Item 1. Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Athenex, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Company and Nature of Business
Organization and Description of Business
Athenex, Inc. and subsidiaries (the “Company” or “Athenex”), originally under the name Kinex Pharmaceuticals LLC (“Kinex”), formed in November 2003, commenced operations on February 5, 2004, and operated as a limited liability company until it was incorporated in the State of Delaware under the name Kinex Pharmaceuticals, Inc. on December 31, 2012. The Company changed its name to Athenex, Inc. on August 26, 2015.
Athenex is a biopharmaceutical company dedicated to becoming a leader in the discovery, development, and commercialization of next generation drugs for the treatment of cancer. The Company’s mission is to improve the lives of cancer patients by creating more effective, safer and tolerable treatments. The Company has assembled a strong and experienced leadership team and has established operations across the pharmaceutical value chain to execute our goal of becoming a leader in bringing innovative cancer treatments to the market and improving health outcomes.
The Company is organized around three operating segments: (1) its Oncology Innovation Platform, dedicated to the research and development of our proprietary drugs; (2) its Commercial Platform, focused on the sales and marketing of our specialty drugs and the market development of our proprietary drugs; and (3) its Global Supply Chain Platform, dedicated to providing a stable and efficient supply of APIs for our clinical and commercial efforts. The Company’s current clinical pipeline in the Oncology Innovation Platform is derived from four different proprietary technologies: (1) Orascovery, based on a P-glycoprotein (“P-gp”) pump inhibitor, (2) Src Kinase Inhibition, (3) Cell Therapy, and (4) Arginine Deprivation Therapy.
The Company is primarily engaged in conducting research and development activities through corporate collaborators, in-licensing and out-licensing pharmaceutical compounds and technology, conducting preclinical and clinical testing, identifying and evaluating additional drug candidates for potential in-licensing or acquisition, and raising capital to support development and commercialization activities. The Company also conducts commercial sales of specialty products through its wholly owned subsidiary, Athenex Pharmaceutical Division (“APD”), and 503B products through its wholly owned subsidiary, Athenex Pharma Solutions (“APS”).
Significant Risks and Uncertainties
The Company has incurred operating losses since its inception and, as a result, as of March 31, 2021 and December 31, 2020 had an accumulated deficit of $738.7 million and $713.6 million, respectively. As of March 31, 2021, the Company had cash and cash equivalents of $48.0 million, restricted cash of $16.5 million, and short-term investments of $123.2 million.
The Company believes that the existing cash and cash equivalents, restricted cash, and short-term investments will enable us to meet our current operational liquidity needs and fund operations into the second half of 2022. The Company has based these estimates on assumptions that may prove to be wrong, and it could spend the available financial resources much faster than expected and need to raise additional funds sooner than anticipated. Operations have been funded primarily through the sale of common stock, senior secured loans, and to a lesser extent, from convertible bond financing, revenue, and grant funding. The Company will require significant additional funds to conduct clinical trials and to fund its commercialization and manufacturing operations. There can be no assurance that this funding will be available for our use when needed, or at all. If adequate funds are not available, the Company may be required to delay, modify, or terminate its research and development programs or reduce its planned commercialization efforts. Further, if the Company is unable to obtain additional financing, the Company will need to reevaluate future operating plans. Although the Company plans to raise additional funds, these plans are subject to market conditions which are outside of its control and therefore cannot be deemed to be probable.
In February 2021, the Company received a Complete Response Letter (“CRL”) from the U.S. Food and Drug Administration (“FDA”) regarding the Company’s New Drug Application (“NDA”) for oral paclitaxel and encequidar (“Oral Paclitaxel”) for the treatment of metastatic breast cancer. The FDA issues a CRL to indicate that the review cycle for an application is complete and that the application is not ready for approval in its present form. In the CRL, the FDA indicated its concern of safety risk to patients in terms of an increase in neutropenia-related sequelae on the Oral Paclitaxel arm compared with the IV paclitaxel arm in the Phase III study. The FDA also expressed concerns regarding the uncertainty over the results of the primary endpoint of objective response rate (ORR) at week 19 conducted by blinded independent central review (“BICR”). The FDA stated that the BICR reconciliation and re-read process may have introduced unmeasured bias and influence on the BICR. The FDA recommended that Athenex conduct a new adequate and well-conducted clinical trial in a patient population with metastatic breast cancer representative of the population in the U.S. The FDA determined that additional risk mitigation strategies to improve toxicity, which may involve dose optimization as well as, or in addition to, exclusion of patients deemed to be at higher risk of toxicity, are required to support potential approval of the NDA. We are working to consider the appropriate next steps in the development of Oral Paclitaxel. We have been preparing for and plan to request a meeting
5
with the FDA and plan to engage in a dialogue on the design and scope of a clinical trial to address the FDA’s requirements and align on the next steps required to obtain approval. The Company’s ability to potentially commercialize Oral Paclitaxel, and the timing of potential commercialization, is dependent on the discussion with the agency, the Company’s resubmission of its NDA, ultimate FDA approval, and potentially additional capital.
The Company is subject to a number of risks similar to other biopharmaceutical companies, including, but not limited to, the lack of available capital; possible failure of preclinical testing or clinical trials, inability to obtain regulatory approval of product candidates; competitors developing new technological innovations; unsuccessful commercialization strategy and launch plans for its proprietary drug candidates; risks inherent in litigation, including purported class actions; market acceptance of the Company’s products; and protection of proprietary technology. If the Company or its partners do not successfully commercialize any of the Company’s product candidates, it will be unable to generate sufficient product revenue and might not, if ever, achieve profitability and positive cash flow.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. These condensed consolidated financial statements reflect the accounts and operations of Athenex, Inc. and those of its subsidiaries in which Athenex, Inc. has a controlling financial interest. Intercompany transactions and balances have been fully eliminated in consolidation.
Results of the Company’s operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021, or for any other future annual or interim period. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Such management estimates include those relating to assumptions used in clinical research accruals, chargebacks, measurement of acquired assets and assumed liabilities in business combinations, provision for credit losses, inventory reserves, deferred income taxes, the estimated useful life and recoverability of long-lived assets, and the valuation of stock-based awards and other items as appropriate. Actual results could differ from those estimates.
Credit Losses
The Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables and contract assets recorded under Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers (“Topic 606”). The Company considers historical collection rates, current financial status of its customers, macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable and contract assets, the Company believes that the carrying value, net of excepted losses, approximates fair value and therefore, relies more on historical and current analysis of such financial instruments.
Concentration of Credit Risk, Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and short-term investments. The Company deposits its cash equivalents in interest-bearing money market accounts and certificates of deposit, invests in highly liquid U.S. treasury notes, commercial paper, and corporate bonds. The Company deposits its cash with multiple financial institutions. Cash balances exceed federally insured limits. The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer and establishing a minimum allowable credit
6
rating. The Company also has significant assets and liabilities held in its overseas manufacturing facility, and research and development facility in China, and therefore is subject to foreign currency fluctuation and regulatory uncertainties.
3. Restricted Cash
The Company had a restricted cash balance of $16.5 million as of March 31, 2021 and December 31, 2020 held in a controlled bank account in connection with the Company’s senior secured loan agreement and related security agreements (the “Senior Credit Agreement”) with Oaktree Fund Administration, LLC, as administrative agent, and the lenders party thereto (collectively, “Oaktree”). The Senior Credit Agreement requires the Company to maintain, in a debt service reserve account, a minimum cash balance equal to twelve months of interest on the outstanding loans under the Senior Credit Agreement.
