amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.
In July 2017, the Company amended and restated its license agreement with EyePoint, which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the Company has the right to the technology underlying ILUVIEN for the treatment of uveitis, including NIU-PS, in Europe, the Middle East and Africa. The New Collaboration Agreement converted the Company’s previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. The Company began paying a 2% royalty on net revenues and other related consideration to EyePoint on July 1, 2017. The royalty amount increased to 6% effective December 12, 2018. The Company is required to pay an additional 2% royalty on global net revenues and other related consideration in excess of $75,000,000 in any year. During the three and six months ended June 30, 2020, the Company recognized approximately $401,000 and $982,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2020, approximately $401,000 of this royalty expense was included in the Company’s accounts payable. During the three and six months ended June 30, 2019, the Company recognized approximately $434,000 and $950,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization.
Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to $15,000,000 of commercialization costs that were incurred prior to profitability of ILUVIEN and to offset a portion of future payments owed to EyePoint with these accumulated commercialization costs, referred to as the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of June 30, 2020, the balance of the Future Offset was approximately $8,367,000.
10. LOAN AGREEMENTS
Hercules Loan Agreement
In April 2014, Alimera Sciences Limited (Alimera UK), a subsidiary of the Company, entered into a loan and security agreement (Hercules Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to $35,000,000 (Hercules Loan). The Company amended the Hercules Loan Agreement several times. On January 5, 2018, the Company paid off the Hercules Loan on behalf of Alimera UK, using the proceeds of the 2018 Solar Loan Agreement described below.
2014 Warrant
In connection with Alimera UK entering into the Hercules Loan Agreement, the Company issued a warrant that granted Hercules the right to purchase up to 19,002 shares of the Company’s common stock at an exercise price of $92.10 per share (the 2014 Warrant). The Company amended the 2014 Warrant a number of times to increase the number of shares issuable upon exercise to 83,933 and decrease the exercise price to $20.85 per share. The right to exercise this warrant expires on November 2, 2020.
2016 Warrant
In connection with Alimera UK entering into an amendment to the Hercules Loan Agreement on October 20, 2016, the Company agreed to issue a new warrant to Hercules (the 2016 Warrant) that granted Hercules the right to purchase up to 30,582 shares of the Company’s common stock at an exercise price of $16.35 per share. The right to exercise this warrant expires on October 20, 2021.
2018 Solar Capital Loan Agreement
On January 5, 2018, the Company entered into a $40,000,000 Loan and Security Agreement (the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital), as Collateral Agent (Agent), and the parties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2018 Solar Loan Agreement, the Company borrowed the entire $40,000,000 as a term loan (the 2018 Solar Loan) that was scheduled to mature on July 1, 2022. The Company paid Solar Capital a $400,000 fee at the closing of the 2018 Solar Loan Agreement. The Company repaid the 2018 Solar Loan on December 31, 2019 with a new loan agreement with Solar Capital as described below.
The Company used the proceeds of the 2018 Solar Loan to extinguish (prepay) the Hercules Loan Agreement and pay related expenses. The Company used the remaining loan proceeds to provide additional working capital for general corporate purposes.
Interest on the 2018 Solar Loan was payable at one-month LIBOR plus 7.65% per annum. The 2018 Solar Loan Agreement provided for interest only payments through the date of repayment. As of the final interest payment on the 2018 Solar Loan, the interest rate was approximately 9.3%.
The Company agreed, for itself and its subsidiaries, to customary affirmative and negative covenants and events of default in connection with the 2018 Solar Loan Agreement.
2018 Exit Fee Agreement
Notwithstanding the repayment of the 2018 Solar Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, Solar Capital as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Solar Loan Agreement upon the repayment of the 2018 Solar Loan and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the 2018 Exit Fee Agreement.
2019 Solar Capital Loan Agreement
On December 31, 2019, the Company entered into a $45,000,000 Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital, as Agent, and the parties signing the 2019 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2019 Solar Loan Agreement, the Company borrowed $42,500,000 on December 31, 2019 and subsequent to December 31, 2019, the Company borrowed the remaining $2,500,000 on February 21, 2020 (the two borrowings totaling $45,000,000 are referred to as the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024.
As noted above, the Company used the initial proceeds of the 2019 Solar Loan to pay off the 2018 Solar Loan, along with related prepayment, legal and other fees and expenses of approximately $2,278,000, which included a $1.8 million fee to Solar Capital upon repayment of the 2018 Solar Loan that was previously accrued and a $400,000 prepayment fee to Solar Capital that was capitalized as deferred financing costs. The Company expects to use the remaining loan proceeds to provide additional working capital for general corporate purposes.
Interest on the 2019 Solar Loan is payable at the greater of (i) one-month LIBOR or (ii) 1.78%, plus 7.65% per annum. As of December 31, 2019, the 2019 Solar Loan’s interest rate is 9.43%. The 2019 Solar Loan provides for interest only payments until January 1, 2023. If the Company meets certain revenue thresholds and no event of default shall have occurred and is continuing, the Company can extend the interest only period an additional six months, ending on June 30, 2023, followed by one year of monthly payments of principal and interest.
