ITEM 1. FINANCIAL STATEMENTS
GW PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
480,330
|
|
|
$
|
536,933
|
|
Accounts receivable, net
|
|
|
80,424
|
|
|
|
48,883
|
|
Inventory
|
|
|
115,036
|
|
|
|
85,528
|
|
Prepaid expenses and other current assets
|
|
|
44,485
|
|
|
|
28,292
|
|
Total current assets
|
|
|
720,275
|
|
|
|
699,636
|
|
Property, plant, and equipment, net
|
|
|
131,204
|
|
|
|
127,765
|
|
Operating lease assets
|
|
|
22,297
|
|
|
|
24,916
|
|
Intangible assets
|
|
|
5,564
|
|
|
|
—
|
|
Goodwill
|
|
|
6,959
|
|
|
|
6,959
|
|
Deferred tax assets
|
|
|
18,123
|
|
|
|
18,123
|
|
Other assets
|
|
|
5,839
|
|
|
|
4,850
|
|
Total assets
|
|
$
|
910,261
|
|
|
$
|
882,249
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,841
|
|
|
$
|
9,990
|
|
Accrued liabilities
|
|
|
114,898
|
|
|
|
99,374
|
|
Current tax liabilities
|
|
|
—
|
|
|
|
437
|
|
Other current liabilities
|
|
|
7,549
|
|
|
|
7,760
|
|
Total current liabilities
|
|
|
140,288
|
|
|
|
117,561
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Finance lease liabilities
|
|
|
5,219
|
|
|
|
5,573
|
|
Operating lease liabilities
|
|
|
19,607
|
|
|
|
21,650
|
|
Other liabilities
|
|
|
10,699
|
|
|
|
11,431
|
|
Total long-term liabilities
|
|
|
35,525
|
|
|
|
38,654
|
|
Total liabilities
|
|
|
175,813
|
|
|
|
156,215
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock - Ordinary shares par value £0.001;
374,169,836 shares outstanding as of September 30, 2020;
371,068,436 shares outstanding as of December 31, 2019
|
|
|
575
|
|
|
|
570
|
|
Additional paid-in capital
|
|
|
1,672,237
|
|
|
|
1,632,046
|
|
Accumulated deficit
|
|
|
(866,940
|
)
|
|
|
(837,959
|
)
|
Accumulated other comprehensive loss
|
|
|
(71,424
|
)
|
|
|
(68,623
|
)
|
Total stockholders’ equity
|
|
|
734,448
|
|
|
|
726,034
|
|
Total liabilities and stockholders’ equity
|
|
$
|
910,261
|
|
|
$
|
882,249
|
|
See accompanying notes to these condensed consolidated financial statements.
1
GW PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product net sales
|
|
$
|
136,846
|
|
|
$
|
90,849
|
|
|
$
|
378,608
|
|
|
$
|
201,312
|
|
Other revenue
|
|
|
207
|
|
|
|
122
|
|
|
|
375
|
|
|
|
944
|
|
Total revenues
|
|
|
137,053
|
|
|
|
90,971
|
|
|
|
378,983
|
|
|
|
202,256
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
7,635
|
|
|
|
8,150
|
|
|
|
27,112
|
|
|
|
19,901
|
|
Research and development
|
|
|
56,934
|
|
|
|
36,301
|
|
|
|
148,542
|
|
|
|
99,143
|
|
Selling, general and administrative
|
|
|
85,205
|
|
|
|
64,178
|
|
|
|
232,282
|
|
|
|
181,529
|
|
Total operating expenses
|
|
|
149,774
|
|
|
|
108,629
|
|
|
|
407,936
|
|
|
|
300,573
|
|
Loss from operations
|
|
|
(12,721
|
)
|
|
|
(17,658
|
)
|
|
|
(28,953
|
)
|
|
|
(98,317
|
)
|
Interest income
|
|
|
208
|
|
|
|
2,249
|
|
|
|
1,727
|
|
|
|
6,646
|
|
Interest expense
|
|
|
(269
|
)
|
|
|
(272
|
)
|
|
|
(850
|
)
|
|
|
(805
|
)
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,117
|
|
Foreign exchange (loss) gain
|
|
|
(1,796
|
)
|
|
|
1,889
|
|
|
|
(430
|
)
|
|
|
2,801
|
|
(Loss) income before income taxes
|
|
|
(14,578
|
)
|
|
|
(13,792
|
)
|
|
|
(28,506
|
)
|
|
|
14,442
|
|
Income tax (benefit)expense
|
|
|
(2,390
|
)
|
|
|
(35
|
)
|
|
|
475
|
|
|
|
(1,485
|
)
|
Net (loss) income
|
|
$
|
(12,188
|
)
|
|
$
|
(13,757
|
)
|
|
$
|
(28,981
|
)
|
|
$
|
15,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.04
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
376,281
|
|
|
|
372,246
|
|
|
|
375,218
|
|
|
|
371,286
|
|
Diluted
|
|
|
376,281
|
|
|
|
372,246
|
|
|
|
375,218
|
|
|
|
376,985
|
|
See accompanying notes to these condensed consolidated financial statements.
2
GW PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net (loss) income
|
|
$
|
(12,188
|
)
|
|
$
|
(13,757
|
)
|
|
$
|
(28,981
|
)
|
|
$
|
15,927
|
|
Foreign currency translation adjustments
|
|
|
12,962
|
|
|
|
(7,783
|
)
|
|
|
(2,801
|
)
|
|
|
(8,863
|
)
|
Comprehensive (loss) income
|
|
$
|
774
|
|
|
$
|
(21,540
|
)
|
|
$
|
(31,782
|
)
|
|
$
|
7,064
|
|
See accompanying notes to these condensed consolidated financial statements.
