Notes to the Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business
Amicus Therapeutics, Inc. (the "Company") is a global, patient-dedicated biotechnology company focused on discovering, developing, and delivering novel medicines for rare diseases. The Company has a portfolio of product opportunities led by the first, oral monotherapy for Fabry disease that has achieved widespread global approval, a differentiated biologic for Pompe disease in the clinic, and an industry leading rare disease gene therapy portfolio.
The cornerstone of the Company's portfolio is Galafold® (also referred to as "migalastat"), the first and only approved oral precision medicine for people living with Fabry disease who have amenable genetic variants. Migalastat is currently approved under the trade name Galafold® in the United States ("U.S."), European Union ("E.U."), United Kingdom ("U.K."), and Japan, with multiple additional approvals granted and applications pending in several other geographies around the world.
The lead biologics program of the Company's pipeline is Amicus Therapeutics GAA ("AT-GAA", also known as ATB200/AT2221, or cipaglucosidase alfa/miglustat), a novel, clinical-stage, potential best-in-class treatment paradigm for Pompe disease. In February 2019, the U.S. Food and Drug Administration ("FDA") granted Breakthrough Therapy designation ("BTD") to AT-GAA for the treatment of late onset Pompe disease. In the first quarter of 2020, the British Medicines and Healthcare Products Regulatory Agency issued a Promising Innovative Medicine designation for AT-GAA for the treatment of late-onset Pompe disease.
The Company has established an industry leading gene therapy portfolio of potential therapies for people living with rare metabolic diseases, through a license with Nationwide Children's Hospital ("Nationwide Children's") and an expanded collaboration with the University of Pennsylvania ("Penn"). The Company's pipeline includes gene therapy programs in rare, neurologic lysosomal disorders ("LDs"), specifically: CLN6, CLN3, and CLN1 Batten disease, Pompe disease, Fabry disease, CDKL5 deficiency disorder ("CDD"), Mucopolysaccharidosis Type IIIB ("MPS IIIB"), as well as a next generation program in Mucopolysaccharidosis Type IIIA ("MPS IIIA"). This expanded collaboration with Penn also provides the Company with exclusive disease-specific access and option rights to develop potentially disruptive new gene therapy platform technologies and programs for most LDs and a broader portfolio of more prevalent rare diseases, including Rett Syndrome, Angelman Syndrome, Myotonic Dystrophy, and select other muscular dystrophies. In the first quarter of 2020, the FDA granted Fast Track designation to the CLN3 Batten disease gene therapy, AT-GTX-502, for the treatment of pediatric patients less than 18 years of age.
The Company's operations have not yet been significantly impacted from the novel coronavirus (“COVID-19”) pandemic. The Company has maintained operations in all geographies, secured its global supply chain for its commercial and clinical products, and maintained its clinical trials, with minimal disruption. The Company believes its ability to continue to operate without any significant disruptions will depend on the continued health of its employees, the ongoing demand for Galafold® and the continued operation of its global supply chain. The Company has continued to provide uninterrupted access to medicines for those in need of treatment, while prioritizing the health and safety of its global workforce. However, the Company's results of operations in future periods may be negatively impacted by unknown future impacts from the COVID-19 pandemic.
The Company had an accumulated deficit of $1.9 billion as of June 30, 2020 and anticipates incurring losses through the fiscal year ending December 31, 2020 and beyond. The Company has historically funded its operations through stock offerings, debt issuances, Galafold® revenues, collaborations, and other financing arrangements.
In July 2020, the Company entered into a definitive agreement for a $400 million credit facility with Hayfin Capital Management (“2020 Senior Secured Term Loan”) with an interest rate equal to 3-month LIBOR, subject to a 1% floor, plus 6.5% per annum and requires interest-only payments until mid-2024 and matures in six years in 2026. This transaction resulted in net proceeds of $386.1 million, after deducting fees and estimated expenses. There were no warrants or equity conversion features associated with the 2020 Senior Secured Term Loan. Additionally, the Company used $156.3 million of the proceeds to voluntary settle the principal amount, accrued interest, and early settlement premiums of the Senior Secured Term Loan with BioPharma Credit PLC that was due in 2023. The remaining proceeds will be used for other general corporate and product development purposes.