The Company paid the Lenders a non-refundable facility fee in the amount of $25,000 on February 21, 2020. In addition, the Company is obligated to pay a $2,250,000 fee upon repayment of the 2019 Solar Loan.
First Amendment to 2019 Solar Capital Loan Agreement
On May 1, 2020, the Company entered into a First Amendment (the Amendment) to its 2019 Solar Loan Agreement with Solar Capital. The Amendment, among other things:
(a)eliminates the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: the Company shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in the ordinary course of business to third party customers, on a trailing six-month basis, to be less than a specified minimum revenue amount for each such date;
(b)requires that the Revenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;
(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and
(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with an annual plan submitted by the Company to Agent by January 15th of such year, such plan to be approved by the Company’s board of directors and Agent in its sole discretion.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those provided in the sections entitled “Risk Factors” in our most recent annual report on Form 10-K, our most recent Form 10-Q and in Part II, Item 1A of this report below. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.
Alimera Sciences, Inc., and its subsidiaries (we, our or us), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We presently focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people globally. Our only product is ILUVIEN®, which has received marketing authorization and reimbursement approval in numerous countries for the treatment of diabetic macular edema (DME). In addition, ILUVIEN has received marketing authorization in 16 European countries and has obtained reimbursement approval in two countries, Germany and the U.K., for the prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment (NIU-PS).
We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal, Austria and Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Belgium, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand, Canada and several countries in the Middle East.
As of June 30, 2020, we have recognized sales of ILUVIEN to our international distributors in the Middle East, France, Italy and Spain.
Where We Market ILUVIEN to Treat DME
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME for the indications and in the countries shown in the following table:
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|
|
|
|
|
|
Indication for the
Treatment of DME
|
|
Countries
Where ILUVIEN Has
Received Marketing Authorization
to Treat DME
|
|
Countries
Where ILUVIEN Has
Received Reimbursement Approval to Treat DME
|
|
Countries Where
ILUVIEN is
Currently Marketed
to Treat DME
|
Treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure
|
|
U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates
|
|
U.S., Kuwait, Lebanon and the United Arab Emirates
|
|
U.S., Kuwait, Lebanon and the United Arab Emirates
|
Treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies
|
|
The United Kingdom (U.K.), Germany, France, Italy, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg
|
|
The U.K., Germany, France, Italy, Spain, Portugal, Ireland and Austria
|
|
The U.K., Germany, France, Italy, Spain, Portugal, Ireland and Austria
|
Where We Market ILUVIEN to Treat Recurrent NIU-PS
ILUVIEN has received marketing authorization for the use of ILUVIEN to treat NIU-PS for the indications and in the countries shown in the following table:
|
|
|
|
|
|
|
Indication for the
Treatment of NIU-PS
|
|
Countries
Where ILUVIEN Has
Received Marketing Authorization
to Treat NIU-PS
|
|
Countries
Where ILUVIEN Has
Received Reimbursement Approval to Treat NIU-PS
|
|
Countries Where
ILUVIEN is
Currently Marketed
to Treat NIU-PS
|
The prevention of relapse in recurrent NIU-PS
|
|
The U.K., Germany, France, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg
|
|
The U.K. and Germany
|
|
The U.K. and Germany
|
Effects of the COVID-19 Pandemic
The unprecedented and adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues and may in the future have an adverse effect on our liquidity and financial condition. These adverse effects of the pandemic on us have resulted from the following, among other factors. Governments and private parties imposed limitations on in-person access to physicians, which adversely affects us in at least two ways. First, these limitations can affect patient access to treatment. Because ILUVIEN is administered only by an injection into the eye, telemedicine is not a viable substitute when administration of treatment is required. Second, limitations on in-person access to physicians also makes it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about ILUVIEN.
Our business is also negatively affected by patients’ concerns in the current environment. Prior to the pandemic, most of our ILUVIEN sales were driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that health authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are unwilling to visit their physicians in person (even if otherwise permitted) due to their fear of contracting the COVID-19 pandemic.
In addition to the effects of limitations on in-person access to physicians, limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, has curtailed our in-person marketing activities.
These limitations and other effects of the COVID-19 pandemic had an adverse impact on our revenues late in the first quarter and throughout the second quarter. We expect these factors to continue to adversely impact our revenue, but the extent and duration of that impact is uncertain at this time. Depending on the duration of these limitations and other effects of the COVID-19 pandemic, our liquidity and financial condition may be adversely affected in the future as well.
In response to these developments, we have implemented measures to mitigate the impact of the pandemic on our financial position and operations. These measures include the following:
•We have managed our cost structure, minimizing all non-payroll spending where possible to mitigate our anticipated loss of revenue and conserve our cash.
•We have decreased our external spending on commercial and medical affairs activities related to the promotion of ILUVIEN.