3
GW PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
Balances at December 31, 2019
|
|
|
371,069
|
|
|
$
|
570
|
|
|
$
|
1,632,046
|
|
|
$
|
(837,959
|
)
|
|
$
|
(68,623
|
)
|
|
$
|
726,034
|
|
Issuance of common stock from exercise of
stock options
|
|
|
1,493
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,965
|
)
|
|
|
—
|
|
|
|
(7,965
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
11,361
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,361
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,428
|
)
|
|
|
(14,428
|
)
|
Balances at March 31, 2020
|
|
|
372,562
|
|
|
$
|
573
|
|
|
$
|
1,643,407
|
|
|
$
|
(845,924
|
)
|
|
$
|
(83,051
|
)
|
|
$
|
715,005
|
|
Issuance of common stock from exercise of
stock options
|
|
|
1,147
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,828
|
)
|
|
|
—
|
|
|
|
(8,828
|
)
|
Common stock withheld for employee tax
obligations
|
|
|
—
|
|
|
|
|
|
|
|
(1,223
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,223
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
13,316
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,316
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,335
|
)
|
|
|
(1,335
|
)
|
Balances at June 30, 2020
|
|
|
373,709
|
|
|
$
|
575
|
|
|
$
|
1,655,500
|
|
|
$
|
(854,752
|
)
|
|
$
|
(84,386
|
)
|
|
$
|
716,937
|
|
Issuance of common stock from exercise of
stock options
|
|
|
460
|
|
|
|
—
|
|
|
|
1,572
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,572
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,188
|
)
|
|
|
—
|
|
|
|
(12,188
|
)
|
Common stock withheld for employee tax
obligations
|
|
|
—
|
|
|
|
|
|
|
|
(604
|
)
|
|
|
|
|
|
|
|
|
|
|
(604
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
15,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,769
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,962
|
|
|
|
12,962
|
|
Balances at September 30, 2020
|
|
|
374,169
|
|
|
$
|
575
|
|
|
$
|
1,672,237
|
|
|
$
|
(866,940
|
)
|
|
$
|
(71,424
|
)
|
|
$
|
734,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
Balances at December 31, 2018
|
|
|
366,617
|
|
|
$
|
564
|
|
|
$
|
1,581,144
|
|
|
$
|
(828,940
|
)
|
|
$
|
(78,688
|
)
|
|
$
|
674,080
|
|
Issuance of common stock from exercise of
stock options
|
|
|
1,996
|
|
|
|
3
|
|
|
|
770
|
|
|
|
—
|
|
|
|
—
|
|
|
|
773
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(50,064
|
)
|
|
|
—
|
|
|
|
(50,064
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
11,142
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,142
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,798
|
|
|
|
3,798
|
|
Balances at March 31, 2019
|
|
|
368,613
|
|
|
$
|
567
|
|
|
$
|
1,593,056
|
|
|
$
|
(879,004
|
)
|
|
$
|
(74,890
|
)
|
|
$
|
639,729
|
|
Issuance of common stock from exercise of
stock options
|
|
|
2,008
|
|
|
|
3
|
|
|
|
2,102
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,105
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
79,748
|
|
|
|
—
|
|
|
|
79,748
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
12,188
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,188
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,878
|
)
|
|
|
(4,878
|
)
|
Balances at June 30, 2019
|
|
|
370,621
|
|
|
$
|
570
|
|
|
$
|
1,607,346
|
|
|
$
|
(799,256
|
)
|
|
$
|
(79,768
|
)
|
|
$
|
728,892
|
|
Issuance of common stock from exercise of
stock options
|
|
|
316
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
-
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,757
|
)
|
|
|
—
|
|
|
|
(13,757
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
12,303
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,303
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,783
|
)
|
|
|
(7,783
|
)
|
Balances at September 30, 2019
|
|
|
370,937
|
|
|
$
|
570
|
|
|
$
|
1,619,649
|
|
|
$
|
(813,013
|
)
|
|
$
|
(87,551
|
)
|
|
$
|
719,655
|
|
See accompanying notes to these condensed consolidated financial statements.
4
GW PHARMACEUTICALS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,981
|
)
|
|
$
|
15,927
|
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
|
(132
|
)
|
|
|
(418
|
)
|
Share-based compensation
|
|
|
40,446
|
|
|
|
35,633
|
|
Depreciation and amortization
|
|
|
9,144
|
|
|
|
7,096
|
|
Gain from sale of priority review voucher
|
|
|
—
|
|
|
|
(104,117
|
)
|
Other
|
|
|
27
|
|
|
|
39
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(31,654
|
)
|
|
|
(37,691
|
)
|
Inventory
|
|
|
(31,184
|
)
|
|
|
(37,561
|
)
|
Prepaid expenses and other current assets
|
|
|
(8,466
|
)
|
|
|
(14,869
|
)
|
Other assets
|
|
|
2,369
|
|
|
|
2,968
|
|
Accounts payable
|
|
|
8,116
|
|
|
|
(1,161
|
)
|
Current tax liabilities
|
|
|
(8,570
|
)
|
|
|
(601
|
)
|
Accrued liabilities
|
|
|
18,030
|
|
|
|
29,176
|
|
Other liabilities
|
|
|
(2,459
|
)
|
|
|
(1,943
|
)
|
Net cash used in operating activities
|
|
|
(33,314
|
)
|
|
|
(107,522
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of priority review voucher
|
|
|
—
|
|
|
|
104,117
|
|
Additions to property, plant and equipment
|
|
|
(14,259
|
)
|
|
|
(29,915
|
)
|
Additions to capitalized software
|
|
|
(2,365
|
)
|
|
|
(1,183
|
)
|
Additions to intangible assets
|
|
|
(6,404
|
)
|
|
|
—
|
|
Net cash (used) provided by in investing activities
|
|
|
(23,028
|
)
|
|
|
73,019
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,577
|
|
|
|
2,878
|
|
Payments in connection with common stock withheld for employee tax obligation
|
|
|
(1,827
|
)
|
|
|
—
|
|
Payments on finance leases
|
|
|
(221
|
)
|
|
|
(317
|
)
|
Payments on landlord financing obligation
|
|
|
(430
|
)
|
|
|
(404
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(901
|
)
|
|
|
2,157
|
|
Effect of exchange rate changes on cash
|
|
|
640
|
|
|
|
(4,469
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(56,603
|
)
|
|
|
(36,815
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
536,933
|
|
|
|
591,497
|
|
Cash and cash equivalents at end of period
|
|
$
|
480,330
|
|
|
$
|
554,682
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
9,106
|
|
|
|
7,052
|
|
Interest paid
|
|
|
799
|
|
|
|
805
|
|
Supplemental disclosure of noncash information:
|
|
|
|
|
|
|
|
|
Property and equipment purchases in accounts payable and accrued liabilities
|
|
|
1,204
|
|
|
|
1,534
|
|
Right-of-use asset obtained in exchange for operating liabilities
|
|
|
507
|
|
|
|
—
|
|
See accompanying notes to these condensed consolidated financial statements.
5
GW PHARMACEUTICALS PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1: Business Overview
GW Pharmaceuticals plc and its subsidiaries (referred to herein as “we,” “us,” “our,” and the “Company”) is a biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics from our proprietary cannabinoid product platform in a broad range of disease areas. The Company is developing a portfolio of cannabinoid medicines, of which the lead product is Epidiolex®, an oral medicine for the treatment of certain refractory childhood epilepsies.
The Company is a public limited company, which has American Depository Shares (ADSs) registered with the U.S. Securities and Exchange Commission (SEC) and has been listed on Nasdaq since May 1, 2013. The Company’s ADSs each represent twelve ordinary shares of GW Pharmaceuticals plc. The Company is incorporated and domiciled in the United Kingdom. The address of the Company’s registered office and principal place of business is Sovereign House, Vision Park, Histon, Cambridgeshire.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company’s financial statements for interim periods.
The condensed consolidated balance sheet as of December 31, 2019 was derived from audited annual financial statements but does not include all annual disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019 included in the Company’s Form 10-K. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any other future periods.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.
