Nov. 2024
|
2,547,334 (CAN)
|
|
Abuse deterrent pharmaceuticals
|
|
Aug. 2010
|
|
Nov. 2024
|
2,647,360 (CAN)
|
|
Abuse deterrent pharmaceuticals
|
|
May 2012
|
|
Apr. 2027
|
175,863 (ISR)
|
|
Abuse deterrent pharmaceuticals
|
|
Nov. 2004
|
|
Nov. 2024
|
221,018 (ISR)
|
|
Abuse deterrent pharmaceuticals
|
|
Nov. 2004
|
|
Nov. 2024
|
1694260 (EUR)
|
|
Abuse deterrent pharmaceuticals
|
|
Nov. 2004
|
|
Nov. 2024
|
We have the following issued patents covering,
among other things, our Nexafed products and Impede 1.0 and 2.0 technologies:
Patent No. (Jurisdiction)
|
|
Subject Matter
|
|
Issued
|
|
Expires
|
8,901,113 (US)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Dec. 2014
|
|
Feb. 2032
|
9,757,466 (US)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Sep. 2017
|
|
Feb. 2032
|
10,004,699 (US)
|
|
Methods and compositions for interfering with extraction or conversion of a drug susceptible to abuse
|
|
Jun. 2018
|
|
Dec. 2035
|
2010300641 (AUS)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Jun. 2016
|
|
Sep. 2030
|
2,775,890 (CAN)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Jun. 2016
|
|
Sep. 2030
|
2,488,029 (EUR)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Mar. 2016
|
|
Sep. 2030
|
218533 (ISR)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Jan. 2016
|
|
Sep. 2030
|
13102020.5 (HK)
|
|
Pharmaceutical compositions suitable for reducing the chemical conversion of precursor compounds
|
|
Oct. 2016
|
|
Sep. 2030
|
In addition to our issued patents listed above
and additional unlisted issued patents, we have filed multiple U.S. patent applications and international patent applications relating
to compositions containing abusable active pharmaceutical ingredients as well as applications covering our Impede 1.0 and 2.0 Technologies
and filed U.S. patent applications for our Limitx Technology. Except for the rights granted in the Egalet Agreement, the KemPharm
Agreement, and the MainPointe Agreement and in the patent infringement settlement agreements described below, we have retained
all intellectual property rights to our Aversion Technology, Impede Technology, Limitx Technology and related product candidates.
In 2012 and 2013, we received Paragraph IV
Certification Notices from five generic sponsors of ANDAs for a generic drug listing our Oxaydo product as the reference listed
drug. The Paragraph IV Notices referred to our 920, 726 and 439 Patents, which cover our Aversion® Technology and our Oxaydo
product. We filed suit against each of such generic sponsors, Watson Laboratories, Inc., Par Pharmaceutical, Inc., Impax Laboratories,
Inc., Sandoz Inc. and Ranbaxy Inc., in the United States District Court for the District of Delaware alleging infringement of our
726 Patent listed in the FDA’s Orange Book. Our litigation against Watson Laboratories was dismissed by us following Watson
Laboratories’ change of its Paragraph IV Certification to a Paragraph III Certification, indicating it would not launch its
generic product until the expiry of our applicable Patents. Our litigation against each of the remaining generic sponsors was settled
during the period October 2013 through May 2014 on an individual basis, upon mutual agreement between us and such generic sponsors.
None of such settlements impacted the validity or enforceability of our Patents. See “Item 1A. Risk Factors – Generic
manufacturers are using litigation and regulatory means to seek approval for generic versions of Oxaydo, which could cause Egalet’s
sales to suffer and adversely impact our royalty revenue” for a discussion of the settlements and license grants relating
to such patent litigation. Notwithstanding the settlement of these prior infringement actions, it is possible that other generic
manufacturers may also seek to launch a generic version of Oxaydo and challenge our patents. Any determination in such infringement
actions that our patents covering our Aversion Technology and Oxaydo are invalid or unenforceable, in whole or in part, or that
the products covered by generic sponsors’ ANDAs do not infringe our patents could have a material adverse effect on our operations
and financial condition.