•Because we believe that our employees are critical to both (a) serving our customers and patients as the pandemic-related restrictions are lifted in the coming weeks and months, and (b) realizing the long-term value of ILUVIEN, we have maintained our staffing levels and do not currently have any plans to reduce them.
License Agreement with EyePoint Pharmaceuticals US, Inc.
In July 2017, we amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, we
have rights to the technology underlying ILUVIEN for the treatment of uveitis, including NIU-PS, in Europe, the Middle East and Africa. The New Collaboration Agreement converted our previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. We began paying a 2% royalty on net revenues and other related consideration to EyePoint effective July 1, 2017. The royalty amount increased to 6% as of December 12, 2018. We will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year. During the three and six months ended June 30, 2020, we recognized approximately $401,000 and $982,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2020, approximately $401,000 of this royalty expense was included in our accounts payable. In comparison, during the three and six months ended June 30, 2019, we recognized approximately $434,000 and $950,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization.
Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty payments (the Future Offset). In March 2019, pursuant to the New Collaboration Agreement, we forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of June 30, 2020, the balance of the Future Offset was approximately $8,367,000. (See Note 9 of our notes to the accompanying Interim Financial Statements.)
Sources of Revenues
Our revenues for the three and six months ended June 30, 2020 and 2019 were generated from product sales primarily in the U.S., Germany and the U.K. In the U.S., two large pharmaceutical distributors accounted for 34% and 67% of our consolidated revenues for the three months ended June 30, 2020 and 2019, respectively, and 43% and 59% of our consolidated revenues for the six months ended June 30, 2020 and 2019, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.
Reverse Stock Split Effective November 14, 2019
On November 14, 2019, we filed a certificate of amendment to our restated certificate of incorporation with the Secretary of State of the State of Delaware, which effected a one-for-15 reverse stock split (the “reverse split”) of our issued and outstanding shares of common stock at 5:01 PM Eastern Time on that date. As a result of the reverse split, every 15 shares of common stock issued and outstanding were converted into one share of common stock.
First Amendment to 2019 Solar Capital Loan Agreement
On May 1, 2020, we entered into a First Amendment (the Amendment) to our $45,000,000 Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital, as Agent, and the parties signing the Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). For a summary of the terms of the Amendment, see “Liquidity and Capital Resources – Indebtedness – Loans from Solar Capital.”
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
|
2019
|
|
(In thousands, except share and per share data)
|
NET REVENUE
|
$
|
10,038
|
|
$
|
10,855
|
|
$
|
24,573
|
|
$
|
23,745
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
|
(1,485)
|
|
|
(1,174)
|
|
|
(3,412)
|
|
|
(2,774)
|
GROSS PROFIT
|
|
8,553
|
|
|
9,681
|
|
|
21,161
|
|
|
20,971
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
|
1,810
|
|
|
2,834
|
|
|
4,693
|
|
|
5,561
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
2,975
|
|
|
3,675
|
|
|
6,156
|
|
|
7,068
|
SALES AND MARKETING EXPENSES
|
|
4,382
|
|
|
6,108
|
|
|
10,054
|
|
|
12,021
|
DEPRECIATION AND AMORTIZATION
|
|
685
|
|
|
654
|
|
|
1,339
|
|
|
1,306
|
OPERATING EXPENSES
|
|
9,852
|
|
|
13,271
|
|
|
22,242
|
|
|
25,956
|
NET LOSS FROM OPERATIONS
|
|
(1,299)
|
|
|
(3,590)
|
|
|
(1,081)
|
|
|
(4,985)
|
INTEREST EXPENSE AND OTHER
|
|
(1,351)
|
|
|
(1,236)
|
|
|
(2,643)
|
|
|
(2,464)
|
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET
|
|
109
|
|
|
49
|
|
|
28
|
|
|
(20)
|
NET LOSS BEFORE TAXES
|
|
(2,541)
|
|
|
(4,777)
|
|
|
(3,696)
|
|
|
(7,469)
|
PROVISION FOR TAXES
|
|
(5)
|
|
|
(261)
|
|
|
(48)
|
|
|
(332)
|
NET LOSS
|
$
|
(2,546)
|
|
$
|
(5,038)
|
|
$
|
(3,744)
|
|
$
|
(7,801)
|
NET LOSS PER COMMON SHARE — Basic and diluted
|
$
|
(0.51)
|
|
$
|
(1.06)
|
|
$
|
(0.75)
|
|
$
|
(1.65)
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted
|
|
5,030,833
|
|
|
4,732,687
|
|
|
5,005,777
|
|
|
4,724,417
|
Net Revenue
Revenue from our U.S. distributors and revenue from our partners in the markets in our international segment where we do not sell direct fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.
Net revenue decreased by approximately $900,000, or 8%, to approximately $10.0 million for the three months ended June 30, 2020, compared to approximately $10.9 million for the three months ended June 30, 2019. The decrease was primarily attributable to a revenue decrease of $3.9 million in our U.S. business related to the impact of the COVID-19 pandemic. This decrease was offset by a $3.1 million increase in our international segment as a result of sales in the U.K. and Germany for our posterior uveitis indication and by increased shipments in our international distributor markets.