6
Fair Value of Financial Instruments
The carrying values of the Company’s financial instruments, consisting of cash and cash equivalents, trade receivables, interest and other receivables, and accounts payable and accrued liabilities, approximate fair value due to the relative short-term nature of these instruments.
Accounts Receivable
Accounts receivable are recorded net of customer allowances for prompt payment discounts, chargebacks, and doubtful accounts. Allowances for prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. As of September 30, 2020, the allowance for doubtful accounts was $0.5 million. At December 31, 2019, the allowance for doubtful accounts was $0.3 million. No accounts were written off during the periods presented.
Inventory
Inventory is stated at the lower of cost or estimated net realizable value. The Company uses a combination of standard and actual costing methodologies to determine the cost basis for its inventories which approximates actual cost. Inventory is valued on a first-in, first-out basis. The Company reduces its inventory to net realizable value for potentially excess, dated or obsolete inventory based on an analysis of forecasted demand compared to quantities on hand, as well as product shelf life.
Our inventory production process includes the cultivation of botanical raw material. Because of the duration of the cultivation process, a portion of our inventory will not be sold within one year. Consistent with the practice in other industries that cultivate botanical raw materials, all inventory is classified as a current asset.
The Company capitalizes inventory costs associated with its products upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. Prior to FDA approval of Epidiolex, all costs related to the manufacturing of Epidiolex were charged to research and development expense in the period incurred.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity is entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of product sales.
7
Epidiolex Product Net Sales
In the United States, the Company sells Epidiolex to specialty pharmacies (SPs) and specialty distributors (SDs). The Company recognizes revenue from product sales upon receipt of product at the SPs and SDs, the date at which the control is transferred, net of the following allowances which are reflected either as a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:
Distribution Fees: Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (WAC), and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.
Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit, and contractual rebates with commercial payers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements. The allowance for rebates is based on contracted or statutory discount rates and expected utilization by benefit plan participants. The Company’s estimates for expected utilization of rebates is based on utilization data received from the SPs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.
Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to the Company the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization fees for transactions through certain purchasing organizations. The Company estimates sales with these entities and accrues for anticipated chargebacks and organization fees, based on the applicable contractual terms. If actual future chargebacks vary from these estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.
Co-Payment Assistance: The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators.
Product Returns: Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages, shipment errors, and expiring product, provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SPs and SDs and has the ability to control the amount of product that is sold to the SPs and SDs, it is able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at its estimate, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.
In September 2019, the Company announced that the European Commission (EC) approved the marketing authorization for Epidyolex (the trade name in Europe for Epidiolex) for use as adjunctive therapy of seizures associated with Lennox‑Gastaut syndrome (LGS) or Dravet syndrome, in conjunction with clobazam, for patients two years of age and older. The Company has launched Epidyolex in Germany and the U.K. and recognizes revenue from product sales in Europe upon delivery of the product, which is the point at which control of the goods is transferred to the customer. The Company recognizes revenue net of standard discounts and allowances, which are reflected as accrued liabilities.
The Company also sells Epidiolex in certain markets outside of the United States under early access programs that enable patients to receive the product prior to regulatory approval. Revenue under early access programs is generally recognized when the product is delivered.
8
The total amount deducted from gross sales for the allowances described above for the three and nine months ended September 30, 2020 was $37.1 million and $99.4 million, respectively. The total amount deducted from gross sales for the allowances described above for the three and nine months ended September 30, 2019 was $18.6 million and $40.7 million, respectively.
Sativex Product Net Sales
Sativex is sold outside of the United States for the treatment of spasticity due to multiple sclerosis, or MS, pursuant to license agreements with commercial partners and, beginning in the first quarter of 2020, directly to customers in the U.K.
Under the license agreements, the Company sells fully labeled Sativex vials to its commercial partners for a contractually agreed price, which is generally based on percentages of the commercial partners’ in-market net selling price charged to end customers. Product net sales revenue related to Sativex shipments to commercial license partners is recognized when shipped, at which point the customer obtains control of the product.
In the U.K., the Company recognizes revenue from product sales of Sativex upon delivery of the product, which is the point at which control of the goods is transferred to the customer. The Company recognizes revenue net of standard discounts and allowances, which are reflected as accrued liabilities.
The Company also commercializes Sativex in Australia and New Zealand through a consignment relationship with a local distributor. Product net sales revenues related to Sativex sales in Australia and New Zealand are recognized when the product is sold through to the end customer.
Other Revenue
The Company’s other revenue primarily consists of research and development fee revenue and variable consideration milestone payments related to the Sativex license agreements.
The research and development fee revenue is recognized at the time the underlying services are performed.
The Sativex license agreements contain provisions for the Company to earn variable consideration in the form of regulatory milestone payments, sales-based milestone payments, and royalty payments. The Company has no further performance obligations related to the regulatory milestone payments and these amounts are recognized in accordance with Topic 606 when receipt of these payments becomes probable and there is no significant risk of revenue reversal. Revenue related to the sales-based milestone payments and product royalty payments are subject to the sales-based royalty exception under Topic 606 and is recognized when the underlying sales are made.
Research and Development Expenses
Research and development expenses are charged to operations as incurred. Research and development expenses include, among other things, internal and external costs associated with preclinical development, pre-commercialization manufacturing expenses, and clinical trials. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices received from its external service providers. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. As actual costs become known, the Company adjusts its accruals accordingly.
Research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits from the U.K. government. Reimbursable research and development tax and expenditure credits were $1.1 million and $2.9 million for the three and nine months ended September 30, 2020, respectively, compared to $0.7 million and $2.2 million for the same periods in 2019.
9
Concentration Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash equivalents, and accounts receivable. The Company’s cash and cash equivalents balances are primarily in depository accounts and money market funds at major financial institutions in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. Further, the Company specifies credit quality standards for its customers that are designed to limit the Company’s credit exposure to any single party.
Share-based Compensation
The Company recognizes share-based compensation expense for grants of stock options under the Company’s Long-Term Incentive Plans to employees and non-employee members of the Company’s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. Expense related to awards with graded vesting is generally recognized over the vesting period using the accelerated attribution method.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities along with net operating loss and tax credit carryovers. The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Uncertain tax positions, for which management's assessment is that there is more than a 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to certain recognition and measurement criteria. The Company re-evaluates uncertain tax positions and considers various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, and changes in facts or circumstances related to a tax position. The Company adjusts the level of the liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions. The Company recognizes interest and penalties related to income tax matters in income tax expense.
The UK Finance of Act 2020, originally introduced to Parliament as Finance Bill 2019-20, received Royal Assent from Her Majesty on July 22, 2020. As a result, the main UK corporate income tax rate remains at 19% rather than the previously enacted reduction to 17%. The Company is currently evaluating the legislation and the effect of this change on its deferred tax balances; however, given the full valuation allowance currently recorded, there will be no impact to the financial statements.
