Quarterly Report (10-q)

Date : 05/08/2019 @ 10:05PM
Source : Edgar (US Regulatory)
Stock : Aclaris Therapeutics, Inc. (ACRS)
Quote : 4.45  -0.09 (-1.98%) @ 1:00AM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

 


 

 

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                        

 

Commission File Number  001-37581


Aclaris Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

46-0571712
(I.R.S. Employer
Identification No.)

640 Lee Road, Suite 200
Wayne, PA
(Address of principal executive offices)

19087
(Zip Code)

 

Registrant’s telephone number, including area code: (484) 324‑7933

 

N/A

 

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Securities Exchange Act of 1934:

 

 

 

 

Large accelerated filer  ☐

 

Accelerated filer  ☒

 

 

 

Non-accelerated filer  ☐

 

Smaller reporting company  ☒

 

 

 

 

 

Emerging growth company  ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).   Yes ☐  No ☒

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

 

Title of Each Class:

 

Trading Symbol(s)

 

Name of Each Exchange on which Registered

Common Stock, $0.00001 par value

 

ACRS

 

The Nasdaq Stock Market, LLC

 

The number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, as of the close of business on May 7, 2019 was 41,272,308.

 

 

 

 


 

ACLARIS THERAPEUTICS, INC.

 

INDEX TO FORM 10-Q

 

 

 

 

 

 

    

PAGE

 

 

 

PART I. FINANCIAL INFORMATION  

 

 

 

 

 

Item 1. Financial Statements  

 

2

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of M arch  31, 2019 and December 31, 2018  

 

2

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March  31, 2019 and 2018  

 

3

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March  31, 2019   and 2018  

 

4

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March  31, 2019 and 2018  

 

5

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements  

 

6

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  

 

26

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk  

 

44

 

 

 

Item 4. Controls and Procedures  

 

44

 

 

 

PART II. OTHER INFORMATION  

 

 

 

 

 

Item 1. Legal Proceedings  

 

45

 

 

 

Item 1A. Risk Factors  

 

45

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  

 

45

 

 

 

Item 6. Exhibits  

 

46

 

 

 

Signatures  

 

47

 

 

 

 

 


 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET S

(Unaudited)

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

    

March 31, 

 

December 31, 

 

 

    

2019

    

2018

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,197

 

$

57,019

 

Marketable securities

 

 

102,558

 

 

110,953

 

Accounts receivable, net

 

 

15,817

 

 

4,861

 

Inventory

 

 

856

 

 

791

 

Prepaid expenses and other current assets

 

 

3,385

 

 

5,875

 

Total current assets

 

 

156,813

 

 

179,499

 

Property and equipment, net

 

 

4,026

 

 

4,280

 

Intangible assets

 

 

71,459

 

 

72,951

 

Goodwill

 

 

18,504

 

 

18,504

 

Other assets

 

 

2,381

 

 

332

 

Total assets

 

$

253,183

 

$

275,566

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

14,574

 

$

14,755

 

Accrued expenses

 

 

20,786

 

 

11,986

 

Current portion of lease liabilities

 

 

868

 

 

601

 

Total current liabilities

 

 

36,228

 

 

27,342

 

Other liabilities

 

 

3,301

 

 

1,703

 

Long-term debt

 

 

29,918

 

 

29,914

 

Contingent consideration

 

 

934

 

 

934

 

Deferred tax liability

 

 

549

 

 

549

 

Total liabilities

 

 

70,930

 

 

60,442

 

Stockholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued or outstanding at March 31, 2019 and December 31, 2018

 

 

 —

 

 

 —

 

Common stock, $0.00001 par value; 100,000,000 shares authorized at March 31, 2019 and December 31, 2018; 41,269,643 and 41,210,725 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

 —

 

 

 —

 

Additional paid‑in capital

 

 

512,040

 

 

507,366

 

Accumulated other comprehensive loss

 

 

(49)

 

 

(69)

 

Accumulated deficit

 

 

(329,738)

 

 

(292,173)

 

Total stockholders’ equity

 

 

182,253

 

 

215,124

 

Total liabilities and stockholders’ equity

 

$

253,183

 

$

275,566

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


 

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Revenues:

 

 

 

 

 

 

 

Product sales, net

    

$

3,778

    

$

 —

 

Contract research

 

 

1,263

 

 

1,118

 

Total revenue, net

 

 

5,041

 

 

1,118

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenue (excludes amortization)

 

 

2,777

 

 

967

 

Research and development

 

 

19,919

 

 

13,606

 

Sales and marketing

 

 

9,828

 

 