4. Inventories
Inventories consist of the following (in thousands):
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Raw materials and purchased parts
|
|
$
|
3,054
|
|
|
$
|
6,498
|
|
Work in progress
|
|
|
1,728
|
|
|
|
776
|
|
Finished goods
|
|
|
21,542
|
|
|
|
21,572
|
|
Total inventories
|
|
$
|
26,324
|
|
|
$
|
28,846
|
|
5. Intangible Assets, net
The Company’s identifiable intangible assets, net, consist of the following (in thousands):
|
|
March 31, 2021
|
|
|
|
Cost/Fair
Value
|
|
|
Accumulated
Amortization
|
|
|
Impairments
|
|
|
Net
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
12,641
|
|
|
$
|
5,745
|
|
|
$
|
—
|
|
|
$
|
6,896
|
|
Polymed customer list
|
|
|
1,593
|
|
|
|
1,482
|
|
|
|
—
|
|
|
|
111
|
|
Polymed technology
|
|
|
3,712
|
|
|
|
1,754
|
|
|
|
—
|
|
|
|
1,958
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDE in-process research and development (IPR&D)
|
|
|
728
|
|
|
|
—
|
|
|
|
—
|
|
|
|
728
|
|
Effect of currency translation adjustment
|
|
|
(211
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(211
|
)
|
Total intangible assets, net
|
|
$
|
18,463
|
|
|
$
|
8,981
|
|
|
$
|
—
|
|
|
$
|
9,482
|
|
|
|
December 31, 2020
|
|
|
|
Cost/Fair
Value
|
|
|
Accumulated
Amortization
|
|
|
Impairments
|
|
|
Net
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
12,641
|
|
|
$
|
5,157
|
|
|
$
|
—
|
|
|
$
|
7,484
|
|
Polymed customer list
|
|
|
1,593
|
|
|
|
1,418
|
|
|
|
—
|
|
|
|
175
|
|
Polymed technology
|
|
|
3,712
|
|
|
|
1,685
|
|
|
|
—
|
|
|
|
2,027
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDE in-process research and development (IPR&D)
|
|
|
728
|
|
|
|
—
|
|
|
|
—
|
|
|
|
728
|
|
Effect of currency translation adjustment
|
|
|
(196
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(196
|
)
|
Total intangibles, net
|
|
$
|
18,478
|
|
|
$
|
8,260
|
|
|
$
|
—
|
|
|
$
|
10,218
|
|
7
As of March 31, 2021, licenses at cost include an Orascovery license of $0.4 million, licenses purchased from Gland Pharma Limited (“Gland”) of $4.4 million, a license purchased from MAIA Pharmaceuticals, Inc. (“MAIA”) for $4.0 million, licenses purchased from Ingenus Pharmaceuticals, LLC (“Ingenus”) for $3.0 million, and licenses of other specialty products of $0.8 million. The Orascovery license with Hanmi Pharmaceuticals Co. Ltd. (“Hanmi”) was purchased directly from Hanmi and is being amortized on a straight-line basis over a period of 12.75 years, the remaining life of the license agreement at the time of purchase. The licenses purchased from Gland are being amortized on a straight-line basis over a period of 5 years, the remaining life of the license agreement at the time of purchase. The license purchased from MAIA is being amortized over a period of 7 years, the remaining life of the license agreement at the time of purchase. Of the $3.0 million licenses purchased from Ingenus, a $2.0 million license is being amortized over a period of 5 years, the estimated useful life of the license agreement and a $1.0 million license purchased from Ingenus is being amortized over a period of 3 years, the remaining life of the license agreement at the time of purchase.
The remaining intangible assets were acquired in connection with the acquisitions of Polymed Therapeutics, Inc. (“Polymed”) and Comprehensive Drug Enterprises (“CDE”). Intangible assets are amortized using an economic consumption model over their useful lives. The Polymed customer list and technology are amortized on a straight-line basis over 6 and 12 years, respectively. The CDE in-process research and development, (“IPR&D”), will not be amortized until the related projects are completed. IPR&D is tested annually for impairment, unless conditions exist causing an earlier impairment test (e.g., abandonment of project). The Company recorded no impairments of IPR&D during the three months ended March 31, 2021. The weighted-average useful life for all intangible assets was 7.1 years as of March 31, 2021.
The Company recorded $0.6 million and $0.5 million of amortization expense for the three-month periods ended March 31, 2021 and 2020, respectively.
The Company’s goodwill balance is the result of prior period acquisitions and is allocated to the Global Supply Chain Platform reporting unit and the Oncology Innovation Platform reporting unit. Changes in goodwill balances reported within the unaudited condensed consolidated balance sheet as of March 31, 2021 are due to the effect of foreign currency on goodwill from acquisitions of subsidiaries that have a functional currency other than USD.
During the first quarter of 2021, due to the significant decrease in its market capitalization, the Company evaluated the impact on each of its reporting units to assess whether there was a triggering event requiring it to perform a goodwill impairment test (ASC350-20-35). The Company determined a triggering event occurred and, as such, performed an interim goodwill quantitative impairment test for its reporting units. It also considered certain qualitative factors, such as the Company’s performance, business forecasts, and expansion plans. It reviewed key assumptions, including revisions of projected cash flows and future revenue for reporting units against the results of the annual quantitative impairment test performed during the last quarter of 2020. Using both the income approach and the market approach for its Global Supply Chain Platform and Oncology Innovation Platform, with the discount rate selected considering and capturing the related risk associated with the forecast, the Company compared the fair value of the two reporting units to carrying value. Based on the results, the fair value of each of our reporting units exceeded their carrying value and the goodwill was not impaired. However, there can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors. These estimates and judgments may not be within the control of the Company and accordingly it is reasonably possible that the judgments and estimates could change in future periods.
6. Fair Value Measurements
Financial instruments consist of cash and cash equivalents, restricted cash, short-term investments, an available-for-sale equity investment, accounts receivable, accounts payable, accrued liabilities, and debt. Short-term investments and the equity investment are stated at fair value. Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, and debt, are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date of such amounts.
ASC 820, Fair Value Measurements, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the ASC 820 are described as follows:
Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2—Inputs to the valuation methodology include:
|
•
|
Quoted prices for similar assets or liabilities in active markets;
|
|
•
|
Quoted prices for identical or similar assets or liabilities in inactive markets;
|
8
|
•
|
Inputs other than quoted prices that are observable for the asset or liability;
|
|
•
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
|
|
•
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
|
Level 3—Inputs to the valuation methodology are unobservable, supported by little or no market activity, and are significant to the fair value measurement.
Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs. There were no transfers between Levels 1, 2 or 3 for any of the periods presented.