Net revenue increased by approximately $900,000, or 4%, to approximately $24.6 million for the six months ended June 30, 2020, compared to approximately $23.7 million for the six months ended June 30, 2019. The increase was primarily attributable to a $4.4 million increase in our international segment as a result of sales in the U.K. and Germany for our posterior uveitis indication and by increased shipments in our international distributor markets. This was offset by a $3.6 million decrease in our U.S. business related to the impact of the COVID-19 pandemic.
Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit
Gross profit is affected by costs of goods sold, which includes costs of manufactured goods sold and royalty payments to EyePoint under the New Collaboration Agreement. Additionally, cost of goods sold from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to our international distributors. Further, cost of goods sold associated with sales in our international markets where we sell to distributors is a higher percentage of revenue.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $300,000, or 25%, to approximately $1.5 million for the three months ended June 30, 2020, compared to approximately $1.2 million for the three months ended June 30, 2019. The increase was primarily attributable to increased sales.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $600,000, or 21%, to approximately $3.4 million for the six months ended June 30, 2020, compared to approximately $2.8 million for the six months ended June 30, 2019. The increase was primarily attributable to increased sales.
Gross profit decreased by approximately $1.1 million, or 11%, to approximately $8.6 million for the three months ended June 30, 2020, compared to approximately $9.7 million for the three months ended June 30, 2019. Gross margin was 85% and 89% for the three months ended June 30, 2020 and 2019, respectively. The decrease in gross margin was primarily affected by sales to our international distributors.
Gross profit increased by approximately $200,000, or 1%, to approximately $21.2 million for the six months ended June 30, 2020, compared to approximately $21.0 million for the six months ended June 30, 2019. Gross margin was 86% and 88% for the six months ended June 30, 2020 and 2019, respectively. The decrease in gross margin was primarily affected by sales to our international distributors.
Research, Development and Medical Affairs Expenses
Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and include clinical trials costs, salaries and related expenses for research, development and medical affairs personnel, as well as costs related to the provision of medical affairs support, such as scientific advisory boards, symposia development for physician education, and costs related to compliance with FDA, European Medicines Agency or other regulatory requirements. We expense both internal and external development costs as they are incurred.
Research, development and medical affairs expenses decreased by approximately $1.0 million, or 36%, to approximately $1.8 million for the three months ended June 30, 2020, compared to approximately $2.8 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $360,000 in personnel costs, including international vacant positions, global bonus expenses and global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $300,000 in scientific communications expenses, $180,000 in travel expenses and $130,000 in consultant costs.
Research, development and medical affairs expenses decreased by approximately $900,000, or 16%, to approximately $4.7 million for the six months ended June 30, 2020, compared to approximately $5.6 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $440,000 in personnel costs, including international vacant positions, global bonus expenses and global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $340,000 in scientific communications expenses and $170,000 in travel expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, information technology and human resources. Other significant costs include facilities costs and professional fees for accounting and legal services. We expect to continue to incur significant costs to comply with the corporate governance, internal control and similar requirements applicable to public companies.
General and administrative expenses decreased by approximately $700,000, or 19%, to approximately $3.0 million for the three months ended June 30, 2020, compared to approximately $3.7 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $210,000 in global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $170,000 in international severance expenses incurred in 2019 and $160,000 in professional fees.
General and administrative expenses decreased by approximately $900,000, or 13%, to approximately $6.2 million for the six months ended June 30, 2020, compared to approximately $7.1 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $410,000 in global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $170,000 in international severance expense incurred in 2019, $170,000 in professional fees and $110,000 in travel expenses.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion, the assessment of the commercial opportunity of, the development of market awareness for, the pursuit of market reimbursement for and the execution of launch plans for ILUVIEN in countries where we have not previously sold ILUVIEN or are marketing it for a different indication. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.
Sales and marketing expenses decreased by approximately $1.7 million, or 28%, to approximately $4.4 million for the three months ended June 30, 2020, compared to approximately $6.1 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $1.0 million in marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and $550,000 in travel expenses.
Sales and marketing expenses decreased by approximately $1.9 million, or 16%, to approximately $10.1 million for the six months ended June 30, 2020, compared to approximately $12.0 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $1.5 million in marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and $400,000 in travel expenses.
Operating Expenses
As a result of the increases and decreases in various expenses described above, total operating expenses decreased by approximately $3.4 million, or 26%, to approximately $9.9 million for the three months ended June 30, 2020, compared to approximately $13.3 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $1.7 million in sales and marketing expenses, $1.0 million in research, development and medical affairs expenses and $700,000 in general and administrative expenses as described above.
As a result of the increases and decreases in various expenses described above, total operating expenses decreased by approximately $3.8 million, or 15%, to approximately $22.2 million for the six months ended June 30, 2020, compared to approximately $26.0 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $1.9 million in sales and marketing expenses, $900,000 in research, development and medical affairs expenses and $900,000 in general and administrative expenses as described above.