In April, 2015, Purdue Pharma L.P., Purdue
Pharmaceuticals L.P. and The P.F. Laboratories, Inc., or collectively Purdue, commenced a patent infringement lawsuit against us
and our Oxaydo product licensee Egalet in the United States District Court for the District of Delaware alleging our Oxaydo product
infringes Purdue’s U.S. Patent No. 8,389,007, or the 007 Patent. In April 2016, Purdue commenced a second patent infringement
lawsuit against us and Egalet in the United States District Court for the District of Delaware alleging our Oxaydo product infringes
Purdue’s newly issued U.S. Patent No. 9,308,171, or the 171 Patent. The actions regarding the 007 Patent and the 171 Patent
are collectively referred to as the “Actions”. On April 6, 2016, we filed a petition for Inter Parties Review, or IPR
Review, with the USPTO seeking to invalidate Purdue’s 007 Patent.
On May 20, 2016, we, Purdue and Egalet entered
into a settlement agreement to settle the Actions and the IPR Review. Under the Settlement Agreement the parties dismissed or withdrew
the Actions, requested that the USPTO terminate the IPR Review and exchanged mutual releases. No payments were made by the parties
under the Settlement Agreement.
Reference is made to the Risk Factors contained
in our Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion, among other things, of patent applications
and patents owned by third parties, including claims that may encompass our Aversion Technology and Oxaydo tablets, and the risk
of infringement, interference or opposition proceedings that we may be subject to arising from such patents and patent applications.
Company’s Present Financial Condition
At June 30, 2018, we had cash and refundable
deposits of $0.7 million compared to $2.2 million of cash and cash equivalents at December 31, 2017. We had an accumulated deficit
of approximately $383.1 million at June 30, 2018. We had loss from operations of $2.6 million and net loss of $2.8 million for
the six months ended June 30, 2018 and we had a net loss from operations of $5.2 million and net loss of $5.7 million for the year
ended December 31, 2017. As of August 13, 2018 after giving effect to an aggregate of $1.9 million loans from John Schutte, our
cash and refundable deposits were approximately $0.2 million. We expect our current cash and refundable deposits will only be able
to fund operations into late August 2018.
We expect to continue to incur substantial
losses for the foreseeable future as we continue to develop our clinical and preclinical product candidates. To fund further operations
and product development activities, we must raise additional financing or enter into license or collaboration agreements with third
parties relating to our technologies. No assurance can be given that we will be successful in obtaining any such financing or in
securing license or collaboration agreements with third parties on acceptable terms, if at all, or if secured, that such financing
or license or collaboration agreements will provide payments to the Company sufficient to fund continued operations. In the absence
of such financing or third-party license or collaboration agreements, the Company will be required to scale back or terminate operations
and/or seek protection under applicable bankruptcy laws. An extended delay or cessation of the Company’s continuing product
development efforts will have a material adverse effect on the Company’s financial condition and results of operations.
Our losses have resulted principally from costs
incurred in connection with research and development activities, salaries and other personnel-related costs and sales, marketing
and general corporate expenses. Research and development activities include costs of pre-clinical studies, clinical trials, and
clinical trial product supplies associated with our product candidates as well as cost sharing expenses of line extension studies
and post-marketing studies under the Egalet Agreement. Sales and marketing expenses include costs associated with the Nexafed products
advertising incurred prior to our entering into the MainPointe Agreement on March 16, 2017, salaries and other personnel-related
costs include the stock-based compensation associated with stock options and restricted stock units granted to employees and non-employee
directors.