On March 27, 2020, the President of the United States signed the Coronavirus Aid Relief, and Economic Securities (“CARES”) Act into law. The Act includes several significant provisions for corporations, including the usage of net operating losses, interest deductions and payroll benefits. The Company does not expect any material impact to the financial statements.
Recently Issued Accounting Standards
Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments:
In June 2016, the FASB issued ASU 2016-13, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods. We adopted this guidance as of January 1, 2020. Under the current expected credit loss model, we have adopted a provision matrix approach, utilizing historical loss rates based on the number of days past due, adjusted to reflect current economic conditions
10
and forecasts of future economic conditions. The adoption of ASU 2016-13 had an immaterial impact on the Company’s interim unaudited condensed consolidated financial statements.
ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes:
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have not early adopted this ASU for 2020. The ASU is currently not expected to have a material impact on our interim unaudited condensed consolidated financial statements.
Note 3: Sativex License Agreements
The Company has entered into license agreements for Sativex with major pharmaceutical companies that provide the license partners with exclusive rights in a defined geographic territory to commercialize Sativex for all indications. The Company has retained the exclusive right to manufacture and supply Sativex to license partners on commercial supply terms for the duration of the commercial life of the product. In the first quarter of 2020, the Company reacquired the rights to commercialize Sativex in the U.K. from Bayer AG for approximately $6.4 million. The Company capitalized the cost to reacquire the license as an intangible asset and will amortize the asset over its five-year estimated useful life.
In 2007, the Company entered into an exclusive license agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka) for the development and commercialization of Sativex in the United States. In December 2017, the Company entered into a mutual termination agreement with Otsuka to return the rights to develop and commercialize Sativex in the United States to the Company. As part of the termination agreement, the Company agreed to pay Otsuka a contingent future milestone payment of $10 million if Sativex achieves FDA approval in the U.S. and a total of $30 million of potential sales-based milestones if U.S. sales of Sativex reach certain thresholds. As of September 30, 2020, no amounts have been accrued related to the contingent payments because it is not probable that the milestones will be achieved.
Note 4: Fair Value Measurements
At September 30, 2020 and December 31, 2019, the Company’s cash equivalents consisted of money market funds, which are classified as Level 1 within the fair value hierarchy defined by authoritative guidance.
Securities classified as Level 1 are valued using quoted market prices. The Company does not hold any securities classified as Level 2, which are securities valued using inputs that are either directly or indirectly observable, or Level 3, which are securities valued using unobservable inputs. The Company has not transferred any securities between the classification levels.
Note 5: Composition of Certain Balance Sheet Captions:
Inventory consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
2,239
|
|
|
$
|
1,976
|
|
Work in process
|
|
|
103,020
|
|
|
|
78,547
|
|
Finished goods
|
|
|
9,777
|
|
|
|
5,005
|
|
|
|
$
|
115,036
|
|
|
$
|
85,528
|
|
11
Property, plant and equipment, net, consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Buildings
|
|
$
|
15,033
|
|
|
$
|
4,725
|
|
Machinery and equipment
|
|
|
46,335
|
|
|
|
36,323
|
|
Leasehold improvements
|
|
|
47,519
|
|
|
|
42,744
|
|
Office and IT equipment
|
|
|
5,631
|
|
|
|
3,837
|
|
Construction-in-process
|
|
|
61,386
|
|
|
|
78,485
|
|
|
|
|
175,904
|
|
|
|
166,114
|
|
Accumulated depreciation
|
|
|
(44,700
|
)
|
|
|
(38,349
|
)
|
|
|
$
|
131,204
|
|
|
$
|
127,765
|
|
Depreciation of property, plant, and equipment was $2.8 million and $2.0 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, depreciation of property, plant, and equipment was $7.1 million and $6.2 million, respectively. The Company did not have any significant property, plant, or equipment write-offs in the three and nine months ended September 30, 2020 and 2019.
Accrued liabilities consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Accrued compensation and benefits
|
|
$
|
28,665
|
|
|
$
|
25,469
|
|
Accrued vendor fees
|
|
|
25,447
|
|
|
|
29,731
|
|
Clinical trial accruals
|
|
|
12,598
|
|
|
|
10,382
|
|
Accrued growing fees
|
|
|
2,149
|
|
|
|
3,818
|
|
Accrued sales rebates and discounts
|
|
|
38,692
|
|
|
|
22,995
|
|
Other
|
|
|
7,347
|
|
|
|
6,979
|
|
|
|
$
|
114,898
|
|
|
$
|
99,374
|
|
Other current liabilities consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Finance lease liabilities
|
|
$
|
313
|
|
|
$
|
305
|
|
Operating lease liabilities
|
|
|
5,706
|
|
|
|
5,902
|
|
Landlord financing
|
|
|
616
|
|
|
|
595
|
|
Other
|
|
|
914
|
|
|
|
958
|
|
|
|
$
|
7,549
|
|
|
$
|
7,760
|
|
Other liabilities consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Landlord financing obligation
|
|
$
|
8,492
|
|
|
$
|
9,152
|
|
Other
|
|
|
2,207
|
|
|
|
2,279
|
|
|
|
$
|
10,699
|
|
|
$
|
11,431
|
|
12
Note 6: Earnings Per Share
The computation of basic earnings per share (EPS) is based on the weighted-average number of our ordinary shares outstanding. For the purpose of this calculation, vested nominal strike-price options are considered ordinary shares outstanding. The computation of diluted EPS is based on the weighted-average number of ordinary shares outstanding and potentially dilutive common stock equivalents outstanding for the period, primarily shares that may be issued under the Company’s stock option plans, determined using the treasury stock method.
The Company incurred net losses for the three and nine months ended September 30, 2020 and therefore did not include potentially dilutive common stock equivalents in the computation of diluted net loss per share. For the three and nine months ended September 30, 2020, options totaling approximately 15.6 million ordinary shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive. For the three months ended September 30, 2019, options totaling approximately 14.7 million ordinary shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive.
The computations for basic and diluted EPS were as follows (in thousands, except per share amounts):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands, except per share amounts)
|
|
Net (loss) income for basic and diluted EPS
|
|
$
|
(12,188
|
)
|
|
$
|
(13,757
|
)
|
|
$
|
(28,981
|
)
|
|
$
|
15,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares for basic EPS
|
|
|
376,281
|
|
|
|
372,246
|
|
|
|
375,218
|
|
|
|
371,286
|
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,699
|
|
Weighted-average shares for diluted EPS
|
|
|
376,281
|
|
|
|
372,246
|
|
|
|
375,218
|
|
|
|
376,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.04
|
|
Diluted EPS
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.04
|
|
Note 7: Share-Based Compensation
Compensation expense for share-based awards is recognized over the requisite service period using the accelerated attribution method. An estimated forfeiture rate has been applied to unvested awards for the purpose of calculating compensation cost. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.
The fair value of stock option awards is estimated using the Black-Scholes option-pricing model. The determination of fair value using the Black-Scholes model is affected by the Company’s ADS price as well as assumptions regarding a number of complex and subjective variables, including expected ADS price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors.