Interest Expense and Other
Interest Expense and Other increased by approximately $200,000, or 17%, to approximately $1.4 million for the three months ended June 30, 2020, compared to approximately $1.2 million for the three months ended June 30, 2019. For these periods, interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the 2018 and 2019 Solar Loan Agreements with Solar Capital. As discussed in Note 10 of our notes to Interim Financial Statements, we entered into the 2018 Solar Loan Agreement on January 5, 2018, which we refinanced with the 2019 Solar Loan Agreement on December 31, 2019.
Interest Expense and Other increased by approximately $100,000, or 4%, to approximately $2.6 million for the six months ended June 30, 2020, compared to approximately $2.5 million for the six months ended June 30, 2019.
Basic and Diluted Net Income (Loss) Applicable to Common Stockholders per Share of Common Stock
We follow FASB Accounting Standards Codification, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common stockholders (if we were to declare and pay dividends), we use the two-class method to calculate EPS. However, our preferred stockholders are not contractually obligated to share in losses.
Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.
Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating and do not share in losses or would have been anti-dilutive, were approximately 2,471,266 for the three and six months ended June 30, 2020, respectively, and 2,347,076 for the three and six months ended June 30, 2019, respectively.
Results of Operations - Segment Review
The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how executive management monitors the performance of our reporting segments.
We have three segments: U.S., International and Other. Each segment is separately managed and is evaluated primarily upon segment gain or loss from operations. Non-cash items including stock-based compensation expense, depreciation and amortization are categorized as Other. We allocate certain operating expenses between our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation methodology during 2020 or 2019.
U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
|
2019
|
|
(In thousands)
|
NET REVENUE
|
$
|
3,420
|
|
$
|
7,320
|
|
$
|
10,487
|
|
$
|
14,086
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
|
(423)
|
|
|
(808)
|
|
|
(1,182)
|
|
|
(1,493)
|
GROSS PROFIT
|
|
2,997
|
|
|
6,512
|
|
|
9,305
|
|
|
12,593
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
|
1,098
|
|
|
1,630
|
|
|
3,020
|
|
|
3,057
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
1,943
|
|
|
2,150
|
|
|
3,915
|
|
|
4,084
|
SALES AND MARKETING EXPENSES
|
|
3,207
|
|
|
4,217
|
|
|
7,487
|
|
|
8,258
|
OPERATING EXPENSES
|
|
6,248
|
|
|
7,997
|
|
|
14,422
|
|
|
15,399
|
SEGMENT LOSS FROM OPERATIONS
|
$
|
(3,251)
|
|
$
|
(1,485)
|
|
$
|
(5,117)
|
|
$
|
(2,806)
|
U.S. Segment - three months ended June 30, 2020 compared to the three months ended June 30, 2019
Net revenue. Net revenue decreased by approximately $3.9 million, or 53%, to approximately $3.4 million for the three months ended June 30, 2020, compared to approximately $7.3 million for the three months ended June 30, 2019. Net revenue during the three months ended June 30, 2020 was negatively affected by the impact from the COVID-19 pandemic.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, decreased by approximately $390,000, or 48%, to approximately $420,000 for the three months ended June 30, 2020, compared to approximately $810,000 for the three months ended June 30, 2019. The decrease was primarily attributable to decreased sales due to the COVID-19 pandemic.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $500,000, or 31%, to approximately $1.1 million for the three months ended June 30, 2020, compared to approximately $1.6 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of $270,000 in scientific communications expenses and $110,000 in travel expenses.
General and administrative expenses. General and administrative expenses decreased by approximately $300,000, or 14%, to approximately $1.9 million for the three months ended June 30, 2020, compared to approximately $2.2 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases in professional fees, shareholder relations costs and travel expenses.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $1.0 million, or 24%, to approximately $3.2 million for the three months ended June 30, 2020, compared to approximately $4.2 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $520,000 in marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and $460,000 in travel expenses.
U.S. Segment - six months ended June 30, 2020 compared to the six months ended June 30, 2019
Net revenue. Net revenue decreased by approximately $3.6 million, or 26%, to approximately $10.5 million for the six months ended June 30, 2020, compared to approximately $14.1 million for the six months ended June 30, 2019. Net revenue during the six months ended June 30, 2020 was negatively affected by the COVID-19 pandemic, as well as a temporary shortage in stock of ILUVIEN in the first quarter.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, decreased by approximately $300,000, or 20%, to approximately $1.2 million for the six months ended June 30, 2020, compared to approximately $1.5 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreased sales.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $100,000, or 3%, to approximately $3.0 million for the six months ended June 30, 2020, compared to approximately $3.1 million for the six months ended June 30, 2019.