The following tables represent the fair value hierarchy for those assets and liabilities that the Company measures at fair value on a recurring basis (in thousands):
|
|
Fair Value Measurements at March 31, 2021 Using:
|
|
|
|
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets included within cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
5,497
|
|
|
$
|
5,497
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments - certificates of deposit
|
|
|
1,000
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
—
|
|
Short-term investments - commercial paper
|
|
|
22,548
|
|
|
|
—
|
|
|
|
22,548
|
|
|
|
—
|
|
Financial assets included within short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments - certificates of deposit
|
|
|
22,769
|
|
|
|
—
|
|
|
|
22,769
|
|
|
|
—
|
|
Short-term investments - U.S. government bonds
|
|
|
15,000
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
—
|
|
Short-term investments - commercial paper
|
|
|
85,185
|
|
|
|
—
|
|
|
|
85,185
|
|
|
|
—
|
|
Available-for-sale investment
|
|
|
232
|
|
|
|
232
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
152,231
|
|
|
$
|
5,729
|
|
|
$
|
146,502
|
|
|
$
|
—
|
|
|
|
Fair Value Measurements at December 31, 2020 Using:
|
|
|
|
Total
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets included within cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
5,615
|
|
|
$
|
5,615
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments - certificates of deposit
|
|
|
4,070
|
|
|
|
—
|
|
|
|
4,070
|
|
|
|
—
|
|
Short-term investments - U.S. government bonds
|
|
|
5,000
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
Short-term investments - commercial paper
|
|
|
34,860
|
|
|
|
—
|
|
|
|
34,860
|
|
|
|
—
|
|
Financial assets included within short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments - certificates of deposit
|
|
|
20,696
|
|
|
|
—
|
|
|
|
20,696
|
|
|
|
—
|
|
Short-term investments - U.S. government bonds
|
|
|
14,998
|
|
|
|
—
|
|
|
|
14,998
|
|
|
|
—
|
|
Short-term investments - commercial paper
|
|
|
102,715
|
|
|
|
—
|
|
|
|
102,715
|
|
|
|
—
|
|
Available-for-sale investment
|
|
|
227
|
|
|
|
227
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
188,181
|
|
|
$
|
5,842
|
|
|
$
|
182,339
|
|
|
$
|
—
|
|
The Company classifies its money market funds within Level 1 because it uses quoted market prices to determine their fair value. The Company classifies its commercial paper, corporate notes, certificates of deposit, and U.S. government bonds within Level 2 because it uses quoted prices for similar assets or liabilities in active markets and each has a specified term and all Level 2 inputs are observable for substantially the full term of each instrument.
The Company owns 68,000 shares of PharmaEssentia, a company publicly traded on the Taiwan OTC Exchange. As of March 31, 2021 and December 31, 2020, the Company’s investment in PharmaEssentia was valued at the reported closing price on such dates. This investment is classified as a Level 1 investment and is recorded as an available-for-sale investment within short-term investments on the Company’s condensed consolidated balance sheet.
9
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued wages and benefits
|
|
$
|
7,798
|
|
|
$
|
6,720
|
|
Accrued selling fees, rebates, and royalties
|
|
|
4,388
|
|
|
|
9,046
|
|
Accrued operating expenses
|
|
|
3,804
|
|
|
|
3,222
|
|
Accrued construction costs
|
|
|
3,421
|
|
|
|
4,104
|
|
Accrued inventory purchases
|
|
|
2,397
|
|
|
|
3,714
|
|
Accrued clinical expenses
|
|
|
2,073
|
|
|
|
2,949
|
|
Accrued tax withholdings
|
|
|
1,863
|
|
|
|
1,948
|
|
Accrued costs for product launch
|
|
|
1,415
|
|
|
|
1,474
|
|
Deferred revenue
|
|
|
1,289
|
|
|
|
1,147
|
|
Accrued R&D licensing fees
|
|
|
266
|
|
|
|
366
|
|
Accrued interest
|
|
|
—
|
|
|
|
3,583
|
|
Total accrued expenses
|
|
$
|
28,714
|
|
|
$
|
38,273
|
|
The accrued construction costs relate to the building of the manufacturing facility in Dunkirk, NY. This amount, plus an additional $0.4 million paid by the Company is expected to be funded by New York State. Therefore, $3.8 million is recorded within prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet as of March 31, 2021.
8. Income Taxes
The Company did not record a provision for U.S. federal income taxes for the three months ended March 31, 2021 because it expects to generate a loss for the year ending December 31, 2021 and the Company’s net deferred tax assets continue to be fully offset by a valuation allowance. Tax expense to date is primarily the result of tax withheld in Taiwan, in the amount of $0.1 million, on milestone payments in connection with an out-license agreement.
9. Debt and Lease Obligations
Debt
The Company’s debt as of March 31, 2021 and December 31, 2020, consists of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Current portion of mortgage
|
|
$
|
729
|
|
|
$
|
731
|
|
Current portion of bank loan
|
|
|
761
|
|
|
|
764
|
|
Current portion of senior secured loan
|
|
|
70
|
|
|
|
70
|
|
Current portion of finance lease obligations
|
|
|
410
|
|
|
|
445
|
|
Current portion of operating lease obligations
|
|
|
3,161
|
|
|
|
3,185
|
|
Long-term portion of finance lease obligations
|
|
|
474
|
|
|
|
537
|
|
Long-term portion of operating lease obligations
|
|
|
5,832
|
|
|
|
6,355
|
|
Chongqing Maliu credit agreement
|
|
|
7,614
|
|
|
|
7,641
|
|
Senior secured loan, net of debt discount and financing fees
of $10,822 and $11,601 respectively
|
|
|
139,178
|
|
|
|
138,399
|
|
Total
|
|
$
|
158,229
|
|
|
$
|
158,127
|
|
10
Senior Credit Agreement
On June 19, 2020 (“Closing Date”), the Company entered into the Senior Credit Agreement with Oaktree to borrow up to $225.0 million in five tranches, with a maturity date of June 19, 2026. Three tranches (“Tranche A”, “Tranche B”, and “Tranche D”) of the term loans with an aggregate principal amount of $150.0 million were drawn by the Company in 2020. One tranche (“Tranche C”) of $25.0 million will be available to the Company from 90 days after the Closing Date through June 20, 2022, subject to the Company’s satisfaction of a certain regulatory milestone; and the last tranche of $50.0 million (“Tranche E”) will be available to the Company from 90 days after the Closing Date through June 19, 2023, also subject to the Company’s satisfaction of a certain commercial milestone. The loan bears interest at a fixed annual rate of 11.0%. The Company allocated the proceeds of the drawn tranches between liability and equity components and the fair value of such equity components, along with the direct costs related to the issuance of the debt were recorded as an offset to long-term debt on the consolidated balance sheets. The debt discount and financing fees are amortized on a straight-line basis, which approximates the effective interest method, over the remaining maturity of the Senior Credit Agreement. The effective interest rate of Tranches A, B and D, including the amortization of debt discount and financing fees amounts to 13.3% annually. The Company is required to make quarterly interest-only payments until June 19, 2022, after which the Company is required to make quarterly amortizing payments, with the remaining balance of the principal plus accrued and unpaid interest due at maturity. Beginning on September 17, 2020, the Company was required to pay a commitment fee on any undrawn commitments equal to 0.6% per annum, payable on each subsequent funding date or the commitment termination date. Prepayments of the loan, in whole or in part, will be subject to early prepayment fee which declines each year until the fourth anniversary date of the Closing Date, after which no prepayment fee is required. Upon the final payment, the Company must also pay an exit fee calculated based on a percentage of the aggregate principal amount of all tranches advanced to the Company, and as of March 31, 2021 and December 31, 2020, the Company has reflected a long-term exit fee liability of $3.0 million within long-term debt and finance lease obligations on the consolidated balance sheet.
The Senior Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that were customarily required for similar financings. The Company is subject to certain financial covenants under the Senior Credit Agreement, including (1) a minimum liquidity amount in cash or permitted cash equivalent investments of $20.0 million from the closing date until the date on which the aggregate principal amount of loans outstanding is greater than or equal to $150.0 million (the “First Step-Up Date”), $25.0 million from the First Step-Up Date until the date on which the aggregate principal amount of loans outstanding balance is equal to $225.0 million (the “Second Step-Up Date”), and $30.0 million from the Second Step-up Date until the maturity date; (2) minimum revenue no less than 50% of target revenue beginning with the fiscal quarter ended on December 31, 2020 and with respect to each such subsequent fiscal quarter prior to the revenue covenant termination date; (3) leverage ratio covenant not to exceed 4.50 to 1.00 as of the last day of any fiscal quarter beginning with the first fiscal quarter following the revenue covenant termination date. At March 31, 2021, the Company was in compliance with all applicable debt covenants.