11,233

 

General and administrative

 

 

8,193

 

 

6,260

 

Amortization of definite-lived intangible

 

 

1,659

 

 

 —

 

Total costs and expenses

 

 

42,376

 

 

32,066

 

Loss from operations

 

 

(37,335)

 

 

(30,948)

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

(230)

 

 

719

 

Net loss

 

$

(37,565)

 

$

(30,229)

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.91)

 

$

(0.98)

 

Weighted average common shares outstanding, basic and diluted

 

 

41,248,663

 

 

30,885,928

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax of $0

 

$

34

 

$

(65)

 

Foreign currency translation adjustments

 

 

(14)

 

 

(17)

 

Total other comprehensive income (loss)

 

 

20

 

 

(82)

 

Comprehensive loss

 

$

(37,545)

 

$

(30,311)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

(Unaudited)

 

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

Other

 

 

 

Total

 

 

 

 

 

Par

 

Paid‑in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

 

  

  Shares 

  

Value

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance at December 31, 2018

 

41,210,725

 

$

 —

 

$

507,366

 

$

(69)

 

$

(292,173)

 

$

215,124

 

Vesting of RSUs

 

58,918

 

 

 —

 

 

(188)

 

 

 —

 

 

 —

 

 

(188)

 

Unrealized gain on marketable securities

 

 —

 

 

 —

 

 

 —

 

 

34

 

 

 —

 

 

34

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

(14)

 

 

 —

 

 

(14)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

4,862

 

 

 —

 

 

 —

 

 

4,862

 

Net loss 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(37,565)

 

 

(37,565)

 

Balance at March 31, 2019

 

41,269,643

 

$

 —

 

$

512,040

 

$

(49)

 

$

(329,738)

 

$

182,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

Other

 

 

 

Total

 

 

 

 

Par

 

Paid‑in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

  

  Shares 

  

Value

  

Capital

  

Loss

  

Deficit

  

Equity

Balance at December 31, 2017

 

30,856,505

 

$

 —

 

$

384,943

 

$

(246)

 

$

(159,435)

 

$

225,262

Exercise of stock options and vesting of RSUs

 

49,124

 

 

 —

 

 

378

 

 

 —

 

 

 —

 

 

378

Unrealized loss on marketable securities

 

 —

 

 

 —

 

 

 —

 

 

(65)

 

 

 —

 

 

(65)

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

(17)

 

 

 —

 

 

(17)

Stock-based compensation expense

 

 —

 

 

 —

 

 

5,143

 

 

 —

 

 

 —

 

 

5,143

Net loss 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(30,229)

 

 

(30,229)

Balance at March 31, 2018

 

30,905,629

 

$

 —

 

$

390,464

 

$

(328)

 

$

(189,664)

 

$

200,472

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

ACLARIS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Cash flows from operating activities :

    

 

    

    

 

    

 

Net loss

 

$

(37,565)

 

$

(30,229)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,226

 

 

222

 

Stock-based compensation expense

 

 

4,862

 

 

5,143

 

Change in fair value of contingent consideration

 

 

 —

 

 

866

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

  Accounts receivable

 

 

(10,956)

 

 

 —

 

  Inventory

 

 

(65)

 

 

 —

 

Prepaid expenses and other assets

 

 

1,854

 

 

1,022

 

Accounts payable

 

 

(197)

 

 

316

 

Accrued expenses

 

 

8,523

 

 

788

 

Net cash used in operating activities

 

 

(31,318)

 

 

(21,872)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(284)

 

 

(298)

 

Purchases of marketable securities

 

 

(73,100)

 

 

(35,614)

 

Proceeds from sales and maturities of marketable securities

 

 

82,000

 

 

92,105

 

Net cash provided by investing activities

 

 

8,616

 

 

56,193

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Finance lease payments

 

 

(120)

 

 

(36)

 

Proceeds from the exercise of employee stock options

 

 

 —

 

 

394

 

Net cash (used in) provided by financing activities

 

 

(120)

 

 

358

 

Net increase (decrease) in cash and cash equivalents

 

 

(22,822)

 

 

34,679

 

Cash and cash equivalents at beginning of period

 

 

57,019

 

 

20,202

 

Cash and cash equivalents at end of period

 

$

34,197

 

$

54,881

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Additions to property and equipment included in accounts payable

 

$

24

 

$

210

 

Operating lease asset recorded as a result of new accounting standard

 

$

2,132

 

$

 —

 

Offering costs included in accounts payable

 

$

 —

 

$

20

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

ACLARIS THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Amounts in thousands, except share and per share data)