General and administrative expenses. General and administrative expenses decreased by approximately $200,000, or 5%, to approximately $3.9 million for the six months ended June 30, 2020, compared to approximately $4.1 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases in shareholder relations costs.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $800,000, or 10%, to approximately $7.5 million for the six months ended June 30, 2020, compared to approximately $8.3 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $780,000 in marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and approximately $280,000 in travel expenses. These decreases were offset by an increase of approximately $440,000 in personnel costs, as we had refilled previously vacant territories in the second half of 2019 and had little turnover in staffing levels during 2020 even during the COVID-19 pandemic.
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(In thousands)
|
NET REVENUE
|
$
|
6,618
|
|
$
|
3,535
|
|
$
|
14,086
|
|
$
|
9,659
|
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION
|
|
(1,062)
|
|
|
(366)
|
|
|
(2,230)
|
|
|
(1,281)
|
GROSS PROFIT
|
|
5,556
|
|
|
3,169
|
|
|
11,856
|
|
|
8,378
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
|
664
|
|
|
1,090
|
|
|
1,557
|
|
|
2,261
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
838
|
|
|
946
|
|
|
1,775
|
|
|
1,933
|
SALES AND MARKETING EXPENSES
|
|
1,100
|
|
|
1,779
|
|
|
2,392
|
|
|
3,484
|
OPERATING EXPENSES
|
|
2,602
|
|
|
3,815
|
|
|
5,724
|
|
|
7,678
|
SEGMENT LOSS FROM OPERATIONS
|
$
|
2,954
|
|
$
|
(646)
|
|
$
|
6,132
|
|
$
|
700
|
International Segment - three months ended June 30, 2020 compared to the three months ended June 30, 2019
Net revenue. Net revenue increased by approximately $3.1 million, or 89%, to approximately $6.6 million for the three months ended June 30, 2020, compared to approximately $3.5 million for the three months ended June 30, 2019. The increase was primarily attributable to sales of our posterior uveitis indication in the U.K. and Germany and increased business in our distributor markets.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $730,000, or 197%, to approximately $1.1 million for the three months ended June 30, 2020, compared to approximately $370,000 for the three months ended June 30, 2019. The increase was primarily attributable to our increased sales. As noted above, cost of goods sold associated with sales in our international markets where we sell to distributors is a higher percentage of revenue.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $440,000, or 40%, to approximately $660,000 for the three months ended June 30, 2020, compared to approximately $1.1 million for the
three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $280,000 in personnel and travel expenses, including vacant positions and bonus expenses.
General and administrative expenses. General and administrative expenses decreased by approximately $110,000, or 12%, to approximately $840,000 for the three months ended June 30, 2020, compared to approximately $950,000 for the three months ended June 30, 2019. The decrease was primarily attributable to a decrease in severance expenses resulting from costs incurred in 2019.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $700,000, or 39%, to approximately $1.1 million for the three months ended June 30, 2020, compared to approximately $1.8 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $530,000 in marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic and $130,000 in market access costs.
International Segment - six months ended June 30, 2020 compared to the six months ended June 30, 2019
Net revenue. Net revenue increased by approximately $4.4 million, or 45%, to approximately $14.1 million for the six months ended June 30, 2020, compared to approximately $9.7 million for the six months ended June 30, 2019. The increase was primarily attributable to sales of our posterior uveitis indication in the U.K. and Germany and increased business in our distributor markets.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $900,000, or 69%, to approximately $2.2 million for the six months ended June 30, 2020, compared to approximately $1.3 million for the six months ended June 30, 2019. The increase was primarily attributable to our increased sales. As noted above, cost of goods sold associated with sales in our international markets where we sell to distributors is a higher percentage of revenue.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $700,000, or 30%, to approximately $1.6 million for the six months ended June 30, 2020, compared to approximately $2.3 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $310,000 in personnel and travel expenses, including vacant positions and bonus expenses, and $210,000 in costs associated with our 5-year open label registry study as it nears completion.
General and administrative expenses. General and administrative expenses decreased by approximately $100,000, or 5%, to approximately $1.8 million for the six months ended June 30, 2020, compared to approximately $1.9 million for the six months ended June 30, 2019. The decrease was primarily attributable to a decrease in severance expenses resulting from costs incurred in 2019.
Sales and marketing expenses. Sales and marketing expenses decreased by approximately $1.1 million, or 31%, to approximately $2.4 million for the six months ended June 30, 2020, compared to approximately $3.5 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $720,000 in marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic, $240,000 in market access costs and $120,000 in travel expenses.
Other Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(In thousands)
|
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES
|
$
|
48
|
|
$
|
114
|
|
$
|
116
|
|
$
|
243
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
194
|
|
|
579
|
|
|
466
|
|
|
1,051
|
SALES AND MARKETING EXPENSES
|
|
75
|
|
|
112
|
|
|
175
|
|
|
279
|
DEPRECIATION AND AMORTIZATION
|
|
685
|
|
|
654
|
|
|
1,339
|
|
|
1,306
|
OPERATING EXPENSES
|
|
1,002
|
|
|
1,459
|
|
|
2,096
|
|
|
2,879
|
SEGMENT LOSS FROM OPERATIONS
|
$
|
(1,002)
|
|
$
|
(1,459)
|
|
$
|
(2,096)
|
|
$
|
(2,879)
|
Our CEO, who is our chief operating decision maker manages and evaluates our U.S. and International segments based on net gain or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, these non-cash expenses included in research, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses are classified within the Other segment within our Interim Financial Statements.