Based on current operating models, the Company believes that the current cash position, along with the net proceeds from the 2020 Senior Secured Term Loan and expected revenues, is sufficient to fund the Company's operations and ongoing research programs through to profitability. Potential future impact of the COVID-19 pandemic, future business development collaborations, pipeline expansion, and investment in manufacturing capabilities could impact the Company's future capital requirements.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company has prepared the accompanying unaudited Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's interim financial information.
The accompanying unaudited Consolidated Financial Statements and related notes should be read in conjunction with the Company's financial statements and related notes as contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019. For a complete description of the Company's accounting policies, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
Foreign Currency Transactions
The functional currency for most of the Company's foreign subsidiaries is their local currency. For non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of the financial statements of the Company's foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income, a separate component of stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Additionally, the Company assessed the impact COVID-19 pandemic has had on its operations and financial results as of June 30, 2020 and through the issuance of this report. The Company’s analysis was informed by the facts and circumstances as they were known to the Company. This assessment considered the impact COVID-19 may have on financial estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses.
Cash, Cash Equivalents, Marketable Securities, and Restricted Cash
The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition to be cash equivalents. Marketable securities consist of fixed income investments with a maturity of greater than three months and other highly liquid investments that can be readily purchased or sold using established markets. These investments are classified as available-for-sale and are reported at fair value on the Company's Consolidated Balance Sheets. Unrealized holding gains and losses are reported within comprehensive income (loss) in the Statements of Comprehensive Loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations, or other observable inputs.
Restricted cash consists primarily of funds held to satisfy the requirements of certain agreements that are restricted in their use and is included in non-current assets on the Company's Consolidated Balance Sheets.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company maintains its cash and cash equivalents in bank accounts, which, at times, exceed federally insured limits. The Company invests its marketable securities in high-quality commercial financial instruments. The Company has not recognized any losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on its cash, cash equivalents, or marketable securities.
The Company is subject to credit risk from its accounts receivable related to its product sales of Galafold®. The Company's accounts receivable at June 30, 2020 have arisen from product sales primarily in Europe and the U.S. The Company will periodically assess the financial strength of its customers and the geographic economic environments and conditions to establish allowances for anticipated losses, if any. For accounts receivable that have arisen from named patient sales, the payment terms are predetermined, and the Company evaluates the creditworthiness of each customer on a regular basis. As of June 30, 2020, the Company recorded an allowance for doubtful accounts of $0.1 million.
Revenue Recognition
The Company's net product sales consist of sales of Galafold® for the treatment of Fabry disease. The Company has recorded revenue on sales where Galafold® is available either on a commercial basis or through a reimbursed early access program ("EAP"). Orders for Galafold® are generally received from distributors and pharmacies with the ultimate payor often a government authority.
The Company recognizes revenue when its performance obligations to its customers have been satisfied, which occurs at a point in time when the pharmacies or distributors obtain control of Galafold®. The transaction price is determined based on fixed consideration in the Company's customer contracts and is recorded net of estimates for variable consideration, which are third party discounts and rebates. The identified variable consideration is recorded as a reduction of revenue at the time revenues from the sale of Galafold® are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
The following table summarizes the Company's net product sales from Galafold® disaggregated by geographic area:
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Three Months Ended June 30,
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Six Months Ended June 30,
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(in thousands)
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|
2020
|
|
2019
|
|
2020
|
|
2019
|
U.S.
|
|
$
|
20,807
|
|
|
$
|
12,181
|
|
|
$
|
38,579
|
|
|
$
|
21,249
|
|
Ex-U.S.