Three months Ended June 30, 2018 Compared to Three months
Ended June 30, 2017
|
|
June 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Increase (decrease)
|
|
|
|
(In thousands)
|
|
|
Percent
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fee revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
%
|
Collaboration revenue
|
|
|
-
|
|
|
|
23
|
|
|
|
(23
|
)
|
|
|
(100
|
)
|
Royalty revenue
|
|
|
76
|
|
|
|
69
|
|
|
|
7
|
|
|
|
10
|
|
Product sales, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total revenues, net
|
|
|
76
|
|
|
|
92
|
|
|
|
(16
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Research and development
|
|
|
477
|
|
|
|
1020
|
|
|
|
(543
|
)
|
|
|
(53
|
)
|
Sales, marketing, general and administrative
|
|
|
846
|
|
|
|
1063
|
|
|
|
(217
|
)
|
|
|
(20
|
)
|
Total cost and expenses
|
|
|
1,323
|
|
|
|
2,083
|
|
|
|
(760
|
)
|
|
|
(37
|
)
|
Operating loss
|
|
|
(1,247
|
)
|
|
|
(1,991
|
)
|
|
|
(744
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(14
|
)
|
|
|
(158
|
)
|
|
|
(144
|
)
|
|
|
(91
|
)
|
Loss before income taxes
|
|
|
(1,261
|
)
|
|
|
(2,149
|
)
|
|
|
(888
|
)
|
|
|
(41
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(1,261
|
)
|
|
$
|
(2,149
|
)
|
|
$
|
(888
|
)
|
|
|
(41
|
)%
|
Revenue and Cost of Sales
Collaboration Revenue
Collaboration revenue is derived from development
activities under a collaboration agreement we may have with a customer. We had no development activities with a customer during
the three months ended June 30, 2018. We recognized $23 thousand of collaboration revenue during the three months ended June
30, 2017.
Royalty Revenue
In connection with our agreement with Egalet for Oxaydo tablets,
we earn a royalty based on Oxaydo net sales. We recognized $70 thousand and $64 thousand of royalty revenue during the three months
ended June 30, 2018 and 2017, respectively.
In connection with our agreement
with MainPointe for the Nexafed products, we earn a royalty of 7.5% on net sales. We recognized $6 thousand and $5 thousand of
royalty revenue during the three months ended June 30, 2018 and 2017, respectively.
Net Product Sales and
Cost of Sales
In March 2017 we stopped
selling the Nexafed products as we licensed the product line to MainPointe, who is actively manufacturing, distributing, and selling
the Nexafed products. We recognized $107 thousand of net product sales and incurred $128 thousand of cost of sales on the Nexafed
products during the three months ended June 30, 2017. Our cost of sales on the Nexafed products included third-party manufacturing
costs, third-party warehousing and product distribution charges and inventory reserve expenses.
Expenses
Research and Development
Research and development expense (R&D)
is primarily for our Limitx Technology development activity. During the first quarter 2017, our activities were addressing certain
excipient issues in our LTX-04 tablet formulation and developing a new, faster releasing micro-particle formulation for LTX-04.
We substantially completed our second pharmacokinetic study, AP-LTX-401 during the second quarter 2017. During the second quarter
of 2018 our submitted IND for LTX-03 to the FDA became effective in April 2018. We commenced the scale-up of the commercial manufacturing
process as to-be-marketed formulations are required for all NDA development work. We may run additional exploratory studies before
manufacturing scale-up is complete to further understand the Limitx technology. Included in each of June 30, 2018 and 2017 quarterly
results are share-based compensation expenses of $18 thousand and $34 thousand, respectively. Excluding the share-based compensation
expense, our R&D expenses decreased $527 thousand between reporting periods.
General, Administrative, Selling and Marketing
In March 2017 we licensed the Nexafed products
to MainPointe and beginning thereafter, we reduced and eliminated all selling and marketing types of expenses. Our general and
administrative expenses primarily consisted of legal, audit and other professional services, corporate insurance, and payroll.
Included in each of the June 30, 2018 and 2017 quarterly results are share-based compensation expenses of $48 thousand and $95
thousand, respectively. Excluding this share-based compensation expense, our selling, marketing, general and administrative expenses
decreased by $170 thousand between reporting periods, resulting primarily from the reductions in advertising and marketing activities
as well as patent and general legal activities.
Interest Expense, net
During the three months ended June 30, 2018
and 2017, we incurred net interest expense of $14 thousand and $158 thousand, respectively, on our term loans.
Income Taxes
Our results for 2018 and 2017 show no federal
or state income tax benefit provisions due to 100% allowances placed against them for the uncertainty of their future utilization.