Operating expenses in the Other segment decreased by approximately $500,000, or 33%, to $1.0 million for the three months ended June 30, 2020, compared to approximately $1.5 million for the three months ended June 30, 2019. This decrease is primarily attributable to a decrease of $310,000 in global stock-based compensation expenses and $170,000 in international severance expense incurred in 2019. Operating expenses in the Other segment decreased by approximately $800,000, or 28%, to $2.1 million for the six months ended June 30, 2020, compared to approximately $2.9 million for the six months ended June 30, 2019. This decrease is primarily attributable to a decrease of $640,000 in global stock-based compensation expenses and $170,000 in international severance expense incurred in 2019.
Liquidity and Capital Resources
Overview
Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit in stockholders’ equity of $391.3 million through June 30, 2020.
As explained above in “Effects of the COVID-19 Pandemic,” the unprecedented and adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues. Depending on the duration of the pandemic and the success of our strategy to conserve our cash and otherwise mitigate the impact of the pandemic, the pandemic may have an adverse effect on our liquidity and financial condition in the future as well. We expect that the pandemic may continue to adversely affect our operations. As a result, it is difficult to project the extent of that impact now and as this situation continues to evolve.
Since January 2018, we have funded our operations through the 2018 and 2019 Solar Loan Agreements described below and a small offering of common stock. In April 2020, we obtained a loan under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. Our loans do not include a revolving loan feature and have been fully advanced by the respective lenders. We currently have no additional borrowing capacity, and the 2019 Solar Loan Agreement generally prohibits any additional debt unless we obtain the prior consent of Solar Capital. Currently, we cannot access the equity markets without severe dilution to our current stockholders.
On July 9, 2020, we announced the initiation of the NEW DAY study, a randomized, controlled, multi-center clinical trial designed to generate prospective data for ILUVIEN 0.19 mg as a first-line baseline therapy in patients diagnosed with DME and demonstrate ILUVIEN’s advantages over the current standard of care (anti-VEGF injections). We estimate we will incur approximately $13.5 million in expenses over the next three to four years associated with the NEW DAY Study. We expect to fund these costs with existing resources, cash flow from operations and the redeployment of other clinical spending.
Under our 2012 agreement with Flextronics International, Ltd. (Flextronics), Flextronics agreed to manufacture the component parts of the ILUVIEN applicator for us at its facility located near Tijuana, Mexico. We purchased certain equipment for Flextronics’ facility that Flextronics uses solely to manufacture the components of the ILUVIEN applicator for us. During 2019, Flextronics gave us 18 months’ notice to terminate the existing manufacturing agreement, which will terminate on September 30, 2020. We have identified an alternative manufacturer and are currently negotiating a final agreement to allow the transfer of equipment and qualification of the new facility, which is located in Pennsylvania. We currently expect to incur approximately $400,000 of capital expenditures associated with the new facility through February 2021, when we expect the new facility to be fully operational. We expect the capital expenditures to be one-time costs. Flextronics is manufacturing a safety stock of the components of the ILUVIEN applicator, which will cause some of the manufacturing costs for the components to be accelerated into the third quarter of 2020, with no production of these parts occurring in the fourth quarter.
Indebtedness
Loans from Solar Capital. On January 5, 2018, we entered into a $40.0 million Loan and Security Agreement (the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital) and other lenders. Under the 2018 Solar Loan Agreement, we borrowed the entire $40.0 million as a term loan that was scheduled to mature on July 1, 2022 (the 2018 Solar Loan). We used the proceeds of the 2018 Solar Loan to refinance the then outstanding loan under our previous loan agreement with Hercules Capital, Inc. and to pay closing expenses associated with the 2018 Solar Loan Agreement.
On December 31, 2019, we refinanced the 2018 Solar Loan Agreement by entering into a $45.0 million Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital as Collateral Agent (Agent), and the parties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2019 Solar Loan Agreement, we borrowed $42.5 million on December 31, 2019 and $2.5 million on February 21, 2020 (the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024. We used the initial proceeds of the 2019 Solar Loan to pay off the 2018 Solar Loan, along with related
prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to Solar Capital. We expect to use the remaining proceeds of the 2019 Solar Loan to provide additional working capital for general corporate purposes, and those proceeds are part of the cash and cash equivalents described below.
On May 1, 2020, we entered into a First Amendment (the Amendment) to the 2019 Solar Loan Agreement. The Amendment, among other things:
(a)eliminated the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: we shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in the ordinary course of business to third party customers, on a trailing six-month basis, to be less than a specified minimum revenue amount for each such date;
(b)requires that the Revenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;
(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and
(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we submit to Agent by January 15th of such year, such plan to be approved by our board of directors and Agent in its sole discretion.