|
|
41,546
|
|
|
31,949
|
|
|
84,299
|
|
|
56,927
|
|
Total net product sales
|
|
$
|
62,353
|
|
|
$
|
44,130
|
|
|
$
|
122,878
|
|
|
$
|
78,176
|
|
Inventories and Cost of Goods Sold
Inventories are stated at the lower of cost and net realizable value, determined by the first-in, first-out method. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on projected sales activity as well as product shelf-life. In evaluating the recoverability of inventories produced, the probability that revenue will be obtained from the future sale of the related inventory is considered and inventory value is written down for inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of goods sold in the Consolidated Statements of Operations.
Cost of goods sold includes the cost of inventory sold, manufacturing and supply chain costs, product shipping and handling costs, provisions for excess and obsolete inventory, as well as royalties payable.
Leases
The Company primarily enters into lease agreements for office space, equipment, and vehicles. The leases have varying terms, some of which could include options to renew, extend, and early terminate. The Company determines if an arrangement is a lease at contract inception. Operating leases are included in right-of-use ("ROU") assets and lease liabilities on the Consolidated Balance Sheets.
ROU assets represent the Company's right to control the use of an explicitly or implicitly identified fixed asset for a period of time and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Lease payments included in the measurement of the lease liability are comprised of fixed payments. Variable lease payments are excluded from the ROU asset and lease liability and are recognized in the period in which the obligation for those payments is incurred. Variable lease payments are presented in the Consolidated Statements of Operations in the same line item as expenses arising from fixed lease payments for operating leases. The Company has lease agreements that include lease and non-lease components, which the Company accounts for as a single lease component for all underlying asset categories.
The lease term for all of the Company's leases include the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company applies this policy to all underlying asset categories.
Recent Accounting Developments - Guidance Adopted in 2020
ASU 2018-15 - In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): ("ASU 2018-15"), relating to a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor. Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized software costs and related amortization expense and requires additional quantitative and qualitative disclosures. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public companies. The Company adopted this guidance on January 1, 2020. The adoption did not have a material impact on the Company's Consolidated Financial Statements or related disclosures.
ASU 2018-13 - In August 2018, the FASB issued ASU 2018-03, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The amendments modify the disclosure requirements in Topic 820. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on (i) changes in unrealized gains and losses, (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (iii) the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted this guidance on January 1, 2020. The adoption did not have a material impact on the Company's Consolidated Financial Statements or related disclosures.
ASU 2017-04 - In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the recognition and measurement of a goodwill impairment loss by eliminating Step 2 of the quantitative goodwill impairment test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if any. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. The Company adopted this guidance on January 1, 2020. The adoption did not have a material impact on the Company's Consolidated Financial Statements or related disclosures.
ASU 2016-13 - In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected and amends guidance on the impairment of financial instruments. ASU 2016-13 is effective for public companies who are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company adopted this guidance on January 1, 2020. The adoption did not have a material impact on the Company's Consolidated Financial Statements or related disclosures.
Recent Accounting Developments - Guidance Not Yet Adopted
ASU 2019-12 - In December 2019, the FASB issued ASU 2019-15, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). This new guidance removes specific exceptions to the general principles in Topic 740. It eliminates the need for an organization to analyze whether the following apply in a given period: (i) exception to the incremental approach for intraperiod tax allocation; (ii) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial statement preparers’ application of income tax-related guidance and simplifies the following: (i) franchise taxes that are partially based on income; (ii) transactions with a government that result in a step up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; and (iv) enacted changes in tax laws in interim periods. ASU 2019 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for public business entities for periods for which financial statements have not yet been issued. The Company is currently assessing the impact that this standard will have on the Company's Consolidated Financial Statements upon adoption.