The Company estimates its stock price volatility using a combination of historical stock price volatility and the average implied volatility of options traded in the open market. The risk-free interest rate assumption is based on observed interest rates for the appropriate term of the Company’s stock options. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. The expected option life assumption is estimated using the simplified method prescribed by ASC Topic 718, Compensation – Stock Compensation, and is based on the mid-point between vest date and expiration date since the Company does not have sufficient exercise history to estimate expected option life of historical grants.
13
The table below summarizes the total share-based compensation expense included in the Company’s statements of operations for the periods presented:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Research and development
|
|
$
|
3,101
|
|
|
$
|
2,384
|
|
|
$
|
8,026
|
|
|
$
|
7,225
|
|
Sales, general and administrative
|
|
|
11,760
|
|
|
|
9,101
|
|
|
|
29,929
|
|
|
|
26,289
|
|
|
|
$
|
14,861
|
|
|
$
|
11,485
|
|
|
$
|
37,955
|
|
|
$
|
33,514
|
|
For the three months ended September 30, 2020 and 2019, $0.9 million and $0.8 million of share-based compensation related to manufacturing operations was capitalized into inventory, respectively. For the nine months ended September 30, 2020 and 2019, $2.5 million and $2.1 million of share-based compensation related to manufacturing operations was capitalized into inventory, respectively.
Note 8: Commitments and Contingencies
As of September 30, 2020, the Company was not a party to any material legal proceedings.
In 2007, the Company entered into a research collaboration agreement with Otsuka Pharmaceutical Co., Ltd., or Otsuka, which expired in June 2013. Otsuka has contacted the Company to assert that it is owed royalty payments under the agreement up to 2% of Epidiolex net sales. While the Company believes Otsuka’s position is without merit, a meeting with Otsuka is expected to take place before the end of 2020. The Company cannot predict the outcome of this matter and cannot provide assurances that it will be successful, in whole or in part, in its efforts.
The Company is not aware of any other proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements contained in this report to be covered by the safe harbor provisions of such Acts. All statements other than statements of historical fact in this report or referred to or incorporated by reference into this report are "forward-looking statements" for purposes of these sections. These statements include, among other things, the expected impact of COVID-19 on our business, any predictions, opinions, expectations, plans, strategies, objectives and any statements of assumptions underlying any of the foregoing relating to the company's current and future business and operations, including, but not limited to, financial matters, development activities, clinical trials and regulatory matters, manufacturing and supply operations, and product sales and demand. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Statements of past performance, efforts, or results about which inferences or assumptions may be made can also be forward-looking statements and are not indicative of future performance or results; these statements can be identified by the use of words such as "preliminary," "initial," or other forms of these words or similar words or expressions or the negative thereof. These forward-looking statements are subject to substantial risks and uncertainties that could cause our results or future business, financial condition, results of operations or performance to differ materially from our historical results or experiences or those expressed or implied in any forward-looking statements contained in this report. These risks and uncertainties include, but are not limited to: those associated with the COVID-19 pandemic, clinical trial or commercial results or new product approvals and adoption; unpredictability of obtaining regulatory approval and successfully launching products; competitive dynamics; changes to reimbursement for the company's products; the company’s success in developing new products and avoiding manufacturing and quality issues; the impact of currency exchange rates; the timing or results of research and development and clinical trials; unanticipated actions by the U.S. Food and Drug Administration and other regulatory agencies; unexpected litigation impacts or expenses; and other risks detailed under “Risk Factors” in this quarterly report on Form 10-Q and in our annual report on Form 10-K for the year ended December 31, 2019, as such risks and uncertainties may be amended, supplemented or superseded from time to time by subsequent reports on Forms 10-Q and 8-K we file with the Securities and Exchange Commission from time to time. These forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of the statement. If we do update or correct one or more of these statements, investors and others should not conclude that we will make additional updates or corrections.
Overview
We are a biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics from our proprietary cannabinoid product platform in a broad range of disease areas. In over 20 years of operations, we have established a world leading position in the science, development, and commercialization of plant-derived cannabinoid therapeutics through our proven drug discovery and development processes, our intellectual property portfolio, and regulatory, manufacturing, and commercial expertise.
Our lead cannabinoid product is Epidiolex®, a pharmaceutical formulation comprising highly purified plant-derived cannabidiol (CBD) for which we retain global commercial rights. We initially launched Epidiolex in the U.S. in November 2018 for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS) and Dravet syndrome for patients two years of age and older. In July 2020, the U.S. Food and Drug Administration (FDA) expanded the approval of Epidiolex, adding a new indication of seizures associated with Tuberous Sclerosis Complex (TSC). The FDA also approved the expansion of all existing indications, LGS, Dravet syndrome and TSC, to patients one year of age and older. LGS and Dravet syndrome are severe childhood-onset, drug-resistant epilepsy syndromes. TSC is a rare genetic disorder that causes non-malignant tumors to form in many different organs that affects approximately 50,000 individuals in the United States and one million worldwide. We have received Orphan Drug Designation from the FDA and the Committee for Orphan Medical Products (COMP) for TSC (we previously received the same designations for LGS and Dravet syndrome).
15
Epidyolex® (the trade name in Europe for Epidiolex) was approved in September 2019 by the European Commission (EC) for use as adjunctive therapy of seizures associated with LGS or Dravet syndrome, in conjunction with clobazam, for patients two years of age and older. We have launched Epidyolex in Germany and the U.K. and are planning launches in France, Italy, and Spain. In September 2020, Epidyolex was approved in Australia.
We continue to develop Epidiolex for additional indications. In March 2020, we applied for approval of Epidyolex for the treatment of TSC in Europe, which is currently under review by the European Medicines Agency. This filing follows our announcement of positive results from a Phase 3 trial in the use of Epidiolex to treat seizures associated with TSC.
Although we had begun to recruit patients for a clinical trial of Epidiolex in the treatment of Rett syndrome, we terminated this trial in November 2020 due to severe feasibility challenges arising from COVID-19. Within the field of epilepsy, we are committed to expanding the potential for Epidiolex and plan to commence an additional clinical program in 2021.
We have a deep pipeline of additional cannabinoid product candidates that includes compounds in Phase 1, Phase 2, and Phase 3 trials. Our most advanced pipeline asset is nabiximols, for which we have commenced the first of five clinical trials for the treatment of spasticity due to multiple sclerosis. The second is expected to commence in the fourth quarter of 2020, and the three others in the first half of 2021. We believe that any one of these studies could enable a new drug application submission with the FDA, potentially as early as 2021. We anticipate commercializing nabiximols in the U.S. using our in-house commercial organization. Nabiximols is already approved in over 25 countries outside the U.S. for the treatment of spasticity due to multiple sclerosis under the brand name Sativex®. We are advancing plans to commence an additional clinical program for nabiximols in spasticity due to spinal cord injury in 2021. We also plan on evaluating nabiximols for post-traumatic stress disorder, and the timing for a clinical trial in this condition will be assessed during 2021.