Revenue Interest Financing Agreement
On August 4, 2020, the Company entered into a Revenue Interest Financing Agreement with Sagard, pursuant to which Sagard agreed to pay the Company $50.0 million to provide funding for the Company’s development and commercialization of Oral Paclitaxel upon receipt of marketing authorization for Oral Paclitaxel by the U.S. FDA for the treatment of metastatic breast cancer. In the event the Company is unable to do so before December 31, 2021, Sagard will have a termination right. In exchange for the Product Payment, the Company agreed to make payments to Sagard equal to 5.0% of its world-wide net sales of Oral Paclitaxel, subject to a hard cap equal to the lesser of 170% of the Product Payment and the Put/Call Price as discussed below and further set forth in the Revenue Interest Financing Agreement. The Company is required to make certain additional payments to Sagard to the extent Sagard has not received Payments equaling at least $20.0 million by September 30, 2024 and at least $50.0 million by August 4, 2026, in the amount of the applicable shortfall, and, subject to the Hard Cap, if Sagard has not received Payments equaling at least $85.0 million by the tenth anniversary of the date the Product Payment is funded, in an amount such that Sagard will have obtained a 6.0% internal rate of return on the Product Payment.
The Company’s obligations under the Revenue Interest Financing Agreement are secured, subject to customary permitted liens and other agreed upon exceptions and subject to an intercreditor agreement with Oaktree as administrative agent for the lenders under our Senior Credit Agreement, by a perfected security interest in (i) accounts receivable arising from net sales of Oral Paclitaxel and (ii) intellectual property that is claiming or covering Oral Paclitaxel itself or any method of using, making or manufacturing Oral Paclitaxel.
11
Credit Agreements, Bank Loan and Mortgage
During the second quarter of 2019, the Company entered into a credit agreement which amended the existing partnership agreement with Chongqing Maliu Riverside Development and Investment Co., LTD (“CQ”), for a Renminbi ¥50.0 million (USD $7.7 million at December 31, 2020) line of credit to be used for the construction of the new API plant in China. The Company is required to repay the principal amount with accrued interest within three years after the plant receives the cGMP certification, with 20% of the total loan with accrued interest is due within the first twelve months following receiving the certification, 30% of the total loan with accrued interest due within twenty-four months, and the remaining balance with accrued interest due within thirty-six months. Interest accrues at the three-year loan interest rate by the People’s Bank of China for the same period on the date of the deposit of the full loan amount, which is expected to approximate 4.75% annually. If the Company fails to obtain the cGMP certification within three years upon the acceptance of the plant, it shall return all renovation costs with the accrued interest to CQ in a single transaction within the first ten business days. As of March 31, 2021, the balance due to CQ was $7.6 million.
On May 15, 2020, the Company entered into a credit agreement with China Merchants Bank, enabling the Company to draw up to a Renminbi ¥5.0 million (USD $0.8 million at March 31, 2021) during the period through May 14, 2021. The Company drew the entire available credit in July 2020. This loan has a maturity date of May 14, 2021 and bears interest at a fixed rate of 4.35% annually. The Company is required to pay the outstanding principal and all accrued interest at maturity.
The mortgage payments, assumed in connection with the acquisition of CDE, extend through December 31, 2021.
Lease Obligations
The Company has operating leases for office and manufacturing facilities in several locations in the U.S., Asia, and Latin America and has three finance leases for manufacturing equipment used in its facilities near Buffalo, NY. The components of lease expense are as follows (in thousands):
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Operating lease cost
|
|
|
746
|
|
|
$
|
755
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of assets
|
|
|
75
|
|
|
|
34
|
|
Interest on lease liabilities
|
|
|
24
|
|
|
|
6
|
|
Total net lease cost
|
|
$
|
845
|
|
|
$
|
795
|
|
The Company has elected to exclude short-term leases from its operating lease right-of-use (“ROU”) assets and lease liabilities. Lease costs for short-term leases were not material to the financial statements for the three months ended March 31, 2021 and 2020. Variable lease costs for the three months ended March 31, 2021 were not material to the financial statements.
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
$
|
1,535
|
|
|
$
|
1,535
|
|
Accumulated amortization, net
|
|
|
(422
|
)
|
|
|
(347
|
)
|
Property and equipment, net
|
|
$
|
1,113
|
|
|
$
|
1,188
|
|
|
|
|
|
|
|
|
|
|
Current obligations of finance leases
|
|
$
|
410
|
|
|
$
|
445
|
|
Long-term portion of finance leases
|
|
|
474
|
|
|
|
537
|
|
Total finance lease obligations
|
|
$
|
884
|
|
|
$
|
982
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
3.96
|
|
|
|
4.23
|
|
Finance leases
|
|
|
3.06
|
|
|
|
3.40
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
12.8
|
%
|
|
|
12.8
|
%
|
Finance leases
|
|
|
10.8
|
%
|
|
|
10.4
|
%
|
12
Supplemental cash flow information related to leases is as follows (in thousands):
|
|
Three
Months Ended
March 31, 2021
|
|
|
Three
Months Ended
March 31, 2020
|
|
Cash paid for amount included in the measurements of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
(979
|
)
|
|
$
|
(820
|
)
|
Operating cash flows from finance leases
|
|
|
(24
|
)
|
|
|
(6
|
)
|
Financing cash flows from finance leases
|
|
|
(98
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
ROU assets derecognized from modification of operating lease
obligations
|
|
|
—
|
|
|
|
(468
|
)
|
ROU assets recognized in exchange for operating lease
obligations
|
|
$
|
—
|
|
|
$
|
353
|
|
Future minimum payments and maturities of leases is as follows (in thousands):
Year ending December 31:
|
|
Operating Leases
|
|
Finance Leases
|
|
2021 (remaining nine months)
|
|
$
|
2,577
|
|
$
|
351
|
|
2022
|
|
|
2,918
|
|
|
275
|
|
2023
|
|
|
2,096
|
|
|
248
|
|
2024
|
|
|
2,002
|
|
|
157
|
|
2025
|
|
|
1,472
|
|
|
—
|
|
Thereafter
|
|
|
478
|
|
|
—
|
|
Total lease payments
|
|
|
11,543
|
|
|
1,031
|
|
Less: Imputed interest
|
|
|
(2,550
|
)
|
|
(147
|
)
|
Total lease obligations
|
|
|
8,993
|
|
|
884
|
|
Less: Current obligations
|
|
|
(3,161
|
)
|
|
(410
|
)
|
Long-term lease obligations
|
|
$
|
5,832
|
|
$
|
474
|
|
Pursuant to the public-private partnership agreements with the State of New York, the Company will rent the manufacturing facilities in Dunkirk, NY. The facility is in the final stage of completion. However, no lease term had commenced as of March 31, 2021, as it was not yet operational and the Company could not direct the use of the facility. No lease costs were incurred related to the manufacturing facility during the three-month period ended March 31, 2021.
On January 5, 2021, Chongqing Sintaho Pharmaceuticals Co., Ltd. (“CQ Sintaho”), a subsidiary of the Company in China, entered into a lease agreement with Chongqing International Biological City Development & Investment Co., Ltd (“CQ D&I”). Under the lease agreement, the provisions of which are consistent with those agreed upon in the 2015 Agreement, CQ Sintaho leased the newly constructed API facility, or Sintaho API Facility, of 34,517 square meters rent-free, for the first 10-year term, with an option to extend the lease for an additional 10-year term, during which, if CQ Sintaho is profitable, it will pay a monthly rent of 5 RMB per square meter of space occupied. The Company determined the lease had commenced as of March 31, 2021, as it was operational and CQ Sintaho could direct the use of the facility. The Company also evaluated the probability of exercising the renewal and purchase options, and determined that it is not reasonably certain whether it will exercise those options. Therefore, the lease term is comprised only of the rent-free period and the recognition of the right-of-use asset and liability did not have a significant effect on the Company’s consolidated financial statements.