Six months Ended June 30, 2018 Compared to Six months Ended
June 30, 2017
|
|
June 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Increase (decrease)
|
|
|
|
(In thousands)
|
|
|
Percent
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fee revenue
|
|
$
|
-
|
|
|
$
|
2,500
|
|
|
$
|
(2,500
|
)
|
|
|
(100
|
)%
|
Collaboration revenue
|
|
|
-
|
|
|
|
59
|
|
|
|
(59
|
)
|
|
|
(100
|
)
|
Royalty revenue
|
|
|
274
|
|
|
|
143
|
|
|
|
131
|
|
|
|
92
|
|
Product sales, net
|
|
|
-
|
|
|
|
107
|
|
|
|
(107
|
)
|
|
|
(100
|
)
|
Total revenues, net
|
|
|
274
|
|
|
|
2,809
|
|
|
|
(2,535
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
-
|
|
|
|
128
|
|
|
|
(128
|
)
|
|
|
(100
|
)
|
Research and development
|
|
|
1,127
|
|
|
|
1,731
|
|
|
|
(604
|
)
|
|
|
(35
|
)
|
Sales, marketing, general and administrative
|
|
|
1,789
|
|
|
|
2,359
|
|
|
|
(570
|
)
|
|
|
(24
|
)
|
Total cost and expenses
|
|
|
2,916
|
|
|
|
4,218
|
|
|
|
(1,302
|
)
|
|
|
(31
|
)
|
Operating loss
|
|
|
(2,642
|
)
|
|
|
(1,409
|
)
|
|
|
(1,233
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(113
|
)
|
|
|
(335
|
)
|
|
|
(222
|
)
|
|
|
(66
|
)
|
Loss before income taxes
|
|
|
(2,755
|
)
|
|
|
(1,744
|
)
|
|
|
1,011
|
|
|
|
58
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(2,755
|
)
|
|
$
|
(1,744
|
)
|
|
$
|
1,011
|
|
|
|
58
|
%
|
Revenue and Cost of Sales
License Fees
In March 2017, the Company entered into a license
agreement with MainPointe for a licensing fee of $2.5 million pursuant to which we granted MainPointe an exclusive license to our
Impede technology to commercialize our Nexafed products in the U.S. and Canada.
Collaboration Revenue
Collaboration revenue is derived from development
activities under a collaboration agreement we may have with a customer. We had no development activities with a customer during
the six months ended June 30, 2018. We recognized $59 thousand of collaboration revenue during the six months ended June 30,
2017.
Royalty Revenue
In connection with our agreement with Egalet for Oxaydo tablets,
we earn a royalty based on Oxaydo net sales. We recognized $260 thousand and $135 thousand of royalty revenue during the six months
ended June 30, 2018 and 2017, respectively. Included in the 2018 results is a one-time benefit of $89 thousand on royalty revenue
reported to us by Egalet for the effect of their adoption of ASC 606 on Oxaydo net sales.
In connection with our agreement
with MainPointe for the Nexafed products, we earn a royalty of 7.5% on net sales. We recognized $14 thousand and $8 thousand of
royalty revenue during the six months ended June 30, 2018 and 2017, respectively.
Net Product Sales and
Cost of Sales
In March 2017 we stopped
selling the Nexafed products as we licensed the product line to MainPointe, who is actively manufacturing, distributing, and selling
the Nexafed products. We recognized $107 thousand of net product sales and incurred $128 thousand of cost of sales on the Nexafed
products during the six months ended June 30, 2017. Our cost of sales on the Nexafed products included third-party manufacturing
costs, third-party warehousing and product distribution charges and inventory reserve expenses.
Expenses
Research and Development
Research and development expense (R&D)
is primarily for our Limitx Technology development activity. During the six months of 2017, our activities were addressing certain
excipient issues in our LTX-04 tablet formulation and developing a new, faster releasing micro-particle formulation for LTX-04
and we substantially completed our second pharmacokinetic study, AP-LTX-401. During the six months of 2018 we announced results
for Study 301, submitted an IND for LTX-03 to the FDA in order to advance to NDA development, which became effective in April 2018,
and we commenced the scale-up of the commercial manufacturing process as to-be-marketed formulations are required for all NDA development
work. We may run additional exploratory studies before manufacturing scale-up is complete to further understand the Limitx technology.