Note 3. Cash, Cash Equivalents, Marketable Securities, and Restricted Cash
As of June 30, 2020, the Company held $164.6 million in cash and cash equivalents and $145.0 million of marketable securities which are reported at fair value on the Company's Consolidated Balance Sheets. Unrealized holding gains and losses are generally reported within accumulated other comprehensive loss in the Statements of Comprehensive Loss. If a decline in the fair value of a marketable security below the Company's cost basis is determined to be other-than-temporary or if an available-for-sale debt security’s fair value is determined to less than the amortized cost and the Company intends or is more than likely to sell the security before recovery and it is not considered a credit loss, such security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. If the unrealized loss of an available-for-sale debt security is determined to be a result of credit loss the Company would recognize an allowance and the corresponding credit loss would be included in earnings.
The Company regularly invests excess operating cash in deposits with major financial institutions, money market funds, notes issued by the U.S. government, as well as fixed income investments and U.S. bond funds, both of which can be readily purchased and sold using established markets. The Company believes that the market risk arising from its holdings of these financial instruments is mitigated as many of these securities are either government backed or of the highest credit rating. Investments that have original maturities greater than three months but less than one year are classified as current.
Cash, cash equivalents and marketable securities are classified as current unless mentioned otherwise below and consisted of the following:
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As of June 30, 2020
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(in thousands)
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Cost
|
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Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
Cash and cash equivalents
|
|
$
|
164,573
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
164,573
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Corporate debt securities
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|
51,307
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|
|
225
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|
|
—
|
|
|
51,532
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Commercial paper
|
|
59,803
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|
|
103
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|
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(4)
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|
|
59,902
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Asset-backed securities
|
|
33,020
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|
|
162
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|
|
—
|
|
|
33,182
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|
Money market
|
|
350
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Certificates of deposit
|
|
51
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|
|
—
|
|
|
—
|
|
|
51
|
|
|
|
$
|
309,104
|
|
|
$
|
490
|
|
|
$
|
(4)
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|
|
$
|
309,590
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|
Included in cash and cash equivalents
|
|
$
|
164,573
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
164,573
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|
Included in marketable securities
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|
144,531
|
|
|
490
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|
|
(4)
|
|
|
145,017
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|
Total cash, cash equivalents, and marketable securities
|
|
$
|
309,104
|
|
|
$
|
490
|
|
|
$
|
(4)
|
|
|
$
|
309,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
As of December 31, 2019
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(in thousands)
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|
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
Cash and cash equivalents
|
|
$
|
142,837
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
142,837
|
|
Corporate debt securities
|
|
145,875
|
|
|
121
|
|
|
(5)
|
|
|
145,991
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|
Commercial paper
|
|
73,659
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|
|
53
|
|
|
(2)
|
|
|
73,710
|
|
Asset-backed securities
|
|
77,731
|
|
|
79
|
|
|
—
|
|
|
77,810
|
|
U.S. government agency bonds
|
|
11,999
|
|
|
2
|
|
|
(10)
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|
|
11,991
|
|
Money market
|
|
350
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Certificates of deposit
|
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
|
$
|
452,502
|
|
|
$
|
255
|
|
|
$
|
(17)
|
|
|
$
|
452,740
|
|
Included in cash and cash equivalents
|
|
$
|
142,837
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
142,837
|
|
Included in marketable securities(1)
|
|
309,665
|
|
|
255
|
|
|
(17)
|
|
|
309,903
|
Total cash, cash equivalents, and marketable securities
|
|
$
|
452,502
|
|
|
$
|
255
|
|
|
$
|
(17)
|
|
|
$
|
452,740
|
|
______________________________
(1) As of December 31, 2019, $9.5 million of marketable securities have maturity dates greater than 12 months and are available to convert into cash, if needed.
For the six months ended June 30, 2020 there were nominal realized gains. For the fiscal year ended December 31, 2019, there were no realized gains or losses. The cost of securities sold is based on the specific identification method.