The Company exercises judgment in determining the discount rate used to measure the lease liabilities. When rates are not implicit within an operating lease, the Company uses its incremental borrowing rate as its discount rate, which is based on yield trends in the biotechnology and healthcare industry and debt instruments held by the Company with stated interest rates. The Company re-assesses its incremental borrowing rate when new leases arise, or existing leases are modified.
13
10. Related Party Transactions
During the three months ended March 31, 2021 and 2020, the Company entered into transactions with individuals and companies that have financial interests in the Company. Related party transactions included the following:
a.
|
In June 2018, the Company entered into two in-licensing agreements with Avalon BioMedical (Management) Limited (“Avalon”) wherein the Company obtained certain IP from Avalon to develop and commercialize the underlying products. Under these agreements the Company is required to pay upfront fees and future milestone payments and sales-based royalties. During the three months ended March 31, 2021 and 2020, no fees were paid to Avalon in connection with the license agreements. Certain members of the Company’s board and management collectively have a controlling interest in Avalon. The Company does not hold any interest in Avalon and does not have any obligations to absorb losses or any rights to receive benefits from Avalon. As of March 31, 2021, and December 31, 2020, Avalon held 786,061 shares of the Company’s common stock, which represented approximately 1% of the Company’s total issued shares for both periods. Balances due from Avalon recorded on the condensed consolidated balance sheets were not significant.
|
In June 2019, the Company entered into an agreement whereby Avalon would hold a 90% ownership interest and the Company would hold a 10% ownership interest of the newly formed entity under the name Nuwagen Limited (“Nuwagen”), incorporated under the laws of Hong Kong. Nuwagen is principally engaged in the development and commercialization of herbal medicine products for metabolic, endocrine, and other related indications. The Company contributed nonmonetary assets in exchange for the 10% ownership interest. In July 2020, the transaction closed. The activities of Nuwagen were not material to the financial statements for the three months ended March 31, 2021.
b.
|
The Company earns licensing revenue from PharmaEssentia, an entity in which the Company has an investment classified as available-for-sale (see Note 6—Fair Value Measurements). During the three months ended March 31, 2021, the Company recorded $0.5 million milestone fee earned from PharmaEssentia under a license agreement. There were no funds paid to PharmaEssentia under the license and cost-sharing agreements for the three months ended March 31, 2021 and 2020.
|
In September 2020, Axis Therapeutics Limited (“Axis”), a majority-owned subsidiary of the Company, entered into a collaboration agreement with PharmaEssentia, pursuant to which Axis granted to PharmaEssensia an exclusive, non-transferrable and revocable sublicense of TCR-engineered T Cell therapy for the development of the technology in Taiwan. Axis received license fee of $1.0 million, net of $0.3 million withholding tax, in the fourth quarter of 2020. This amount was recorded as deferred revenue as of March 31, 2021.
c.
|
The Company receives certain clinical development services from ZenRx Limited and its affiliate (collectively, “ZenRx”), a company for which one of the Company’s executive officers serves on the board of directors. In connection with such services, the Company made payments to ZenRx of $0.3 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively. In April 2013, the Company entered into a license agreement with ZenRx pursuant to which the Company granted an exclusive, sublicensable license to use certain of the Company’s IP to develop and commercialize oral irinotecan and encequidar (“Oral Irinotecan”), and Oral Paclitaxel in Australia and New Zealand, and a non-exclusive license to manufacture a certain compound, but only for use in Oral Irinotecan and Oral Paclitaxel. ZenRx is responsible for all development, manufacturing and commercialization, and the related costs and expenses, of any product candidates resulting from the agreement. No revenue was earned from this license agreement in the periods presented in these consolidated financial statements.
|
d.
|
Certain family members of executives perform consulting services for the Company. Such services were not significant to the condensed consolidated financial statements.
|
11. Stock-Based Compensation
Common Stock Option Plans
The Company has four equity compensation plans, adopted in 2017, 2013, 2007 and 2004 (the “Plans”) which, taken together, authorize the grant of up to 16,000,000 shares of common stock to employees, directors, and consultants. On May 23, 2019, the board of directors approved the amendment and restatement of the 2017 Omnibus Incentive Plan (the “2017 Plan”, which increases the number of shares available for issuance under the 2017 Plan by up to 3,500,000 shares, which was approved by the Company’s stockholders at the Company’s 2020 annual meeting of stockholders. On April 26, 2021, the board of directors approved an amendment to the 2017 Plan, which increases the number of shares available for issuance under the 2017 Plan by 5,000,000 shares, subject to the approval of the Company’s stockholders at the Company’s 2021 annual meeting of stockholders. The Company also has an employee stock purchase plan, the 2017 Employee Stock Purchase Plan (the “ESPP”), adopted on June 14, 2017, which authorizes the issuance of up to 1,000,000 shares of common stock for future issuances to eligible employees.
14
Stock Options
The total fair value of stock options vested and recorded as compensation expense during the three months ended March 31, 2021 and 2020 was $2.2 million and $1.9 million, respectively. As of March 31, 2021, $16.5 million of unrecognized cost related to non-vested stock options was expected to be recognized over a weighted-average period of approximately 1.8 years. The total intrinsic value of options exercised was approximately $0.2 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively.
The following table summarizes the status of the Company’s stock option activity granted under the Plans to employees, directors, and consultants (aggregate intrinsic value in thousands):
|
|
Stock
Options
|
|
|
Weighted-
Average
Exercise price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at December 31, 2020
|
|
|
12,496,888
|
|
|
$
|
9.26
|
|
|
|
5.42
|
|
|
$
|
22,463
|
|
Granted
|
|
|
20,000
|
|
|
|
11.90
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(119,425
|
)
|
|
|
7.10
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited and expired
|
|
|
(32,830
|
)
|
|
|
12.92
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at March 31, 2021
|
|
|
12,364,633
|
|
|
$
|
9.28
|
|
|
|
5.20
|
|
|
$
|
—
|
|
Vested and exercisable at March 31, 2021
|
|
|
9,504,028
|
|
|
$
|
8.21
|
|
|
|
4.28
|
|
|
$
|
—
|
|
The Company determines the fair value of stock-based awards on the grant date using the Black-Scholes option pricing model, which is impacted by assumptions regarding several highly subjective variables. The following table summarizes the weighted-average assumptions used as inputs to the Black-Scholes model during the periods indicated:
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Weighted average grant date fair value
|
|
$
|
7.40
|
|
|
$
|
7.32
|
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Expected stock price volatility
|
|
|
68
|
%
|
|
|
67
|
%
|
Risk-free interest rate
|
|
|
1.37
|
%
|
|
|
0.75
|
%
|
Expected life of options (in years)
|
|
|
6.3
|
|
|
|
5.0
|
|
Restricted Stock Awards
No restricted stock awards were granted during the three months ended March 31, 2021 and 2020. Stock-based compensation related to the restricted stock awards amounted to less than $0.1 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, $0.3 million of unrecognized cost related to non-vested restricted stock awards were expected to be recognized over a weighted-average period of approximately 1.4 years.
Employee Stock Purchase Plan
The ESPP is available to eligible employees (as defined in the plan document). Under the ESPP, shares of the Company’s common stock may be purchased at a discount (15%) of the lesser of the closing price of the Company’s common stock on the first trading or the last trading day of the offering period. The current offering period extends from December 1, 2020 to May 31, 2021. The Company expects to offer six-month offering periods after the current period. The ESPP reserved 1,000,000 shares of common stock for issuance under the ESPP. Stock-based compensation related to the ESPP amounted to $0.1 million for each of the three months ended March 31, 2021 and 2020.