 

1. Organization and Nature of Business

 

Overview

 

Aclaris Therapeutics, Inc. was incorporated under the laws of the State of Delaware in 2012.  In July 2015, Aclaris Therapeutics International Limited (“ATIL”) was established under the laws of the United Kingdom as a wholly-owned subsidiary of Aclaris Therapeutics, Inc.  In March 2016, Vixen Pharmaceuticals, Inc. (“Vixen”) became a wholly-owned subsidiary of Aclaris Therapeutics, Inc., and in September 2018, Vixen was dissolved.  In August 2017, Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“Confluence”) was acquired by Aclaris Therapeutics, Inc. and became a wholly-owned subsidiary thereof.  Aclaris Therapeutics, Inc., ATIL, Vixen and Confluence are referred to collectively as the “Company.”  The Company is a physician-led biopharmaceutical company focused on immuno-inflammatory and dermatological diseases. The Company has two commercial products and a diverse pipeline of drug candidates.  The Company’s first commercial product, ESKATA (hydrogen peroxide) Topical Solution, 40% (w/w) (“ESKATA”), is a proprietary high‑concentration formulation of hydrogen peroxide that the Company is commercializing as an office-based prescription treatment for raised seborrheic keratosis (“SK”), a common non‑malignant skin tumor. The Company submitted a New Drug Application (“NDA”) for ESKATA to the U.S. Food and Drug Administration (“FDA”) in February 2017, and it was approved in December 2017.  The Company launched ESKATA in the United States in May 2018.  In November 2018, the Company acquired the worldwide rights to a second commercial product, RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”) , which includes an exclusive license to certain intellectual property for RHOFADE, as well as additional intellectual property

 

Liquidity

 

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. At March 31, 2019, the Company had cash, cash equivalents and marketable securities of $136,755 and an accumulated deficit of $329,738. Since inception, the Company has incurred net losses and negative cash flows from its operations.  Prior to the acquisition of Confluence in August 2017, the Company had never generated any revenue.  There can be no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing of the Company’s drug candidates, and commercialization of the Company’s products will require significant additional financing.  The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations.  The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. 

 

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The condensed consolidated financial statements of the Company include the accounts of the operating parent company, Aclaris Therapeutics, Inc., and its wholly-owned subsidiaries, ATIL, Confluence and Vixen.  All significant intercompany transactions have been eliminated.  Based upon the combination of revenue from product sales and contract research services, the Company

6


 

believes that gross profit does not provide a meaningful measure of profitability and, therefore, has not included a line item for gross profit on the condensed consolidated statement of operations. 

 

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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods.  Significant estimates and assumptions reflected in these financial statements include, but are not limited to, variable consideration included in product sales, net, research and development expenses, contingent consideration and the valuation of stock-based awards.  Estimates are periodically reviewed in light of changes in circumstances, facts and experience.  Actual results could differ from the Company’s estimates. 

 

Unaudited Interim Financial Information

 

The accompanying condensed consolidated balance sheet as of March  31, 2019, the condensed consolidated statements of operations and comprehensive loss for the three months ended March  31, 2019 and 2018, the condensed consolidated statement of stockholders’ equity for the three months ended March  31, 2019 and 2018, and the condensed consolidated statements of cash flows for the three months ended March  31, 2019 and 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of March  31, 2019, the results of its operations and comprehensive loss for the three months ended March  31, 2019 and 2018 and its cash flows for the three months ended March  31, 2019 and 2018.  The condensed consolidated balance sheet data as of December 31, 2018 was derived from audited financial statements but does not include all disclosures required by GAAP.  The financial data and other information disclosed in these notes related to the three months ended March  31, 2019 and 2018 are unaudited. The results for the three months ended March  31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.  The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K filed with the SEC on March 18, 2019.

 

Significant Accounting Policies

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K filed with the SEC on March 18, 2019.  Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies other than those noted below. 

 

Revenue Recognition

 

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.  Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. 

 

7


 

To determine revenue recognition in accordance with ASC Topic 606, the Company 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) performance obligations are satisfied.  At contract inception, the Company assesses the goods or services promised within a contract with a customer to identify the performance obligations, and to determine if they are distinct.  The Company recognizes the revenue that is allocated to each distinct performance obligation when (or as) that performance obligation is satisfied.  The Company only recognizes revenue when collection of the consideration it is entitled to under a contract with a customer is probable. 