Unrealized loss positions in the marketable securities as of June 30, 2020 and December 31, 2019 reflect temporary impairments and are not a result of credit loss. Additionally, as these positions have been in a loss position for less than twelve months and the Company does not intend to sell these securities before recovery, the losses are recognized in other comprehensive gain (loss). The fair value of these marketable securities in unrealized loss positions was $17.7 million and $42.6 million as of June 30, 2020 and December 31, 2019, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.
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|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2020
|
|
June 30, 2019
|
Cash and cash equivalents
|
|
$
|
164,573
|
|
|
$
|
220,578
|
|
Restricted cash
|
|
2,689
|
|
|
2,610
|
|
Cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows
|
|
$
|
167,262
|
|
|
$
|
223,188
|
|
Note 4. Inventories
Inventories consist of raw materials, work-in-process, and finished goods related to the manufacture of Galafold®. The following table summarizes the components of inventories:
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|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2020
|
|
December 31, 2019
|
Raw materials
|
|
$
|
1,872
|
|
|
$
|
6,544
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|
Work-in-process
|
|
4,571
|
|
|
3,660
|
|
Finished goods
|
|
6,536
|
|
|
3,837
|
|
Total inventories
|
|
$
|
12,979
|
|
|
$
|
14,041
|
|
The Company recorded a reserve for inventory of $0.2 million as of June 30, 2020 and December 31, 2019.
Note 5. Debt
The Company's debt consists of the following:
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|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2020
|
|
December 31, 2019
|
Senior Secured Term Loan due 2023:
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|
|
|
|
Principal
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Less: debt discount (1)
|
|
(1,909)
|
|
|
(2,315)
|
|
Less: deferred financing (1)
|
|
(257)
|
|
|
(311)
|
|
Net carrying value of the Senior Secured Term Loan
|
|
$
|
147,834
|
|
|
$
|
147,374
|
|
|
|
|
|
|
Convertible Notes due 2023 (2):
|
|
|
|
|
Principal
|
|
$
|
2,825
|
|
|
$
|
2,825
|
|
Less: debt discount (1)
|
|
(591)
|
|
|
(659)
|
|
Less: deferred financing (1)
|
|
(31)
|
|
|
(35)
|
|
Net carrying value of the Convertible Notes
|
|
$
|
2,203
|
|
|
$
|
2,131
|
|
______________________________
(1) Included in the Consolidated Balance Sheets within Convertible Notes and Senior Secured Term Loan and amortized to interest expense over the remaining life of the Convertible Notes and Senior Secured Term Loan using the effective interest rate method.
(2) The Convertible Notes are currently convertible as the last reported sale price of the Company's common stock was equal to or more than 130% of the conversion price for at least 20 trading days of the 30 consecutive trading days ending on the last day of the quarter.
During the six months ended June 30, 2019, the Company entered into separate, privately negotiated Exchange Agreements with a limited number of holders ("the Holders") of the unsecured Convertible Senior Notes due in 2023 ("the Convertible Notes"). Under the terms of the Exchange Agreements, the Holders agreed to exchange an aggregate principal amount of $247.2 million of Convertible Notes held by them in exchange for an aggregate of approximately 44.0 million shares of Company common stock, par value $0.01 per share. In addition, pursuant to the Exchange Agreements, the Company made aggregate cash payments of $1.3 million to the Holders to satisfy accrued and unpaid interest to the closing date of the transactions, along with cash in lieu of fractional shares. These transactions resulted in $215.0 million in additional paid-in-capital and common stock of $0.4 million on the Consolidated Balance Sheets as of June 30, 2019. Additionally, the Company recognized a net loss on the exchange of debt of $36.1 million and $4.5 million on the Consolidated Statements of Operations for the quarters ended March 31, 2019 and June 30, 2019, respectively.
During the six months ended June 30, 2019, the Company terminated the Capped Call Confirmations related to the exchange of the Convertible Notes for proceeds of $19.9 million.