15
Stock-Based Compensation Cost
The components of stock-based compensation and the amounts recorded within cost of sales, research and development expenses and selling, general, and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss consisted of the following for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
$
|
2,205
|
|
|
$
|
1,864
|
|
Restricted stock expense
|
|
|
29
|
|
|
|
397
|
|
Employee stock purchase plan
|
|
|
46
|
|
|
|
70
|
|
Total stock-based compensation expense
|
|
$
|
2,280
|
|
|
$
|
2,331
|
|
Cost of sales
|
|
$
|
56
|
|
|
$
|
54
|
|
Research and development expenses
|
|
|
601
|
|
|
|
946
|
|
Selling, general, and administrative expenses
|
|
|
1,623
|
|
|
|
1,331
|
|
Total stock-based compensation expense
|
|
$
|
2,280
|
|
|
$
|
2,331
|
|
12. Net Loss per Share Attributable to Athenex, Inc. Common Stockholders
Basic net loss per share is calculated by dividing net loss attributable to Athenex, Inc. common stockholders by the weighted-average number of common shares issued, outstanding, and vested during the period. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common stock and common stock equivalents for the period using the treasury-stock method. For the purposes of this calculation, warrants to purchase common stock and stock options are considered common stock equivalents but are only included in the calculation of diluted net loss per share when their effect is dilutive.
The following outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options and other common stock equivalents
|
|
|
13,899,191
|
|
|
|
11,347,475
|
|
Unvested restricted shares
|
|
|
22,500
|
|
|
|
105,000
|
|
Total potential dilutive shares
|
|
|
13,921,691
|
|
|
|
11,452,475
|
|
13. Business Segment, Geographic, and Concentration Risk Information
The Company has three operating segments, which are organized based mainly on the nature of the business activities performed and regulatory environments in which they operate. The Company also considers the types of products from which the reportable segments derive their revenue (only applicable to two reportable segments). Each operating segment has a segment manager who is held accountable for operations and has discrete financial information that is regularly reviewed by the Company’s chief operating decision-maker. Consequently, the Company has concluded each operating segment to be a reportable segment. The Company’s operating segments are as follows:
Oncology Innovation Platform— This operating segment performs research and development on certain of the Company’s proprietary drugs, from the preclinical development of its chemical compounds, to the execution and analysis of its several clinical trials. It focuses specifically on Orascovery and Src Kinase Inhibition research platforms, cell therapy programs and arginine deprivation therapy.
Global Supply Chain Platform— This operating segment includes APS and Polymed and the construction of the manufacturing facilities in Chongqing, China, and Dunkirk, NY. APS is a manufacturing company that supplies sterile injectable drugs to hospital pharmacies across the U.S. APS manufactures products under Section 503B of the Compounding Quality Act within the Federal Food, Drug & Cosmetic Act (“FDCA”). Additionally, APS provides products for the development and manufacturing of the Company’s proprietary drug candidates as well as providing the Company with a cGMP analytical services function. Polymed is primarily in the business of marketing and selling API in North America, Europe, and Asia from its locations in Texas and China. Polymed also develops new compounds and processing techniques and is in the final phase of completion of the new API manufacturing facility in Chongqing, China.
16
Commercial Platform— This operating segment includes APD and Athenex Oncology, which focus on the manufacturing, distribution, and sales of specialty pharmaceuticals and the pre-launch commercial activities for the Company’s proprietary drugs, respectively. This segment provides services and products to external customers based mainly in the U.S.
The Company’s Oncology Innovation Platform segment operates and holds long-lived assets located in the U.S., Taiwan, Hong Kong, mainland China, the United Kingdom, and Latin America. The Global Supply Chain Platform segment operates and holds long-lived assets located in the U.S. and China. The Commercial Platform segment operates and holds long-lived assets located in the U.S. For geographic segment reporting, product sales have been attributed to countries based on the location of the customer.
Segment information is as follows (in thousands):
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Total revenue:
|
|
|
|
|
|
|
|
|
Oncology Innovation Platform
|
|
$
|
20,665
|
|
|
$
|
28,387
|
|
Global Supply Chain Platform
|
|
|
8,207
|
|
|
|
3,714
|
|
Commercial Platform
|
|
|
13,259
|
|
|
|
15,542
|
|
Total revenue for reportable segments
|
|
|
42,131
|
|
|
|
47,643
|
|
Intersegment revenue
|
|
|
(1,106
|
)
|
|
|
(708
|
)
|
Total consolidated revenue
|
|
$
|
41,025
|
|
|
$
|
46,935
|
|
Intersegment revenue eliminated in the above table reflects $0.6 million in sales from the Global Supply Chain Platform to the Commercial Platform and $0.5 million in sales from the Global Supply Chain Platform to the Oncology Innovation Platform (in thousands).
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Total revenue by product group:
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
20,500
|
|
|
$
|
28,381
|
|
Commercial product sales
|
|
|
18,061
|
|
|
|
17,502
|
|
API sales
|
|
|
1,868
|
|
|
|
1,022
|
|
Contract manufacturing revenue
|
|
|
430
|
|
|
|
23
|
|
Other revenue
|
|
|
166
|
|
|
|
7
|
|
Total consolidated revenue
|
|
$
|
41,025
|
|
|
$
|
46,935
|
|
Intersegment revenue is recognized by the selling segment when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. Upon consolidation, all intersegment revenue and related cost of sales are eliminated from the selling segment’s ledger (in thousands).
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net loss attributable to Athenex, Inc.:
|
|
|
|
|
|
|
|
|
Oncology Innovation Platform
|
|
$
|
(5,441
|
)
|
|
$
|
(958
|
)
|
Global Supply Chain Platform
|
|
|
(3,682
|
)
|
|
|
(5,986
|
)
|
Commercial Platform
|
|
|
(15,927
|
)
|
|
|
(12,485
|
)
|
Total consolidated net loss attributable to
Athenex, Inc.
|
|
$
|
(25,050
|
)
|
|
$
|
(19,429
|
)
|
17
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Total depreciation and amortization:
|
|
|
|
|
|
|
|
|
Oncology Innovation Platform
|
|
$
|
207
|
|
|
$
|
175
|
|
Global Supply Chain Platform
|
|
|
523
|
|
|
|
496
|
|
Commercial Platform
|
|
|
544
|
|
|
|
415
|
|
Total consolidated depreciation and
amortization
|
|
$
|
1,274
|
|
|
$
|
1,086
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Oncology Innovation Platform
|
|
$
|
199,741
|
|
|
$
|
234,153
|
|
Global Supply Chain Platform
|
|
|
101,621
|
|
|
|
99,087
|
|
Commercial Platform
|
|
|
48,294
|
|
|
|
51,089
|
|
Total consolidated assets
|
|
$
|
349,656
|
|
|
$
|
384,329
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Total revenue:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
38,645
|
|
|
$
|
17,522
|
|
China
|
|
|
205
|
|
|
|
28,513
|
|
Other foreign countries
|
|
|
2,175
|
|
|
|
900
|
|
Total consolidated revenue
|
|
$
|
41,025
|
|
|
$
|
46,935
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Total property and equipment, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
20,902
|
|
|
$
|
15,511
|
|
China
|
|
|
20,876
|
|
|
|
18,877
|
|
Total consolidated property and equipment, net
|
|
$
|
41,778
|
|
|
$
|
34,388
|
|
Customer revenue and accounts receivable concentration amounted to the following for the identified periods. These customers relate to the Commercial Platform segment and the Global Supply Chain Platform segment.