 

Product Sales, net

 

The Company sells ESKATA and RHOFADE to a limited number of wholesalers in the United States (collectively, its “Customers”).  These Customers subsequently resell the Company’s products to pharmacies and health care providers.  In addition to distribution agreements with Customers, the Company has entered and may continue to enter into arrangements with health care providers, third-party payors, pharmacy benefit managers, and/or group purchasing organizations (“GPOs”) which provide for government mandated or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. 

 

The Company recognizes revenue from product sales at the point the Customer obtains control of the product, which generally occurs upon delivery, and includes estimates of variable consideration in the same period revenue is recognized.  Components of variable consideration include trade discounts and allowances, product returns, government rebates, discounts and rebates, other incentives such as patient co-pay assistance, and other fee for service amounts.  Variable consideration is recorded on the consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third party other than a Customer.  The Company considers all relevant information when estimating variable consideration such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.  The amount of net revenue the Company can recognize is constrained by estimates of variable consideration which are included in the transaction price.  Payment terms with Customers do not exceed one year and, therefore, the Company does not account for a financing component in its arrangements.  The Company expenses incremental costs of obtaining a contract with a Customer, including sales commissions, when incurred as the period of benefit is less than one year. Shipping and handling costs for product shipments to Customers are recorded as sales and marketing expenses in the consolidated statement of operations. 

 

Trade Discounts and Allowances - The Company may provide Customers with trade discounts, rebates, allowances or other incentives.  The Company records an estimate for these items as a reduction of revenue in the same period the revenue is recognized. 

 

Government and Payor Rebates - The Company has contracted and may continue to contract with certain third-party payors, primarily health insurance companies, pharmacy benefit managers and/or government programs, for the payment of rebates with respect to utilization of its products.  The Company also has agreements with GPOs that provide for administrative fees and discounted pricing in the form of volume-based rebates.  The Company is also subject to discount obligations under state Medicaid programs and Medicare.  The Company records an estimate for these rebates as a reduction of revenue in the same period the revenue is recognized. 

 

Other Incentives - Other incentives includes the Company’s co-pay assistance program which is intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors.  The Company estimates and records an accrual for these incentives as a reduction of revenue in the period the revenue is recognized.   The Company estimates amounts for co-pay assistance based upon the number of claims and the cost per claim that the Company expects to receive associated with product that has been sold to Customers but remains in the distribution channel at the end of each reporting period. 

 

8


 

Product Returns - Consistent with industry practice, the Company has a product returns policy that provides Customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The right of return lapses upon shipment of the goods to a patient.  The Company records an estimate for the amount of its products which may be returned as a reduction of revenue in the period the related revenue is recognized. The Company’s estimates for product returns are based upon available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel.  There is no returns liability associated with sales of ESKATA as the Company has a no returns policy for this product. 

 

Product sales, net consisted of the following: 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

      

2019

      

2018

ESKATA

  

$

72

    

$

 —

RHOFADE

 

 

3,706

 

 

 —

    Total product sales, net

 

$

3,778

 

$

 —

 

 

Contract Research

 

The Company earns contract research revenue from the provision of laboratory services to clients through Confluence, its wholly-owned subsidiary.  Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis and are generally billed on a monthly basis in arrears for services rendered.  Revenue related to these contracts is generally recognized as the laboratory services are performed, based upon the rates specified in the contracts.  Under ASC Topic 606, the Company elected to apply the “right to invoice” practical expedient when recognizing contract research revenue.  The Company recognizes contract research revenue in the amount to which it has the right to invoice. 

 

The Company has also received revenue from grants under the Small Business Innovation Research program of the National Institutes of Health (“NIH”).  During the three months ended March 31, 2018, the Company, through Confluence, its wholly-owned subsidiary, had two active grants from NIH which were related to early-stage research.  There are no remaining funds available to the Company under the grants.  The Company recognizes revenue related to grants as amounts become reimbursable under each grant, which is generally when research is performed, and the related costs are incurred. 

 

Other Revenue

 

Licenses of Intellectual Property – The Company recognizes revenue received from non-refundable, upfront fees related to the licensing of intellectual property when the intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the license has been transferred to the customer, and the customer is able to use and benefit from the license. 

 

Milestone Payments - At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.  If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the amount allocated to the license of intellectual property.  Milestone payments that are not within the control of the Company or the customer, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

 

 

9


 

 

 

Inventory

 

Inventory includes the third-party cost of manufacturing and assembly of finished product, quality control and other overhead costs.  Inventory is stated at the lower of cost or net realizable value.  Inventory is adjusted for short-dated, unmarketable inventory equal to the difference between the cost of inventory and the estimated value based upon assumptions about future demand and market conditions.    The Company had $856 and $791 of inventory as of March  31, 2019 and December 31, 2018, respectively, which was comprised primarily of finished goods. 