In addition to nabiximols, our pipeline includes cannabinoid product candidates for schizophrenia, autism spectrum disorder, various potential targets within neuropsychiatry, and Neonatal Hypoxic Ischemic Encephalopathy. Clinical trials for each of these indications are ongoing.
In the U.S., we have 13 patents for Epidiolex listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book), 12 of which have an expiry to 2035, and we have seven years of orphan exclusivity. To date, the Company has been unable to agree on a proposed pediatric study request with FDA. We seek to further protect Epidiolex through the expansion of our patent portfolio. Our patent portfolio relating to the use of CBD in the treatment of epileptic encephalopathies includes over 70 distinct patent families that are either granted or filed. Most of the patent families in this portfolio claim the use of CBD in the treatment of particular childhood epilepsy syndromes, seizure sub-types and interactions with other concomitantly dosed anti-seizure drugs. To date, we have obtained 17 patents from the U.S. Patent and Trademark Office, or USPTO, including claims for the use of CBD for the treatment of seizures in LGS and Dravet syndrome; seizure sub-types including convulsive, drop and atonic seizures associated with both LGS and Dravet syndrome; an oral composition of CBD; as well as the use of CBD with clobazam, and the teaching that dose adjustment may be needed when concomitantly prescribed. We filed patent applications in the U.S. and many jurisdictions worldwide based on promising data that we believe demonstrates that Epidiolex is more efficacious than synthetic CBD at the same concentration in a mouse model of seizures. Unlike synthetic CBD, Epidiolex comprises up to 2% of other cannabinoids. It would appear from this early data that the presence of these cannabinoids, albeit in small amounts, provides an additional benefit over CBD alone in an animal model of epilepsy. This patent, if granted, will have an expiry date of 2039. We continue to identify novel findings and submit patent applications resulting from the Epidiolex development program and we expect additional grants from these applications.
16
Impact of COVID-19 on our Business
In March 2020, the World Health Organization categorized the coronavirus disease 2019 (COVID-19) as a pandemic. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and U.S. and global financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain or treat it, its impact and the economic impact on local, regional, national and international markets.
To date, we have been able to continue to supply our products to our patients and license partners and currently do not anticipate any interruptions in supply. However, we are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our sales, expenses, manufacturing and clinical trials.
While we did not see a significant impact on our product net sales in the first nine months of 2020 from COVID-19, we are monitoring the demand for our products in light of the ongoing impact to health care systems in both the United States and Europe. In March, we suspended in-person interactions by our customer-facing personnel in healthcare settings and adjusted to virtually supporting healthcare professionals and patient care. We have since returned to limited in-person field contact where local conditions and clinic policies allow. We have seen and may continue to see a negative impact on growth of our product net sales from fewer patients visiting their healthcare provider to initiate, change or receive therapy.
Throughout the COVID-19 pandemic, we have been able to continue operating our manufacturing facilities at normal levels through the implementation of strict safety measures. While we currently do not anticipate any interruptions in our manufacturing process, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our and/or our third-party suppliers’ ability to manufacture our products.
While we are continuing the clinical trials we have underway in sites across the globe, we temporarily stopped enrolling new patients for existing trials in the second quarter of 2020. Enrollment of new patients in our trials has resumed, but COVID-19 precautions continue to directly and indirectly impact the timeline for some of our planned clinical trials and other research and development activities.
In the U.S. and the U.K., our office-based employees have been working from home since early March 2020, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our laboratories and manufacturing facilities.
For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this report.
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements.
For a discussion of our critical accounting estimates, please read Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to the critical accounting estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
17
Recent Accounting Pronouncements
The adoption of new accounting standards is discussed in Note 2 to our interim unaudited condensed consolidated financial statements.
Results of Operations
The following table summarizes the results of our operations for the three months ended September 30, 2020 and 2019:
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase/Decrease
|
|
|
|
(in thousands)
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product net sales
|
|
$
|
136,846
|
|
|
$
|
90,849
|
|
|
$
|
45,997
|
|
Other revenue
|
|
|
207
|
|
|
|
122
|
|
|
|
85
|
|
Total revenues
|
|
|
137,053
|
|
|
|
90,971
|
|
|
|
46,082
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
7,635
|
|
|
|
8,150
|
|
|
|
(515
|
)
|
Research and development
|
|
|
56,934
|
|
|
|
36,301
|
|
|
|
20,633
|
|
Selling, general and administrative
|
|
|
85,205
|
|
|
|
64,178
|
|
|
|
21,027
|
|
Total operating expenses
|
|
|
149,774
|
|
|
|
108,629
|
|
|
|
41,145
|
|
Loss from operations
|
|
|
(12,721
|
)
|
|
|
(17,658
|
)
|
|
|
4,937
|
|
Interest income
|
|
|
208
|
|
|
|
2,249
|
|
|
|
(2,041
|
)
|
Interest expense
|
|
|
(269
|
)
|
|
|
(272
|
)
|
|
|
3
|
|
Foreign exchange (loss) gain
|
|
|
(1,796
|
)
|
|
|
1,889
|
|
|
|
(3,685
|
)
|
Loss before income taxes
|
|
|
(14,578
|
)
|
|
|
(13,792
|
)
|
|
|
(786
|
)
|
Income tax benefit
|
|
|
(2,390
|
)
|
|
|
(35
|
)
|
|
|
(2,355
|
)
|
Net loss
|
|
$
|
(12,188
|
)
|
|
$
|
(13,757
|
)
|
|
$
|
1,569
|
|
18
The following table summarizes the results of our operations for the nine months ended September 30, 2020 and 2019:
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase/Decrease
|
|
|
|
(in thousands, except per share amounts)
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product net sales
|
|
$
|
378,608
|
|
|
$
|
201,312
|
|
|
$
|
177,296
|
|
Other revenue
|
|
|
375
|
|
|
|
944
|
|
|
|
(569
|
)
|
Total revenues
|
|
|
378,983
|
|
|
|
202,256
|
|
|
|
176,727
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
27,112
|
|
|
|
19,901
|
|
|
|
7,211
|
|
Research and development
|
|
|
148,542
|
|
|
|
99,143
|
|
|
|
49,399
|
|
Selling, general and administrative
|
|
|
232,282
|
|
|
|
181,529
|
|
|
|
50,753
|
|
Total operating expenses
|
|
|
407,936
|
|
|
|
300,573
|
|
|
|
107,363
|
|
Loss from operations
|
|
|
(28,953
|
)
|
|
|
(98,317
|
)
|
|
|
69,364
|
|
Interest income
|
|
|
1,727
|
|
|
|
6,646
|
|
|
|
(4,919
|
)
|
Interest expense
|
|
|
(850
|
)
|
|
|
(805
|
)
|
|
|
(45
|
)
|
Other income
|
|
|
—
|
|
|
|
104,117
|
|
|
|
(104,117
|
)
|
Foreign exchange (loss) gain
|
|
|
(430
|
)
|
|
|
2,801
|
|
|
|
(3,231
|
)
|
(Loss) income before income taxes
|
|
|
(28,506
|
)
|
|
|
14,442
|
|
|
|
(42,948
|
)
|
Income tax expense (benefit)
|
|
|
475
|
|
|
|
(1,485
|
)
|
|
|
1,960
|
|
Net (loss) income
|
|
$
|
(28,981
|
)
|
|
$
|
15,927
|
|
|
$
|
(44,908
|
)
|
Product net sales
Epidiolex, our treatment for certain severe childhood-onset, drug-resistant epilepsy syndromes, was launched in the United States in November 2018 and in certain European markets in late 2019. We also sell Epidiolex through certain early access programs outside of the United States. Sativex, our treatment for spasticity due to multiple sclerosis, is sold outside of the United States, primarily through license agreements with commercial partners. In March 2020, we reacquired the rights to sell Sativex in the U.K. and began to record direct sales in that market.