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
Percentage of total revenue by customer:
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
|
49
|
%
|
|
|
0
|
%
|
Customer B
|
|
|
|
11
|
%
|
|
|
9
|
%
|
Customer C
|
|
|
|
9
|
%
|
|
|
11
|
%
|
Customer D
|
|
|
|
9
|
%
|
|
|
7
|
%
|
Customer E
|
|
|
|
0
|
%
|
|
|
60
|
%
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Percentage of total accounts receivable by customer:
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
36
|
%
|
|
|
33
|
%
|
Customer B
|
|
|
30
|
%
|
|
|
24
|
%
|
Customer C
|
|
|
10
|
%
|
|
|
16
|
%
|
Customer D
|
|
|
0
|
%
|
|
|
6
|
%
|
18
14. Revenue Recognition
The Company records revenue in accordance with ASC, Topic 606 “Revenue from Contracts with Customers.” Under Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the entity performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes 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. Below is a description of principal activities – separated by reportable segments – from which the Company generates its revenue.
|
1.
|
Oncology Innovation Platform
|
The Company out-licenses certain of its IP to other pharmaceutical companies in specific territories that allow the customer to use, develop, commercialize, or otherwise exploit the licensed IP. In accordance with Topic 606, the Company analyzes the contracts to identify its performance obligations within the contract. Most of the Company’s out-license arrangements contain multiple performance obligations and variable pricing. After the performance obligations are identified, the Company determines the transaction price, which generally includes upfront fees, milestone payments related to the achievement of developmental, regulatory, or commercial goals, and royalty payments on net sales of licensed products. The Company considers whether the transaction price is fixed or variable, and whether such consideration is subject to return. Variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. If any portion of the transaction price is constrained, it is excluded from the transaction price until the constraint no longer exists. The Company then allocates the transaction price to the performance obligation to which the consideration is related. Where a portion of the transaction price is received and allocated to continuing performance obligations under the terms of the arrangement, it is recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.
The Company’s contracts may contain one or multiple promises, including the license of IP and development services. The licensed IP is capable of being distinct from the other performance obligations identified in the contract and is distinct within the context of the contract, as upon transfer of the IP, the customer is able to use and benefit from it, and the customer could obtain the development services from other parties. The Company also considers the economic and regulatory characteristics of the licensed IP and other promises in the contract to determine if it is a distinct performance obligation. The Company considers if the IP is modified or enhanced by other performance obligations through the life of the agreement and whether the customer is contractually or practically required to use updated IP. The IP licensed by the Company has been determined to be functional IP. The IP is not modified during the license period and therefore, the Company recognizes revenues from any portion of the transaction price allocated to the licensed IP when the license is transferred to the customer and they can benefit from the right to use the IP. For the three-month period ended March 31, 2021, the Company recognized license revenue of $20.5 million, of which $20.0 million was recognized upon the achievement of the first commercial milestone pursuant to the 2017 Almirall out-license arrangement upon the launch of Klisyri in the U.S., and $0.5 million was recognized for an upfront fee upon transferring IP to the customer upon execution of the second amendment to the 2011 PharmaEssentia license agreement. Under the collaboration agreement between Axis Therapeutics and PharmaEssentia, the Company received $1.0 million, net of $0.3 million withholding tax, of upfront fees allocated to its performance obligation to deliver functional IP to the Customer. As of March 31, 2021, the Company had not satisfied this performance obligation by delivering the license with the data necessary for the customer to benefit from the right to use the IP and, therefore, the amount was recorded as deferred revenue.
Other performance obligations included in most of the Company’s out-licensing agreements include performing development services to reach clinical and regulatory milestone events. The Company satisfies these performance obligations at a point-in-time, because the customer does not simultaneously receive and consume the benefits as the development occurs, the development does not create or enhance an asset controlled by the customer, and the development does not create an asset with no alternative use. The Company considers milestone payments to be variable consideration measured using the most likely amount method, as the entitlement to the consideration is contingent on the occurrence or nonoccurrence of future events. The Company allocates each variable milestone payment to the associated milestone performance obligation, as the variable payment relates directly to the Company’s efforts to satisfy the performance obligation and such allocation depicts the amount of consideration to which the Company expects to be entitled for satisfying the corresponding performance obligation. The Company re-evaluates the probability of achievement of such performance obligations and any related constraint and adjusts its estimate of the transaction price as appropriate. To date, no amounts have been constrained in the initial or subsequent assessments of the transaction price. The Company did not recognize revenue from other performance obligations included in the Company’s out-licensing agreements during the three month periods ended March 31, 2021 and 2020.
19
Certain out-license agreements include performance obligations to manufacture and provide drug product in the future for commercial sale when the licensed product is approved. For the commercial, sales-based royalties, the consideration is predominantly related to the licensed IP and is contingent on the customer’s subsequent sales to another commercial customer. Consequently, the sales- or usage-based royalty exception would apply. Revenue will be recognized for the commercial, sales-based milestones as the underlying sales occur.
The Company exercises significant judgment when identifying distinct performance obligations within its out-license arrangements, determining the transaction price, which often includes both fixed and variable considerations, and allocating the transaction price to the proper performance obligation. The Company did not use any other significant judgments related to out-licensing revenue during the three-month periods ended March 31, 2021 and 2020.
|
2.
|
Global Supply Chain Platform
|
The Company’s Global Supply Chain Platform manufactures API for use internally in its research and development activities as well as its clinical studies, and for sale to pharmaceutical customers globally. The Company generates additional revenue on this platform, by providing small to mid-scale cGMP manufacturing of clinical and commercial products for pharmaceutical and biotech companies and selling pharmaceutical products under 503B regulations set forth by the U.S. FDA.
Revenue earned by the Global Supply Platform is recognized when the Company has satisfied its performance obligation, which is the shipment or the delivery of drug products. The underlying contracts for these sales are generally purchase orders and the Company recognizes revenue at a point-in-time. Any remaining performance obligations related to product sales are the result of customer deposits and are reflected in the deferred revenue contract liability balance.
The Company’s Commercial Platform generates revenue by distributing specialty products through independent pharmaceutical wholesalers. The wholesalers then sell to an end-user, normally a hospital, alternative healthcare facility, or an independent pharmacy, at a lower price previously established by the end-user and the Company. Upon the sale by the wholesaler to the end-user, the wholesaler will chargeback the difference, if any, between the original list price and price at which the product was sold to the end-user. The Company also offers cash discounts, which approximate 2.3% of the gross sales price, as an incentive for prompt customer payment, and, consistent with industry practice, the Company’s return policy permits customers to return products within a window of time before and after the expiration of product dating. Further, the Company offers contractual allowances, generally in the form of rebates or administrative fees, to certain wholesale customers, group purchasing organizations (“GPOs”), and end-user customers, consistent with pharmaceutical industry practices. Revenues are recorded net of provisions for variable consideration, including discounts, rebates, GPO allowances, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for these provisions are presented in the consolidated financial statements as reductions in determining net sales and as a contra asset in accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). As of March 31, 2021, and December 31, 2020, the Company’s total provision for chargebacks and other deductions included as a reduction of accounts receivable totaled $17.3 million and $12.6 million, respectively. The Company’s total provision for chargebacks and other revenue deductions was $25.6 million, and $24.9 million for the three months ended March 31, 2021, and 2020, respectively.
The Company exercises significant judgment in its estimates of the variable transaction price at the time of the sale and recognizes revenue when the performance obligation is satisfied. Factors that determine the final net transaction price include chargebacks, fees for service, cash discounts, rebates, returns, warranties, and other factors. The Company estimates all of these variables based on historical data obtained from previous sales finalized with the end-user customer on a product-by-product basis. At the time of sale, revenue is recorded net of each of these deductions. Through the normal course of business, the wholesaler will sell the product to the end-user, determining the actual chargeback, return products, and take advantage of cash discounts, charge fees for services, and claim warranties on products. The final transaction price per product is compared to the initial estimated net sale price and reviewed for accuracy. The final prices and other factors are immediately included in the Company’s historical data from which it will estimate the transaction price for future sales. The underlying contracts for these sales are generally purchase orders including a single performance obligation, generally the shipment or delivery of products and the Company recognizes this revenue at a point-in-time.