 

Intangible Assets

 

Intangible assets include both finite-lived and indefinite-lived assets.  Finite-lived intangible assets are amortized over their estimated useful life based on the pattern over which the intangible assets are consumed or otherwise used up. If that pattern cannot be reliably determined, the straight-line method of amortization is used.  Finite-lived intangible assets consist of a research technology platform the Company acquired through the acquisition of Confluence and the intellectual property rights related to RHOFADE.  Indefinite-lived intangible assets consist of an in-process research and development (“IPR&D”) drug candidate acquired through the acquisition of Confluence.  IPR&D assets are considered indefinite-lived until the completion or abandonment of the associated research and development efforts.  The cost of IPR&D assets is either amortized over their estimated useful life beginning when the underlying drug candidate is approved and launched commercially, or expensed immediately if development of the drug candidate is abandoned. 

 

Finite-lived intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.  Indefinite-lived intangible assets are tested for impairment at least annually, which the Company performs during the fourth quarter, or when indicators of an impairment are present.  The Company recognizes impairment losses when and to the extent that the estimated fair value of an indefinite-lived intangible asset is less than its carrying value. 

 

Goodwill

 

Goodwill is not amortized, but rather is subject to testing for impairment at least annually, which the Company performs during the fourth quarter, or when indicators of an impairment are present.  The Company considers each of its operating segments, dermatology therapeutics and contract research, to be a reporting unit since this is the lowest level for which discrete financial information is available.  The Company has attributed the full amount of the goodwill acquired with Confluence, or $18,504, to the dermatology therapeutics segment.  The annual impairment test performed by the Company is a qualitative assessment based upon current facts and circumstances related to operations of the dermatology therapeutics segment.  If the qualitative assessment indicates an impairment may be present, the Company would perform the required quantitative analysis and an impairment charge would be recognized to the extent that the estimated fair value of the reporting unit is less than its carrying amount.  However, any loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. 

 

Leases

 

Leases represent a company’s right to use an underlying asset and a corresponding obligation to make payments to a lessor for the right to use those assets.  The Company evaluates leases at their inception to determine if they are an operating lease or a finance lease.  A lease is accounted for as a finance lease if it meets one of the following five criteria: the lease has a purchase option that is reasonably certain of being exercised, the present value of the future cash flows are substantially all of the fair market value of the underlying asset, the lease term is for a significant portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at the end of the lease term, or if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term.  Leases that do not meet the finance lease criteria are accounted for as an operating lease. 

10


 

 

The Company recognizes assets and liabilities for leases at their inception based upon the present value of all payments due under the lease.  The Company uses an implicit interest rate to determine the present value of finance leases, and its incremental borrowing rate to determine the present value of operating leases.  The Company determines incremental borrowing rates by referencing collateralized borrowing rates for debt instruments with terms similar to the respective lease.  The Company recognizes expense for operating and finance leases on a straight-line basis over the term of each lease, and interest expense related to finance leases is recognized over the lease term based on the effective interest method.  The Company includes estimates for any residual value guarantee obligations under its leases in lease liabilities recorded on its condensed consolidated balance sheet. 

 

Right-of-use assets are included in other assets and property and equipment, net on the Company’s condensed consolidated balance sheet for operating and finance leases, respectively.  Obligations for lease payments are included in current portion of lease liabilities and other liabilities on the Company’s condensed consolidated balance sheet for both operating and finance leases. 

 

Contingent Consideration

 

The Company initially recorded the contingent consideration related to future potential payments based upon the achievement of certain development, regulatory and commercial milestones, resulting from the acquisition of Confluence, at its estimated fair value on the date of acquisition.  Changes in fair value reflect new information about the likelihood of the payment of the contingent consideration and the passage of time.  Future changes in the fair value of the contingent consideration, if any, will be recorded as income or expense in the Company’s condensed consolidated statement of operations. 

 

Concentration of Credit Risk and of Significant Customers and Suppliers

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds all cash, cash equivalents and marketable securities balances at one accredited financial institution, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. 

 

The Company’s top five customers represented 93% of aggregate gross revenues from product sales and contract research revenue for the three months ended March 31, 2019.  The Company’s top five customers represented 88% of gross revenues from contract research revenue for the three months ended March 31, 2018.  The Company did not have product sales during the three months ended March 31, 2018.  The Company currently relies on Allergan Sales, LLC (“Allergan”) to distribute RHOFADE on its behalf pursuant to the terms of a transition services agreement while the Company develops sales, marketing and distribution capabilities to support the commercialization of RHOFADE in the United States.  Accounts receivable, net as of March 31, 2019 and December 31, 2018 included $15,086 and $4,298, respectively, related to amounts invoiced by Allergan for sales of RHOFADE pursuant to the terms of the transition services agreement. 