Product net sales for the three months ended September 30, 2020 consists of $132.6 million in net sales of Epidiolex and $4.3 million in net sales of Sativex. Product net sales for the three months ended September 30, 2019 consists of $88.0 million in net sales of Epidiolex and $2.8 million in net sales of Sativex. The $46.1 million increase in product net sales for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to the growth of U.S. Epidiolex revenue and the launch of Epidiolex in certain European markets.
Product net sales for the nine months ended September 30, 2020 consists of $366.4 million in net sales of Epidiolex and $12.2 million in net sales of Sativex. Product net sales for the nine months ended September 30, 2019 consists of $191.9 million in net sales of Epidiolex and $9.4 million in net sales of Sativex. The $177.3 million increase in product net sales for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the growth of U.S. Epidiolex revenue and the launch of Epidiolex in certain European markets.
While we did not see a significant impact on our product net sales in the first nine months of 2020 from COVID-19, disruptions in health care systems in both the United States and Europe due to COVID-19 have impacted the rate of growth in new patient prescriptions for our products.
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Other revenue
Other revenue for the three and nine months ended September 30, 2020 and 2019 consists of remaining development fees related to the Otsuka license agreement that was terminated in December 2017.
Cost of product sales
Cost of sales decreased $0.6 million, or 6%, in the three months ended September 30, 2020 to $7.6 million, or 6% of product net sales, compared to $8.2 million, or 9% of product net sales in the three months ended September 30, 2019. The decrease in cost of sales in dollars and as a percentage of product net sales is primarily due to manufacturing efficiencies related to the significant period over period increase in Epidiolex unit volumes.
Cost of sales increased $7.2 million or 36%, in the nine months ended September 30, 2020 to $27.1 million, or 7% of product net sales, compared to $19.9 million, or 10% of product net sales in the nine months ended September 30, 2019. The increase in cost of sales in dollars is primarily due to an increase in product net sales. The reduction in cost of sales as a percentage of product net sales is primarily due to manufacturing efficiencies related to the significant period over period increase in Epidiolex unit volumes and, to a lesser degree, the higher mix of Epidiolex sales as a percentage of total product net sales.
Research and development expenses
We believe that our future revenues and cash flows are most likely to be affected by the successful development and approval of our significant late-stage research and development candidates. As of September 30, 2020, we consider the following research and development projects to be our most significant late-stage product candidates:
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Epidyolex for the treatment of tuberous sclerosis complex (Europe)
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Nabiximols for spasticity associated with MS (United States)
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In addition, our pipeline includes cannabinoid product candidates for schizophrenia, autism spectrum disorder, various potential targets within neuropsychiatry, and Neonatal Hypoxic Ischemic Encephalopathy.
In July 2020, the FDA expanded the approval of Epidiolex, adding a new indication of seizures associated with TSC and expanding existing indications to patients one year of age and older.
In March 2020, we applied for approval of TSC in Europe, which is currently under review by the European Medicines Agency.
In December 2017, we terminated our license agreement with Otsuka and we have reacquired full ownership of the development and commercialization rights to nabiximols in the United States. We expect to commence five clinical trials of nabiximols for the treatment of spasticity due to multiple sclerosis, two of which are expected to commence in the fourth quarter of 2020 and three of which are expected to commence in the first half of 2021.
Research and development expenses consist of internal and external costs to conduct our pre-clinical studies and clinical trials, payroll costs associated with employing our team of research and development staff, share-based payment expenses, property costs associated with leasing laboratory and office space to accommodate our research teams, costs of growing botanical raw material, costs of processing product for clinical trials, costs of consumables used in the conduct of our in-house research programs, payments for research work conducted by sub-contractors and sponsorship of work by our network of academic collaborative research scientists, costs associated with safety studies and costs associated with the development of Epidiolex, Sativex, and our other pipeline product candidates. Research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits from the U.K. government.
20
We track all research and development expenditures against detailed budgets but do not seek to allocate all research and development costs by individual project. The components of R&D expense for the three and nine months ended September 30, 2020 and 2019 are as follows:
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2020
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2019
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2020
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2019
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(in thousands)
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(in thousands)
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External clinical trial expense
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Epidiolex
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$
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6,622
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$
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5,745
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$
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16,553
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$
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19,881
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Nabiximols
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5,663
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2,255
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7,076
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2,857
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Other programs
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4,207
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1,649
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|
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10,275
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|
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5,680
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Total external clinical trial expense
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16,492
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9,649
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33,904
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28,418
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Research and development tax and expense
credits
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(1,057
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)
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(681
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)
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(2,948
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)
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(2,191
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)
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Other internal research and development
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41,499
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27,333
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117,586
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|
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72,916
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Total research and development expense
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$
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56,934
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$
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36,301
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$
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148,542
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$
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99,143
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Research and development expenses increased $20.6 million, or 57%, to $56.9 million for the three months ended September 30, 2020 compared to $36.3 million for the same period in 2019, primarily due to an increase in internal costs and external clinical trial expenses for nabiximols, as well as increased costs for early stage development programs.
Research and development expenses increased $49.4 million, or 50%, to $148.5 million for the nine months ended September 30, 2020 compared to $99.1 million for the same period in 2019, primarily due to an increase in internal costs and external clinical trial expenses for nabiximols, as well as increased costs for early stage development programs. These increases were partially offset by a reduction in expenses related to the Epidiolex open-label extension trial in the United States due to the transition of patients to commercial product in early 2019 and a reduction in other external clinical trial expenses related delays caused by the COVID-19 pandemic.
The COVID-19 pandemic impacted the timeline of some of our clinical trials and other research and development activities during the third quarter of 2020 and may cause further clinical trial delays in the remainder of 2020.
Sales, general and administrative expenses
Sales, general and administrative, or SG&A, expenses consist primarily of salaries and benefits related to our executive, commercial, and corporate support functions, expenses associated with our commercial activities, and other general administration expenses.