20
Disaggregation of revenue
The following represents the Company’s revenue for its reportable segment by country, based on the locations of the customer.
|
|
For the Three Months Ended March 31, 2021
|
|
|
|
(In Thousands)
|
|
|
|
Oncology
Innovation
Platform
|
|
|
Global Supply
Chain Platform
|
|
|
Commercial
Platform
|
|
|
Consolidated
Total
|
|
United States
|
|
$
|
20,157
|
|
|
$
|
5,229
|
|
|
$
|
13,259
|
|
|
$
|
38,645
|
|
China
|
|
|
8
|
|
|
|
197
|
|
|
|
—
|
|
|
|
205
|
|
Other foreign countries
|
|
|
500
|
|
|
|
1,675
|
|
|
|
—
|
|
|
|
2,175
|
|
Total revenue
|
|
$
|
20,665
|
|
|
$
|
7,101
|
|
|
$
|
13,259
|
|
|
$
|
41,025
|
|
|
|
For the Three Months Ended March 31, 2020
|
|
|
|
(In Thousands)
|
|
|
|
Oncology
Innovation
Platform
|
|
|
Global Supply
Chain Platform
|
|
|
Commercial
Platform
|
|
|
Consolidated
Total
|
|
China
|
|
$
|
28,308
|
|
|
$
|
205
|
|
|
$
|
—
|
|
|
$
|
28,513
|
|
United States
|
|
|
—
|
|
|
|
1,980
|
|
|
|
15,542
|
|
|
|
17,522
|
|
Other foreign countries
|
|
|
79
|
|
|
|
821
|
|
|
|
—
|
|
|
|
900
|
|
Total revenue
|
|
$
|
28,387
|
|
|
$
|
3,006
|
|
|
$
|
15,542
|
|
|
$
|
46,935
|
|
The Company also disaggregates its revenue by product group which can be found in Note 13 – Business Segment, Geographic, and Concentration Risk Information.
Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers. The Company has not recorded any contract assets from contracts with customers.
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
|
(In Thousands)
|
|
Accounts receivable, gross
|
|
$
|
46,935
|
|
|
$
|
45,792
|
|
Chargebacks and other deductions
|
|
|
(17,264
|
)
|
|
|
(12,552
|
)
|
Provision for credit losses
|
|
|
(9,482
|
)
|
|
|
(9,637
|
)
|
Accounts receivable, net
|
|
$
|
20,189
|
|
|
$
|
23,603
|
|
Deferred revenue
|
|
|
1,289
|
|
|
|
1,147
|
|
Total contract liabilities
|
|
$
|
1,289
|
|
|
$
|
1,147
|
|
The following tables illustrate accounts receivable and contract asset balances by reportable segments.
|
|
March 31, 2021
|
|
|
|
(In Thousands)
|
|
|
|
Oncology
Innovation
Platform
|
|
|
Global Supply
Chain Platform
|
|
|
Commercial
Platform
|
|
|
Consolidated
Total
|
|
Accounts receivable, gross
|
|
$
|
9,167
|
|
|
$
|
3,589
|
|
|
$
|
34,179
|
|
|
$
|
46,935
|
|
Chargebacks and other deductions
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,264
|
)
|
|
|
(17,264
|
)
|
Provision for credit losses
|
|
|
(8,919
|
)
|
|
|
(138
|
)
|
|
|
(425
|
)
|
|
|
(9,482
|
)
|
Accounts receivable, net
|
|
|
248
|
|
|
|
3,451
|
|
|
|
16,490
|
|
|
|
20,189
|
|
21
|
|
December 31, 2020
|
|
|
|
(In Thousands)
|
|
|
|
Oncology
Innovation
Platform
|
|
|
Global Supply
Chain Platform
|
|
|
Commercial
Platform
|
|
|
Consolidated
Total
|
|
Accounts receivable, gross
|
|
$
|
10,783
|
|
|
$
|
4,074
|
|
|
$
|
30,935
|
|
|
$
|
45,792
|
|
Chargebacks and other deductions
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(12,551
|
)
|
|
|
(12,552
|
)
|
Provision for credit losses
|
|
|
(8,919
|
)
|
|
|
(164
|
)
|
|
|
(554
|
)
|
|
|
(9,637
|
)
|
Accounts receivable, net
|
|
$
|
1,864
|
|
|
$
|
3,909
|
|
|
$
|
17,830
|
|
|
$
|
23,603
|
|
As of March 31, 2021 and December 31, 2020, the deferred revenue balances relate to customer deposits made by customers of the Oncology Innovation Platform and Global Supply Chain Platform and are included within accrued expenses on the condensed consolidated balance sheets.
There were no other material changes to contract balances during the three months ended March 31, 2021.
15. Commitments and Contingencies
Future minimum payments under the non-cancelable operating leases consists of the following as of March 31, 2021 (in thousands):
Year ending December 31:
|
|
Minimum
payments
|
|
2021 (remaining nine months)
|
|
$
|
2,577
|
|
2022
|
|
|
2,918
|
|
2023
|
|
|
2,096
|
|
2024
|
|
|
2,002
|
|
2025
|
|
|
1,472
|
|
Thereafter
|
|
|
478
|
|
|
|
$
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11,543
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Legal Proceedings
Following our receipt of the CRL in February 2021 and the subsequent decline of the market price of the Company’s common stock, two purported securities class action lawsuits were filed in the U.S. District Court for the Western District of New York on March 3, 2021 and March 22, 2021, respectively, against the Company and certain members of its management team seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
The complaints generally allege that between August 7, 2019 and February 26, 2021 (the purported class period), the Company and the individual defendants made materially false and misleading statements regarding the Company's business in connection with the Company’s development of Oral Paclitaxel for the treatment of metastatic breast cancer and the likelihood of FDA approval, and that the plaintiffs suffered losses when the Company’s stock price dropped after its announcement on February 26, 2021 regarding receipt of the CRL. The complaints seek class certification, damages, fees, costs, and expenses. The defendants expect that these two lawsuits will be consolidated and a lead plaintiff appointed in the coming months. Additional similar lawsuits might be filed. The Company and the individual defendants believe that the claims in these lawsuits are without merit, and the Company has not recorded a liability related to this shareholder class action lawsuit as the risk of loss is remote. The Company and the individual defendants intend to vigorously defend against these claims but there can be no assurances as to the outcome.
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16. Subsequent Event
On May 4, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kuur Therapeutics, Inc., a Delaware corporation (“Kuur”). Kuur is a leading developer of off-the-shelf CAR-NKT cell immunotherapies for the treatment of solid and hematological malignancies. Pursuant to the terms of the Merger Agreement, the Company will pay $70.0 million upfront to Kuur shareholders and its former employees and directors, comprised primarily of equity in the Company’s common stock. Additionally, Kuur shareholders and its former employees and directors are eligible to receive up to $115.0 million of milestone payments, which may be paid, at the Company’s sole discretion, in either cash or additional common stock of the Company (or a combination of both). The Company believes the acquisition strategically combines its TCR program with the groundbreaking NKT cell platform to provide a solution that may address some of the known limitations associated with the first generation of cell therapy treatments focused on autologous CAR-T. Due to the recency of the Merger Agreement, the Company has not yet completed its assessment of the fair value of the assets acquired, the liabilities assumed and the contingent considerations. The Company will account for this in accordance with ASC 805, Business Combinations, and its evaluation the effect on its consolidated financial statements during the second quarter of 2021.
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