Included in each of June 30, 2018 and 2017 quarterly results are share-based compensation expenses of $38 thousand and $68 thousand,
respectively. Excluding the share-based compensation expense, our R&D expenses decreased by $574 thousand between reporting
periods.
General, Administrative, Selling and Marketing
In March 2017 we licensed the Nexafed products
to MainPointe and beginning thereafter, we reduced and eliminated all selling and marketing types of expenses. Our general and
administrative expenses primarily consisted of legal, audit and other professional services, corporate insurance, and payroll.
Included in each of the June 30, 2018 and 2017 quarterly results are share-based compensation expenses of $104 thousand and $190
thousand, respectively. Excluding this share-based compensation expense, our selling, marketing, general and administrative expenses
decreased by $484 thousand between reporting periods, resulting primarily from the reductions in advertising and marketing activities
as well as patent and general legal activities.
Interest Expense, net
During the six months ended June 30, 2018 and
2017, we incurred net interest expense of $113 thousand and $335 thousand, respectively, on our term loans.
Income Taxes
Our results for 2018 and 2017 show no federal
or state income tax benefit provisions due to 100% allowances placed against them for the uncertainty of their future utilization.
Liquidity and Capital Resources
At June 30, 2018, we had cash and refundable
deposits of $0.7 million compared to cash and cash equivalents of $2.2 million at December 31, 2017. As of August 13, 2018 after
giving effect to an aggregate of $1.9 million loans from John Schutte, our cash and refundable deposits were approximately $0.2
million. We expect our current cash and refundable deposits will only be able to fund operations into late August 2018.
To fund further operations beyond August 2018,
we must raise additional financing or enter into license or collaboration agreements with third parties relating to our technologies.
The Company is exploring a variety of capital raising and other transactions to provide additional funding to continue operations.
These include potential private offerings of common stock to institutional investors. The Company is also actively seeking a licensing
partner for its Limitx Technology, with the objective of receiving an upfront license fee, development milestone payments and royalties
on the net sales of products utilizing the Limitx Technology, similar to the Egalet Agreement and the now terminated Bayer Agreement.
The Company is also exploring licensing or selling select assets and intellectual property in an effort to raise capital and reduce
operating expenses. Finally, the Company is evaluating the potential for a strategic transaction which may involve the Company
being acquired in a merger or asset purchase transaction. No assurance can be given that we will be successful in obtaining any
such financing or in securing license or collaboration agreements with third parties on acceptable terms, if at all, or if secured,
that such financing or license or collaboration agreements will provide payments to the Company sufficient to fund continued operations.
Our auditors have included in their report relating to our 2017 financial statements a “going concern” explanatory
paragraph as to substantial doubt of our ability to continue as a going concern. In the absence of such financing or third-party
license or collaboration agreements, there will be substantial doubt about the Company’s ability to continue as a going concern
and the Company will be required to scale back or terminate operations and/or seek protection under applicable bankruptcy laws.
An extended delay or cessation of the Company’s continuing product development efforts will have a material adverse effect
on the Company’s financial condition and results of operations.
In view of the matters described above, recoverability
of a major portion of the recorded asset amounts shown in the Company’s accompanying balance sheets is dependent upon continued
operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a
continuous basis, to maintain existing financing and to succeed in its future operations. The Company’s financial statements
do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should the Company be unable to continue in existence.
Our future sources of revenue, if any, will
be derived from milestone payments and royalties under the Egalet Agreement, the KemPharm Agreement, the MainPointe Agreement and
similar agreements which we may enter into for our Limitx products in development with other pharmaceutical company partners, for
which there can be no assurance.
The amount and timing of our future cash requirements
will depend on regulatory and market acceptance of our product candidates and the resources we devote to the development and commercialization
of our product candidates.
Critical Accounting Policies
Note A of the Notes to Consolidated Financial
Statements, in the Company’s 2017 Annual Report on Form 10-K, includes a summary of the Company's significant accounting
policies and methods used in the preparation of the financial statements. The application of these accounting policies involves
the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these
estimates. The Company's critical accounting policies described in the 2017 Annual Report are also applicable to 2018.