The Amendment also adds the following new minimum liquidity requirement that became effective on May 1, 2020 and will continue until we notify Agent that we have met the Revenue Covenant at November 30, 2020: we shall not permit the aggregate amount of unrestricted cash and cash equivalents to be less than the sum of (i) $8,500,000 plus (ii) the amount of our accounts payable that have not been paid within 90 days from the invoice date of the relevant account payable.
Paycheck Protection Program Loan. On April 22, 2020, we received approximately $1.8 million in support (the PPP Loan) from the U.S. federal government under the Paycheck Protection Program established as part of the CARES Act. The PPP Loan is unsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender and is governed by a loan agreement with HSBC.
The interest rate on the Note is 1.0% per annum. The Note has a two-year term and is payable in 18 equal monthly payments of principal and interest beginning on the 180th day following the disbursement of the loan proceeds, subject to forgiveness as described below. The Paycheck Protection Program provides a mechanism for forgiveness of up to the full amount borrowed as long as we use the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. We used all of the proceeds from the PPP Loan to pay expenses during the applicable period that we believe were for eligible purposes. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. As of the date of this filing, the application is still pending review. To the extent any or all of the PPP Loan is not forgiven, we will be required to repay the PPP Loan on the terms described above.
Current Cash Position
As of June 30, 2020, we had approximately $13.5 million in cash and cash equivalents, an increase of $1.3 million from the $12.2 million in cash and cash equivalents that we reported as of March 31, 2020. In April 2020, we received approximately $1.8 million PPP Loan. We may need to raise additional capital to fund our business strategy, including the continued commercialization of ILUVIEN and the retention of our current employees and staff. In response to the effects of the COVID-19 pandemic, we have adjusted, and we expect to continue to adjust, our commercial spending to continue to operate with our existing cash resources. The actual amount of funds that we may need will depend on many factors, some of which are beyond our control. See “Effects of the COVID-19 Pandemic” in this Item 2 above for an explanation of our strategy to conserve our cash and otherwise mitigate the impact of the pandemic on our financial position and operations.
We cannot ensure that our commercial spending controls will be effective or will continue to be effective throughout the currently unknown duration of the pandemic. We cannot be sure that additional financing will be available when needed or that, if available, the additional financing could be obtained on terms that are not significantly detrimental to us or our stockholders. If we were to raise additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result, and the terms of any new equity securities may have a preference over our common stock. If we were to attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under them. If we were to attempt to raise additional funds through debt financing, (a) the terms of the debt may involve significant cash payment obligations as well as
covenants and specific financial ratios that may restrict our ability to achieve our business strategy; and (b) we would be required to obtain the permission or participation of Solar Capital, which we might not be able to obtain. Our recurring losses and any potential needs to raise capital create substantial doubt about our ability to continue as a going concern for the next 12 months following the issuance of the financial statements for the filing of this Form 10-Q.
Sources and Uses of Cash for the six months ended June 30, 2020 compared to the six months ended June 30, 2019
For the six months ended June 30, 2020, cash provided by our operations was approximately $220,000. The cash provided by our operations was primarily due to our net loss of $3.7 million, offset by $1.3 million of non-cash depreciation and amortization, $760,000 of non-cash stock-based compensation expense and $480,000 of non-cash interest expense associated with the amortization of our debt discount. Further reducing cash from operations was a $2.8 million net decrease in accounts payable, accrued expenses and other current liabilities, a $580,000 increase in inventory, a $290,000 decrease in long-term liabilities and a $240,000 increase in prepaid expenses and other current assets. These were offset by a $5.3 million decrease in accounts receivable.
For the six months ended June 30, 2019, cash used in our operations was approximately $680,000. The cash used in our operations was primarily due to our net loss of $7.8 million and an increase in prepaid expenses and other current assets of $960,000, offset by a $3.3 million decrease in accounts receivable, $1.4 million of non-cash stock-based compensation expense, $1.3 million for non-cash depreciation and amortization and a $930,000 net increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2019 was further offset by a $430,000 increase in other long-term liabilities, $420,000 for non-cash interest expense associated with the amortization of our debt discount and $260,000 of inventory.
For the six months ended June 30, 2020, net cash used in our investing activities was approximately $220,000, which was due to the purchase of property and equipment.
For the six months ended June 30, 2019, net cash used in our investing activities was approximately $40,000.
For the six months ended June 30, 2020, net cash provided by our financing activities was approximately $4.0 million, which is primarily due to borrowing the remaining $2.5 million under the 2019 Solar Loan Agreement and receiving the $1.8 million PPP Loan, offset by $230,000 of payments of finance lease obligations.
For the six months ended June 30, 2019, net cash used in our financing activities was approximately $140,000, which is primarily due to payments of finance lease obligations.
Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
Impact of Recent Accounting Pronouncements
See Note 3 of our notes to Interim Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2020.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the six months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.