 

The Company is dependent on third-party manufacturers to supply products for commercial distribution, as well as for research and development activities, including preclinical and clinical testing.  These activities could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and other components. 

 

11


 

Recently Issued Accounting Pronouncements

 

In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-18, Collaborative Arrangements (Topic 808):  Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606.  The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.  The Company is evaluating the impact of ASU 2018-18 on its consolidated financial statements. 

 

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40).  ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.  The standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years, with early adoption permitted.  The Company is evaluating the impact of ASU 2018-15 on its consolidated financial statements. 

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).  The FASB developed the amendments to ASC 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements.  This update eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some of the existing disclosure requirements.  The standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years, with early adoption permitted.  The Company is evaluating the impact of ASU 2018-13 on its consolidated financial statements. 

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718).  The amendments in this ASU expand the scope of Topic 718 to include stock-based compensation arrangements with nonemployees except for specific guidance on option pricing model inputs and cost attribution.  ASU 2018-07 is effective for annual reporting periods beginning after December 31, 2018, including interim periods within that year.  The Company adopted the provisions of this standard on January 1, 2019, the impact of which on its condensed consolidated financial statements was not significant. 

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and 2018-11, Targeted Improvements, which included a number of technical corrections and improvements, including additional options for transition.  The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods.  The amendments in ASU 2016-02 must be applied to all leases existing at the date a company initially applies the standard. 

 

The Company adopted the new standard on January 1, 2019, using the effective date as the date of its initial application, and used the modified retrospective approach.  In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard which among other things, allowed the Company to carry forward the historical lease identification and classification.  The Company also elected the practical expedient to not separate lease and non-lease components, as well as the short-term lease practical expedient which allowed the Company to not capitalize leases with terms less than 12 months that do not contain a reasonably certain purchase option.   The Company’s financial statements have not been restated, and disclosures required by the new standard have not been provided, for periods before January 1, 2019. 

 

12


 

The adoption of ASU 2016-02 resulted in recording additional assets and liabilities of $2,132 and $2,317, respectively upon adoption on January 1, 2019.  The adoption of ASU 2016-02 did not have a material impact on the Company’s condensed consolidated statement of operations or cash flows.

   

 

 

3. Fair Value of Financial Assets and Liabilities

 

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash equivalents

 

$

25,738

 

$

4,339

 

$

 —

 

$

30,077

 

Marketable securities

 

 

 —

 

 

102,558

 

 

 —

 

 

102,558

 

Total assets

 

$

25,738

 

$

106,897

 

$

 —

 

$

132,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

934

 

$

934

 

Total liabilities

 

$

 —

 

$

 —

 

$

934

 

$

934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash equivalents

 

$

49,766

 

$

4,992

 

$

 —

 

$

54,758

 

Marketable securities

 

 

 —

 

 

110,953

 

 

 —

 

 

110,953

 

Total assets

 

$

49,766

 

$

115,945

 

$

 —

 

$

165,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

934

 

$

934

 

Total liabilities

 

$

 —

 

$

 —

 

$

934

 

$

934

 

 

As of March  31, 2019 and December 31, 2018, the Company’s cash equivalents consisted of investments with maturities of less than three months and included a money market fund and commercial paper, which were valued based upon Level 1 inputs, and commercial paper, corporate debt and government obligations, which were valued based upon Level 2 inputs.  In determining the fair value of its Level 2 investments the Company relied on quoted prices for identical securities in markets that are not active. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities.  On a quarterly basis, the Company compares the quoted prices obtained from the third-party pricing service to other available independent pricing information to validate the reasonableness of those quoted prices.  The Company evaluates whether adjustments to third-party pricing is necessary and, historically, the Company has not made adjustments to the quoted prices obtained from the third-party pricing service.  During the three months ended March  31, 2019 and the year ended December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3. 