The following table sets forth interest expense recognized related to the Company's debt for the three and six months ended June 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Contractual interest expense
|
|
$
|
3,410
|
|
|
$
|
4,146
|
|
|
$
|
6,995
|
|
|
$
|
8,959
|
|
Amortization of debt discount
|
|
$
|
268
|
|
|
$
|
423
|
|
|
$
|
474
|
|
|
$
|
1,982
|
|
Amortization of deferred financing
|
|
$
|
33
|
|
|
$
|
39
|
|
|
$
|
58
|
|
|
$
|
122
|
|
In July 2020, the Company entered into a definitive agreement for a $400 million credit facility with Hayfin Capital Management (“2020 Senior Secured Term Loan”) with an interest rate equal to 3-month LIBOR, subject to a 1% floor, plus 6.5% per annum and requires interest-only payments until mid-2024 and matures in six years in 2026. This transaction resulted in net proceeds of $386.1 million, after deducting fees and estimated expenses. There were no warrants or equity conversion features associated with the 2020 Senior Secured Term Loan. Additionally, the Company used $156.3 million of the proceeds to voluntary settle the principal amount, accrued interest, and early settlement premiums of the Senior Secured Term Loan with BioPharma Credit PLC that was due in 2023. The remaining proceeds will be used for other general corporate and product development purposes.
Note 6. Share-Based Compensation
The Company's Equity Incentive Plans consist of the Amended and Restated 2007 Equity Incentive Plan (the "Plan") and the 2007 Director Option Plan (the "2007 Director Plan"). The Plan provides for the granting of restricted stock units and options to purchase common stock in the Company to employees, directors, advisors, and consultants at a price to be determined by the Company's Board of Directors. The Plan is intended to encourage ownership of stock by employees and consultants of the Company and to provide additional incentives for them to promote the success of the Company's business. The 2007 Director Plan is intended to promote the recruiting and retention of highly qualified eligible directors and strengthen the commonality of interest between directors and stockholders by encouraging ownership of common stock of the Company. The Board of Directors, or its committee, is responsible for determining the individuals to be granted options, the number of options each individual will receive, the option price per share, and the exercise period of each option.
Stock Option Grants
The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Expected stock price volatility
|
74.9
|
%
|
|
74.2
|
%
|
|
75.2
|
%
|
|
74.2
|
%
|
Risk free interest rate
|
0.4
|
%
|
|
2.0
|
%
|
|
1.6
|
%
|
|
2.4
|
%
|
Expected life of options (years)(1)
|
5.67
|
|
5.68
|
|
5.67
|
|
5.68
|
Expected annual dividend per share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
______________________________
(1) The average expected life is determined using actual historical data.
A summary of the Company's stock options for the six months ended June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Exercise
Price
|
|
Weighted Average Remaining
Years
|
|
Aggregate
Intrinsic
Value
|
|
(in thousands)
|
|
|
|
|
|
(in millions)
|
Options outstanding, December 31, 2019
|
16,724
|
|
|
$
|
9.15
|
|
|
|
|
|
Granted
|
4,225
|
|
|
$
|
9.72
|
|
|
|
|
|
Exercised
|
(1,663)
|
|
|
$
|
6.45
|
|
|
|
|
|
Forfeited
|
(497)
|
|
|
$
|
10.33
|
|
|
|
|
|
Expired
|
(375)
|
|
|
$
|
13.31
|
|
|
|
|
|
Options outstanding, June 30, 2020
|
18,414
|
|
|
$
|
9.40
|
|
|
6.9
|
|
$
|
105.6
|
|
Vested and unvested expected to vest, June 30, 2020
|
17,144
|
|
|
$
|
9.35
|
|
|
6.7
|
|
$
|
99.4
|
|
Exercisable at June 30, 2020
|
10,660
|
|
|
$
|
8.76
|
|
|
5.4
|
|
$
|
68.2
|
|
As of June 30, 2020, the total unrecognized compensation cost related to non-vested stock options granted was $40.4 million and is expected to be recognized over a weighted average period of three years.