We expect that sales, general and administrative expenses will increase in the future as we expand our operating activities and continue to build our commercial team for continued commercialization of Epidyolex in Europe.
SG&A expenses increased $21.0 million, or 33%, to $85.2 million for the three months ended September 30, 2020 compared to $64.2 million for the same period in 2019. The increase in SG&A expenses in 2020 was primarily due to an increase in employee-related expenses driven by the build-out of our commercial functions in Europe, an increase in expenses to support our launch of Epidiolex for the treatment of TSC in the United States, an increase in all of our corporate support functions, including information technology infrastructure, and, to a smaller degree, an increase in insurance expenses and legal fees. These increases were partially offset by a decrease in travel related expenses due to the impact of COVID-19.
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SG&A expenses increased $50.8 million, or 28%, to $232.3 million for the nine months ended September 30, 2020 compared to $181.5 million for the same period in 2019. The increase in SG&A expenses in the nine months ended September 30, 2020 was primarily due to the same factors discussed above with respect to the increase in SG&A expenses for the third quarter of 2020.
Interest income
Interest income decreased $2.0 million for the three months ended September 30, 2020 to $0.2 million compared to interest income of $2.2 million for the same period in 2019. Due to uncertainties in the financial markets related to COVID-19, we transitioned a large portion of our cash equivalent balances to lower interest earning U.S. government securities money market funds from relatively higher interest rate bearing commercial money market funds in early 2020.
Interest income decreased $4.9 million for the nine months ended September 30, 2020 to $1.7 million compared to interest income of $6.6 million for the same period in 2019. The decrease in interest income is primarily due to the same factor described above with regard to the decrease in interest income for the three months ended September 30, 2020.
Interest expense
Interest expense remained consistent for the three and nine months ended September 30, 2020 and 2019. Interest expense is primarily related to our finance lease liabilities.
Foreign currency exchange (loss) gain
Foreign currency exchange loss was $1.8 million and $0.4 million for the three and nine month periods ended September 30, 2020 compared to foreign currency exchange gains of $1.9 million and $2.8 million for the three and nine months ended September 30, 2019, respectively. Foreign currency exchange gains and losses are driven primarily by cash balances, accounts payable and intercompany balances denominated in a currency other than the transacting entity’s functional currency. Our primary foreign currency exposure is the exchange rate between the British pound and the U.S. dollar.
Income tax expense (benefit)
The provision for income taxes is determined using an annual effective tax rate. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as expected utilization of research and development tax credits, valuation allowances against deferred tax assets, the recognition or derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. Also, excess tax benefits and tax deficiencies related to future stock option exercises could result in fluctuations in our effective tax rate in future periods.
Income taxes arise in the United States due to our U.S. subsidiary generating taxable profits. We incur losses in the United Kingdom. Income tax benefit for the three months ended September 30, 2020 was $2.4 million compared to an income tax benefit of less than $0.1 million for the three months ended September 30, 2019. The increase in the income tax benefit was primarily due to a prior period true-up related to the company’s deduction under IRC Section 250 for foreign-derived intangible income as a result of regulations being finalized in the quarter.
For the nine months ended September 30, 2020, income tax expense was $0.5 million compared to an income tax benefit of $1.5 million for the nine months ended September 30, 2019. The increase in income tax expense was primarily due to the impact of excess tax benefits and tax deficiencies for stock options and higher pre-tax income.
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Liquidity and Capital Resources
In recent years, we have incurred significant net losses and negative cash flows from operations. We have largely funded our operations from issuances of equity securities, government expense and tax credits, and milestone payments from our out-license partners. Our cash flows may fluctuate, are difficult to forecast and will depend on many factors, including:
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the timing of achievement of future regulatory approvals and commercial launches in the United States and Europe;
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the extent to which we seek to retain development rights to our pipeline of new product candidates or whether we seek to out-license them to a partner who will fund future research and development expenditure in return for a right to share in future commercial revenue;
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the extent of success in our early pre-clinical and clinical stage research programs which will determine the amount of funding required to further the development of our product candidates;
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the terms and timing of new strategic collaborations;
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the number and characteristics of the product candidates that we seek to develop;
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the outcome, timing and cost of regulatory approvals of our product candidates;
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the costs involved in filing and prosecuting patent applications and enforcing and defending potential patent claims; and
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the costs of hiring additional skilled employees to support our continued growth.
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We believe that our cash and cash equivalents as of September 30, 2020 of $480.3 million will be sufficient to fund our operations, including currently anticipated research and development activities and planned capital expenditures, for the foreseeable future, including for at least the next 12 months.
Cash Flows
The following table summarizes the results of our cash flows for the nine months ended September 30, 2020 and 2019:
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Nine Months Ended
September 30,
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2020
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2019
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Net cash used in operating activities
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$
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(33,314
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)
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$
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(107,522
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)
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Net cash used in investing activities
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(23,028
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)
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73,019
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Net cash (used in) provided by financing activities
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(901
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)
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2,157
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Cash and cash equivalents at end of period
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$
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480,330
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$
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554,682
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Operating activities
As of September 30, 2020, we had cash and cash equivalents totaling $480.3 million compared to $554.7 million as of September 30, 2019. Net cash used in operating activities decreased by $74.2 million to $33.3 million for the nine months ended September 30, 2020 compared to $107.5 million for the nine months ended September 30, 2019. The decrease in cash used in operating activities is primarily attributable to a $177.3 million increase in net product sales, partially offset by a $7.2 million increase in cost of product sales, a $50.8 million increase in SG&A expenses, $49.4 million increase in research and development spend, and a $7.8 million decrease in cash used to fund changes in net operating assets and liabilities.
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Investing activities
Net cash used in investing activities was $23.0 million for the nine months ended September 30, 2020 compared to net cash provided by investing activities of $73.0 million for the nine months ended September 30, 2019. The cash used in investing activities as of September 30, 2020 included $14.3 million in capital expenditures, primarily due to the continued expansion of our manufacturing facilities, and $6.4 million used to reacquire the rights to commercialize Sativex in the U.K. from Bayer. The cash provided by investing operations in the nine months ended September 30, 2019 is primarily attributable to the cashed received on the sale of the priority review voucher of $104.1 million, partially offset by $29.9 million in additions to property, plant and equipment.
Financing activities
Net cash used in financing activities was $0.9 million for the nine months ended September 30, 2020 compared to financing activities providing cash of $2.2 million during the nine months ended September 30, 2019. The increase in cash used in financing activities is primarily attributable to payments made in connection with common stock withheld for employee tax obligations and a decrease in proceeds received from the exercise of stock options.
Contractual Obligations
There have been no significant changes to the disclosure of payments we have committed to make under our contractual obligations as summarized in our Annual Report on Form 10-K for the twelve months ended December 31, 2019, in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Tabular Disclosure of Contractual Obligations.”
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.