 

13


 

The following tables present the fair value of the Company’s available for sale marketable securities by type of security:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

16,833

 

$

 5

 

$

(2)

 

$

16,836

 

Commercial paper

 

 

48,715

 

 

 —

 

 

 —

 

 

48,715

 

Asset-backed securities

 

 

22,075

 

 

 8

 

 

(1)

 

 

22,082

 

U.S. government agency debt securities

 

 

14,926

 

 

 —

 

 

(1)

 

 

14,925

 

Total marketable securities

 

$

102,549

 

$

13

 

$

(4)

 

$

102,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Marketable securities:

    

 

    

    

 

    

    

 

    

    

 

    

 

Corporate debt securities

 

$

5,030

 

$

 —

 

$

(14)

 

$

5,016

 

Commercial paper

 

 

67,159

 

 

 —

 

 

 —

 

 

67,159

 

Asset-backed securities

 

 

21,745

 

 

 —

 

 

(8)

 

 

21,737

 

U.S. government agency debt securities

 

 

17,044

 

 

 —

 

 

(3)

 

 

17,041

 

Total marketable securities

 

$

110,978

 

$

 —

 

$

(25)

 

$

110,953

 

 

 

 

4. Property and Equipment, Net

 

Property and equipment, net consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

 

December 31, 

 

 

 

2019

 

2018

 

Computer equipment

    

$

1,323

    

$

1,292

 

Fleet vehicles

 

 

 —

 

 

2,131

 

Finance lease right-of-use assets

 

 

2,557

 

 

 —

 

Manufacturing equipment

 

 

607

 

 

604

 

Lab equipment

 

 

649

 

 

1,068

 

Furniture and fixtures

 

 

628

 

 

524

 

Leasehold improvements

 

 

335

 

 

332

 

Property and equipment, gross

 

 

6,099

 

 

5,951

 

Accumulated depreciation

 

 

(2,073)

 

 

(1,671)

 

Property and equipment, net

 

$

4,026

 

$

4,280

 

 

Depreciation expense was $402 and $203 for the three months ended March 31, 2019 and 2018, respectively. 

 

 

 

14


 

5. Intangible Assets

 

Intangible assets consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Cost

 

Accumulated Amortization

 

 

 

Remaining

 

 

March 31, 

 

 

December 31, 

 

 

March 31, 

 

 

December 31, 

 

 

 

Life (years)

 

2019

 

2018

 

2019

 

2018

RHOFADE product rights

 

 

9.7

 

$

66,415

 

$

66,229

 

$

2,211

 

$

552

Other intangible assets

 

 

8.3

 

 

751

 

 

751

 

 

125

 

 

106

Total definite-lived intangible assets

 

 

 

 

 

67,166

 

 

66,980

 

 

2,336

 

 

658

IPR&D

 

 

 

 

6,629

 

 

6,629

 

 

 —

 

 

 —

Total intangible assets, net

 

 

 

 

$

73,795

 

$

73,609

 

$

2,336

 

$

658

 

Amortization expense was $1,677 and $0 for the three months ended March 31, 2019 and 2018, respectively.

 

As of March 31, 2019, estimated future amortization expenses are as follows:

 

 

 

 

 

 

Year Ending December 31, 

    

 

    

 

2019

 

$

5,038

 

2020

 

 

6,717

 

2021

 

 

6,718

 

2022

 

 

6,717

 

2023

 

 

6,718

 

Thereafter

 

 

32,922

 

Total

 

$

64,830

 

 

 

 

6. Accrued Expenses

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

 

December 31, 

 

 

 

2019

 

2018

 

Employee compensation expenses

 

$

2,911

 

$

5,293

 

Sales discounts and allowances

 

 

10,243

 

 

2,650

 

Selling and marketing expenses

 

 

808

 

 

453

 

Research and development expenses

 

 

3,294

 

 

1,437

 

Professional fees

 

 

1,276

 

 

1,123

 

Other

 

 

2,254

 

 

1,030

 

Total accrued expenses

 

$

20,786

 

$

11,986

 

 

 

 

15


 

7. Debt

 

Loan and Security Agreement – Oxford Finance LLC

 

In October 2018, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Oxford Finance LLC, a Delaware limited liability company (“Oxford”).  The Loan Agreement provided for up to $65,000 in term loans (the “Term Loan Facility”).  Of the $65,000, the Company borrowed $30,000 in October 2018, and did not draw the remaining $35,000 that was available until March 31, 2019 under the Loan Agreement. 

 

The Loan Agreement provides for interest only payments through November 2021, followed by 24 consecutive equal monthly payments of principal and interest in arrears starting on November 2021 and continuing through the maturity date of October 2023.  All unpaid principal and accrued and unpaid interest will be due and payable on the maturity date.  The Loan Agreement provides for an annual interest rate equal to the greater of (i) 8.35% and (ii) the 30-day U.S. LIBOR rate plus 6.25%.  The Loan Agreement also provides for a final payment fee equal to 5.75% of the original principal amount of the term loans drawn under the Term Loan Facility, which final payment is due on October 1, 2023 or upon the prepayment of the facility or the acceleration of amounts due under the facility as a result of an event of default. 