Restricted Stock Units and Performance-Based Restricted Stock Units (collectively "RSUs")
RSUs awarded under the Plan are generally subject to graded vesting and are contingent on an employee's continued service. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. A summary of non-vested RSU activity under the Plan for the six months ended June 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Weighted
Average
Remaining
Years
|
|
Aggregate
Intrinsic
Value
|
|
(in thousands)
|
|
|
|
|
|
(in millions)
|
Non-vested units as of December 31, 2019
|
5,792
|
|
|
$
|
11.18
|
|
|
|
|
|
Granted
|
3,731
|
|
|
$
|
10.29
|
|
|
|
|
|
Vested
|
(1,704)
|
|
|
$
|
9.04
|
|
|
|
|
|
Forfeited
|
(335)
|
|
|
$
|
10.82
|
|
|
|
|
|
Non-vested units as of June 30, 2020
|
7,484
|
|
|
$
|
11.21
|
|
|
2.6
|
|
$
|
112.9
|
|
All non-vested units are expected to vest over their normal term. As of June 30, 2020, there was $69.3 million of total unrecognized compensation cost related to unvested RSUs with service-based vesting conditions. These costs are expected to be recognized over a weighted average period of three years.
Compensation Expense Related to Equity Awards
The following table summarizes information related to compensation expense recognized in the Consolidated Statements of Operations related to the equity awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Equity compensation expense recognized in:
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
$
|
3,362
|
|
|
$
|
3,952
|
|
|
$
|
8,615
|
|
|
$
|
8,984
|
|
Selling, general, and administrative expense
|
|
5,046
|
|
|
5,983
|
|
|
12,389
|
|
|
13,695
|
|
Total equity compensation expense
|
|
$
|
8,408
|
|
|
$
|
9,935
|
|
|
$
|
21,004
|
|
|
$
|
22,679
|
|
Note 7. Assets and Liabilities Measured at Fair Value
The Company's financial assets and liabilities are measured at fair value and classified within the fair value hierarchy, which is defined as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3 — Inputs that are unobservable for the asset or liability.
A summary of the fair value of the Company's recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of June 30, 2020 are identified in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
|
Commercial paper
|
|
$
|
59,902
|
|
|
$
|
59,902
|
|
Asset-backed securities
|
|
33,182
|
|
|
33,182
|
|
Corporate debt securities
|
|
51,532
|
|
|
51,532
|
|
Money market funds
|
|
3,635
|
|
|
3,635
|
|
|
|
$
|
148,251
|
|
|
$
|
148,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities:
|
|
|
|
|
|
|
Contingent consideration payable
|
|
$
|
—
|
|
|
$
|
24,327
|
|
|
$
|
24,327
|
|
Deferred compensation plan liability
|
|
3,312
|
|
|
—
|
|
|
3,312
|
|
|
|
$
|
3,312
|
|
|
$
|
24,327
|
|
|
$
|
27,639
|
|
A summary of the fair value of the Company's recurring assets and liabilities aggregated by the level in the fair value hierarchy within which those measurements fall as of December 31, 2019 are identified in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
|
Commercial paper
|
|
$
|
73,710
|
|
|
$
|
73,710
|
|
Asset-backed securities
|
|
77,810
|
|
|
77,810
|
|
Corporate debt securities
|
|
145,991
|
|
|
145,991
|
|
U.S. government agency bonds
|
|
11,991
|
|
|
11,991
|
|
Money market funds
|
|
4,768
|
|
|
4,768
|
|
|
|
$
|
314,270
|
|
|
$
|
314,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities:
|
|
|
|
|
|
|
Contingent consideration payable
|
|
$
|
—
|
|
|
$
|
22,681
|
|
|
$
|
22,681
|
|
Deferred compensation plan liability
|
|
4,419
|
|
|
—
|
|
|
4,419
|
|
|
|
$
|
4,419
|
|
|
$
|
22,681
|
|
|
$
|
27,100
|
|
The Company's Convertible Notes fall into the Level 2 category within the fair value level hierarchy. The fair value was determined using broker quotes in a non-active market for valuation. The fair value of the Convertible Notes at June 30, 2020 was $7.3 million.
The Company's Senior Secured Term Loan fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals. The carrying value of the Senior Secured Term Loan approximates the fair value.
The Company did not have any Level 3 assets as of June 30, 2020 or December 31, 2019.
Cash, Money Market Funds, and Marketable Securities
The Company classifies its cash within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in an active market for identical assets at the measurement date. The Company considers its investments in marketable securities as available-for-sale and classifies these assets and the money market funds within the fair value hierarchy as Level 2 primarily utilizing broker quotes in a non-active market for valuation of these securities.
Contingent Consideration Payable
The contingent consideration payable resulted from the acquisition of Callidus Biopharma, Inc. ("Callidus") in November 2013. The most recent valuation was determined using a probability weighted discounted cash flow valuation approach. Gains and losses are included in the Consolidated Statements of Operations. The current portion of the contingent consideration payable is included within the accrued expenses and other current liabilities on the Company's Consolidated Balance Sheets.
The contingent consideration payable for Callidus has been classified as a Level 3 recurring liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, the estimated fair value could be significantly higher or lower than the fair value the Company determined.
The following significant unobservable inputs were used in the valuation of the contingent consideration payable of Callidus for the ATB-200 Pompe program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
Liability
|
|
Fair Value as of June 30, 2020
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
8.9%
|
|
|
|
|
|
|
|
|
|
Clinical and regulatory milestones
|
|
$
|
23,673
|
|
|
Probability weighted discounted cash flow
|
|
Probability of achievement of milestones
|
|
75% - 78%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected year of payments
|
|
2021 - 2022
|
Contingent consideration liabilities are remeasured to fair value each reporting period using discount rates, probabilities of payment, and projected payment dates. Projected contingent payment amounts related to clinical and regulatory based milestones are discounted back to the current period using a discounted cash flow model. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs together, or in isolation, may result in a significantly lower or higher fair value measurement. There is no assurance that any of the conditions for the milestone payments will be met.
The following table shows the change in the balance of contingent consideration payable for the three and six months ended June 30, 2020 and June 30, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance, beginning of the period
|
|
$
|
23,612
|
|
|
$
|
20,767
|
|
|
$
|
22,681
|
|
|
$
|
19,700
|
|
Changes in fair value during the period, included in the Consolidated Statements of Operations
|
|
715
|
|
|
480
|
|
|
1,646
|
|
|
1,863
|
|
Adjustment for contingent consideration paid in stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(316)
|
|
Balance, end of the period
|
|
$
|
24,327
|
|
|
$
|
21,247
|
|
|
$
|
24,327
|
|
|
$
|
21,247
|
|
Note 8. Basic and Diluted Net Loss per Common Share
The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss attributable to common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
(in thousands, except per share amounts)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(52,492)
|
|
|
$
|
(84,551)
|
|
|
$
|
(141,440)
|
|
|
$
|
(204,850)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic and diluted
|
|
257,973,329
|
|
|
238,089,824
|
|
|
257,548,623
|
|
|
225,848,013
|
|
Dilutive common stock equivalents would include the dilutive effect of common stock options, convertible debt units, RSUs, and warrants for common stock equivalents. Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periods because of their anti-dilutive effect.
The table below presents potential shares of common stock that were excluded from the computation as they were anti-dilutive using the treasury stock method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
Options to purchase common stock
|
|
18,414
|
|
|
17,849
|
|
Convertible notes
|
|
462
|
|
|
462
|
|
Outstanding warrants, convertible to common stock
|
|
2,555
|
|
|
2,555
|
|
Unvested restricted stock units
|
|
7,484
|
|
|
5,885
|
|
Total number of potentially issuable shares
|
|
28,915
|
|
|
26,751
|
|