 

The Company has the option to prepay the outstanding balance of the term loans in full, subject to a prepayment fee of (i) 3% of the original principal amount of the aggregate term loans drawn for any prepayment prior to the first anniversary of the date such term loan was funded, (ii) 2% of the original principal amount of the aggregate term loans drawn for any prepayment between the first and second anniversaries of the date such term loan was funded or (iii) 1% of the original principal amount of the aggregate term loans drawn for any prepayment after the second anniversary of the funding date but before October 1, 2023. The Company also has the option to prepay the term loans in part, once in a three-month period, of an amount of $2,000 or greater, subject to the same prepayment fees and other specified limitations. 

 

The Term Loan Facility is collateralized by substantially all of the Company’s assets, except that the collateral does not include the Company’s intellectual property, and the Company has agreed not to encumber any of its intellectual property.  The Loan Agreement contains customary representations, warranties and covenants by the Company.  The Loan Agreement also contains specified financial covenants related to minimum consolidated future revenues of the Company.

 

The carrying value of the Loan Agreement approximates fair value because the interest is a floating rate based on the 30-day U.S. LIBOR rate, and is therefore reflective of market rates. 

 

 

8. Stockholders’ Equity

 

Preferred Stock

 

As of March  31, 2019 and December 31, 2018, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.  No shares of preferred stock were outstanding as of March  31, 2019 or December 31, 2018.

 

Common Stock

 

As of March  31, 2019 and December 31, 2018, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $0.00001 par value common stock.

 

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding.  The Company did not declare any dividends through March  31, 2019. 

16


 

 

October 2018 Public Offering

 

In October 2018, the Company entered into an underwriting agreement pursuant to which the Company issued and sold 9,941,750 shares of common stock under registration statements on Form S-3, including the underwriters’ full exercise of their option to purchase additional shares.  The shares of common stock were sold to the public at a price of $10.75 per share, for gross proceeds of $106,874.  The Company paid underwriting discounts and commissions of $6,412 to the underwriters in connection with the offering.  In addition, the Company incurred expenses of $257 in connection with the offering.  The net offering proceeds received by the Company, after deducting underwriting discounts and commissions and offering expenses, were $100,205. 

 

 

9. Stock‑Based Awards

 

2017 Inducement Plan

 

In July 2017, the Company’s board of directors adopted the 2017 Inducement Plan (the “2017 Inducement Plan”).  The 2017 Inducement Plan is a non-shareholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.  The only employees eligible to receive grants of awards under the 2017 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq listing rules, generally including individuals who were not previously an employee or director of the Company.  Under the terms of the 2017 Inducement Plan, up to 1,000,000 shares of common stock were available for issuance pursuant to nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit (“RSU”) awards, and other stock awards.  All shares of common stock that were eligible for issuance under the 2017 Inducement Plan after October 1, 2018, including any shares underlying any awards that expire or are otherwise terminated, reacquired to satisfy tax withholding obligations, settled in cash or repurchased by the Company in the future that would have been eligible for re-issuance under the 2017 Inducement Plan, were retired. 

 

2015 Equity Incentive Plan

 

In September 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), and the Company’s stockholders approved the 2015 Plan. The 2015 Plan became effective in connection with the Company’s initial public offering in October 2015.  Beginning at the time the 2015 Plan became effective, no further grants may be made under the Company’s 2012 Equity Compensation Plan, as amended and restated (the “2012 Plan”).  The 2015 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards, cash-based awards and other stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan was 1,643,872 shares of common stock. The number of shares of common stock that may be issued under the 2015 Plan will automatically increase on January 1 of each year ending on January 1, 2025, in an amount equal to the lesser of (i) 4.0% of the shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (ii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that expire, are otherwise terminated, settled in cash or repurchased by the Company under the 2015 Plan and the 2012 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. As of January 1, 2019, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 1,648,429 shares. As of March  31, 2019,  1,896,482 shares remained available for grant under the 2015 Plan. 

 

2012 Equity Compensation Plan

 

Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan.  The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 948,761 were outstanding as of both March  31, 2019 and December 31, 2018.  Stock options granted under the 2012 Plan vest over four years and

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expire after ten years.  As required, the exercise price for the stock options granted under the 2012 Plan was not less than the fair value of the shares of common stock underlying the awards as determined by the Company as of the date of grant. 

 

Stock Option Valuation

 

The weighted average assumptions the Company used to estimate the fair value of stock options granted were as follows: