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utr:D
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
FORM
10-Q
☒ |
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
quarterly period ended
June 30, 2022
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:
001-36242
ORATION
(Exact
name of registrant as specified in its charter)
Delaware |
|
82-0429727 |
(State or
other jurisdiction
of
incorporation or organization)
|
|
(I.R.S.
Employer
Identification
Number)
|
11682 El Camino Real,
Suite 300,
San Diego,
CA
92130
(Address
of principal executive offices, including zip code)
(858)
997-2400
(Registrant’s
telephone number, including area code)
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
|
ADMP
|
NASDAQ Capital
Market
|
Indicate by
check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
Exchange Act.
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 Exchange
Act). Yes ☐
No ☒
The number of shares outstanding of the issuer’s common stock, par
value $0.0001 per share, as of August 5, 2022, was 149,983,265.
ADAMIS
PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONTENTS
OF QUARTERLY REPORT ON FORM 10-Q
|
|
|
Page |
PART I
FINANCIAL INFORMATION |
|
|
|
|
|
|
Item
1. |
Financial
Statements: |
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets (Unaudited) at June 30, 2022 and
December 31, 2021 |
|
2 |
|
|
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the Three
Months and Six Months Ended June 30, 2022 and 2021 |
|
3 |
|
|
|
|
|
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited) for the Three Months and Six Months Ended June 30, 2022
and 2021 |
|
4 |
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the Six
Months Ended June 30, 2022 and 2021 |
|
5–6 |
|
|
|
|
|
Notes to
Condensed Consolidated Financial Statements (Unaudited) |
|
7 |
|
|
|
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
|
25 |
|
|
|
|
Item
3. |
Quantitative
and Qualitative Disclosure of Market Risk |
|
38 |
|
|
|
|
Item
4. |
Controls and
Procedures |
|
38 |
|
|
|
|
PART II
OTHER INFORMATION |
|
|
|
|
|
|
Item
1. |
Legal
Proceedings |
|
39 |
|
|
|
|
Item
1A. |
Risk
Factors |
|
42 |
|
|
|
|
Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
|
64 |
|
|
|
|
Item
3. |
Defaults
Upon Senior Securities |
|
64 |
|
|
|
|
Item
4. |
Mine Safety
Disclosures |
|
64 |
|
|
|
|
Item
5. |
Other
Information |
|
64 |
|
|
|
|
Item
6. |
Exhibits |
|
64 |
|
|
|
|
Signatures |
|
65 |
PART
I FINANCIAL INFORMATION
Item 1.
Financial Statements
ADAMIS
PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June
30,
2022 |
|
December
31,
2021 |
ASSETS |
|
|
|
|
|
|
|
|
CURRENT
ASSETS |
|
|
|
|
|
|
|
|
Cash and
Cash Equivalents |
|
$ |
8,875,925 |
|
|
$ |
23,220,770 |
|
Restricted
Cash |
|
|
30,045 |
|
|
|
30,023 |
|
Accounts
Receivable, net |
|
|
— |
|
|
|
815,565 |
|
Receivable
from Fagron |
|
|
956,066 |
|
|
|
5,084,452 |
|
Inventories |
|
|
440,198 |
|
|
|
418,607 |
|
Prepaid
Expenses and Other Current Assets |
|
|
795,839 |
|
|
|
1,313,546 |
|
Current
Assets of Discontinued Operations, Note 2 |
|
|
4,222,542 |
|
|
|
4,320,659 |
|
Total Current
Assets |
|
|
15,320,615 |
|
|
|
35,203,622 |
|
LONG TERM
ASSETS |
|
|
|
|
|
|
|
|
Fixed
Assets, net |
|
|
1,835,885 |
|
|
|
2,334,768 |
|
Right-of-Use
Assets |
|
|
485,761 |
|
|
|
650,460 |
|
Other
Non-Current Assets |
|
|
52,174 |
|
|
|
109,137 |
|
Total
Assets |
|
$ |
17,694,435 |
|
|
$ |
38,297,987 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts
Payable |
|
$ |
4,516,722 |
|
|
$ |
3,754,010 |
|
Deferred
Revenue, current portion |
|
|
100,000 |
|
|
|
100,000 |
|
Accrued
Other Expenses |
|
|
2,145,386 |
|
|
|
2,800,241 |
|
Accrued
Bonuses |
|
|
529,928 |
|
|
|
535,624 |
|
Product
Recall Liability |
|
|
601,480 |
|
|
|
2,000,000 |
|
Lease
Liabilities, Current Portion |
|
|
362,434 |
|
|
|
349,871 |
|
Current
Liabilities of Discontinued Operations, Note 2 |
|
|
1,468,368 |
|
|
|
1,683,246 |
|
Total
Current Liabilities |
|
|
9,724,318 |
|
|
|
11,222,992 |
|
LONG TERM
LIABILITIES |
|
|
|
|
|
|
|
|
Deferred
Revenue, net of current portion |
|
|
700,000 |
|
|
|
750,000 |
|
Lease
Liabilities, net of current portion |
|
|
157,246 |
|
|
|
342,562 |
|
Warrant
Liabilities, at fair value |
|
|
70,728 |
|
|
|
99,655 |
|
Total
Liabilities |
|
|
10,652,292 |
|
|
|
12,415,209 |
|
COMMITMENTS AND
CONTINGENCIES, see Note 12 |
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY |
|
|
|
|
|
|
|
|
Preferred
Stock - Par Value $0.0001; 10,000,000 Shares
Authorized; no shares
Issued and Outstanding at June 30, 2022 (Unaudited) and December
31, 2021, respectively. |
|
|
— |
|
|
|
— |
|
Common
Stock - Par Value $.0001;
200,000,000
Shares
Authorized; 150,506,222 and
150,117,219 Issued,
149,983,265 and 149,594,262 Outstanding at
June 30, 2022 (Unaudited) and December 31, 2021,
respectively |
|
|
15,051 |
|
|
|
15,012 |
|
Additional
Paid-in Capital |
|
|
303,869,991 |
|
|
|
303,958,829 |
|
Accumulated
Deficit |
|
|
(296,837,649 |
) |
|
|
(278,085,813 |
) |
Treasury
Stock - 522,957
Shares, at
cost |
|
|
(5,250 |
) |
|
|
(5,250 |
) |
Total
Stockholders’ Equity |
|
|
7,042,143 |
|
|
|
25,882,778 |
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
17,694,435 |
|
|
$ |
38,297,987 |
|
The
accompanying notes are an integral part of these Condensed
Consolidated Financial Statements
ADAMIS
PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30, |
|
Six Months
Ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021
|
|
|
|
|
|
|
|
|
|
REVENUE,
net |
|
$ |
39,847 |
|
|
|
1,275,474 |
|
|
$ |
1,194,361 |
|
|
$ |
2,608,153 |
|
COST OF
GOODS SOLD |
|
|
689,178 |
|
|
|
1,796,243 |
|
|
|
2,152,760 |
|
|
|
3,641,480 |
|
Gross
Loss |
|
|
(649,331 |
) |
|
|
(520,769 |
) |
|
|
(958,399 |
) |
|
|
(1,033,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
4,205,934 |
|
|
|
4,934,491 |
|
|
|
7,588,630 |
|
|
|
8,452,542 |
|
RESEARCH
AND DEVELOPMENT |
|
|
3,320,654 |
|
|
|
2,196,721 |
|
|
|
7,542,179 |
|
|
|
4,446,465 |
|
Loss from
Operations |
|
|
(8,175,919 |
) |
|
|
(7,651,981 |
) |
|
|
(16,089,208 |
) |
|
|
(13,932,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income |
|
|
16,174 |
|
|
|
1,900 |
|
|
|
20,322 |
|
|
|
3,351 |
|
Interest
Expense |
|
|
— |
|
|
|
(2,900 |
) |
|
|
— |
|
|
|
(4,784 |
) |
Other
Expense |
|
|
(257,832 |
) |
|
|
— |
|
|
|
(697,832 |
) |
|
|
— |
|
Gain/(Loss) on PPP2
loan |
|
|
62,583 |
|
|
|
— |
|
|
|
(1,787,417 |
) |
|
|
— |
|
Change in
Fair Value of Warrants |
|
|
19,540 |
|
|
|
(43,574 |
) |
|
|
28,927 |
|
|
|
(7,685,474 |
) |
Total
Other Income (Expense), net |
|
|
(159,535 |
) |
|
|
(44,574 |
) |
|
|
(2,436,000 |
) |
|
|
(7,686,907 |
) |
Net Loss
from Continuing Operations |
|
|
(8,335,454 |
) |
|
|
(7,696,555 |
) |
|
$ |
(18,525,208 |
) |
|
$ |
(21,619,241 |
) |
DISCONTINUED
OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
from Discontinued Operations before Income Taxes |
|
|
(61,767 |
) |
|
|
(1,617,175 |
) |
|
|
(226,628 |
) |
|
|
(3,073,723 |
) |
Income
Taxes - Discontinued Operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net Loss
from Discontinued Operations |
|
|
(61,767 |
) |
|
|
(1,617,175 |
) |
|
|
(226,628 |
) |
|
|
(3,073,723 |
) |
Net Loss
Applicable to Common Stock |
|
$ |
(8,397,221 |
) |
|
$ |
(9,313,730 |
) |
|
$ |
(18,751,836 |
) |
|
$ |
(24,692,964 |
) |
Basic and
Diluted Loss Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations |
|
$ |
(0.06 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.16 |
) |
Discontinued
Operations |
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
$ |
— |
|
|
$ |
(0.02 |
) |
Basic and
Diluted Loss Per share |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.18 |
) |
Basic and
Diluted Weighted Average Shares Outstanding |
|
|
149,815,683 |
|
|
|
148,886,141 |
|
|
|
149,717,104 |
|
|
|
139,228,658 |
|
The
accompanying notes are an integral part of these Condensed
Consolidated Financial Statements
ADAMIS
PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended June 30, 2022 |
|
Preferred Stock |
|
Common
Stock |
|
Additional
Paid-In |
|
Treasury
Stock |
|
Accumulated |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Shares |
|
Amount |
|
Deficit |
|
Total |
Balance
March 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
150,256,222 |
|
|
$ |
15,026 |
|
|
$ |
304,330,933 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(288,440,428 |
) |
|
$ |
15,900,281 |
|
Issuance
of Common Stock upon Vesting of Restricted Stock Units
(RSUs) |
|
|
— |
|
|
|
— |
|
|
|
250,000 |
|
|
|
25 |
|
|
|
(25 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock
Based Compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(460,917 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(460,917 |
) |
Net
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,397,221 |
) |
|
|
(8,397,221 |
) |
Balance
June 30, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
150,506,222 |
|
|
$ |
15,051 |
|
|
$ |
303,869,991 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(296,837,649 |
) |
|
$ |
7,042,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
150,117,219 |
|
|
$ |
15,012 |
|
|
$ |
303,958,829 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(278,085,813 |
) |
|
$ |
25,882,778 |
|
Issuance
of Common Stock upon Vesting of Restricted Stock Units
(RSUs) |
|
|
— |
|
|
|
— |
|
|
|
389,003 |
|
|
|
39 |
|
|
|
(39 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock Based
Compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(88,799 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(88,799 |
) |
Net
Loss |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,751,836 |
) |
|
|
(18,751,836 |
) |
Balance
June 30, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
150,506,222 |
|
|
$ |
15,051 |
|
|
$ |
303,869,991 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(296,837,649 |
) |
|
$ |
7,042,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three
Months Ended June 30, 2021 |
|
Preferred Stock |
|
Common
Stock |
|
Additional
Paid-In |
|
Treasury
Stock |
|
Accumulated |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Shares |
|
Amount |
|
Deficit |
|
Total |
Balance
March 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
149,409,098 |
|
|
$ |
14,941 |
|
|
$ |
302,822,034 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(247,636,849 |
) |
|
$ |
55,194,876 |
|
Stock Based
Compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
798,067 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
798,067 |
|
Net Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,313,730 |
) |
|
|
(9,313,730 |
) |
Balance June 30,
2021 |
|
|
— |
|
|
$ |
— |
|
|
|
149,409,098 |
|
|
$ |
14,941 |
|
|
$ |
303,620,101 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(256,950,579 |
) |
|
$ |
46,679,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
2020 |
|
|
— |
|
|
$ |
— |
|
|
|
94,365,015 |
|
|
$ |
9,437 |
|
|
$ |
238,234,968 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(232,257,615 |
) |
|
$ |
5,981,540 |
|
Common
Stock Issued, Net of Issuance Costs of $3,330,752 |
|
|
— |
|
|
|
— |
|
|
|
46,621,621 |
|
|
|
4,661 |
|
|
|
48,414,585 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
48,419,246 |
|
Exercise of
Warrants |
|
|
— |
|
|
|
— |
|
|
|
8,356,000 |
|
|
|
836 |
|
|
|
15,292,714 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,293,550 |
|
Issuance
of Common Stock upon Vesting of Restricted Stock Units
(RSUs) |
|
|
— |
|
|
|
— |
|
|
|
66,462 |
|
|
|
7 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock Based
Compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,677,841 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,677,841 |
|
Net
Loss |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24,692,964 |
) |
|
|
(24,692,964 |
) |
Balance
June 30 , 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
149,409,098 |
|
|
$ |
14,941 |
|
|
$ |
303,620,101 |
|
|
|
522,957 |
|
|
$ |
(5,250 |
) |
|
$ |
(256,950,579 |
) |
|
$ |
46,679,213 |
|
The
accompanying notes are an integral part of these Condensed
Consolidated Financial Statements
ADAMIS
PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Six Months
Ended |
|
Six Months
Ended |
|
|
June 30,
2022 |
|
June 30,
2021 |
CASH FLOWS
FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net
Loss |
|
$ |
(18,751,836 |
) |
|
$ |
(24,692,964 |
) |
Less:
Loss from Discontinued Operations |
|
|
226,628 |
|
|
|
3,073,723 |
|
Adjustments to
Reconcile Net Loss to Net |
|
|
|
|
|
|
|
|
Cash
Used in Operating Activities: |
|
|
|
|
|
|
|
|
Stock
Based Compensation |
|
|
(88,799 |
) |
|
|
1,677,841 |
|
Provision
for Excess and Obsolete Inventory |
|
|
(29,003 |
) |
|
|
414,048 |
|
Change
in Fair Value of Warrant Liability |
|
|
(28,927 |
) |
|
|
7,685,474 |
|
Cash Payments in Excess of Lease Expense |
|
|
(8,054 |
) |
|
|
(2,665 |
) |
Depreciation
Expense |
|
|
712,510 |
|
|
|
696,867 |
|
Gain on Repayment of PPP2 Loan Contingent
Loss Liability |
|
|
62,583 |
|
|
|
— |
|
Change
in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts
Receivable |
|
|
815,565 |
|
|
|
(265,870 |
) |
Receivable from Fagron |
|
|
1,197,832 |
|
|
|
— |
|
Inventories |
|
|
7,412 |
|
|
|
27,665 |
|
Prepaid
Expenses and Other Current & Non-Current Assets |
|
|
574,670 |
|
|
|
(510,795 |
) |
Accounts
Payable |
|
|
532,465 |
|
|
|
9,917 |
|
Product Recall Liability |
|
|
(1,398,520 |
) |
|
|
— |
|
PPP2 Loan Contingent Loss Liability
Payment |
|
|
(1,850,000 |
) |
|
|
— |
|
PPP2 Loan Contingent
Loss Liability
|
|
|
1,787,417
|
|
|
|
— |
|
Contingent Loss Liability |
|
|
— |
|
|
|
(7,900,000 |
) |
Deferred
Revenue |
|
|
(50,000 |
) |
|
|
(50,000 |
) |
Accrued
Other Expenses and Bonuses |
|
|
(262,764 |
) |
|
|
931,666 |
|
Net
Cash Used in Operating Activities of Continuing
Operations |
|
|
(16,550,821 |
) |
|
|
(18,905,093 |
) |
Net
Cash Used in Operating Activities in Discontinued
Operations |
|
|
(329,564 |
) |
|
|
(2,439,869 |
) |
Net
Cash Used in Operating Activities |
|
|
(16,880,385 |
) |
|
|
(21,344,962 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS
FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase
of Equipment |
|
|
(381,167 |
) |
|
|
(847,141 |
) |
Proceeds
from Receivable from Fagron |
|
|
2,930,554 |
|
|
|
— |
|
Net
Cash Provided by (Used in) Investing Activities of Continuing
Operations |
|
|
2,549,387 |
|
|
|
(847,141 |
) |
Net
Cash Provided by (Used in) Investing Activities of Discontinued
Operations |
|
|
— |
|
|
|
(689 |
) |
Net
Cash Provided by (Used in) Investing Activities |
|
|
2,549,387 |
|
|
|
(847,830 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS
FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds
from Issuance of Common Stock |
|
|
— |
|
|
|
51,749,998 |
|
Costs
of Issuance of Common Stock |
|
|
— |
|
|
|
(3,330,752 |
) |
Proceeds
from Exercise of Warrants |
|
|
— |
|
|
|
5,851,900 |
|
Proceeds
of PPP Loan |
|
|
— |
|
|
|
1,765,495 |
|
Net
Cash Provided by Financing Activities of Continuing
Operations |
|
|
— |
|
|
|
56,036,641 |
|
Net
Cash Provided by Financing Activities of Discontinued
Operations |
|
|
— |
|
|
|
(50,650 |
) |
Net
Cash Provided by Financing Activities |
|
|
— |
|
|
|
55,985,991 |
|
(Decrease)
Increase in Cash and Cash Equivalents and Restricted
Cash |
|
|
(14,330,998 |
) |
|
|
33,793,199 |
|
Cash and
Cash Equivalents and Restricted Cash: |
|
|
|
|
|
|
|
|
Beginning
Balance |
|
|
23,250,793 |
|
|
|
6,855,355 |
|
Decrease
in Cash and Restricted Cash from Discontinued
Operations |
|
|
(13,825 |
) |
|
|
(313,116 |
) |
Ending
Balance |
|
$ |
8,905,970 |
|
|
$ |
40,335,438 |
|
The
accompanying notes are an integral part of these Condensed
Consolidated Financial Statements
ADAMIS
PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
RECONCILIATION OF CASH & CASH EQUIVALENTS AND RESTRICTED
CASH |
|
|
|
|
|
|
|
|
Cash & Cash Equivalents |
|
$ |
8,875,925 |
|
|
$ |
40,305,438 |
|
Restricted Cash |
|
|
30,045 |
|
|
|
30,000 |
|
Total Cash & Cash Equivalents and Restricted Cash |
|
$ |
8,905,970 |
|
|
$ |
40,335,438 |
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash
Paid for Income Taxes |
|
$ |
3,625 |
|
|
$ |
4,100 |
|
Cash
Paid for Interest |
|
$ |
— |
|
|
$ |
62,088 |
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
Increase in Accrued Capital Expenditures |
|
$ |
167,540 |
|
|
$ |
(36,707 |
) |
The
accompanying notes are an integral part of these Condensed
Consolidated Financial Statements
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of
Presentation
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 8 of
Regulation S-X promulgated by the Securities and Exchange
Commission (“SEC”). Accordingly, certain information and footnote
disclosures normally included in annual financial statements have
been condensed or omitted. In the opinion of management, the
accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments (including normal recurring
adjustments and the elimination of intercompany accounts)
considered necessary for a fair statement of all periods presented.
The results of operations of Adamis Pharmaceuticals Corporation
(“the Company”) for any interim periods are not necessarily
indicative of the results of operations for any other interim
periods or for a full fiscal year. These unaudited interim
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2021 (the “2021 Form
10-K”).
For the three and six months ended June 30, 2022 and June 30, 2021,
and year ended December 31, 2021, the assets, liabilities,
operations, and cash flows of the Company’s subsidiary, US
Compounding, Inc. (“USC”), have been separated from the comparative
period amounts to conform to the current period presentation as
discontinued operations as the result of the Company’s decision to
wind down and cease operations of USC and liquidate its remaining
assets. Moreover, for the three month and six months ended June 30,
2022 and 2021, all gains and losses on disposition, impairment
charges and disposal costs, along with the sales, costs and
expenses and income taxes attributable to discontinued locations,
have been aggregated in a single caption entitled “net loss from
discontinued operations” in our consolidated statements of
operations for all periods presented. See Note 2.
Going Concern
The Company’s cash and cash equivalents were $8,875,925 and
$23,220,770 at June 30,
2022 and December 31, 2021, respectively.
The Condensed consolidated financial statements were prepared under
the assumption that the Company will continue our operations as a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities during the normal course of business.
In preparing these condensed consolidated financial statements,
consideration was given to the Company’s future business as
described below, which may preclude the Company from realizing the
value of certain assets.
The Company has significant operating cash flow deficiencies.
Additionally, the Company will need additional funding in the
future to help support commercialization of its products and
conduct the clinical and regulatory activities relating to the
Company’s product candidates, satisfy existing and future
obligations and liabilities, and otherwise support the Company’s
intended business activities and working capital needs. The
preceding conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The condensed consolidated
financial statements for the six months ended June 30, 2022, were
prepared under the assumption that we would continue our operations
as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities during the normal course of
business. Our unaudited condensed consolidated financial statements
do not include any adjustments that may result from the outcome of
this uncertainty. Management’s plans include attempting to secure
additional required funding through equity or debt financings,
sales or out-licensing of intellectual property or other assets,
products, product candidates or technologies, seeking partnerships
with other pharmaceutical companies or third parties to co-develop
and fund research and development efforts, or similar transactions,
and through revenues from existing agreements. There is no
assurance that the Company will be successful in obtaining the
necessary funding to meet its business objectives. In addition, a
severe or prolonged economic downturn, political disruption or
pandemic, such as the COVID-19 pandemic, could result in a variety
of risks to our business, including our ability to raise capital
when needed on acceptable terms, if at all.
Basic and Diluted Loss
per Share
The
Company computes basic loss per share by dividing the loss
attributable to holders of common stock for the period by the
weighted average number of shares of common stock outstanding
during the period. The diluted loss per share calculation is based
on the treasury stock method and gives effect to dilutive options,
warrants and other potential dilutive common stock. The effect of
common stock equivalents was anti-dilutive and was excluded from
the calculation of weighted average shares outstanding. Potential
dilutive securities, which are not included in diluted weighted
average shares outstanding for the six months ended June 30, 2022
and June 30, 2021, consist of outstanding equity classified
warrants covering 14,202,824 shares
and 15,095,238
shares, respectively, outstanding options covering 4,861,142
shares and 6,113,866 shares,
respectively, and outstanding restricted stock units covering
650,000 shares and
2,034,260 shares, respectively.
Discontinued
Operations
In
accordance with ASC 205-20 Presentation of Financial
Statements: Discontinued Operations, a disposal of a component
of an entity or a group of components of an entity is required to
be reported as discontinued operations if the disposal represents a
strategic shift that has (or will have) a major effect on an
entity’s operations and financial results when the component/s of
an entity meets the criteria in paragraph 205-20-45-10. In the
period in which the component meets held-for-sale or discontinued
operations criteria the major current assets, other assets, current
liabilities, and noncurrent liabilities shall be reported as
components of total assets and liabilities separate from those
balances of the continuing operations. At the same time, the
results of all discontinued operations, less applicable income
taxes, shall be reported as components of net loss separate from
the net loss of continuing operations.
The Company disposed of a component of its
business in August 2021 and met the definition of a discontinued
operation as of June 30, 2022. Accordingly, the operating results
of the business disposed are reported as loss from discontinued
operations in the accompany unaudited condensed statements of
operations for the six months and year ended June 30, 2022 and
December 31, 2021.
Recent Accounting
Pronouncements
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per
Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic
470-50), Compensation—Stock Compensation (Topic 718), and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges
of Freestanding Equity-Classified Written Call
Options which provides guidance to clarify and reduce
diversity in an issuer’s accounting for modifications or exchanges
of freestanding equity-classified written call options (for
example, warrants) that remain equity classified after modification
or exchange. The amendments in this ASU No. 2021-04 are effective
for all entities for fiscal years beginning after December 15,
2021, and interim periods within those fiscal years, with early
adoption permitted, including interim periods within those fiscal
years. The amendment currently has no impact to the Company as the
effect will largely depend on the terms of written call options or
financings issued or modified in the future.
Note 2: Discontinued Operations
and Assets Held for Sale
In
August 2021, the Company announced an agreement with Fagron
Compounding Services, LLC (“Fagron”) to sell to Fagron certain
assets of the Company’s subsidiary, US Compounding, Inc. (“USC”),
related to the Company’s human compounding pharmaceutical business
including certain customer information and information on products
sold to such customers by USC, including related formulations,
know-how, and expertise regarding the compounding of pharmaceutical
preparations, clinical support knowledge and other data and certain
other information relating to the customers and products. The
agreement includes fixed consideration of approximately $107,000 and
variable consideration estimated at approximately $6,385,000, and the Company
has recorded a gain of approximately $4,637,000 for the year ended December
31, 2021 within discontinued operations related to this asset sale
to Fagron, which was the total estimated consideration net of
approximately $1,856,000 of allocated costs related
to USC’s customer relationships intangible that was sold to
Fagron. The variable consideration is tied to Fagron’s sales
to former USC customers over the twelve-month-period commencing on
the agreement date. The Company used the expected value method to
estimate Fagron’s sales over the twelve-month period following the
agreement date. Additionally, the Company relied on historical data
and its judgement to make estimates, and as such, the total
variable consideration is subject to change as more information
becomes available, which would result in adjustments to the
receivable from Fagron recorded at December 31, 2021. At March 31,
2022, based on the Company’s evaluation, the estimated variable
consideration related to the sale of certain assets to Fagron was
reduced by approximately $440,000.
Additionally, at June 30, 2022, based on the Company’s evaluation,
the estimated variable consideration related to the sale of certain
assets to Fagron was further reduced by approximately $758,000,
because of the lower level of sales by Fagron to covered customers
in part due to certain supply and materials difficulties and
increased competitive conditions. The Company recognized a total
loss of approximately $1.2 million, which was included
in net loss from continued operations on the Company’s condensed
consolidated statement of operations for the six months ended June
30, 2022, as the change occurred subsequent to the disposal
of the USC business. In connection with the transaction, the
Company accrued as of December 31, 2021 and paid in January 2022 a
$700,000 liability for
a transaction fee payable to a financial advisor which was recorded
in selling, general and administrative expenses of continuing
operations.
In July 2021, the Company approved a
restructuring process to wind down and cease the remaining
operations at USC, with the remaining USC assets to be sold,
liquidated or otherwise disposed of. The Company disposed of a
component of its business in August 2021 and met the definition of
a discontinued operation as of September 30, 2021. Accordingly, the
operating results of the business disposed are reported as loss
from discontinued operations in the accompany unaudited condensed
statements of operations for the three months and six months ended
June 30, 2022 and 2021. As of December 31, 2021, the Company had
shut down the operations of USC, terminated all of USC’s employees
and was engaged in the process of selling or attempting to sell or
otherwise dispose of USC’s remaining assets.
Discontinued operations comprise
those activities that were disposed of during the period,
abandoned or which were classified as held for sale at the end of
the period and represent a separate major line of business or
geographical area that was previously distinguished as Compounded
Pharmaceuticals segment for operational and financial reporting
purposes in prior reported financial statements.
Assets Held
for Sale
The Company considers assets to be
held for sale when management approves and commits to a plan to
actively market the assets for sale at a reasonable price in
relation to its fair value, the assets are available for immediate
sale in their present condition, an active program to locate a
buyer and other actions required to complete the sale have been
initiated, the sale of the assets is expected to be completed
within one year and it is unlikely that significant changes will be
made to the plan. Upon designation as held for sale, the Company
ceases to record depreciation and amortization expenses and
measures the assets at the lower of their carrying value or
estimated fair value less costs to sell. Assets held for sale are
included as other current assets in the Company’s consolidated
balance sheets and the gain or loss from sale of assets held for
sale is included in the Company’s general and administrative
expenses.
The major assets and
liabilities associated with discontinued operations included in our
consolidated balance sheets are as follows (unaudited):
Carrying amounts of major classes of assets
included as part of discontinued operations (unaudited):
|
|
June 30, 2022 |
|
December 31, 2021 |
Cash and Cash Equivalents |
|
$ |
24,024 |
|
|
$ |
37,849 |
|
Accounts Receivable, net |
|
|
— |
|
|
|
693 |
|
Inventories |
|
|
— |
|
|
|
12,000 |
|
Fixed
Assets, net |
|
|
6,791,090 |
|
|
|
6,799,090 |
|
Other
assets |
|
|
8,870 |
|
|
|
72,469 |
|
Loss recognized on classification as held for sale |
|
|
(2,601,442 |
) |
|
|
(2,601,442 |
) |
Total assets of the disposal group classified as held for sale in
the statement of financial position |
|
$ |
4,222,542 |
|
|
$ |
4,320,659 |
|
|
|
|
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part
of discontinued operations |
|
|
|
|
|
|
|
|
Accounts Payable |
|
$ |
630,819 |
|
|
$ |
681,646 |
|
Accrued Other Expenses |
|
|
53,936 |
|
|
|
133,313 |
|
Lease
Liabilities |
|
|
327,683 |
|
|
|
412,357 |
|
Contingent Loss Liability |
|
|
410,000 |
|
|
|
410,000 |
|
Deferred Tax Liability |
|
|
45,930 |
|
|
|
45,930 |
|
Total liabilities of the disposal group classified as held for sale
in the statement of financial position |
|
$ |
1,468,368 |
|
|
$ |
1,683,246 |
|
The revenues
and expenses associated with discontinued operations included in
our consolidated statements of operations were as follows
(unaudited):
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
|
2022 |
|
2021 |
Major
line items constituting pretax profit (loss) of discontinued
operations |
|
|
|
|
REVENUE,
net |
|
$ |
— |
|
|
$ |
2,735,830 |
|
COST
OF GOODS SOLD |
|
|
— |
|
|
|
(2,074,390 |
) |
Gross
Profit |
|
|
— |
|
|
|
661,440 |
|
|
|
|
|
|
|
|
|
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
(91,911 |
) |
|
|
(2,197,153 |
) |
RESEARCH
AND DEVELOPMENT |
|
|
— |
|
|
|
(36,055 |
) |
IMPAIRMENT
OF LONG LIVED ASSETS |
|
|
— |
|
|
|
(9,347 |
) |
OTHER
INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
Interest
Expense |
|
|
— |
|
|
|
(42,047 |
) |
Other Income |
|
|
8,614 |
|
|
|
5,987 |
|
Gain
from asset disposal |
|
|
21,530 |
|
|
|
— |
|
Loss
from discontinued operations before income taxes |
|
|
(61,767 |
) |
|
|
(1,617,175 |
) |
Income
tax benefit |
|
|
— |
|
|
|
— |
|
Loss
from discontinued operations after income taxes |
|
$ |
(61,767 |
) |
|
$ |
(1,617,175 |
) |
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
|
2022 |
|
2021 |
Major
line items constituting pretax profit (loss) of discontinued
operations |
|
|
|
|
REVENUE,
net |
|
$ |
— |
|
|
$ |
5,511,683 |
|
COST
OF GOODS SOLD |
|
|
— |
|
|
|
(3,871,100 |
) |
Gross
Profit |
|
|
— |
|
|
|
1,640,583 |
|
|
|
|
|
|
|
|
|
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
(264,383 |
) |
|
|
(4,598,575 |
) |
RESEARCH
AND DEVELOPMENT |
|
|
— |
|
|
|
(47,634 |
) |
IMPAIRMENT
OF LONG LIVED ASSETS |
|
|
— |
|
|
|
(9,347 |
) |
OTHER
INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
Interest
Expense |
|
|
— |
|
|
|
(79,488 |
) |
Other Income |
|
|
8,625 |
|
|
|
20,738 |
|
Gain
from asset disposal |
|
|
29,130 |
|
|
|
— |
|
Loss
from discontinued operations before income taxes |
|
|
(226,628 |
) |
|
|
(3,073,723 |
) |
Income
tax benefit |
|
|
— |
|
|
|
— |
|
Loss
from discontinued operations after income taxes |
|
$ |
(226,628 |
) |
|
$ |
(3,073,723 |
) |
Discontinued
Operations - Revenue
Compounded
Pharmaceuticals Facility Revenue
Recognition. With respect to sales of prescription
compounded medications by the Company’s USC subsidiary, revenue
arrangements consist of a single performance obligation which is
satisfied at the point in time when goods are delivered to the
customer. The transaction price is determined based on the
consideration to which the Company will be entitled in exchange for
transferring goods and services to the customer which is the price
reflected in the individual customer’s order. Additionally, the
transaction price for medication sales is adjusted for estimated
product returns that the Company expects to occur under its return
policy. The estimate is based upon historical return rates, which
has been immaterial. The standard payment terms
are 2%/10 and Net 30. The Company does not have a
history of offering a broad range of price concessions or payment
term changes, however, when the transaction price includes variable
consideration, the Company estimates the amount of variable
consideration that should be included in the transaction price
utilizing the expected value method. Any estimates, including the
effect of the constraint on variable consideration, are evaluated
at each reporting period for any changes. Variable
consideration is not a significant component of the transaction
price for sales of medications by USC.
Discontinued Operations - Lease
USC has
two operating leases,
one for an office space and
one for office equipment. As of June 30, 2022, the leases
have remaining terms between more than one year and less than
four years. The operating leases do not include an option to
extend beyond the life of the current term. There are no short-term
leases, and the lease agreements do not require material variable
lease payments, residual value guarantees or restrictive covenants.
The Company leases a building which requires monthly base rent of
$10,824 through December 31, 2023.
As
part of the restructuring process to wind down and cease the
operations at USC, the Company is working to cancel or transfer the
leases of the discontinued operations. During the year ended
December 31, 2021, the Right-of-Use assets related to the leases of
approximately $448,000 were
fully impaired because there is no benefit expected from the
subject leases. As of June 30, 2022, and December 31, 2021 the
liabilities of the discontinued operations included approximately
$328,000 and $412,000
in lease liabilities, respectively.
Discontinued Operations - Restructuring Costs
As of June 30, 2022, and December 31,
2021, the outstanding liabilities related to the contract
termination costs recorded in contingent loss liability of
discontinued operations was approximately $410,000, reflecting
estimated costs of termination of a contract between USC and a
vendor. As of June 30, 2022, and December 31, 2021, the outstanding
liabilities related to chemical destruction costs recorded in
accounts payable of discontinued operations was approximately
$0 and $3,000,
respectively.
Discontinued Operations - Building Loan
On November 10, 2016, a Loan
Amendment and Assumption Agreement was entered with into the
lender. Pursuant to the agreement, as subsequently amended, the
Company agreed to pay the lender monthly payments of
principal and interest which were approximately $19,000 per month, with a
final payment due and payable in August 2021.
In July 2021, the Company, in
connection with the sale of certain USC assets to Fagron, paid to
the lender the outstanding principal balance, accrued unpaid
interest and other obligations under the Company’s loan agreement,
promissory note and related loan documents relating to the
outstanding building loan relating to the building and property on
which USC’s offices are located. The land and building were
included in the assets of discontinued operations.
The loan bore an interest of 6.00% per year and interest
expense for the three months ended June 30, 2022 and June 30, 2021,
was approximately $0 and $30,000,
respectively. Interest expense for the six months ended June 30,
2022 and 2021 was approximately $0
and $61,000
respectively. The amount of interest allocated to the discontinued
operations was based on the legal obligations of USC.
Note 3:
Revenues
Revenue
Recognition
Revenue
is recognized pursuant to ASC Topic 606, “Revenue from Contracts
with Customers” (ASC 606). Accordingly, revenue is recognized at an
amount that reflects the consideration to which the Company expects
to be entitled in exchange for transferring goods or services to a
customer. This principle is applied using the following 5-step
process:
|
1. |
Identify the contract with the
customer |
|
2. |
Identify the performance obligations in the
contract |
|
3. |
Determine the transaction price |
|
4. |
Allocate the transaction price to the performance
obligations in the contract |
|
5. |
Recognize revenue when (or as) each performance
obligation is satisfied |
Adamis is a specialty
biopharmaceutical company focused on developing and commercializing
products in various therapeutic areas, including allergy, opioid
overdose, respiratory and inflammatory disease. The Company’s
subsidiary US Compounding, Inc. or USC, provided compounded sterile
prescription medications and certain nonsterile preparations and
compounds, for human and veterinary use by patients, physician
clinics, hospitals, surgery centers, vet clinics and other clients
throughout most of the United States. USC’s product offerings
broadly included, among others, corticosteroids, hormone
replacement therapies, hospital outsourcing products, and
injectables. In July 2021, the Company sold certain assets
relating to USC’s human compounding pharmaceutical business and
approved a restructuring process to wind down the remaining USC
business and sell, liquidate or otherwise dispose of the remaining
USC assets. Effective October 31, 2021, USC surrendered its
Arkansas retail pharmacy permit and wholesaler/outsourcer permit
and is no longer selling compounded pharmaceutical or veterinary
products.
Adamis and
USC have contracts with customers when (i) the Company enters into
an enforceable contract with a customer that defines each party’s
rights regarding the goods or services to be transferred and
identifies the related payment terms, (ii) the contract has
commercial substance, and (iii) the Company determines that
collection of substantially all consideration for goods and
services that are transferred is probable based on the customer’s
intent and ability to pay the promised
consideration.
Exclusive
Distribution and Commercialization Agreement
for SYMJEPI® and ZIMHI™ with US
WorldMeds
On
May 11, 2020 (the “Effective Date”) the Company entered into
an exclusive distribution and commercialization agreement (the
“USWM Agreement”) with USWM for the United States commercial rights
for the SYMJEPI products, as well as for the Company’s
ZIMHI (naloxone HCI Injection, USP) 5mg/0.5mL product intended
for the emergency treatment of opioid
overdose. The Company’s revenues relating to its
FDA approved products SYMJEPI and ZIMHI are dependent on the USWM
Agreement.
Under
the terms of the USWM Agreement, the Company appointed USWM as the
exclusive (including as to the Company) distributor of SYMJEPI in
the United States and related territories (“Territory”) effective
upon the termination of a Distribution and Commercialization
Agreement previously entered into with Sandoz Inc., and of the
ZIMHI product if approved by the U.S. Food and Drug Administration
(“FDA”) for marketing, and granted USWM an exclusive license under
the Company’s patent and other intellectual property rights and
know-how to market, sell, and otherwise commercialize and
distribute the products in the Territory, subject to the provisions
of the USWM Agreement, in partial consideration of an initial
payment by USWM and potential regulatory and commercial based
milestone payments totaling up to $26 million, if the
milestones are achieved. There can be no assurances that any
of these milestones will be met or that any milestone payments will
be paid to the Company. The Company retains rights to the
intellectual property subject to the USWM Agreement and to
commercialize both products outside of the Territory. In
addition, the Company may continue to use the licensed intellectual
property (excluding certain of the licensed trademarks) to develop
and commercialize other products (with certain exceptions),
including products that utilize the Company’s Symject™ syringe
product platform.
The
initial term for the USWM Agreement began on the Effective Date and
continues for a period of 10 years
from the launch by USWM of the first product in the United States
pursuant to the agreement, unless terminated earlier in accordance
with its terms. We have determined that the individual purchase
orders, whose terms and conditions taken with the distribution and
commercialization agreement, creates a contract according to ASC
606. The term will automatically renew for five-year terms
after the initial 10-year term, unless terminated by
either party.
The
Company has determined that there are two performance obligations
in the contract: (i) the manufacture and supply and the exclusive
distribution and commercialization in the United States of SYMJEPI
and ZIMHI products to USWM; and (ii) material rights related to
future sales of SYMJEPI and
ZIMHI.
As the optional future sales
of SYMJEPI and ZIMHI reflect a significant or incremental discount,
they are material rights, and are accounted for as performance
obligations. We allocate the transaction price to material rights
based on the relative standalone selling price, which is determined
based on the identified discount and the probability that USWM will
exercise the option. Amounts allocated to a material right are not
recognized as revenue until, at the earliest, the option is
exercised or expires.
Revenues from product sales are recognized at a point in time upon
delivery to USWM. Variable consideration from product sales is
allocated directly to the products being sold. Under the USWM
Agreement, the Company is entitled to receive various amounts and
milestone payments, including regulatory milestone payments;
net-profit sharing payments based on certain percentages of net
profit generated from the sale of products over a given quarter;
and commercial milestone payments. Payments from regulatory
milestone payments were excluded from the transaction price as the
Company utilizes the most likely amount method to estimate variable
consideration. The amount
included in the transaction price is constrained to the amount for
which it is probable that a significant reversal of cumulative
revenue recognized will not occur. Receivable from USWM has
a payment term of Net 30.
Revenues
do not include any state or local taxes collected from customers on
behalf of governmental authorities. The Company made the accounting
policy election to continue to exclude these amounts from
revenues.
Product
Recall
On March 21, 2022, we announced
a voluntary recall of four lots of SYMJEPI (epinephrine) Injection
0.15 mg (0.15 mg/0.3 mL) and 0.3 mg (0.3 mg/0.3 mL) Pre-Filled
Single-Dose Syringes to the consumer level, due to the potential
clogging of the needle preventing the dispensing of epinephrine.
USWM will handle the entire recall process for the Company, with
Company oversight. SYMJEPI is manufactured and tested for us by
Catalent Belgium S.A. The costs of the recall and the
allocation of costs of the recall, including the costs to us
resulting from the recall, were estimated at approximately
$2.0 million; moreover, the recall
could cause the Company to suffer reputational harm, depending on
the resolution of matters relating to the recall could result in
the Company incurring financial costs and expenses which could be
material, could adversely affect the supply of SYMJEPI products
until manufacturing is resumed, and depending on the resolution of
matters relating to the recall could have a material adverse effect
on our business, financial condition, and results of
operations.
For the period ended June 30, 2022 and
December 31, 2021, a liability of approximately $0.6
million and $2.0 million, respectively,
associated with the recall is reflected in the balance sheet. The
estimated costs of the recall was reflected in the consolidated
statement of operations for the year ended December 31, 2021 as a
reduction of net sales because we expect to offer the customers a
cash refund or credit. The Company may be able to be reimbursed by
certain third parties for some of the costs of the recall under the
terms of its manufacturing agreements or insurance policies, but
there are no assurances regarding the amount or timing of any such
recovery.
Deferred
Revenue
Deferred Revenue are contract
liabilities that the Company records when cash payments are
received or due in advance of the Company’s satisfaction of
performance obligations. The Company’s performance obligation is
met when control of the promised goods is transferred to the
Company’s customers. For the three months ended June 30, 2022 and
2021, $25,000
and $25,000
of the revenues recognized were reported as deferred revenue as of
March 31, 2022 and 2021, respectively, and for the six months ended
June 30, 2022 and 2021, $50,000
and $50,000
of the revenues recognized were reported as deferred revenue as of
December 31, 2021 and 2020, respectively. Included in the deferred
revenue balance at June 30, 2022 and December 31, 2021 was
$800,000 and $850,000,
respectively, relating to the non-refundable upfront payment
received from USWM pursuant to the USWM Agreement.
Cost
to Obtain a Contract
The Company capitalizes
incremental costs of obtaining a contract with a customer if the
Company expects to recover those costs and that it would not have
been incurred if the contract had not been obtained. The deferred
costs, reported in the prepaid expenses and other current assets
and other non-current assets on the Company’s consolidated balance
sheets, will be amortized over the economic benefit period of the
contract.
Practical
Expedients
As
part of the adoption of the ASC Topic 606, the Company elected to
use the following practical expedients: (i) incremental costs of
obtaining a contract in the form of sales commissions are expensed
when incurred because the amortization period would have been one
year or less. These costs are recorded within Selling, General and
Administrative expenses; (ii) taxes collected from customers and
remitted to government authorities and that are related to the
sales of the Company’s products, are excluded from revenues; and
(iii) shipping and handling activities are accounted for as
fulfillment costs and recorded in cost of sales.
Note 4:
Inventories
Inventories at June 30,
2022 and December 31, 2021 consisted of the
following:
|
|
June
30, 2022 |
|
|
December
31, 2021 |
|
Finished
Goods |
|
$ |
— |
|
|
$ |
— |
|
Work-in-Process |
|
|
— |
|
|
|
386,610 |
|
Raw
Materials |
|
|
440,198 |
|
|
|
31,997 |
|
Inventories |
|
$ |
440,198 |
|
|
|
418,607 |
|
Reserve for obsolescence as of June 30, 2022 and December 31, 2021
was approximately $0
and $
0, respectively.
Note 5:
Fixed Assets,
net
Fixed assets at June 30,
2022 and December 31, 2021 are summarized in the table
below:
Description |
|
Useful
Life
(Years) |
|
|
June
30, 2022 |
|
|
December
31, 2021 |
|
Machinery
and Equipment |
|
|
3 - 5 |
|
|
$ |
5,079,972 |
|
|
$ |
4,522,583 |
|
Less:
Accumulated Depreciation |
|
|
|
|
|
|
(3,894,077 |
) |
|
|
(3,181,567 |
) |
Construction
In Progress - Equipment |
|
|
|
|
|
|
649,990 |
|
|
|
993,752 |
|
Fixed
Assets, net |
|
|
|
|
|
$ |
1,835,885 |
|
|
$ |
2,334,768 |
|
Depreciation
expense for the three months ended June 30, 2022 and 2021 was
approximately $368,000 and $369,000,
respectively; and for the six months ended June 30, 2022 and 2021,
depreciation expense was approximately $713,000 and
$697,000,
respectively.
Note 6:
Leases
The Company has one operating lease for
an office space. As of June 30, 2022, the lease has a remaining
term of approximately 17 months. The operating
lease does not include an option to extend beyond the life of the
current term. There are no short-term leases, and the lease
agreement does not require material variable lease payments,
residual value guarantees or restrictive covenants.
The tables
below present the operating lease assets and liabilities recognized
on the condensed consolidated balance sheets as of June 30, 2022,
and December 31, 2021:
Right-of Use Assets |
|
June 30,
2022
|
|
December 31,
2021
|
Operating Lease |
|
$ |
485,761 |
|
|
$ |
650,460 |
|
|
|
|
|
|
|
|
|
|
Lease Liabilities, Current
Portion |
|
June 30,
2022
|
|
December 31,
2021
|
Operating Lease |
|
$ |
362,434 |
|
|
$ |
349,871 |
|
Lease Liabilities, net of
current portion |
|
|
|
|
|
|
|
|
Operating Lease |
|
|
157,246 |
|
|
|
342,562 |
|
Total Lease
Liabilities |
|
$ |
519,680 |
|
|
$ |
692,433 |
|
The amortizable lives of operating assets are limited by the
expected lease term.
The Company’s lease does not provide an implicit rate, and
therefore the Company uses its incremental borrowing rate as the
discount rate when measuring operating and financing lease
liabilities. The incremental borrowing rate represents an estimate
of the interest rate the Company would incur at lease commencement
to borrow an amount equal to the lease payments on a collateralized
basis over the term of a lease within a particular currency
environment. The Company used incremental borrowing rates as of
January 1, 2019 for leases that commenced prior to that date.
The Company’s
weighted average remaining lease term and weighted average discount
rate for operating and financing leases as of June 30, 2022 and
December 31, 2021 were:
June 30, 2022 |
|
Operating |
|
Weighted Average Remaining Lease
Term |
|
|
1.42 Years |
|
|
Weighted
Average Discount Rate |
|
|
3.95% |
|
|
December 31, 2021 |
|
Operating |
|
Weighted Average Remaining Lease
Term |
|
|
1.92 Years |
|
|
Weighted
Average Discount Rate |
|
|
3.95% |
|
|
The table below
reconciles the undiscounted future minimum lease payments
(displayed by year and in the aggregate) under non-cancelable
leases with terms of more than one year to the total lease
liabilities recognized on the unaudited condensed consolidated
balance sheets as of June 30, 2022:
Year Ending December 31, |
|
Operating |
|
Remainder of 2022 |
|
$ |
185,937 |
|
|
2023 |
|
|
349,365 |
|
|
Undiscounted Future Minimum Lease
Payments |
|
|
535,302 |
|
|
Less:
Difference between undiscounted lease payments and discounted lease
liabilities |
|
|
15,622 |
|
|
Total Lease
Liabilities |
|
$ |
519,680 |
|
|
Short-Term Lease
Liabilities |
|
$ |
362,434 |
|
|
Long-Term Lease
Liabilities |
|
$ |
157,246 |
|
|
Operating
lease expense for the three months ended June 30,2022 and 2021 was
approximately $88,000 and $88,000 respectively, and for
the six months ended June 30, 2022 and 2021, operating lease
expense was approximately $177,000 and $177,000, respectively.
Operating lease costs are included within selling, general and
administrative expenses on the condensed consolidated statements of
operations.
Cash
paid for amounts included in the measurement of operating lease
liabilities were approximately $93,000 and $90,000 for the three
months ended June 30, 2022, and 2021, respectively, and
approximately $185,000 and
$180,000 for the six
months ended June 30, 2022 and 2021, respectively.
Note 7:
Debt
First Draw Paycheck Protection Program Loan
On April 13, 2020, the Company received $3,191,700 in loan funding
from the Paycheck Protection Program (the “PPP”), established
pursuant to the Coronavirus Aid, Relief, and Economic Security Act
(the “CARES Act”) and administered by the U.S. Small Business
Administration (“SBA”). The unsecured loan (the “PPP Loan”) is
evidenced by a promissory note of the Company (the “Note”), in the
principal amount of $3,191,700, to Arvest Bank (the “Bank”),
the lender. The application for these funds required the
Company to, in good faith, certify that the current economic
uncertainty made the loan request necessary to support the ongoing
operations of the Company. Subsequent guidance from the SBA and the
Department of the Treasury indicated that in assessing the economic
need for the loan, a borrower must take into account its current
activity and ability to access other sources of liquidity
sufficient to support ongoing operations in a manner that is not
significantly detrimental to the business. The receipt of these
funds pursuant to the PPP Loan, and the forgiveness of the PPP Loan
attendant to these funds, is dependent on the Company having
initially qualified for the loan and, in the case of forgiveness,
qualifying for the forgiveness of such loan based on our future
adherence to the forgiveness criteria.
Under the terms of the Note and the PPP Loan, interest accrues on
the outstanding principal at the rate of 1.0% per annum. The term of the
Note is two years, unless sooner provided in connection with an
event of default under the Note. To the extent the loan amount is
not forgiven under the PPP, the Company is obligated to make equal
monthly payments of principal and interest, beginning seven months
from the date of the Note (or later if a timely loan forgiveness
application has been submitted), until the maturity date.
The CARES Act and the PPP provide a mechanism for forgiveness of up
to the full amount borrowed. Under the PPP, the Company may apply
for and be granted forgiveness for all or part of the PPP Loan. The
amount of loan proceeds eligible for forgiveness is based on a
formula that takes into account a number of factors, including the
amount of loan proceeds used by the Company during a specified
period after the loan origination for certain purposes including
payroll costs, interest on certain mortgage obligations, rent
payments on certain leases, and certain qualified utility payments,
provided that at least 60%
of the loan amount is used for eligible payroll costs; the employer
maintaining or rehiring employees and maintaining salaries at
certain levels; and other factors. Subject to the other
requirements and limitations on loan forgiveness, only loan
proceeds spent on payroll and other eligible costs during the
covered eight-week or 24-week period will qualify for
forgiveness.
In December 2020, the Company submitted an application for the
forgiveness of our PPP Loan. In August 2021, the Company
received notification through the Bank that as of August 5, 2021,
the PPP Loan, including principal and interest thereon, has been
fully forgiven by the SBA and that the remaining PPP Loan balance
is zero. The Company recognized the
amount forgiven as other income.
Second Draw PPP Loan
On
March 15, 2021, the Company entered into a Note (the “PPP2
Note”) in favor of the Bank, in the principal amount of $1,765,495 relating to funding under
a Second Draw loan (the “Second Draw Loan”) pursuant to the terms
of the PPP, the CARES Act, and the Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act enacted in December 2020.
Under the terms of the PPP2 Note and Second Draw Loan, interest
accrues on the outstanding principal at the rate of 1.0% per annum. The term of the
PPP2 Note was five years, unless sooner provided in connection with
an event of default under the PPP2 Note. The Company may prepay the
Second Draw Loan at any time prior to maturity with no prepayment
penalties. Under the PPP, the proceeds of the Second Draw Loan may
be used to pay payroll and make certain covered interest payments,
lease payments and utility payments. The Company may apply for
forgiveness of some or all of the Second Draw Loan pursuant to the
PPP. In order to obtain full or partial forgiveness of the Second
Draw Loan, the borrower must timely request forgiveness, must
provide satisfactory documentation in accordance with applicable
SBA guidelines, and must satisfy the criteria for forgiveness under
the PPP and applicable SBA requirements. The Company applied for
forgiveness of the PPP2 Loan, and in October 2021 the Company
received notification through the Bank that as of September 28,
2021, the Second Draw PPP Loan, including principal and interest
thereon, was fully forgiven by the SBA. The Company recognized the
amount forgiven as other income in the third quarter of
2021. However, as described further in Note 9 below, in
March 2022 the Company was informed that the Civil Division of the
U.S. Attorney’s Office for the Southern District of New York was
investigating the Company’s Second Draw PPP Loan and eligibility
for that loan, and the Company’s financial statements for the
quarter ended March 31, 2022, included a $1,850,000 contingent loss
liability relating to the possible repayment of the full amount of
the Second Draw PPP Loan as well as accrued interest and processing
fees of the lending bank. In June 2022, following the
inquiry, the Company paid a total of $1,787,417 in repayment of the
Second Draw PPP Loan principal and such related interest and
fees.
Even though the PPP Loan has been forgiven and the Second Draw
PPP Loan repaid, our PPP loans and applications for forgiveness of
loan amounts remain subject to review and audit by SBA for
compliance with program requirements set forth in the PPP Interim
Final Rules and in the Borrower Application Form, including without
limitation the required economic necessity certification by the
Company that was part of the PPP loan application process.
Accordingly, the Company is subject to audit or review by federal
or state regulatory authorities as a result of applying for and
obtaining the PPP Loan and Second Draw PPP Loan or obtaining
forgiveness of those loans. If the Company were to be audited
or reviewed and receive an adverse determination or finding in such
audit or review, including a determination that the Company was
ineligible to receive the applicable loan, the Company could be
required to return or repay the full amount of the applicable loan
and could be subject to additional fines or penalties, which could
reduce the Company's liquidity and adversely affect our business,
financial condition and results of operations.
Note 8. Fair
Value Measurement
The carrying value of the Company’s cash and cash equivalents,
prepaid expenses and other current assets, accounts payable and
accrued liabilities, approximate fair value due to the short-term
nature of these items.
Fair value is defined as the exchange price that would be received
for an asset or an exit price paid to transfer a liability in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of
unobservable inputs.
The fair value hierarchy defines a three-level valuation hierarchy
for disclosure of fair value measurements as follows:
|
Level
1: |
Unadjusted quoted prices in
active markets for identical assets or liabilities; |
|
Level 2: |
Inputs other than quoted prices
included within Level 1 that are observable, unadjusted quoted
prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities;
and |
|
Level 3: |
Unobservable inputs that are
supported by little or no market activity for the related assets or
liabilities. |
The categorization of a financial instrument within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
The following
table sets forth the Company’s financial instruments that were
measured at fair value on a recurring basis by level within the
fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30,
2022 |
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Warrant Liability |
|
$ |
70,728 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
70,728 |
|
The fair value measurement of the warrants issued by the Company in
February 2020 (the “2020 Warrants”) are based on significant inputs
that are unobservable and thus represents a Level 3 measurement.
The Company’s estimated fair value of the Warrant liability is
calculated using the Black Scholes Option Pricing Model. Key
assumptions at June 30, 2022 include the expected volatility of the
Company’s stock of approximately 70%, the
Company’s stock price at valuation date of $0.501,
expected dividend yield of 0.0% and
average risk-free interest rate of approximately 2.991%. The
Level 3 estimates are based, in part, on subjective assumptions.
During the periods presented, the Company has not changed the
manner in which it values liabilities that are measured at fair
value using Level 3 inputs.
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31,
2021 |
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Liabilities |
|
|
|
|
|
|
|
|
2020 Warrant Liability |
|
$ |
99,655 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
99,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value measurement of the warrants issued by the
Company in February 2020 (the “2020 Warrants”) are based on
significant inputs that are unobservable and thus represents a
Level 3 measurement. The Company’s estimated fair value of the
Warrant liability is calculated using the Black Scholes Option
Pricing Model. Key assumptions at December 31, 2021 include the
expected volatility of the Company’s stock of approximately
70%, the
Company’s stock price at valuation date of $0.605,
expected dividend yield of 0.0% and
average risk-free interest rate of approximately 1.038%. The
Level 3 estimates are based, in part, on subjective assumptions.
During the periods presented, the Company has not changed the
manner in which it values liabilities that are measured at fair
value using Level 3 inputs.
Note 9: Legal
Matters
We
may from time to time become party to actions, claims, suits,
investigations or proceedings arising from the ordinary course of
our business, including actions with respect to intellectual
property claims, breach of contract claims, labor and employment
claims and other matters. We may also become party to
litigation in federal and state courts relating to opioid
drugs. Any litigation could divert management time and
attention from Adamis, could involve significant amounts of legal
fees and other fees and expenses, or could result in an adverse
outcome having a material adverse effect on our financial
condition, cash flows or results of operations. Actions,
claims, suits, investigations and proceedings are inherently
uncertain and their results cannot be predicted with certainty.
Except as described below, we are not currently involved in
any legal proceedings that we believe are, individually or in the
aggregate, material to our business, results of operations or
financial condition. However, regardless of the outcome,
litigation can have an adverse impact on us because of associated
cost and diversion of management time.
Investigations
On
May 11, 2021, the Company and USC each received a grand jury
subpoena from the U.S. Attorney’s Office for the Southern District
of New York (“USAO”). The USAO issued the subpoenas in
connection with a criminal investigation and requested a broad
range of documents and materials relating to, among other matters,
certain veterinary products sold by USC, certain practices,
agreements, and arrangements relating to products sold by USC,
including veterinary products, and certain regulatory and other
matters relating to the Company and USC. The Audit Committee
of the Board engaged outside counsel to conduct an independent
internal investigation to review the matters brought forth in the
subpoenas and certain other matters. The investigation
involved, among other matters, interviews with employees and
collection and review of a large number of documents. The
Company has taken a number of actions in response to the internal
investigation, including personnel actions relating to certain USC
veterinary sales employees. In addition, following the
commencement of the investigation, as disclosed elsewhere in this
Report the Company has sold assets relating to its compounding
pharmacy business, ceased selling human and veterinary compounded
pharmaceutical products, has effectively wound down USC’s business,
and the employment of substantially all USC employees has ended.
As a result, the Company is no longer engaged in the sale of
human or veterinary compounded pharmaceutical products. The
Company is also considering a number of additional actions in
response to the internal investigation and the USAO investigation.
As of the date of this Report, we believe that the
investigation initially commenced by the Audit Committee is
substantially complete. However, additional issues or facts
could arise or be determined, which may expand the scope, duration,
or outcome of the Audit Committee’s investigation. The
Company has also received requests from the U.S. Securities and
Exchange Commission (“SEC”) for the voluntary production of
documents and information relating to the subject matter of the
USAO’s subpoenas and certain other matters. The Company has
produced documents and will continue to produce and provide
documents in response to the subpoenas and requests as needed.
Additionally, on March 16, 2022, the Company was informed
that the Civil Division of the USAO (“Civil Division”) was
investigating the Company’s Second Draw PPP Loan application and
the company’s eligibility for the Second Draw PPP Loan. The
Audit Committee of the Board engaged outside counsel to conduct an
internal inquiry into the matter. The Company intends to
continue cooperating with the USAO, SEC, and Civil Division. At
this time, the Company is unable to predict the duration, scope, or
outcome of the investigations by the USAO, SEC, Civil Division, or
other agencies; what, if any, proceedings the USAO, SEC, Civil
Division, or other federal or state authorities may initiate; what,
if any, remedies or remedial measures the USAO, SEC, Civil Division
or other federal or state authorities may seek; or what, if any,
impact the foregoing matters may have on the Company’s business,
previously reported financial results, financial results included
in this Report, or future financial results. We could receive
additional requests from the USAO, SEC, Civil Division, or other
authorities, which may require further investigation. There
can be no assurance that any discussions with the USAO, SEC or
Civil Division to resolve these matters will be successful.
The foregoing matters may divert management’s attention, cause the
Company to suffer reputational harm, require the company to devote
significant financial resources, subject the Company and its
officers and directors to civil or criminal proceedings, and
depending on the resolution of the matters or any proceedings,
result in fines, penalties or equitable remedies, and affect the
Company’s business, previously reported financial results,
financial results included in this Report, or future financial
results. The occurrence of any of these events, or any
determination that our activities were not in compliance with
existing laws or regulations, could have a material adverse effect
on the Company’s business, liquidity, financial condition, and
results of operations.
As
a result of the investigation by the Civil Division, the Company’s
financial statements for the first quarter of 2022 included a
$1,850,000 contingent loss
liability relating to the possible repayment of the full amount of
the Second Draw PPP Loan as well as accrued interest and processing
fees of the lending bank. In June 2022, following the inquiry the
Company paid a total of $1,787,417 in repayment of the
Second Draw PPP Loan principal and related interest and fees.
The servicing bank waived the processing fees of approximately
$63,000 related to the transaction,
which the Company recognized as a gain for the same amount
which was included in the other income (expense) portion of the
condensed consolidated statements of operations. The Company
is awaiting confirmation from the Civil Division’s whether any
additional action is required to conclude the investigation into
the Second Draw PPP Loan.
Nasdaq
Compliance
On
December 31, 2021, we received a notice from the Nasdaq Listing
Qualifications Department of The NASDAQ Capital Market (“Nasdaq”)
informing us that because the closing bid price of our common stock
had been below $1.00
per share for 30
consecutive business days, we no longer complied with the minimum
bid price requirement for continued listing on The Nasdaq Capital
Market. Nasdaq Listing Rule 5550(a)(2) (the “Rule”) requires
listed securities to maintain a minimum bid price of $1.00 per
share, and Listing Rule 5810(c)(3)(A) provides that a failure to
meet the minimum bid price requirement exists if the deficiency
continues for a period of 30
consecutive business days. Pursuant to Nasdaq Marketplace
Rule 5810(c)(3)(A), we were provided an initial compliance period
of 180
calendar days, or until June 29, 2022, to regain compliance.
To regain compliance, the closing bid price of our common
stock must meet or exceed $1.00
per share for a minimum of
10 consecutive business days during the
180 calendar day grace period. The notice letter also
disclosed that if we do not regain compliance within the initial
compliance period, we may be eligible for an additional
180-day compliance period. To qualify for additional
time, we would be required to meet the continued listing
requirement for market value of publicly held shares and all other
initial listing standards for The Nasdaq Capital Market, with the
exception of the bid price requirement, and would need to provide
written notice of a plan to cure the deficiency during the second
compliance period, including by effecting a reverse stock split if
necessary. We did not regain compliance with the Rule by June
29, 2022. We requested additional time to regain compliance
and provided notice to Nasdaq of our intention to cure the
deficiency during the second compliance period, including by
effecting a reverse stock split if necessary. On June 30,
2022, Nasdaq notified us that we were granted an additional
180-day compliance period, or until December 27, 2022, to
regain compliance with the Rule. The letter also indicated
that if at any time before December 27, 2022, the bid price of the
Company’s Common Stock closes at $1.00
per share or more for a minimum of
10 consecutive business days, the Company will regain
compliance with the Rule. If the Company does not meet the
minimum bid requirement at some time during the additional
180-day grace period, Nasdaq will provide written
notification to the Company that its shares will be subject to
delisting. At such time, the Company may appeal the delisting
determination to a Nasdaq Hearings Panel. The Company would remain
listed pending the Panel’s decision. There can be no assurance that
if the Company does appeal a subsequent delisting determination,
that such appeal would be successful. The letter and
notification from Nasdaq had no immediate effect on the listing or
trading of the Company’s shares, which will continue to trade on
the Nasdaq Capital Market under the symbol “ADMP.” There are no
assurances that we will be able to regain compliance with the
minimum bid price requirements or will otherwise be in compliance
with other Nasdaq listing rules.
Jerald
Hammann
On
June 8, 2021, Jerald Hammann filed a complaint against the Company
and each of its directors in the Court of Chancery of the State of
Delaware, captioned Jerald Hammann v. Adamis
Pharmaceuticals Corporation et al., C.A. No. 2021-0506-PAF
(the “Complaint”), seeking injunctive and declaratory relief.
The Complaint alleges, among other things, that the
defendants (i) violated Rule 14a-5(f) and 14a-9(a) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
in connection with the Company’s 2021 annual meeting of
stockholders—which was subsequently held on July 16, 2021 (the
“2021 annual meeting”)—and disseminated false and misleading
information in the Company’s proxy materials relating to the 2021
annual meeting, (ii) violated certain provisions of the Company’s
bylaws relating to the 2021 annual meeting, (iii) violated section
220 of the Delaware General Corporation Law (“DGCL”) in connection
with a request for inspection of books and records submitted by the
plaintiff, and (iv) breached their fiduciary duties of disclosure
and loyalty, including relating to establishing and disclosing the
date of the Company’s 2021 annual meeting and to the Company’s
determination that a solicitation notice delivered to the Company
by plaintiff was not timely and was otherwise deficient. The
Complaint alleges, among other things, that plaintiff intended to
initiate a proxy contest against the Company, that defendants’
conduct made it difficult or impossible for plaintiff to initiate a
proxy context, and that the Company’s definitive proxy statement
included false and misleading disclosures and omissions of material
information. The Complaint sought injunctive relief (i) to
prevent the Board, the Company, and their employees and agents from
soliciting any stockholders pursuant to the Company’s proxy
statement and (ii) to prevent the defendants from interfering in
the effectiveness of stockholder voting for the 2021 annual
meeting. The Complaint also seeks declaratory relief
(i) finding that plaintiff’s solicitation notice was timely
and properly submitted; (ii) directing the defendants to comply
with Rules 14a-5(f) and 14a-9(a) of the Exchange Act; (iii)
directing the Company to produce the materials set forth in the
plaintiff’s books and records request; (iv) finding that the
director defendants breached their fiduciary obligations to
stockholders; and (v) finding that the director defendants engaged
in self-dealing. The Complaint seeks an award of fees, costs,
and expenses in this action, including attorneys’ and experts’
fees.
On
June 10, 2021, the plaintiff filed a motion for a temporary
restraining order and for expedited proceedings, seeking an order
enjoining the Company from printing or disseminating its proxy
statement relating to the 2021 annual meeting or from convening the
2021 annual meeting on July 16, 2021. Following a hearing, on
June 17, 2021, the Court determined that: (i) it did not have
jurisdiction to consider the plaintiff’s claims relating to alleged
violations of the Exchange Act; (ii) plaintiff’s claims regarding
the books and records request and alleged violations of section 220
of the DGCL should be pursued in a separate proceeding, and the
Court denied the plaintiff’s motion to expedite the books and
records claims; (iii) certain of the plaintiff’s claims alleging
breach of the fiduciary duty of disclosure against the individual
defendants, including claims based on alleged misrepresentations
and omissions in the Company’s proxy statement, were not colorable;
and (iv) plaintiff’s claim alleging that the individual defendants
violated their fiduciary duty by taking action purportedly intended
to prevent the plaintiff from pursuing a proxy contest survived a
low threshold of colorability, but the Court denied the plaintiff’s
motion for a temporary restraining order. The Court granted
in part the motion to expedite the proceedings.
In
March 2022, plaintiff filed a motion for a temporary restraining
order and for expedited proceedings, seeking an order enjoining the
Company and its directors from (a) changing the number of members
of the Company’s board of directors, (b) adding members to the
Company’s board of directors, and/or (c) replacing any resigning
members of the Company’s board of directors. The Company filed a
response to the plaintiff’s motion. The Court held a hearing on
March 28, 2022, and denied the plaintiff’s motion in full. On April
4, 2022, plaintiff filed a motion to amend the plaintiff’s
complaint. The proposed amended Complaint adds additional
allegations relating to the manner in which the defendants
established and disclosed the date of the Company’s 2021 annual
meeting of stockholders and to statements the defendants made about
the plaintiff to the Company’s stockholders. On April 28,
2022, the Court granted the motion, noting that as a general rule,
leave to amend is freely given. On April 25, 2022, plaintiff
filed a motion for a preliminary injunction seeking to enjoin the
Company from holding its 2022 annual meeting of stockholders until
the plaintiff’s Complaint is resolved. The Company opposed
the motion, and on April 28, 2022, the Court denied the plaintiff’s
motion. On May 23, 2022, the Company filed a motion for
summary judgment on Count VI and a motion to dismiss Counts VII,
VIII, and IX of plaintiff’s amended Complaint. Those motions
are pending before the Court, and the case continues to
proceed. The Company believes the claims in plaintiff’s
Complaint are without merit, and intends to vigorously dispute
them. The Company has not recorded a contingent liability related
to this matter.
The Company records accruals for loss
contingencies associated with legal matters when the Company
determines it is probable that a loss has been or will be incurred
and the amount of the loss can be reasonably estimated. Where a
material loss contingency is reasonably possible and the reasonably
possible loss or range of possible loss can be reasonably
estimated, U.S. GAAP requires us to disclose an estimate of the
reasonably possible loss or range of loss or make a statement that
such an estimate cannot be made.
Note 10:
Common
Stock
In January and February 2021, the Company issued common stock upon
exercise of investor warrants. The warrant holders exercised for
cash at exercise prices ranging from $0.70
to $1.15
per share. The Company received total proceeds of approximately
$5,852,000 and the
warrant holders received 8,356,000 shares of common
stock.
On February 2, 2021, the Company completed the closing of an
underwritten public offering of 46,621,621 shares of common
stock at a public offering price of $1.11 per
share, which included 6,081,081 shares pursuant to
the full exercise of the over-allotment option granted to the
underwriters. Net proceeds were approximately $48.4 million,
after deducting approximately $3.3 million
in underwriting discounts and commissions and estimated offering
expenses payable by the Company.
Note
11: Stock-based
Compensation, Warrants and Shares
Reserved
The Company accounts for stock-based compensation transactions in
which the Company receives employee services in exchange for
restricted stock units (“RSUs”) or options to purchase common stock
and the Company recognizes stock-based compensation cost as expense
ratably on a straight-line basis over the requisite service period.
Stock-based compensation cost for RSUs is measured based on the
closing fair market value of the Company’s common stock on the date
of grant. Stock-based compensation cost for stock options is
estimated at the grant date based on each option’s fair-value as
calculated by the Black-Scholes option-pricing model. The Company
accounts for forfeitures as they occur and will reduce compensation
cost at the time of forfeiture. Cash-settled Stock
Appreciation Rights ("SARs")provide for the cash payment of the
excess of the fair market value of the Company’s common stock price
on the date of exercise over the grant price. The fair value
of the SARs is calculated during each reporting period and
estimated using the Black-Scholes option pricing model. The SARs
will vest over a period of three years and are accounted
for as liability awards since they will be settled in cash.
Cash-settled SARs have no effect on dilutive shares or shares
outstanding as any appreciation of the Company’s common stock over
the grant price is paid in cash and not in common stock. The
Company accounts for forfeiture as they occur and reduces the
compensation cost at the time of forfeiture.
At the Company’s 2020 annual meeting of stockholders, the
stockholders approved the Company’s 2020 Equity Incentive Plan (the
“2020 Plan”). The 2020 Plan provides for the grant of incentive
stock options, non-statutory stock options, restricted stock
awards, restricted stock unit awards, stock appreciation rights,
performance stock awards, and other forms of equity compensation
(collectively “stock awards”). In addition, the 2020 Plan provides
for the grant of cash awards. The initial aggregate number of
shares of common stock that may be issued pursuant to stock awards
under the 2020 Plan is 2,000,000 shares.
The number of shares of common stock reserved for issuance
automatically increases on January 1 of each calendar year
during the term of the 2020 Plan, commencing January 1, 2021,
by 5.0% of the
total number of shares of common stock outstanding on
December 31 of the preceding calendar year, or a lesser number
of shares of common stock determined by the Company’s board of
directors before the start of a calendar year for which an increase
applies. One of the provisions of the 2020 Plan is that no award
may be granted, issued or made under the 2020 Plan until such time
as the fair market value of the common stock, which is generally
the closing sales price of the common stock on the principal stock
market on which the common stock is traded, has been equal to or
greater than $3.00 per
share (subject to proportionate adjustment for stock splits,
reverse stock splits, and similar events) for at
least ten consecutive
trading days, after which time awards may be made under the 2020
Plan without regard to any subsequent increase or decrease in the
fair market value of the common stock. No awards were made
pursuant to the 2020 Plan as of June 30, 2022.
On January 1, 2022, pursuant to the 2020 Equity Incentive Plan
the number of shares reserved for the issuance of stock awards
increased by 7,479,713 shares.
In June 2022, the Company issued 250,000 shares of common
stock to Dennis J. Carlo, former chief executive officer of the
Company, pursuant to a separation agreement between the
Company and Dr. Carlo. The separation agreement resulted to the
modification of his RSU awards, accelerating the RSU vesting upon
his separation. As a result of this Type III modification, the
Company determined the cumulative compensation cost that should
have been recognized at that date as if the fair value of the
modified award had been recognized from the original grant date
over his requisite service period, which resulted in the reversal
of approximately $540,000 in expense.
Stock Options
The following
table summarizes the outstanding stock option activity for
the six months ended June 30, 2022:
Non-Plan Awards:
|
|
Non - Plan
Awards
|
|
Weighted Average
Exercise Price |
|
Weighted Average Remaining Contract
Life |
Total Outstanding Vested and Expected to Vest as
of December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
130,000 |
|
|
|
0.62 |
|
|
|
9.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Canceled/Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outstanding Vested and Expected to Vest as
of June 30, 2022 |
|
|
130,000 |
|
|
|
0.62 |
|
|
|
9.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at June 30, 2022 |
|
|
35,833 |
|
|
|
0.62 |
|
|
|
9.64 |
|
2009 Equity Incentive Plan:
|
|
2009 Equity
Incentive Plan |
|
Weighted Average
Exercise Price |
|
Weighted Average Remaining Contract
Life |
Total Outstanding Vested and Expected to Vest as
of December 31, 2021 |
|
|
4,985,415 |
|
|
$ |
4.21 |
|
|
|
4.05 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Canceled/Expired |
|
|
(254,273 |
) |
|
|
4.54 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outstanding Vested and Expected to Vest as
of June 30, 2022 |
|
|
4,731,142 |
|
|
|
4.19 |
|
|
|
2.86 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at June 30, 2022 |
|
|
4,726,209 |
|
|
|
4.19 |
|
|
|
2.86 years |
|
Continuing operations expense related to stock options for three
months ended June 30, 2022 and 2021, was approximately $4,000 and $4,000, respectively.
Continuing operations expense related to stock options for the six
months ended June 30, 2022 and 2021, was approximately $13,000
and $113,000,
respectively.
Discontinued operations expense related to stock options for the
three months ended June 30, 2022 and 2021 was approximately
$0
and $1,000,
respectively.
Discontinued operations expense related to stock options for the
six months ended June 30, 2022 and 2021 was approximately
$0
and $34,000,
respectively.
As of June 30, 2022, the compensation expense related to stock
options issued under the Company’s 2009 Equity Incentive Plan has
been fully recognized.
The aggregate intrinsic value (the difference between the Company’s
closing stock price on the last trading day of the year and the
exercise price, multiplied by the number of in-the-money options)
of 4,861,142 and
4,985,415 stock
options outstanding at June 30, 2022 and December 31, 2021 was
$0 and
$0,
respectively. The aggregate intrinsic value of 4,762,042
and 4,980,482 stock
options exercisable at June 30, 2022, and December 31, 2021 was
$0 and
$0,
respectively.
Restricted Stock Units
The following
table summarizes the RSUs outstanding at June 30,
2022:
|
|
Number of Shares/Unit |
|
Weighted
Average
Grant Date
Fair Value |
Non-vested RSUs as of December 31,
2021 |
|
|
1,039,003 |
|
|
$ |
4.16 |
|
RSUs vested during the
period |
|
|
(389,003 |
) |
|
|
3.35 |
|
RSUs
forfeited during the period |
|
|
— |
|
|
|
— |
|
Non-vested RSUs as of June 30, 2022 |
|
|
650,000 |
|
|
$ |
4.64 |
|
For the three months ended June 30, 2022 and 2021, continuing
operations expense related to RSUs was approximately
$(464,000)
and $794,000,
respectively. The negative expense was due to the modification
of certain outstanding RSUs during the three months ended June 30,
2022.
For the six months ended June 30, 2022 and 2021, continuing
operations expense related to RSUs was approximately
$(102,000)
and $1,531,000,
respectively. The negative expense was due to the modification of
certain outstanding RSUs during the six months ended June 30,
2022.
For the three and six months ended June 30, 2022 and 2021,
there was no RSU
related expense within discontinued operations.
As of June 30, 2022, the unamortized compensation expense related
to RSUs was approximately $478,000 and will be
recorded as compensation expense over 1.41 years.
Warrants
The
following table summarizes warrants outstanding at June 30, 2022
and at December 31, 2021:
|
|
Warrant Shares |
|
Exercise Price
Per Share |
|
Date Issued |
|
Expiration Date |
Old Adamis
Warrants |
|
|
58,824 |
|
|
$ |
8.50 |
|
|
November 15, 2007 |
|
November 15, 2022 |
2019 Warrants |
|
|
13,794,000 |
|
|
$ |
1.15 |
|
|
August 5, 2019 |
|
August 5, 2024 |
2020
Warrants |
|
|
350,000 |
* |
|
$ |
0.70 |
|
|
February 25, 2020 |
|
September 3, 2025 |
Total Warrants |
|
|
14,202,824 |
|
|
|
|
|
|
|
|
|
* |
|
|
As of June 30, 2022 and December 31, 2021, the
fair value of the warrant liability related to the 2020 Warrants
was $70,728 and $ 99,655 respectively. See Note
8. |
|
|
|
|
At June 30,
2022, the Company has reserved shares of common stock for issuance
upon exercise of outstanding options, warrants including all of the
warrants in the table above and restricted stock units, as
follows:
Warrants |
|
|
14,202,824 |
|
Restricted Stock
Units |
|
|
650,000 |
|
Non-Plan Awards |
|
|
130,000 |
|
2009
Equity Incentive Plan |
|
|
4,731,142 |
|
Total
Shares Reserved |
|
|
19,713,966 |
|
Note 12: Commitments and
Contingencies
The
Company has a production threshold commitment to a manufacturer of
our SYMJEPI products pursuant to which the Company would be
required to pay for maintenance fees if it does not meet certain
periodic purchase order minimums. Any such maintenance fees would
be prorated as a percentage of the required minimum production
threshold. Maintenance fees for the years ended June 30, 2022 and
2021 were $0 and $0, respectively.
For
information concerning contingencies relating to legal proceedings,
see Note 9 of the notes to the condensed consolidated financial
statements.
Note 13:
Subsequent
Events
On July 5, 2022, the Company entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with an institutional
investor (the “Investor” or the “Purchaser”), pursuant to which the
Company issued on July 5, 2022 (the “Closing Date”), in a private
placement transaction (the “Offering” or the “Transaction”), an
aggregate of 3,000 shares (the “Shares”)
of Series C Convertible Preferred Stock, par value $0.0001
per share (the “Series C Preferred”), together with warrants (the
“Warrants”) to purchase up to an aggregate of 750,000 shares (the
“Warrant Shares”) of common stock of the Company (“Common Stock”)
at an exercise price of $0.47 per share (subject to
adjustment as provided in the Warrants), for an aggregate
subscription amount equal to $300,000. The Warrant becomes
exercisable commencing January 3, 2023, and has a
term ending on January 5, 2028. The
Purchase Agreement contains customary representations, warranties
and agreements of the Company and the Purchaser, and customary
indemnification rights and obligations of the parties.
Pursuant to the Purchase Agreement, the Company filed a Certificate
of Designation of Preferences, Rights and Limitations of Series C
Convertible Preferred Stock (the “Certificate of Designation”) with
the Secretary of State of Delaware designating the rights,
preferences and limitations of the Series C Preferred. The
Certificate of Designation provides, among other things, that
except as otherwise provided in the Certificate of Designation or
as otherwise required by law, the Series C Preferred will have no
voting rights (other than the right to vote as a class on certain
matters as provided in the Certificate of Designation). However,
pursuant to the Certificate of Designation, each share of Series C
Preferred entitles the holder thereof (i) to vote on a proposal
presented to the Company’s stockholders for approval (the
“Proposal”) to approve a reverse stock split of the Company’s
outstanding Common Stock (the “Reverse Stock Split”), and any
proposal to adjourn any meeting of stockholders called for the
purpose of voting on the Proposal, and (ii) to 1,000,000 votes per
share of Series C Preferred on the Proposal and any such
adjournment proposal. The Series C Preferred will, except as
required by law, vote together with the Common Stock (and other
issued and outstanding shares of preferred stock entitled to vote),
as a single class; provided, however, that such shares of Series C
Preferred shall, to the extent cast on the Proposal or any such
adjournment proposal, be automatically and without further action
of the holders thereof voted in the same proportion as the shares
of Common Stock (excluding any shares of Common Stock that are not
voted) and any other issued and outstanding shares of preferred
stock of the Company entitled to vote (other than the Series C
Preferred or shares of such other preferred stock, if any, not
voted) are voted on the Proposal.
ITEM 2. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
Information Relating
to Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) includes
forward-looking statements. Such statements are not historical
facts, but are based on our current expectations, estimates and
beliefs about our business and industry. Such forward-looking
statements may include, without limitation, statements about our
strategies, objectives and our future achievements; our
expectations for growth; estimates of future revenue; our current
or future expenses, commitments, obligations or liabilities; our
sources and uses of cash; our liquidity needs; our current or
planned clinical trials or research and development activities;
anticipated completion dates for clinical trials; product
development timelines; anticipated dates for commercial
introduction of products; our future products; regulatory matters;
our expectations concerning the timing of regulatory actions
relating to our products and product candidates; anticipated dates
for meetings with regulatory authorities and submissions to obtain
required regulatory marketing approvals; expense, profit, cash
flow, or balance sheet items or any other guidance regarding future
periods; the impact of broad-based business or economic
disruptions, including relating to the COVID-19 pandemic, on our
ongoing business and prospects; our expectations concerning the
outcome of proceedings discussed in this Report under Item 1 of
Part II of this Report under the caption “Legal Proceedings”; and
other statements concerning our future operations and
activities. Such forward-looking statements include those
that express plans, anticipation, intent, contingencies,
goals, targets or future development and/or otherwise are not
statements of historical fact. These forward-looking
statements are based on our current expectations and projections
about future events, and they are subject to risks and
uncertainties, known and unknown, that could cause actual results
and developments to differ materially from those expressed or
implied in such statements. In some cases, you can identify
forward-looking statements by terminology, such as “believe,”
“will,” “expect,” “may,” “anticipate,” “estimate,” “intend,”
“plan,” “should,” and “would,” or the negative of such terms or
other similar expressions. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed
throughout this Report. These forward-looking statements are
not guarantees of future performance and concern matters that could
subsequently differ materially from those described in the
forward-looking statements. Actual events or results may differ
materially from those discussed in this Report. In addition, many
forward-looking statements concerning our anticipated future
business activities assume that we have or are able to obtain
sufficient funding to support such activities and continue our
operations and planned activities. As discussed elsewhere in this
Report, we will require additional funding to continue operations,
and there are no assurances that such funding will be available.
Failure to timely obtain required funding would adversely affect
and could delay or prevent our ability to realize the results
contemplated by such forward-looking statements. New factors
emerge from time to time, and it is not possible for us to predict
which factors will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. Because factors referred to elsewhere in this
Report and in our Annual Report on Form 10-K for the year ended
December 31, 2021 (sometimes referred to as the “2021 Form 10-K”)
that we previously filed with the Securities and Exchange
Commission, including without limitation the “Risk Factors” section
in this Report and in the 2021 Form 10-K, could cause actual
results or outcomes to differ materially from those expressed in
any forward-looking statements made by us, you should not place
undue reliance on any forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which
it is made, and except as may be required by applicable law,
we undertake no obligation to release publicly the results of any
revisions to these forward-looking statements or to reflect events
or circumstances arising after the date of this Report. Important
risks and factors that could cause actual results to differ
materially from those in these forward-looking statements are
disclosed in this Report including, without limitation, under the
headings “Part II, Item 1A. Risk Factors,” and “Part I, Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and in our 2021 Form 10-K, including,
without limitation, under the headings “Part I, Item 1A. Risk
Factors,” “Part I, Item 1. Business,” and “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” as well as in our subsequent filings with
the Securities and Exchange Commission, press releases and other
communications.
Unless the
context otherwise requires, the terms “we,” “our,” “the company”
and “the Company” refer to Adamis Pharmaceuticals Corporation, a
Delaware corporation, and its subsidiaries.
Investors and others should note that we may announce material
information to our investors using our website ( www.adamispharmaceuticals.com),
SEC filings, press releases, public conference calls and webcasts,
as well as social media and blogs. We use these channels as a
means of disclosing material non-public information and making
disclosures pursuant to Regulation FD, and to communicate with our
members and the public about our company. It is possible that the
information we post on our website or social media and blogs could
be deemed to be material information. Therefore, we encourage
investors, the media, and others interested in our company to
review the information we post on our website, social media
channels and blogs listed on our investor relations website.
General
Company
Overview
Adamis
Pharmaceuticals Corporation (“we,” “us,” “our,” “Adamis” or the
“company”) is a specialty biopharmaceutical company focused on
developing and commercializing products in various therapeutic
areas, including allergy, opioid overdose, respiratory and
inflammatory disease. Our products and product candidates in
the allergy, respiratory, and opioid overdose markets include:
SYMJEPI (epinephrine) Injection 0.3mg, which was approved by the
U.S. Food and Drug Administration, or FDA, in 2017 for use in the
emergency treatment of acute allergic reactions, including
anaphylaxis, for patients weighing 66 pounds or more; SYMJEPI
(epinephrine) Injection 0.15mg, which was approved by the FDA in
September 2018, for use in the treatment of anaphylaxis for
patients weighing 33-65 pounds; ZIMHI (naloxone HCL Injection, USP)
5 mg/0.5 mL, which was approved by the FDA in October 2021 for the
treatment of opioid overdose; and Tempol, an investigational
drug. In June 2020, we entered into a license agreement with
a third party to license rights under patents, patent applications
and related know-how of the licensor relating to Tempol. The
exclusive license includes the worldwide use under the licensed
patent rights and related rights for the fields of COVID-19
infection, asthma, respiratory syncytial virus infection, and
influenza infection, as well as the use of Tempol as a therapeutic
for reducing radiation-induced dermatitis in patients undergoing
treatment for cancer. We commenced Phase 2/3 clinical trial
start-up activities to examine the safety and efficacy of Tempol in
COVID-19 patients early in the infection and on September 2, 2021,
we announced the initiation of patient dosing in the trial. In
February 2022 we announced the enrollment and dosing of more than
100 subjects in the Phase 2/3 trial, and on March 14, 2022, we
announced that the Data Safety Monitoring Board, or DSMB,
overseeing the Phase 2/3 clinical trial met to evaluate the
clinical and safety data from the first planned interim analysis
and, following its evaluation, recommended that the study continue
without modification. The DSMB is composed of subject matter
experts and can unblind the data to determine the treatment effects
of the subjects in the trial. On June 1, 2022, we announced that
the DSMB had met again to evaluate interim clinical and safety data
for the trial and based on an interim review of the data,
determined that the study can continue as planned. Where
applicable, we intend to create low cost therapeutic alternatives
to existing treatments and to submit NDAs under Section 505(b)(2),
of the U.S. Food, Drug & Cosmetic Act, as amended, or FDCA, or
Section 505(j) Abbreviated New Drug Applications, or ANDAs, to the
FDA, in order to potentially reduce the time to market and to save
on costs, compared to those associated with Section 505(b)(1) NDAs
for new drug products.
Our
US Compounding Inc. subsidiary, or USC, which we acquired in April
2016 and which was registered as a human drug compounding
outsourcing facility under Section 503B of the FDCA and the U.S.
Drug Quality and Security Act, or DQSA, provided prescription
compounded medications, including compounded sterile preparations
and nonsterile compounds, to patients, physician clinics,
hospitals, surgery centers and other clients throughout most of the
United States. In July 2021, we sold certain assets relating
to USC’s human compounding pharmaceutical business and approved a
restructuring process to wind down the remaining USC business and
sell, liquidate or otherwise dispose of the remaining USC
assets. Effective October 31, 2021, USC surrendered its
Arkansas retail pharmacy permit and wholesaler/outsourcer permit
and is no longer selling compounded pharmaceutical or veterinary
products.
As
previously reported in a Current Report on Form 8-K filed with the
SEC on May 19, 2022, effective May 18, 2022, David J. Marguglio,
previously Senior Vice President and Chief Business Officer, was
appointed as the President and Chief Executive Officer of the
Company, and pursuant to a separation agreement and release entered
into between the company and Dennis J. Carlo, Ph.D., Dr. Carlo’s
separation from employment with the Company and all subsidiaries,
status as President and Chief Executive Officer of the Company and
resignation as a director of the Company and all subsidiaries was
effective on such date.
To
achieve our goals and support our overall strategy, we will need to
raise additional funding in the future and make significant
investments in, among other things, product development and working
capital.
SYMJEPI (epinephrine) Injection
Product
On
June 15, 2017, the FDA approved our SYMJEPI (epinephrine) Injection
0.3mg product for the emergency treatment of allergic reactions
(Type I) including anaphylaxis. SYMJEPI (epinephrine)
Injection 0.3mg is intended to deliver a dose of epinephrine, which
is used for emergency, immediate administration in acute
anaphylactic reactions to insect stings or bites, allergic reaction
to certain foods, drugs and other allergens, as well as idiopathic
or exercise-induced anaphylaxis for patients weighing 66 pounds or
more. On September 27, 2018, the FDA approved our lower dose
SYMJEPI (epinephrine) Injection 0.15mg product, for the emergency
treatment of allergic reactions (Type I) including anaphylaxis in
patients weighing 33 to 65 pounds.
In
July 2018, we entered into a Distribution and Commercialization
Agreement, or the Sandoz Agreement, with Sandoz Inc., or Sandoz, to
commercialize both of our SYMJEPI products. In January 2019,
we announced that Sandoz had launched SYMJEPI (epinephrine) 0.3 mg
Injection in the U.S. market, initially available in the
institutional setting. On July 9, 2019, we announced the full
launch (institutional and retail) by Sandoz of both dose forms of
the SYMJEPI injection products.
On
May 11, 2020, we announced that we entered into an agreement, or
the Termination Agreement, with Sandoz to terminate the Sandoz
Agreement and simultaneously announced that we entered into an
exclusive distribution and commercialization agreement, or the USWM
Agreement, with USWM, LLC, or USWM or US WorldMeds, for the United
States commercial rights for the SYMJEPI products, as well as for
our ZIMHI product. Under the terms of the USWM Agreement, we
appointed USWM as the exclusive distributor of SYMJEPI in the
United States and related territories, or the Territory, effective
upon the termination of the Sandoz Agreement, and of the ZIMHI
product if approved by the FDA for marketing, and granted USWM an
exclusive license under our patent and other intellectual property
rights and know-how to market, sell, and otherwise commercialize
and distribute the products in the Territory, in partial
consideration of an initial payment of $1,000,000 by USWM and
potential additional regulatory and commercial based milestone
payments. There can be no assurances that any of these
milestones will be met or that any milestone payments will be paid
to us. We retain rights to the intellectual property subject
to the USWM Agreement and to commercialize both products outside of
the Territory. In addition, we may continue to use the
licensed intellectual property (excluding certain of the licensed
trademarks) to develop and commercialize other products (with
certain exceptions), including products that utilize our Symject™
syringe product platform.
The
USWM Agreement provides that, after deducting the supply price and
subject to certain other deductions and adjustments, including an
allocation for USWM sales and distribution expenses from net sales
of the products, USWM will pay to us 50% of the net profit from net
sales, as each such term is defined in the USWM Agreement, of the
product in the Territory to third parties, determined on a
quarterly basis. We will be the supplier of the products to
USWM, and USWM will order and pay us a supply price for quantities
of products ordered. The agreement does not include minimum
payments to us by USWM, minimum requirements for sales of product
by USWM or, with certain exceptions, minimum purchase commitments
by USWM.
On March
21, 2022, we announced a voluntary recall of four lots of SYMJEPI
(epinephrine) Injection 0.15 mg (0.15 mg/0.3 mL) and 0.3 mg (0.3
mg/0.3 mL) Pre-Filled Single-Dose Syringes to the consumer level.
The four lots were recalled due to the potential clogging of the
needle preventing the dispensing of epinephrine. The recall is
being conducted with the knowledge of the FDA and USWM is handling
the entire recall process for the company, with company oversight.
As of the date of this Report, neither USWM nor we have received,
or are aware of, any adverse events related to this
recall.
SYMJEPI is
manufactured and tested for us by Catalent Belgium S.A. For
the manufacture of SYMJEPI, the company utilizes “Ready-to-Fill,”
or RTF, syringes that consist of a pre-assembled glass syringe
barrel with a staked-in stainless steel needle. During
routine inspection of epinephrine pre-filled syringe batches, a
small number of syringes with clogged needles were identified. An
initial investigation suggested a syringe component issue as the
likely cause of the observed needle clogging. Further investigation
confirmed the steel used in one specific stainless steel needle
batch as the root cause for the clogged syringes observed. The
company and the manufacturer have developed corrective and
preventive actions. New RTF syringes, which have been manufactured
using a different batch of steel for their needles, are being
sourced. Once Catalent has received the new syringes and begun to
resume the manufacture process for SYMJEPI, the company expects to
have additional information concerning the timing of resupplying
USWM with product to enable a relaunch of SYMJEPI, although there
can be no assurance concerning the timing of resumption of
manufacturing or resupplying USWM with product to enable a relaunch
of SYMJEPI. The company is committed to returning SYMJEPI to
the market after all stakeholders are satisfied that these
corrective actions should prevent a repeat of the observed failure
in future batches.
ZIMHI (naloxone) Injection
Naloxone
is an opioid antagonist used to treat narcotic overdoses.
Naloxone, which is generally considered the drug of choice
for immediate administration for opioid overdose, blocks or
reverses the effects of the opioid, including extreme drowsiness,
slowed breathing, or loss of consciousness. Common opioids
include morphine, heroin, tramadol, oxycodone, hydrocodone and
fentanyl.
On
December 31, 2018, we filed an NDA with the FDA relating to our
higher dose naloxone injection product, ZIMHI, for the treatment of
opioid overdose. Following the receipt of two Complete
Response Letters, or CRLs, from the FDA regarding our NDA for ZIMHI
and our resubmissions of the NDA, on October 18, 2021, we announced
that the FDA had approved ZIMHI for the treatment of opioid
overdose. On March 31, 2022, our commercial partner USWM and
the company issued a press release announcing the commercial launch
of ZIMHI. USWM has indicated to the company that initial
feedback from the field has been positive. A recently launched
website enables institutional customers to order and receive
product directly. USWM has indicated to the company that
progress has continued in adding ZIMHI to formularies for payors
and PBMs, and that in many states ZIMHI has been added to the
standing orders, which permits pharmacies to dispense ZIMHI without
a prescription.
Tempol
(APC400)
On
June 12, 2020, we entered into a license agreement with a third
party entity, or the Licensor, to license rights under
patents, patent applications and related know-how of Licensor
relating to Tempol, an investigational drug. The exclusive
license includes the worldwide use under the licensed patent rights
and related rights of Tempol for the fields of COVID-19 infection,
asthma, respiratory syncytial virus infection, and influenza
infection. In addition, the exclusive license includes the
use of Tempol as a therapeutic for reducing radiation-induced
dermatitis in patients undergoing treatment for cancer.
Tempol
is a redox cycling nitroxide that promotes the metabolism of many
reactive oxygen species and improves nitric oxide
bioavailability. It has been studied extensively in animal
models of oxidative stress and inflammation. Overall, Tempol
acts as both a super-oxide dismutase mimetic and also has
demonstrated anti-inflammatory, anticoagulant activity and
antiviral activity. Inflammation and oxidative stress occur
in various disease states including COVID-19. Both
inflammatory cytokines and reactive oxygen species (ROS) from cells
of the immune system called macrophages and neutrophils damage the
lung in Acute Respiratory Distress Syndrome (ARDS). Many
published articles describing animal models of ARDS show Tempol
caused a decrease in lung inflammation and preserved lung pathology
associated with acute and chronic lung injury. In animal
models, Tempol has been shown to decrease proinflammatory cytokines
(cytokine storm), and through its antioxidant activity has been
shown to decrease the harmful effects of ROS. In addition,
Tempol has been shown to decrease platelet aggregation, a problem
observed in many COVID-19 patients. More recently, Tempol has
been shown to have antiviral activity against the virus that causes
COVID-19 in-vitro and may have synergy with the antiviral
remdesivir.
Preclinical
studies of Tempol have shown it to have antiviral,
anti-inflammatory, and antioxidant activity. The company
believes this unique mechanism of action, combined with a
relatively benign safety profile shown in prior preclinical
studies, could provide physicians with a tool to intervene to slow
or stop progression of COVID-19 or inflammation at multiple phases
of the disease. If proven, this could provide Tempol with an
advantage over oral antiviral drugs the FDA has cleared for the
treatment of COVID-19.
On
January 28, 2021, we announced that in collaboration with the Human
Immune Monitoring Center at Stanford University we conducted a
study to investigate the effects of Tempol on immune cells from
COVID-19 patients, and that preliminary data from that study showed
that Tempol decreases cytokines from stimulated cells from COVID-19
patients. In March 2021, we announced that in studies
conducted at Galveston National Laboratory, or GNL, University of
Texas Medical Branch, hamsters challenged with the virus that
causes COVID-19 (SARS-CoV-2) showed decreased inflammation in the
lungs when treated with Tempol compared to controls, and on March
22, 2022, we announced that in studies conducted at the GNL,
hamsters challenged with high levels of the Omicron variant of the
SAR-CoV-2 virus, resulted in significant decrease of inflammation
in the lungs of animals treated with Tempol compared to
controls.
In
July 2020, we submitted to the FDA a pre-IND package which provided
a protocol for a Phase 2/3 study examining Tempol in COVID-19
patients, and the FDA provided comments regarding the prospective
use of Tempol in a randomized placebo controlled trial. In
January 2021, we submitted an IND to the FDA for the
investigational use and proposed clinical trial of Tempol for the
treatment of COVID-19. The goal of the study titled, “A Phase
2/3, Adaptive, Randomized, Double-Blind, Placebo-Controlled Study
to Examine the Effects of Tempol (MBM-02) on Preventing COVID-19
Related Hospitalization in Subjects with COVID-19 Infection,” is to
examine the safety and activity of Tempol in COVID-19 patients
early in the infection. In addition to safety, the study will
examine markers of inflammation and the rate of hospitalization for
patients taking Tempol versus placebo early in COVID-19
infection. On June 11, 2021, we announced that clinical trial
start-up activities were underway, that the company was carrying
out those activities with a large clinical research organization,
that commenced activities included site identification and
initiation, data base production, vendor management, and the
establishment of an independent data safety monitoring board, or
DSMB, of infectious disease experts who will review the safety and
efficacy of the trial, and that clinical trial drug product and
placebo have also been obtained. On September 2, 2021, we
announced the initiation of patient dosing in the trial. Our
trial requires individuals with moderate COVID-19 symptoms to be
unvaccinated and have co-morbidities such as heart disease, as
those patients typically have worse outcomes, requiring
hospitalization. We initially experienced enrollment
challenges primarily as a result of the decrease in COVID-19
infections and increased immunizations in the United States. We
took certain responsive steps including opening new sites across
the U.S. and modifying the protocol to include vaccinated
subjects.
In
February 2022 we announced the enrollment and dosing of more than
100 subjects in the Phase 2/3 trial. On March 14, 2022, we
announced that the DSMB overseeing the Phase 2/3 clinical trial met
to evaluate the clinical and safety data from the first planned
interim analysis and, following its evaluation, recommended that
the study continue without modification. On June 1, 2022, we
announced that the DSMB had met again to evaluate interim clinical
and safety data for the trial and based on an interim review of the
data, determined that the study can continue as planned.
On
July, 29, 2022, we announced that we had enrolled more than
200 patients in the trial. We believe that we have nearly completed
patient enrollment needed for the next DSMB meeting for our Phase
2/3 clinical trial. The DSMB is scheduled to meet near the end of
September 2022 to review unblinded interim data including safety
and efficacy. The DSMB is comprised of infectious disease
experts who independently review the unblinded trial data and make
recommendations. The company will not have access to unblinded
trial data until the trial has concluded and the final study data
is compiled and reviewed. At the September meeting, the DSMB plans
to evaluate the primary efficacy endpoint, the sustained resolution
of COVID-19 symptoms, as well as safety in individuals who are at
high risk for disease progression. If the DSMB recommendations
indicate that the analysis of the clinical and safety data from the
trial demonstrates significant efficacy, the DSMB might recommend
stopping the trial in light of the demonstrated efficacy in even a
relatively small dataset, and the company likely would submit a
clinical study report to the FDA and request a meeting to discuss
the findings and next regulatory steps, as well as requirements for
applying for Emergency Use Authorization. If positive trends are
observed in favor of the Tempol treatment group but significant
efficacy is not demonstrated, the DSMB may recommend that we
continue the study and enroll additional subjects. If no efficacy
is demonstrated, then the company would likely stop the trial. In
addition, the company is exploring other potential indications for
Tempol and seeking both government and non-government funding to
further development.
US Compounding, Inc.
On
July 30, 2021, the company and its wholly-owned USC subsidiary
entered into an Asset Purchase Agreement, or the USC Agreement,
effective as of July 30, 2021, or the Effective Date, with Fagron
Compounding Services, LLC d/b/a Fagron Sterile Services (the
“Purchaser”), providing for the sale and transfer by USC and the
purchase by the Purchaser, effective as of the Effective Date, of
certain assets of USC related to its human compounding
pharmaceutical business, or the Business, including certain
customer information and information on products sold to such
customers by USC, together, the “Book of Business,” including
related formulations, know-how, and expertise regarding the
compounding of pharmaceutical preparations, clinical support
knowledge and other data and certain other information relating to
the customers and products, collectively referred to as the
“Assets.” After the Effective Date, Purchaser may use the
Book of Business to secure customers for its products and services
and may otherwise use the Book of Business. Pursuant to the
USC Agreement, the Purchaser will not assume any liabilities of
USC, and the transaction did not include the sale or transfer of
any USC equipment, buildings or real property, or any products,
information, agreements, relationships or other assets relating to
the veterinary business of USC.
The
USC Agreement provides that the consideration payable by the
Purchaser to the company for the Assets sold and transferred will
consist of the following amounts: (i) a payment of $107,500 on the
Effective Date; and (ii) monthly payments in an amount equal to (a)
two (2.0) times the amount actually collected by Purchaser or its
affiliates for sales of products or services made to certain
identified customers included in the Book of Business during the
12-month period following the Effective Date, or the “Payment
Term.” and (b) a lower multiple of the amount actually collected by
Purchaser or its affiliates for sales of products or services made
to certain other customers included in the Book of Business.
In addition, to the extent that such product or service is
supplied by USC pursuant to the supply arrangement provided for by
the USC Agreement, or the “Supply Agreement,” the Purchaser agreed
to reimburse USC for the cost of such product or service, as set
forth in the Supply Agreement. The USC Agreement provides
that during the Payment Term, the Purchaser will maintain the Book
of Business and use commercially reasonable efforts to maximize the
consideration payable to the company and collect amounts
outstanding related to sales of products or services made to
customers included in the Book of Business. However, the USC
Agreement does not provide for any minimum purchase price
consideration to the company or USC. Accordingly, there is no
assurance as to the amount of purchase price consideration that the
company or USC may ultimately receive as a result of the
transactions contemplated by the USC Agreement. Certain of
the customers included in the Book of Business may decide to not
purchase products or to reduce their purchases of products from
Purchaser after the Effective Date, and Purchaser may, in good
faith, decide not to change its product mix from those products
offered by Purchaser as of the Effective Date and may decide not to
carry all of the products offered and sold by USC as part of the
Business prior to the Effective Date.
The USC
Agreement includes certain restrictive covenants of the company and
USC, including noncompetition provisions, pursuant to which, for a
period of five years from the Effective Date, or the “Restricted
Period,” and subject to certain exceptions, the company and USC
have agreed, among other matters, not to solicit any Business from
any customers included in the Book of Business or engage in certain
other activities. Each of the USC Agreement and the Supply
Agreement includes standard indemnification provisions, and a
number of other covenants and agreements of the parties concerning
the transactions contemplated by the USC Agreement and the Supply
Agreement, including concerning cooperation and assistance,
confidentiality, non-disparagement and the transfer of information
and documents, compliance with laws, and personnel matters.
The USC Agreement includes indemnification provisions
pursuant to which the company and USC agreed to indemnify the
Purchaser and certain related parties against losses incurred by
such indemnified parties arising or resulting from certain matters
including breach of the USC Agreement by USC and third-party claims
relating to product sales to customers by USC before the Effective
Date. In connection with the transaction, the company accrued
at December 31, 2021 and paid in January 2022 a $700,000 liability
for a transaction fee payable to a financial advisor.
Plan for the Remaining Operations, Business and Assets of
USC
In
light of a number of factors including the sale of assets to the
Purchaser pursuant to the USC Agreement, in August 2021 the Board
approved a restructuring process of winding down the remaining
operations and business of USC and selling, transferring or
disposing of the remaining assets of USC. Effective October
31, 2021, USC surrendered its Arkansas retail pharmacy permit and
wholesaler/outsourcer permit and is no longer selling compounded
pharmaceutical or veterinary products. The restructuring and
winding down includes, without limitation, the termination of USC’s
veterinary business and USC sales to veterinary customers; the
termination of employment of all or substantially all employees
engaged in the USC business (except as determined to be necessary
or appropriate in connection with the company’s and USC’s
performance of their obligations under the USC Agreement and the
transactions contemplated thereby, or in connection with resolving
matters relating to the winding down of USC’s business), and
providing such notices and making such payments to such employees
as the officers of the company determine are necessary or
appropriate, including as maybe required by law or as maybe
provided for pursuant to any retention agreement, severance
agreement, incentive agreement, or other written agreement with
such employees; the sale or other disposition from time to time of
the remaining equipment, real property, buildings and tangible and
intangible assets relating to USC’s business that are unrelated to
the USC Agreement; the termination, assignment or other resolution
of agreements with third parties relating to the USC business;
making regulatory filings and taking appropriate actions with
federal and state regulatory authorities in connection with the
winding down and winding up of USC’s business; and taking such
other actions as the officers of the company or USC (as
appropriate) determine are necessary or appropriate in connection
with the restructuring and the winding down and winding up of the
remaining business, operations and assets of USC. The company
has sold and disposed of certain customer information and other
assets related to USC’s veterinary compounded pharmaceuticals
business, and will continue the process of selling or otherwise
disposing of the remaining assets relating to USC’s business.
In
connection with the winding down of the USC business, we incurred
significant expenses and made a number of payments. The
substantial majority of cash payments related to personnel-related
restructuring charges, including without limitation costs
associated with providing termination payments to USC employees,
employee salaries and incentive payments during a transition period
after the effective date of the sale of the Assets pursuant to the
USC Agreement, severance or other termination benefits or payments
in connection with workforce reduction and termination of
employment, and payments pursuant to retention agreements or
incentive agreements with certain employees, were made during the
third and fourth quarters of 2021 and were approximately $1.6
million. In addition, as part of the winding down of USC’s
business, we have incurred other costs. We also expect to
incur commissions and other costs associated with the sale or other
disposition of certain USC tangible assets such as building,
property and certain equipment.
As
a result of the transactions contemplated by the USC Agreement and
the restructuring activities described above, the company’s
financial results for the third and fourth quarters of 2021 include
approximately $8.6 million for the impairment charges of inventory,
fixed assets, intangibles, goodwill and right of use assets. The
impairment charges that the company incurred and expects to incur
in connection with the matters described above are subject to a
number of assumptions, and the actual amount of impairment charges
may differ materially from those estimated by the company. In
addition, the company may determine in the future that additional
impairments of assets are appropriate in connection with the
matters described above.
Going Concern and Management Plan
The
financial statements included elsewhere herein for the three and
six months ended June 30, 2022, were prepared under the assumption
that we would continue our operations as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities during the normal course of business. We have incurred
substantial recurring losses from continuing operations, have used,
rather than provided, cash in our continuing operations, and are
dependent on additional financing to fund operations. We incurred a
net loss of approximately $18.8 million and $24.7
million for the six months ended June 30, 2022 and 2021.
As of June 30, 2022, we had cash and cash equivalents of
approximately $8.9 million, an accumulated deficit of approximately
$296.8 million and liabilities of approximately $10.7 million.
These conditions raise substantial doubt about our ability to
continue as a going concern. The financial statements
included elsewhere herein do not include any adjustments to reflect
the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this
uncertainty.
Our
management intends to attempt to secure additional required funding
through equity or debt financing if available, sales or
out-licensing of product candidates or intellectual property
assets, revenues relating to supply and sale of SYMJEPI and ZIMHI
products and share of net profits received relating to sales in the
U.S. of our SYMJEPI and ZIMHI products, seeking partnerships or
commercialization agreements with other pharmaceutical companies or
third parties to co-develop and fund research and development or
commercialization efforts of our products, from a business
combination, or similar transactions. However, there can be
no assurance that we will be able to obtain any sources of funding.
As of the date of this Report, we have a limited number of
authorized shares available for issuance in funding transactions.
Such additional funding may not be available, may not be available
on reasonable terms, and, in the case of equity financing
transactions, could result in significant additional dilution to
our stockholders. If we do not obtain required additional
equity or debt funding, our cash resources will be depleted and we
could be required to materially reduce or suspend operations, which
would likely have a material adverse effect on our business, stock
price and our relationships with third parties with whom we have
business relationships, at least until additional funding is
obtained. If we do not have sufficient funds to continue
operations, we could be required to seek bankruptcy protection or
other alternatives that could result in our stockholders losing
some or all of their investment in us.
Funding
that we may receive during fiscal 2022 is expected to be used to
satisfy existing and future obligations and liabilities and working
capital needs, to support commercialization of our products and
conduct the clinical and regulatory work to develop our product
candidates, to begin building working capital reserves and to help
fund a number of matters, which may include, without limitation,
some or all of the following:
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support commercialization of our
SYMJEPI and ZIMHI (naloxone) products;
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continue development of our
product candidates;
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pursue the development of other
product candidates or technologies that we may develop or
acquire;
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fund clinical trials of
Tempol;
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expand research and development
activities;
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access manufacturing,
commercialization and sales capabilities;
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implement additional internal
systems and infrastructure;
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satisfy our current and future
obligations and liabilities
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maintain, defend or expand the
scope of our intellectual property portfolio;
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acquire products, technologies or
intellectual property or companies; and
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hire management, sales, research,
development and clinical personnel.
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Results
of Operations
Our consolidated results of operations are presented for the
three months and six months ended June 30, 2022 and
2021. Certain financial results (revenues and expenses)
relating to the business formerly conducted by USC are reflected in
Note 2, Discontinued Operations and Assets Held for
Sale, of the notes to the consolidated financial
statements appearing elsewhere in this Report. Unless
otherwise noted, the discussion below, and the revenue and expense
amounts discussed below, are based on and relate to the continuing
operations of the company, which we sometimes refer to as our drug
development and commercialization business.
Three Months Ended June 30, 2022 and 2021
Revenues. Revenues were approximately $40,000 and
$1,275,000 for the three months ended June 30, 2022 and 2021,
respectively. Revenues for the three months ended June 30,
2022, consisted primarily of revenues from the amortization of
deferred revenue relating to a milestone payment received from USWM
in connection with entering into the USWM Agreement. The
decrease was primarily attributable to a decrease in revenues
relating to sales of SYMJEPI (epinephrine) Injection 0.3mg and
0.15mg. No revenues relating to SYMJEPI were reported for the
second quarter of 2022, due to its manufacturing hold and the
voluntary product recall announced in March 2022. As disclosed
elsewhere in this Report, including above under the heading
“General - SYMJEPI (epinephrine) Injection Product,” the
manufacturing of SYMJEPI is currently on hold. The company and
the manufacturer have developed corrective and preventive actions.
New RTF syringes, which have been manufactured using a different
batch of steel for their needles, are being sourced. Once Catalent
has received the new syringes and begun to resume the manufacture
process for SYMJEPI and all stakeholders are satisfied that these
corrective actions should prevent similar issues in future batches,
the company expects to have additional information concerning the
timing of resupplying USWM with product to enable a relaunch of
SYMJEPI, although there can be no assurance concerning the timing
of resumption of manufacturing or resupplying USWM with product to
enable a relaunch of SYMJEPI. There were no product revenues
for ZIMHI during three months ended June 30, 2022 because the
product was only recently launched and the product that was
delivered to USWM in late March 2022 was intended to be used for
the product launch. No additional ZIMHI product was delivered to
USWM during the three months ended June 30, 2022.
Cost of
Goods Sold. Our cost of goods sold includes direct
and indirect costs to manufacture formulations and sell products,
including active pharmaceutical ingredients, personnel costs,
packaging, storage, shipping and handling costs, the write-off of
obsolete inventory and other related expenses. Consolidated cost of
goods sold was approximately $689,000 and $1,796,000 for the three
months ended June 30, 2022 and 2021, respectively. The gross loss
for the three months ended June 30, 2022 was approximately $649,000
compared to approximately $521,000 for the three months ended June
30, 2021. Cost of goods sold for the second quarter of 2022
compared to the comparable period of 2021 decreased primarily due
to the decrease in direct material costs of approximately
$1,085,000 largely resulting from decreased sales of
SYMJEPI.
Selling,
General and Administrative Expenses. Selling, general and
administrative, or SG&A, expenses consist primarily of
consulting and employee compensation, professional fees which
include legal, accounting and audit fees, and depreciation and
amortization expenses. SG&A expenses for the three months
ended June 30, 2022 and 2021 were approximately $4,206,000 and
$4,934,000, respectively. The decrease in SG&A expenses
was primarily due to a decrease in legal expenses of approximately
$491,000 mainly attributable to an ongoing legal proceeding and a
decrease in compensation expenses of approximately $319,000, offset
primarily by an increase in insurance expenses. The decrease in
compensation expenses during the three months ended June 30, 2022
compared to the same period in 2021 was due to a lower stock based
compensation expense resulting primarily from the modification of
certain outstanding equity awards in connection with accelerated
vesting pursuant to a separation agreement and a reduction in
bonus expense, offset mainly by employment separation payments made
during the second quarter of 2022.
Research
and Development Expenses. Our research and
development, or R&D, costs are expensed as incurred.
Non-refundable advance payments for goods and services to be used
in future research and development activities are recorded as an
asset and are expensed when the research and development activities
are performed. R&D expenses were approximately
$3,321,000 and $2,197,000 for the three months ended June 30,
2022 and 2021, respectively. The increase was primarily
attributable to an increase in costs related to our ongoing
clinical trial of our Tempol product candidate of approximately
$1,735,000 (primarily CRO expenses), offset primarily by a decrease
in development spending for SYMJEPI, ZIMHI and other projects of
approximately $576,000.
Other
Income (Expense). Other Income (Expense) consists
primarily of interest income, interest expense, and changes to the
fair value of warrant liabilities. Other income (expense) for the
three months ended June 30, 2022 and 2021 was approximately
($160,000) and ($45,000), respectively. The increase in other
expenses during the three-month period ended June 30, 2022,
compared to the same period in 2021, was primarily attributable to
the change in estimate of variable consideration of approximately
$758,000 related to the sale of certain assets to Fagron, which
reflects a reduction in the estimated consideration receivable from
the Purchaser pursuant to the terms of the USC Agreement. This loss
was offset primarily by an increase in other income of
approximately $500,000 from insurance proceeds and a gain on the
change in fair value of warrants of approximately $63,000 and
a gain on the repayment of the Second Draw of the PPP loan due to
the lending bank waiving certain processing fees of approximately
$63,000.
Loss
from Discontinued Operations. The company recorded a
net loss from discontinued operations, after taxes, of
approximately $62,000 and $1,617,000 for the three months ended
June 30, 2022 and 2021, respectively. The decrease in loss
from discontinued operations during the three months ended June 30,
2022, compared to the three months ended June 30, 2021, was
primarily due to the absence of any revenues or costs of goods sold
and significantly reduced SG&A expenses due to the cessation of
USC's operating activities. The loss from discontinued operations
for the three months ended June 30, 2021, primarily reflected
revenues of approximately $2.7 million relating to sales of USC
products, cost of goods sold of approximately $2.1 million and
SG&A expenses of approximately $2.2 million, relating to the
operations of USC's compounding pharmacy
business.
Six
Months Ended June 30, 2022 and 2021
Revenues. Revenues were approximately $1,194,000
and $2,608,000 for the six months ended June 30, 2022 and 2021,
respectively. The decrease was primarily attributable to a decrease
in revenues relating to sales of SYMJEPI (epinephrine) Injection
0.3mg and 0.15mg of approximately $2,558,000, offset by an increase
of sales of ZIMHI of approximately $1,144,000. No revenues relating
to SYMJEPI were reported for the second quarter of 2022, due
to the manufacturing hold and the voluntary product recall
announced in March 2022. As disclosed elsewhere in this Report,
including above under the heading “General - SYMJEPI (epinephrine)
Injection Product,” the manufacturing of SYMJEPI is currently on
hold. The company and the manufacturer have developed
corrective and preventive actions. New RTF syringes, which have
been manufactured using a different batch of steel for their
needles, are being sourced. Once Catalent has received the new
syringes and begun to resume the manufacture process for SYMJEPI
and all stakeholders are satisfied that these corrective actions
should prevent similar issues in future batches, the company
expects to have additional information concerning the timing of
resupplying USWM with product to enable a relaunch of SYMJEPI,
although there can be no assurance concerning the timing of
resumption of manufacturing or resupplying USWM with product to
enable a relaunch of SYMJEPI.
Cost of Goods Sold. Our cost of goods sold
includes direct and indirect costs to manufacture formulations and
sell products, including active pharmaceutical ingredients,
personnel costs, packaging, storage, shipping and handling costs,
the write-off of obsolete inventory and other related expenses.
Cost of goods sold was approximately $2,153,000 and $3,641,000 for
the six-months ended June 30, 2022 and 2021, respectively. The
gross loss for the six-months ended June 30, 2022 was approximately
$958,000 compared to approximately $1,033,000 for the six-months
ended June 30, 2021. Cost of goods sold for the six months ended
June 30, 2022 compared to the comparable period of 2021 decreased
by approximately $1,489,000, primarily due to a decrease in direct
materials costs of approximately $2,302,000 largely resulting from
decreased sales of SYMJEPI and a decrease in obsolescence and
defective inventory costs of approximately $314,000, offset by an
increase in direct material costs for the sales of ZIMHI of
approximately $1,152,000.
Selling,
General and Administrative Expenses. Selling, general and
administrative, or SG&A, expenses consist primarily of
consulting and employee compensation, professional fees which
include legal, accounting and audit fees, and depreciation and
amortization. SG&A expenses for the six months ended
June 30, 2022 and 2021 were approximately $7,589,000 and $8,453,000
respectively. The decrease in SG&A expenses was primarily
attributable to a decrease in compensation expenses of
approximately $769,000 and a decrease in legal expenses of
approximately $640,000 mainly attributable to an ongoing legal
proceeding, offset by an increase in consulting and outside
services of approximately $320,000 for accounting and investor
relations services, an increase in insurance costs of approximately
$115,000 and an increase in recruitment fees of approximately
$104,000. The decrease in compensation expenses during the six
months ended June 30,2022 compared to the same period in 2021 was
due to a lower stock based compensation expense resulting primarily
from the modification of certain outstanding equity awards in
connection with accelerated vesting pursuant to a separation
agreement and a reduction in bonus expense, offset mainly by
employment separation payments made during the first half of
2022.
Research and Development Expenses. Our research
and development, or R&D, costs are expensed as
incurred. Non-refundable advance payments for goods and
services to be used in future research and development activities
are recorded as an asset and are expensed when the research and
development activities are performed. R&D
expenses were approximately $7,542,000 and $4,446,000 for the
six months ended June 30, 2022 and 2021, respectively. The increase
was primarily attributable to an increase in development spending
on our product candidate Tempol of approximately $3,864,000
(primarily CRO costs as the clinical trial progresses), offset by a
decrease in development spending for SYMJEPI, ZIHMI and other
projects of approximately $474,000 and a decrease in compensation
expenses for research and development employees by approximately
$294,000 primarily related to stock based compensation.
Other
Income (Expense). Other Income (Expense) consists
primarily of interest income, interest expense, changes to the
fair value of warrant liabilities, and other transactions. Other
income (expense) for the six months ended June 30, 2022 and 2021
was approximately ($2,436,000) and ($7,687,000),
respectively. The decrease in other expenses during the six
months ended June 30, 2022, compared to the same period in 2021,
was primarily attributable to a decrease in expense associated with
the change in fair value of warrants of approximately $7,714,000
and an increase in other income of approximately $500,000 from
insurance proceeds, offset by the contingent loss accrual
associated with the Second Draw PPP Loan of approximately
$1,787,000 and the change in estimate of variable consideration of
approximately $1,198,000 related to the sale of certain assets to
Fagron, pursuant to the USC Agreement.
Loss
from Discontinued Operations. The company recorded a
net loss from discontinued operations of approximately $227,000 and
$3,074,000 for the six months ended June 30, 2022, and 2021,
respectively. The decrease in loss from discontinued
operations during the six months ended June 30, 2022, compared to
the six months ended June 30, 2021, primarily resulted from the
absence of any revenues or costs of good sold expenses and
significantly reduced SG&A expenses due to the cessation of
USC’s operating activities. The loss from discontinued
operations for the six months ended June 30, 2021, primarily
reflected revenues of approximately $5.5 million relating to sales
of USC products, cost of goods sold of approximately $3.9 million
and SG&A expenses of approximately $4.6 million, relating to
the operations of USC's compounding pharmacy
business.
Liquidity and
Capital Resources
We have incurred net losses from our continuing and
discontinued operations of approximately $18.8 million and $24.7
million for the six months ended June 30, 2022 and 2021,
respectively. Since inception, and through June 30, 2022, we have
an accumulated deficit of approximately $296.8 million. Since
inception and through June 30, 2022, we have financed operations
principally through public and private issuances of common stock,
preferred stock and warrants and through debt
financing.
We will need additional
funding in the future to satisfy our existing and future
obligations and liabilities and working capital needs, to support
commercialization of our products and conduct clinical and
regulatory work to develop our product candidates, to begin
building working capital reserves, and for other purposes. We
intend to seek to finance future cash needs primarily through
proceeds from equity or debt financings, loans, share of profits
anticipated to be received relating to sales in the U.S. of our
SYMJEPI and ZIMHI products, sales of assets, out-licensing
transactions, and/or collaborative agreements with corporate
partners.
As of
June 30, 2022, we had cash, cash equivalents and restricted cash of
approximately $8.9 million. Total assets were approximately $17.7
million and $38.3 million as of June 30, 2022 and December 31, 2021
respectively. Current assets exceeded current liabilities by
approximately $5.6 million as of June 30, 2022.
Net cash used in operating activities for the six months ended
June 30, 2022 and 2021, was approximately $16.9 million and $21.3
million, respectively. Net cash used in operating activities for
both periods were due to operating losses and, with respect to the
six months ended June 30, 2022, the payment of product recall
liability in 2022 and an approximately $1.4 million separation
payment made to Dr. Carlo in connection with his employment
separation during the second quarter of 2022, as compared to the
six months ended June 30, 2021.
Net cash provided by investing activities was approximately
$2.5 million for six months ended June 30, 2022 and net cash
used in investing activities was approximately $0.8 million for six
months ended June 30, 2021. The net cash provided by investing
activities for the six months ended June 30, 2022, was primarily
due to payments received from Fagron from the sale of USC
assets, and net cash used in investing activities for the six
months ended June 30, 2021, was primarily due to purchase of
capital equipment.
Net cash provided by financing activities was $0 and
approximately $56.0 million for the six months ended June 30,
2022 and 2021, respectively. Net cash provided by financing
activities for the six months ended June 30, 2021, was primarily
due to proceeds from the issuance of common stock in an
underwritten public offering, exercise of investor warrants
and proceeds from the Second Draw PPP Loan.
PPP
Loans. As discussed in Note 7 to the financial statements
included elsewhere herein, we applied for and obtained loan funding
under the PPP pursuant to the PPP Loan and PPP Note in the
principal amount of $3,191,700, the balance of which has been
forgiven, and under the Second Draw PPP Loan and PPP2 Note in
the principal amount of $1,765,495, the balance of which was also
initially forgiven. However, as a result of the investigation
by the Civil Division described elsewhere under the heading “Legal
Proceedings” and in Note 9 to the consolidated financial statements
included elsewhere herein, in June 2022, the company paid a total
of $1,787,417 in repayment of the Second Draw PPP Loan
principal and related interest and fees. Our PPP loans and
applications for forgiveness of loan amounts remain subject to
future review and audit by SBA for compliance with program
requirements set forth in the PPP Interim Final Rules and in the
Borrower Application Form, including without limitation the
required economic necessity certification by the company that was
part of the PPP loan application process. Accordingly, the company
is subject to audit or review by federal or state regulatory
authorities as a result of applying for and obtaining PPP loans or
obtaining forgiveness of those loans. If we were to be
audited or reviewed and receive an adverse determination or finding
in such audit or review, including that we were not eligible to
apply for or receive the loan, we could be required to return or
repay the full amount of the applicable loan and could be subject
to additional fines or penalties, which could reduce our liquidity
and adversely affect our business, financial condition and results
of operations.
As noted above under the
heading “Going Concern and Management Plan,” through June 30,
2022, we have incurred substantial losses. We will
be required to devote significant cash resources in order to
continue development and commercialization of our product
candidates and to support our other operations and
activities. The availability of required additional funding
cannot be assured. As of the date of this Report, we have a
limited number of authorized shares available for issuance in
funding transactions. In addition, an adverse outcome in legal or
regulatory proceedings in which we are or in the future could be
involved could adversely affect our liquidity and financial
position. See Note 9 of the notes to our consolidated
financial statements included elsewhere herein. If in the
future we are not able to obtain additional required equity or debt
funding, our cash resources could be depleted and we could be
required to materially reduce or suspend operations. No
assurance can be given as to the timing or ultimate success of
obtaining future funding. Even if we are successful in
obtaining required additional funding to permit us to continue
operations at the levels that we desire, substantial time may pass
before we obtain regulatory marketing approval for any additional
specialty pharmaceutical products and begin to realize revenues
from sales of such additional products. No assurance can be given
as to the timing or ultimate success of obtaining any required
future funding. In addition, as a result of the COVID-19 pandemic
and actions taken to slow its spread, national or global
developments, inflation or other economic considerations or other
factors, there can be no assurance that deterioration in credit and
financial markets will not occur, which would make it more
difficult, or more costly or dilutive, to obtain any necessary debt
or equity financing.
As disclosed elsewhere
in this Report, including in Part II, Item 1, “Legal Proceedings,”
on May 11, 2021, each of the company and its USC subsidiary
received a grand jury subpoena from the U.S. Attorney’s Office for
the Southern District of New York issued in connection with a
criminal investigation, requesting a broad range of documents and
materials relating to, among other matters, certain veterinary
products sold by the company’s USC subsidiary, certain practices,
agreements and arrangements relating to products sold by USC,
including veterinary products, and certain regulatory and other
matters relating to the company and USC. The Audit Committee of the
Board engaged outside counsel to conduct an independent internal
investigation to review these and other matters. In addition to the
subpoenas from the USAO, the company has also received requests
from the SEC for the voluntary production of documents and
information relating to the subject matter of the USAO’s subpoenas
and certain other matters. The company has produced documents
and will continue to produce and provide documents in response to
the subpoenas and requests. The company intends to cooperate
with the USAO the SEC and the Civil Division. At this time, the
company is unable to predict the duration, scope, or outcome of the
investigations by the USAO, SEC, Civil Division or other agencies,
or determine what, if any, proceedings the USAO, SEC, Civil
Division or other federal or state authorities may initiate, what,
if any, remedies or remedial measures the USAO, SEC, the Civil
Division, or other federal or state authorities may seek, or what,
if any, impact the foregoing matters may have on the company’s
business, previously reported financial results, financial results
included in this Report, or future financial results. The foregoing
matters may divert management’s attention, cause the company to
suffer reputational harm, require the company to devote significant
financial resources, subject the company and its officers and
directors to civil or criminal proceedings, and depending on the
resolution of the matters or any proceedings, result in fines,
penalties, equitable remedies, and affect the company’s business,
previously reported financial results, financial results included
in this Report, or future financial results. The occurrence of any
of these events could have a material adverse effect on the
company’s business, financial condition and results of operations.
Material Cash Requirements
Based on our
current and anticipated level of operations, we do not believe that
our cash, cash equivalents and short-term investments, together
with anticipated revenues from operations and amounts that we
expect to receive as a result of our sales of assets relating to
our former USC business, will be sufficient to meet our anticipated
operating expenses, capital expenditures and obligations for at
least 12 months from the date of this Report. As a result,
before the end of 2022 or thereafter during such 12-month period,
we will require additional capital to sustain operations, satisfy
our obligations and liabilities, help fund the development and
commercialization of our products and product candidates, conduct
research, development and trials relating to our product
candidates, and fund our ongoing operations, acquire product
candidates or technologies, or for other purposes, and we intend to
seek to raise additional capital during 2022 and/or
thereafter. As of the date of this Report, we have a limited
number of authorized shares available for issuance in funding
transactions. Additional required capital may not be available on a
timely basis, on favorable terms, or at all, and such funding, if
raised, may not be sufficient to meet our obligations or enable us
to continue to implement our long-term business strategy.
As
of June 30, 2022, we had an operating lease for office space for
our offices in San Diego, California, with a remaining term
expiring in November 2023. Monthly rent through the remaining
term of the lease is approximately $32,000 per month. We also
have a lease agreement for space located in Conway, Arkansas,
relating to the compounding pharmaceutical products business
formerly conducted by our USC subsidiary, with a current term
expiring December 31, 2023. As a result of the sale of assets
pursuant to the USC Agreement and the winding down of USC’s
remaining business, the company will not need the leased property.
Monthly rent for the remaining term of this lease is approximately
$10,800 per month. See Note 6 of the notes to the
consolidated financial statements included elsewhere herein for
additional information about our lease obligations.
We
have entered into arrangements with clinical sites and clinical
research organizations, or CROs, for the conduct of our clinical
trials. We make payments to these clinical sites and CROs based in
part on the number of eligible patients enrolled, the length of
their participation in the clinical trials and activities
undertaken by the clinical sites and CROs. At this time, due to the
variability associated with clinical site agreements, CRO
agreements and manufacturing agreements, we are unable to estimate
with certainty the future costs we will incur, including in
connection with our ongoing Phase 2/3 clinical trial relating to
Tempol, but such expenses may be material. In addition, we have
entered into agreements and arrangements with third parties for the
manufacture and supply of clinical and commercial materials and
drug products, including for our SYMJEPI and ZIMHI products and our
current clinical trial for our Tempol product candidate. In some of
our agreements with manufacturers, we have a production threshold
commitment where we would be required to pay for maintenance fees
if we do not meet certain periodic purchase order minimums.
Maintenance fees for the three months and six months ended June
30,2022 were $0. Under certain of these agreements, we may be
subject to penalties in the event that we prematurely terminate
these agreements. We intend to use our current financial resources
to fund our obligations under these commitments.
As
disclosed elsewhere in this Report, on March 21, 2022, we announced
a voluntary recall of four lots of SYMJEPI (epinephrine) Injection
0.15 mg (0.15 mg/0.3 mL) and 0.3 mg (0.3 mg/0.3 mL) Pre-Filled
Single-Dose Syringes to the consumer level, due to the potential
clogging of the needle preventing the dispensing of epinephrine.
USWM is handling the entire recall process for the company, with
company oversight. SYMJEPI is manufactured and tested for us by
Catalent Belgium S.A. The ultimate costs of the recall and the
allocation of costs of the recall, including the costs to us
resulting from the recall, are unknown as of the date of this
Report; however, the recall could cause the company to suffer
reputational harm, depending on the resolution of matters relating
to the recall could result in the company incurring financial costs
and expenses which could be material, could adversely affect the
supply of SYMJEPI products until manufacturing is resumed, and
depending on the resolution of matters relating to the recall could
have a material adverse effect on our business, financial
condition, and results of operations.
Critical Accounting Policies and
Estimates
The discussion and
analysis of our financial condition and results of operations are
based on our unaudited condensed consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
unaudited condensed consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, expenses, and related disclosure of
contingent assets and liabilities. We evaluate our estimates on an
ongoing basis. We base our estimates on historical experience and
on other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
The company’s critical
accounting policies and estimates included in our Annual Report on
Form 10-K for the year ended December 31, 2021, filed with the SEC
on March 31, 2022, have not materially changed.
Recent Accounting Pronouncements
Recent accounting
pronouncements are disclosed in Note 1 to the condensed
consolidated financial statements included in this Quarterly Report
on Form 10-Q.
ITEM 3. Quantitative and Qualitative
Disclosure of Market Risk
Not required.
ITEM 4. Controls and
Procedures
Evaluation of Disclosure Controls and
Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports,
filed under the Securities Exchange Act of 1934, is recorded,
processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance and not absolute assurance of
achieving their objectives. In reaching a reasonable level of
assurance, management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. In addition, the design of any
system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, a
control may become inadequate because of changes in conditions or
the degree of compliance with policies or procedures may
deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
As
required by the SEC Rule 13a-15(b), we carried out an evaluation
under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer,
of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this
Report. Based on the foregoing, our chief executive officer
and chief financial officer concluded that our disclosure controls
and procedures were effective at the reasonable assurance level as
of June 30, 2022.
Changes in Internal Controls Over Financial
Reporting
There
were no changes in our internal control over financial reporting
identified in management’s evaluation pursuant to Rules 13a-15(d)
or 15d-15(d) of the Exchange Act that occurred during the quarter
ended June 30, 2022 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
Inherent Limitations of Disclosure Controls and Internal
Control over Financial Reporting
Because of their inherent
limitations, our disclosure controls and procedures and our
internal control over financial reporting may not prevent material
errors or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. The effectiveness of
our disclosure controls and procedures and our internal control
over financial reporting is subject to risks, including that the
controls may become inadequate because of changes in conditions or
that the degree of compliance with our policies or procedures may
deteriorate.
PART II OTHER
INFORMATION
ITEM 1. Legal
Proceedings
We may from time
to time become party to actions, claims, suits, investigations or
proceedings arising from the ordinary course of our business,
including actions with respect to intellectual property claims,
breach of contract claims, labor and employment claims and other
matters. We may also become party to litigation in federal
and state courts relating to opioid drugs. Any litigation
could divert management time and attention from Adamis, could
involve significant amounts of legal fees and other fees and
expenses, or could result in an adverse outcome having a material
adverse effect on our financial condition, cash flows or results of
operations. Actions, claims, suits, investigations and
proceedings are inherently uncertain and their results cannot be
predicted with certainty. Except as described below, we are
not currently involved in any legal proceedings that we believe
are, individually or in the aggregate, material to our business,
results of operations or financial condition. However,
regardless of the outcome, litigation can have an adverse impact on
us because of associated cost and diversion of management
time.
Investigations
On
May 11, 2021, the company and USC each received a grand jury
subpoena from the U.S. Attorney’s Office for the Southern District
of New York (“USAO”). The USAO issued the subpoenas in
connection with a criminal investigation and requested a broad
range of documents and materials relating to, among other matters,
certain veterinary products sold by USC, certain practices,
agreements, and arrangements relating to products sold by USC,
including veterinary products, and certain regulatory and other
matters relating to the company and USC. The Audit Committee
of the Board engaged outside counsel to conduct an independent
internal investigation to review the matters brought forth in the
subpoenas and certain other matters. The investigation
involved, among other matters, interviews with employees and
collection and review of a large number of documents. The
company has taken a number of actions in response to the internal
investigation, including personnel actions relating to certain USC
veterinary sales employees. In addition, following the
commencement of the investigation, as disclosed elsewhere in this
Report the company has sold assets relating to its compounding
pharmacy business, ceased selling human and veterinary compounded
pharmaceutical products, has wound down USC’s business, and the
employment of substantially all USC employees has ended. As a
result, the company is no longer engaged in the sale of human or
veterinary compounded pharmaceutical products. The company is
also considering a number of additional actions in response to the
internal investigation and the USAO investigation. As of the
date of this Report, we believe that the investigation initially
commenced by the Audit Committee is substantially complete.
However, additional issues or facts could arise or be
determined, which may expand the scope, duration, or outcome of the
Audit Committee’s investigation. The company has also
received requests from the U.S. Securities and Exchange Commission
(“SEC”) for the voluntary production of documents and information
relating to the subject matter of the USAO’s subpoenas and certain
other matters. The company has produced documents and will
continue to produce and provide documents in response to the
subpoenas and requests as needed. Additionally, on March 16,
2022, the company was informed that the Civil Division of the USAO
(“Civil Division”) was investigating the company’s Second Draw PPP
Loan application and the company’s eligibility for the Second Draw
PPP Loan. The Audit Committee of the Board engaged outside
counsel to conduct an internal inquiry into the matter. The
company intends to continue cooperating with the USAO, SEC, and
Civil Division. At this time, the company is unable to predict the
duration, scope, or outcome of the investigations by the USAO, SEC,
Civil Division, or other agencies; what, if any, proceedings the
USAO, SEC, Civil Division, or other federal or state authorities
may initiate; what, if any, remedies or remedial measures the USAO,
SEC, Civil Division or other federal or state authorities may seek;
or what, if any, impact the foregoing matters may have on the
company’s business, previously reported financial results,
financial results included in this Report, or future financial
results. We could receive additional requests from the USAO,
SEC, Civil Division, or other authorities, which may require
further investigation. There can be no assurance that any
discussions with the USAO, SEC or Civil Division to resolve these
matters will be successful. The foregoing matters may divert
management’s attention, cause the company to suffer reputational
harm, require the company to devote significant financial
resources, subject the company and its officers and directors to
civil or criminal proceedings, and depending on the resolution of
the matters or any proceedings, result in fines, penalties or
equitable remedies, and affect the company’s business, previously
reported financial results, financial results included in this
Report, or future financial results. The occurrence of any
of these events, or any determination that our activities were not
in compliance with existing laws or regulations, could have a
material adverse effect on the company’s business, financial
condition, and results of operations.
As
a result of the investigation by the Civil Division, the company’s
financial statements for the first quarter of 2022 included a
$1,850,000 contingent loss liability relating to the possible
repayment of the full amount of the Second Draw PPP Loan as well as
accrued interest and processing fees of the lending bank. In June
2022, following the inquiry, the company paid a total
of $1,787,417 in repayment of the Second Draw PPP Loan
principal and such related interest and fees.
Nasdaq Compliance
On
December 31, 2021, we received a notice from the Nasdaq Listing
Qualifications Department of The NASDAQ Capital Market (“Nasdaq”)
informing us that because the closing bid price of our Common Stock
had been below $1.00 per share for 30 consecutive business days, we
no longer complied with the minimum bid price requirement for
continued listing on The Nasdaq Capital Market. Nasdaq
Listing Rule 5550(a)(2) (the “Rule”) requires listed securities to
maintain a minimum bid price of $1.00 per share, and Listing Rule
5810(c)(3)(A) provides that a failure to meet the minimum bid price
requirement exists if the deficiency continues for a period of 30
consecutive business days. Pursuant to Nasdaq Marketplace
Rule 5810(c)(3)(A), we were provided an initial compliance period
of 180 calendar days, or until June 29, 2022, to regain compliance.
To regain compliance, the closing bid price of our Common
Stock must meet or exceed $1.00 per share for a minimum of 10
consecutive business days during the 180 calendar day grace period.
The notice letter also disclosed that if we do not regain
compliance within the initial compliance period, we may be eligible
for an additional 180-day compliance period. To qualify for
additional time, we would be required to meet the continued listing
requirement for market value of publicly held shares and all other
initial listing standards for The Nasdaq Capital Market, with the
exception of the bid price requirement, and would need to provide
written notice of a plan to cure the deficiency during the second
compliance period, including by effecting a reverse stock split if
necessary. We did not regain compliance with the Rule by June
29, 2022. We requested additional time to regain compliance
and provided notice to Nasdaq of our intention to cure the
deficiency during the second compliance period, including by
effecting a reverse stock split if necessary. On June 30,
2022, Nasdaq notified us that we were granted an additional 180-day
compliance period or until December 27, 2022, to regain compliance
with the Rule. The notice also indicated that if at any time
before December 27, 2022, the bid price of the Common Stock closes
at $1.00 per share or more for a minimum of 10 consecutive business
days, the Company will regain compliance with the Rule. If
the Company does not meet the minimum bid requirement at some time
during the additional 180-day grace period, Nasdaq will provide
written notification to the Company that its shares will be subject
to delisting. At such time, the Company may appeal the delisting
determination to a Nasdaq Hearings Panel. The Company would remain
listed pending the Panel’s decision. There can be no assurance that
if the Company does appeal a subsequent delisting determination,
that such appeal would be successful. The letter and
notification from Nasdaq had no immediate effect on the listing or
trading of the Company’s shares, which will continue to trade on
the Nasdaq Capital Market under the symbol “ADMP.” There are no
assurances that we will be able to regain compliance with the
minimum bid price requirements or will otherwise be in compliance
with other Nasdaq listing rules.
Jerald
Hammann
On June
8, 2021, Jerald Hammann filed a complaint against the Company and
each of its directors in the Court of Chancery of the State of
Delaware, captioned Jerald Hammann v. Adamis
Pharmaceuticals Corporation et al., C.A. No. 2021-0506-PAF
(the “Complaint”), seeking injunctive and declaratory relief.
The Complaint alleges, among other things, that the
defendants (i) violated Rule 14a-5(f) and 14a-9(a) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
in connection with the Company’s 2021 annual meeting of
stockholders—which was subsequently held on July 16, 2021 (the
“2021 annual meeting”)—and disseminated false and misleading
information in the Company’s proxy materials relating to the 2021
annual meeting, (ii) violated certain provisions of the Company’s
bylaws relating to the 2021 annual meeting, (iii) violated section
220 of the Delaware General Corporation Law (“DGCL”) in connection
with a request for inspection of books and records submitted by the
plaintiff, and (iv) breached their fiduciary duties of disclosure
and loyalty, including relating to establishing and disclosing the
date of the Company’s 2021 annual meeting and to the Company’s
determination that a solicitation notice delivered to the Company
by plaintiff was not timely and was otherwise deficient. The
Complaint alleges, among other things, that plaintiff intended to
initiate a proxy contest against the Company, that defendants’
conduct made it difficult or impossible for plaintiff to initiate a
proxy context, and that the Company’s definitive proxy statement
included false and misleading disclosures and omissions of material
information. The Complaint sought injunctive relief (i) to
prevent the Board, the Company, and their employees and agents from
soliciting any stockholders pursuant to the Company’s proxy
statement and (ii) to prevent the defendants from interfering in
the effectiveness of stockholder voting for the 2021 annual
meeting. The Complaint also seeks declaratory relief
(i) finding that plaintiff’s solicitation notice was timely
and properly submitted; (ii) directing the defendants to comply
with Rules 14a-5(f) and 14a-9(a) of the Exchange Act; (iii)
directing the Company to produce the materials set forth in the
plaintiff’s books and records request; (iv) finding that the
director defendants breached their fiduciary obligations to
stockholders; and (v) finding that the director defendants engaged
in self-dealing. The Complaint seeks an award of fees, costs,
and expenses in this action, including attorneys’ and experts’
fees.
On
June 10, 2021, the plaintiff filed a motion for a temporary
restraining order and for expedited proceedings, seeking an order
enjoining the Company from printing or disseminating its proxy
statement relating to the 2021 annual meeting or from convening the
2021 annual meeting on July 16, 2021. Following a hearing, on
June 17, 2021, the Court determined that: (i) it did not have
jurisdiction to consider the plaintiff’s claims relating to alleged
violations of the Exchange Act; (ii) plaintiff’s claims regarding
the books and records request and alleged violations of section 220
of the DGCL should be pursued in a separate proceeding, and the
Court denied the plaintiff’s motion to expedite the books and
records claims; (iii) certain of the plaintiff’s claims alleging
breach of the fiduciary duty of disclosure against the individual
defendants, including claims based on alleged misrepresentations
and omissions in the Company’s proxy statement, were not colorable;
and (iv) plaintiff’s claim alleging that the individual defendants
violated their fiduciary duty by taking action purportedly intended
to prevent the plaintiff from pursuing a proxy contest survived a
low threshold of colorability, but the Court denied the plaintiff’s
motion for a temporary restraining order. The Court granted
in part the motion to expedite the proceedings.
In
March 2022, plaintiff filed a motion for a temporary restraining
order and for expedited proceedings, seeking an order enjoining the
Company and its directors from (a) changing the number of members
of the Company’s board of directors, (b) adding members to the
Company’s board of directors, and/or (c) replacing any resigning
members of the Company’s board of directors. The Company filed a
response to the plaintiff’s motion. The Court held a hearing on
March 28, 2022 and denied the plaintiff’s motion in full. On April
4, 2022, plaintiff filed a motion to amend the plaintiff’s
complaint. The proposed amended Complaint adds additional
allegations relating to the manner in which the defendants
established and disclosed the date of the Company’s 2021 annual
meeting of stockholders and to statements the defendants made about
the plaintiff to the Company’s stockholders. On April 28,
2022, the Court granted the motion, noting that as a general rule,
leave to amend is freely given. On April 25, 2022, plaintiff
filed a motion for a preliminary injunction seeking to enjoin the
Company from holding its 2022 annual meeting of stockholders until
the plaintiff’s Complaint is resolved. The Company opposed
the motion, and on April 28, 2022, the Court denied the plaintiff’s
motion. On May 23, 2022, the Company filed a motion for
summary judgment on Count VI and a motion to dismiss Counts VII,
VIII, and IX of plaintiff’s amended Complaint. Those motions
are pending before the Court, and the case continues to proceed.
The Company believes the claims in plaintiff’s Complaint are
without merit, and intends to vigorously dispute them.
Item 1A. Risk
Factors
You should consider carefully the
following information about the risks described below, together
with the other information contained in this Quarterly Report on
Form 10-Q and in our other public filings in evaluating our
business.The risk factors set forth below with an asterisk
(*) next to the title contain substantive changes to the risk
factors associated with our business previously disclosed in
Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2021. Our business, financial
condition, results of operations and future prospects could be
materially and adversely affected by these risks if any of them
actually occurs. In these circumstances, the market price of
our common stock would likely decline. The risks and
uncertainties described below are not the only ones we face.
Additional risks not currently known to us or other factors not
perceived by us to present significant risks to our business at
this time also may impair our business.
Risk Factors Summary
The business of Adamis Pharmaceuticals Corporation (“we,” “us,”
“our,” “Adamis,” or the “company”) is subject to numerous risks and
uncertainties that you should be aware of before making an
investment decision, including those highlighted in the section
entitled “Risk Factors.” These risks include, but are not limited
to, the following:
|
● |
There is substantial doubt about
our ability to continue as a going concern. We have incurred
significant losses since our inception, anticipate that we will
continue to incur losses in 2022, and may continue to incur losses
in the future. We may never achieve or sustain
profitability. |
|
● |
Statements in this Report
concerning our future plans and operations are dependent on our
having adequate funding and the absence of unexpected delays or
adverse developments. We will require additional funding in the
future to help fund the development and commercialization of our
products and product candidates, conduct research, development and
trials relating to our product candidates, fund our ongoing
operations and satisfy our obligations and liabilities, and as of
the date of this Report, we have a limited number of authorized
shares available for issuance in any such funding
transactions. We may not be able to secure required funding,
which could force us to delay, reduce or eliminate our
commercialization efforts or product development programs and could
cause us to reduce or cease operations. |
|
● |
We may never commercialize
additional product candidates that are subject to regulatory
approval or earn a profit. |
|
● |
Our development plans concerning
our products and product candidates are affected by many factors,
the outcome of which is difficult to predict. |
|
● |
We could experience delays in the
commencement or completion of clinical testing of our product
candidates, which could result in increased costs and delays and
adversely affect our business and financial condition. We may be
required to suspend, repeat or terminate our clinical trials if
trials are not well designed, do not meet regulatory requirements
or the results are negative or inconclusive. We cannot assure
you that any preclinical or clinical testing will be completed
successfully within any specified time period by us, or without
significant additional resources or expertise to those originally
expected to be necessary. There are no assurances concerning the
outcome of any future meetings of the DSMB to evaluate interim data
for our ongoing clinical trial regarding our Tempol product
candidate or concerning the results of trial, and an adverse
outcome regarding the results of the trial could have a material
adverse effect on our business, financial conditions and results of
operations. |
|
● |
We are subject to the risk of
lawsuits or other legal proceedings. |
|
● |
We are subject to substantial
government regulation and are impacted by state and federal
statutes and regulations, which could materially adversely affect
our business. We may encounter difficulties or delays in applying
for or obtaining regulatory approval for our products. If we do not
receive required regulatory approvals for our products, we may not
be able to develop and commercialize our products or
technologies. |
|
● |
Even if they are approved and
commercialized, our potential products may not be able to compete
effectively with other products targeting similar
markets. |
|
● |
Our failure to adequately protect
or to enforce our intellectual property rights or secure rights to
third party patents could materially harm our proprietary position
in the marketplace or prevent the commercialization of our
products. We may become involved in patent litigation or other
intellectual property proceedings, which could result in liability
for damages and have a material adverse effect on our business and
financial position. |
|
● |
We borrowed funds pursuant to the
Paycheck Protection Program (“PPP”). Even though our loans were
initially forgiven pursuant to the program, we remain subject to
review and audit in connection with such loans. In connection with
an investigation by the Civil Division, in June 2022 we paid a
total of $1,787,417 in repayment of our Second Draw PPP Loan
principal and related interest and fees. We could be required
to return or repay the full amount of our first PPP Loan and could
be subject to fines or penalties, which could be
material |
|
● |
The COVID-19 pandemic has
adversely affected and may continue to adversely affect our
business, results of operations and financial
condition. |
|
● |
If there are injuries or deaths
associated with use of our products, or if there is a product
recall affecting one or more of our products, we may be exposed to
significant liabilities. We have announced a voluntary
recall of four lots of our SYMJEPI (epinephrine) Injection 0.15 mg
(0.15 mg/0.3 mL) and 0.3 mg (0.3 mg/0.3 mL) Pre-Filled Single-Dose
Syringe products. As of the date of this Report, neither
we nor our commercialization partner have received, or is aware of,
any adverse events related to this recall. However, in the event of
adverse events or deaths associated with our products, we could
become subject to product and professional liability lawsuits or
other claims or proceedings. In addition, the recall could
adversely affect our business, results of operations, financial
condition and liquidity. |
|
● |
Our US Compounding Inc.
subsidiary, or USC, which is registered as a human drug compounding
outsourcing facility under Section 503B of the U.S. Food, Drug
& Cosmetic Act, as amended, or FDCA, is subject to many
federal, state and local laws, regulations, and administrative
practices, including, among others: federal registration as an
outsourcing facility, state and local licensure, and registration
requirements concerning the operation of outsourcing facilities and
the compounding, labeling, marketing, sale and distribution of
products from our registered outsourcing facility. Effective
as of July 30, 2021, we entered into an asset purchase agreement
pursuant to which we sold and transferred certain assets of USC
related to its human compounding pharmaceutical business. The
remaining operations and business of USC have been wound down, and
remaining assets relating to USC’s business have been or will be
sold or otherwise disposed of. Effective October 31, 2021,
USC surrendered its Arkansas retail pharmacy permit and
wholesaler/outsourcer permit and is no longer selling compounded
pharmaceutical or veterinary products. Nevertheless, USC
and we could become involved in proceedings with the FDA or other
federal or state regulatory authorities alleging non-compliance
with applicable federal or state regulatory legal requirements, or
in other legal proceedings relating to the winding down of USC’s
business, which could adversely affect our business, financial
condition and results of operations. |
|
● |
Changes in healthcare laws could
adversely affect the ability or willingness of customers to
purchase our products and, as a result, adversely impact our
business and financial results. |
|
● |
We have received a grand jury
subpoena issued in connection with a criminal investigation.
As we have previously disclosed, on May 11, 2021, each of the
company and our USC subsidiary received a grand jury subpoena from
the U.S. Attorney’s Office, or USAO, for the Southern District of
New York issued in connection with a criminal investigation,
requesting a broad range of documents and materials relating to,
among other matters, certain veterinary products sold by the
company’s USC subsidiary, certain practices, agreements and
arrangements relating to products sold by USC, including veterinary
products, and certain regulatory and other matters relating to the
company and USC. The Audit Committee of the board of directors, or
the Board, has engaged outside counsel to conduct an independent
internal investigation to review these and other matters. The
company has also received a request from the Securities and
Exchange Commission, or the SEC, that the company voluntarily
provide documents and information relating to certain matters
including the subject matter of the subpoena from the USAO.
The company has produced and will continue to produce and provide
documents in response to the subpoena and requests. The company
intends to cooperate with the USAO and SEC. Additionally, on March
16, 2022, the company was informed that the Civil Division of the
USAO (“Civil Division”) was investigating the company’s Second Draw
PPP Loan application and the company’s eligibility for the Second
Draw PPP Loan. The company intends to continue cooperating
with the USAO, SEC, and Civil Division. At this time, the company
is unable to determine what, if any, additional actions the USAO,
SEC, Civil Division or other federal or state authorities may take,
what, if any, remedies or remedial measures the USAO, SEC, Civil
Division or other federal or state authorities may seek, or
what, if any, impact the foregoing matters may have on the
company’s business, previously reported financial results,
financial results included in this Report, or future financial
results. We could receive additional requests from the USAO, SEC,
Civil Division or other authorities, which may require further
investigation. The foregoing matters may divert management’s
attention, cause the company to suffer reputational harm, require
the company to devote significant financial resources, subject the
company and its officers and directors to civil or criminal
proceedings, and depending on the resolution of the matters or any
proceedings, result in fines, penalties, equitable remedies, and
affect the company’s business, previously reported financial
results, financial results included in this Report, future
financial results. The occurrence of any of these events could have
a material adverse effect on the company’s business, financial
condition and results of operations. |
|
● |
We identified a material weakness
in our internal control over financial reporting and concluded that
our internal control over financial reporting was not effective as
of March 31, 2021, June 30, 2021 and September 30, 2021. If
we fail to effectively remediate material weaknesses in our
internal control over financial reporting, it could adversely
affect our ability to report our results of operations and
financial condition accurately and in a timely manner and
could lead to additional risks and uncertainties, including loss of
investor confidence, legal investigations or proceedings, and
negative impacts on our business, financial condition and stock
price. |
|
● |
Our business depends on complex
information systems, and any failure to successfully maintain these
systems or implement new systems to handle our changing needs could
materially harm our operations. Cybersecurity or other system
failures could disrupt our business, result in liabilities, and
adversely affect our business, financial condition and results of
operations. |
|
● |
Provisions of our charter
documents could discourage an acquisition of our company that would
benefit our stockholders and may have the effect of entrenching,
and making it difficult to remove, management. |
|
● |
Our failure to meet the continued
listing requirements of Nasdaq could result in a delisting of our
common stock, which could negatively impact the market price and
liquidity of our common shares and our ability to access the
capital markets. |
Risks Related to Our Financial Condition
* There is substantial doubt about our ability to
continue as a going concern.
Our consolidated financial statements are prepared using the
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
However, as shown in our consolidated financial statements for the
year ended December 31, 2021, included in our Annual Report on Form
10-K for the year ended December 31, 2021, and the consolidated
financial statements included in this Report, we have sustained
substantial recurring losses from operations. In addition, we have
used, rather than provided, cash in our continuing operations. The
above conditions raise substantial doubt about our ability to
continue as a going concern. Our consolidated financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of
liabilities that might be necessary should we be unable to continue
in existence. Uncertainty concerning our ability to continue as a
going concern, among other factors, may hinder our ability to
obtain future financing. Continued operations and our ability to
continue as a going concern are dependent, among other factors, on
our ability to successfully develop and commercialize products, the
market acceptance and success of our products and our ability to
obtain additional required funding If we cannot continue as a
viable entity, our stockholders would likely lose most or all of
their investment in us.
* We will require additional funding to continue as a going
concern.
We incurred significant net losses for the six months ended
June 30, 2022, and for the years ended December 31, 2021 and
December 31, 2020. As of June 30, 2022, we had cash, cash
equivalents and restricted cash of approximately $8.9 million. The
development of our business will require additional capital. Based
on our current and anticipated level of operations, we do not
believe that our cash, cash equivalents and short-term investments,
together with anticipated revenues from operations and amounts that
we expect to receive as a result of our sales of assets relating to
our former USC business, will be sufficient to meet our anticipated
operating expenses, capital expenditures and obligations for at
least 12 months from the date of this Report. As a result,
before the end of 2022 or thereafter during such 12-month period,
we will require additional capital to sustain operations, satisfy
our obligations and liabilities, help fund the development and
commercialization of our products and product candidates, conduct
research, development and trials relating to our product
candidates, and fund our ongoing operations, acquire product
candidates or technologies, or for other purposes, and we intend to
seek to raise additional capital during 2022 and/or
thereafter. There are no assurances that required funding
will be available at all or will be available in sufficient amounts
or on reasonable terms. In addition to product revenues, we
have historically relied upon sales of our equity or debt
securities to fund our operations. As of the date of this
Report, we have a limited number of authorized shares available for
issuance in any such funding transactions. We currently have no
available balance in our credit facility or committed sources of
capital, and a number of factors may limit or prevent our current
ability to access capital markets to obtain any required funding.
Delays in obtaining, or the inability to obtain, required
funding from debt or equity financings, sales of assets, sales or
out-licenses of intellectual property or technologies, or other
transactions or sources, could adversely affect our ability to
develop and commercially introduce products and cause us to be
unable to comply with our obligations under outstanding
instruments, and could adversely affect our ability to continue
operations. In addition, our sale of assets pursuant to the
USC Agreement relating to the human compounding pharmaceuticals
business of our USC subsidiary, together with our previously
announced process of winding down, winding up and disposing of the
remaining operations, business and assets of USC, will result in
the company not receiving revenues in the future from sales of
products by USC, other than the consideration receivable by the
company pursuant to the terms of the USC Agreement or from other
agreements or arrangements relating to the sale or disposition of
the remaining USC assets.
Our ability to obtain required financing will be subject to a
number of factors, including without limitation market conditions,
our capitalization, our operating performance and investor
sentiment. If we are unable to raise additional capital when
required or on acceptable terms, we may have to significantly
delay, scale back or discontinue the development or
commercialization of one or more of our product candidates,
restrict our operations or obtain funds by entering into agreements
on unattractive terms, which would likely have a material adverse
effect on our business, stock price and our relationships with
third parties with whom we have business relationships, and which
could result in additional dilution to our stockholders. If
we do not have sufficient funds to continue operations, we could be
required to seek bankruptcy protection or other alternatives that
would likely result in our stockholders losing some or all of their
investment in us.
Statements in this Report concerning our future plans and
operations are dependent on our ability to secure adequate funding
and the absence of unexpected delays or adverse developments. We
may not be able to secure required funding.
The statements contained in this Report concerning future events or
developments or our future activities, such as concerning current
or planned clinical trials, anticipated research and development
activities, anticipated dates for commencement of clinical trials,
anticipated completion dates of clinical trials, anticipated
meetings with the FDA or other regulatory authorities concerning
our product candidates, anticipated dates for submissions to obtain
required regulatory marketing approvals, anticipated dates for
commercial introduction of products, anticipated outcome of any
legal proceedings in which we are involved, and other statements
concerning our future operations and activities, are
forward-looking statements that in each instance assume that we
have or are able to obtain sufficient funding to support such
activities and continue our operations and planned activities in a
timely manner. There can be no assurance that this will be
the case. Also, such statements assume that there are no
significant unexpected developments or events that delay or prevent
such activities from occurring. Failure to timely obtain any
required additional funding, or unexpected developments or events,
could delay the occurrence of such events or prevent the events
described in any such statements from occurring which could
adversely affect our business, financial condition and results of
operations.
We restated our unaudited condensed consolidated financial
statements for the interim periods of 2020, which may lead to
additional risks and uncertainties, including loss of investor
confidence and negative impacts on our business, financial
condition and stock price.
On April 14, 2021, we concluded that, because of a misapplication
of valuation principles used to determine the amount of our
non-cash warrant liabilities and the associated gain or loss
recognized as a result of the change in the fair value of the
warrant liabilities, relating to warrants that we issued in August
2019 (the “2019 Warrants”) and February 2020 (the “2020 Warrants”
and, together with the 2019 Warrants, the “Warrants”), our previous
quarterly and year-to-date unaudited condensed consolidated
financial statements for the periods ended March 31, 2020, June 30,
2020 and September 30, 2020 (the “Affected Periods”), should no
longer be relied upon. As a result, we restated our unaudited
condensed consolidated financial statements for the Affected
Periods. The issues identified were all non-cash and did not
impact our revenues, operating expenses, operating loss, cash and
cash equivalents, assets, liquidity or cash position for the
Affected Periods or the year ended December 31, 2020. As a
result of the foregoing matters, or if we determine in the future
that other financial restatements are required, we may become
subject to additional risks and uncertainties, including, among
others, unanticipated costs for accounting and legal fees, the
increased possibility of legal proceedings, shareholder lawsuits,
governmental agency investigations, and inquiries by the Nasdaq
Stock Market or other regulatory bodies, which could cause
investors to lose confidence in our reported financial information
and could subject us to civil or criminal penalties, shareholder
class actions or derivative actions. We could face monetary
judgments, penalties or other sanctions that could have a material
adverse effect on our business, financial condition and results of
operations and could cause our stock price to decline. If any
such actions occur, they will, regardless of the outcome, consume a
significant amount of management’s time and attention and may
result in additional legal, accounting, insurance and other costs.
If we do not prevail in any such proceedings, we could be
required to pay substantial damages or settlement costs. In
addition, any restatement or related matters could impair our
reputation. Each of these occurrences could have a material
adverse effect on our business, results of operations, financial
condition and stock price.
* We have incurred losses since our inception, and we
anticipate that we will continue to incur losses. We may never
achieve or sustain profitability.
We incurred significant net losses for the six months ended
June 30, 2022 and for the years ended December 31, 2021 and
December 31, 2020, as reflected in the financial statements
included elsewhere in this Report. We expect that these
losses may continue as we continue our research and development
activities, seek regulatory approvals for our product candidates
and seek to commercialize any approved products. These losses
will cause, among other things, our stockholders’ equity and
working capital to decrease. Any future earnings and cash
flow from operations of our business are dependent on our ability
to further develop our products and on revenue and profitability
from sales of products.
There can be no assurance that we will be able to generate
sufficient product revenue and amounts payable to us under our
commercialization agreement relating to our SYMJEPI and ZIMHI
products or other commercialization agreements that we may enter
into to become profitable at all or on a sustained basis. We
expect to have quarter-to-quarter fluctuations in revenue and
expenses, some of which could be significant, due in part to
variations in expenses and activities relating to research,
development, clinical trials, marketing and manufacturing. If
our product candidates fail in clinical trials or do not gain
regulatory approval, or if our products do not achieve market
acceptance, we may never become profitable. As we
commercialize and market products, we may incur expenses for
product marketing and brand awareness and conduct significant
research, development, testing and regulatory compliance activities
that, together with general and administrative expenses, could
result in substantial operating losses for the foreseeable future.
Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual
basis.
* We have received grand jury
subpoenas issued in connection with a criminal investigation
and are subject to other investigations.
As we have previously disclosed, on May 11, 2021, each of the
company and its USC subsidiary received a grand jury subpoena from
the U.S. Attorney’s Office for the Southern District of New York
(the “USAO”) issued in connection with a criminal investigation,
requesting a broad range of documents and materials relating to,
among other matters, certain veterinary products sold by the
company’s USC subsidiary, certain practices, agreements and
arrangements relating to products sold by USC, including veterinary
products, and certain regulatory and other matters relating to the
company and USC. The Audit Committee of the Board engaged
outside counsel to conduct an independent internal investigation to
review these and other matters. Additional issues or facts
could arise or be determined, which may expand the scope, duration,
or outcome of the investigation. The company has also
received requests from the Securities and Exchange Commission
(“SEC”) for the voluntary production of documents and information
relating to the subject matter of the USAO’s subpoenas and certain
other matters. The company has produced documents and will
continue to produce and provide documents in response to the
subpoenas and requests as needed. Additionally, on March 16,
2022, we were informed that the Civil Division of the USAO (“Civil
Division”) is investigating the company’s Second Draw PPP Loan
application disclosed in previous reports. The Audit
Committee of the Board engaged outside counsel to conduct an
internal inquiry into the matter. In June 2022,
following the inquiry the company paid a total of $1,787,417
in repayment of the Second Draw PPP Loan principal and such related
interest and fees. The company intends to continue cooperating with
the USAO, SEC, and Civil Division. At this time, the company is
unable to predict the duration, scope, or outcome of the
investigations by the USAO, SEC, Civil Division, or other agencies;
what, if any, proceedings the USAO, SEC, Civil Division, or other
federal or state authorities may initiate; what, if any, remedies
or remedial measures the USAO, SEC, Civil Division or other federal
or state authorities may seek; or what, if any, impact the
foregoing matters may have on the company’s business, previously
reported financial results, financial results included in this
Report, or future financial results. We could receive
additional requests from the USAO, SEC, Civil Division, or other
authorities, which may require further investigation. There
can be no assurance that any discussions with the USAO, SEC or
Civil Division to resolve these matters will be successful.
The foregoing matters may divert management’s attention, cause the
company to suffer reputational harm, require the company to devote
significant financial resources, subject the company and its
officers and directors to civil or criminal proceedings, and
depending on the resolution of the matters or any proceedings,
result in fines, penalties or equitable remedies, and affect the
company’s business, previously reported financial results,
financial results included in this Report, or future financial
results. The occurrence of any of these events could have a
material adverse effect on the company’s business, financial
condition and results of operations.
* Our PPP loans may be audited or
reviewed by federal or state regulatory authorities. We
repaid our PPP Loan.
We applied for and obtained loan
funding under the PPP pursuant to the PPP Loan and PPP Note, the
balance of which has been forgiven, and under the Second Draw PPP
Loan and PPP2 Note in the principal amount of $1,765,495, the
balance of which was initially forgiven. However, in
connection with an investigation by the Civil Division, in June
2022 we paid a total of $1,787,417 in repayment of our Second
Draw PPP Loan principal and related interest and fees. Our PPP
loans and applications for forgiveness of loan amounts remain
subject to future review and audit by SBA for compliance with
program requirements set forth in the PPP Interim Final Rules and
in the Borrower Application Form, including without limitation the
required economic necessity certification by the company that was
part of the PPP loan application process. Accordingly, the
company is subject to audit or review by federal or state
regulatory authorities as a result of applying for and obtaining
the PPP Loan and Second Draw PPP Loan or obtaining forgiveness of
those loans. If we were to be audited or reviewed and receive
an adverse determination or finding in such audit or review, we
could be required to return or repay the full amount of the
applicable loan and could be subject to additional fines or
penalties, which could reduce our liquidity and adversely affect
our business, financial condition and results of
operations.
Risk Relating to Our Business and Industry
We may never commercialize additional product candidates that
are subject to regulatory approval or earn a
profit.
Except for our SYMJEPI and ZIMHI products, we have not received
regulatory approval for any drugs or products. Since our
fiscal 2010 year, except for revenues from sales of compounded
pharmacy formulations after our acquisition of USC in 2016 and
amounts that we have received and may receive in the future
pursuant to our commercialization agreements relating to our
SYMJEPI and ZIMHI products, we have not generated commercial
revenue from marketing or selling any drugs or other
products. We expect to incur substantial net losses for the
foreseeable future. We may never be able to commercialize any
additional product candidates that are subject to regulatory
approval or be able to generate revenue from sales of such
products. Because of the risks and uncertainties associated
with developing and commercializing our specialty pharmaceuticals
and other product candidates, we are unable to predict when we may
commercially introduce such products, the extent of any future
losses or when we will become profitable, if ever.
Our development plans concerning our products and product
candidates are affected by many factors, the outcome of which are
difficult to predict.
The development of new pharmaceutical products is a highly risky
undertaking. Our potential products may require significant
additional research and development before any commercial
introduction. Our product development plans concerning our
products and product candidates, and the anticipated dates for
development and introduction of products in our product pipeline,
are affected by many factors, many of which are difficult to
predict. Some of the factors that could affect our
development plans for our products and product candidates include:
general market conditions and developments in the marketplace
including the introduction of potentially competing new products by
our competitors; the availability of adequate funding to support
product development efforts and sales and marketing efforts for
approved products; the outcome of discussions with the FDA
concerning the regulatory pathway for our products and the number
and kind of clinical trials that the FDA will require before the
FDA will consider regulatory approval of the applicable product;
the time required to conduct required clinical trials and
unexpected delays in the anticipated timing of the commencement,
conduct or completion of clinical trials; the outcome and results
of clinical trials; the FDA’s review and acceptance of NDAs that we
may file concerning our product candidates; any unexpected
difficulties in licensing or sublicensing intellectual property
rights that may be required for other components of the product;
patent infringement lawsuits relating to Paragraph IV
certifications as part of any Section 505(b)(2) or ANDA filings;
any unexpected difficulties in the ability of our suppliers to
timely supply quantities for commercial launch of the product; and
our ability to successfully market and sell our products or enter
into commercialization arrangements with third parties to market
our products. There can be no assurance that any future
research, development or clinical trial efforts will result in
viable products or meet efficacy standards. Future clinical
or preclinical results may be negative or insufficient to allow us
to successfully develop and market our product candidates.
Obtaining needed data and results may take longer than
planned or may not be obtained at all. Any such delays or
setbacks could have a material adverse effect on our ability to
achieve our financial goals.
Business or economic disruptions or global health concerns,
including the COVID-19 pandemic, could harm our
business.
Business or economic disruptions or global health concerns, such as
the COVID-19 pandemic, could adversely affect our business.
The novel strain of coronavirus and the related COVID-19
pandemic, which the World Health Organization announced in January
2020 was a global health emergency and which has continued, has
spread throughout most of the world including the United States.
The outbreak resulted in extended shutdowns of businesses in
the United States and elsewhere and has had ripple effects on
businesses and activities around the world.
The COVID-19 outbreak and continued spread of COVID-19, including
the identification of novel strains of COVID-19, has affected and
may continue to affect our operations, our customers and third
parties on which we rely. Restrictions on outpatient
surgeries and other medical procedures due to the COVID-19
pandemic, in part due to reductions or cancellations of elective
surgeries and reductions in office visits to physicians’ offices,
healthcare facilities or clinics by patients, decreased demand from
USC’s customers for certain of USC’s products and adversely
affected revenues from sales of USC products in 2020 and 2021, and
may continue to adversely affect revenues from sales of products to
customers covered by the USC Agreement. In addition, we could
experience delays in obtaining products or services from our third
party manufacturers or suppliers as a result of the impact of the
COVID-19 pandemic on such parties. The pandemic and related
matters also could result in interruptions or delays in the
operations of the FDA or other regulatory authorities, which may
impact review and approval timelines relating to our NDAs or other
actions relating to our products or product candidates, or could
result in delays relating to patient enrollment or the conduct of
clinical trials that we undertake. The outbreak and any
preventative or protective actions that we, our customers, our
respective manufacturers, suppliers or other third parties with
which we have business relationships, or governments may take in
respect of the coronavirus and COVID-19 pandemic could disrupt our
business and the business of our customers or third parties with
which we have business relationships. The extent to which the
COVID-19 pandemic will continue to impact our business is difficult
to predict and subject to change, and will depend on future
developments, which are highly uncertain and cannot be predicted,
including without limitation the severity of the disease and
duration of the outbreak, travel restrictions and social distancing
requirements in the United States and other countries, future
mutations and variations of the coronavirus, and the effectiveness
of actions taken in the United States and other countries to
contain and treat the disease and address its impact. In
addition, a severe or prolonged economic downturn or political
disruption could result in a variety of risks to our business,
including our ability to raise capital when needed on acceptable
terms, if at all. A weak or declining economy or political
disruption could also strain our manufacturers or suppliers,
possibly resulting in supply disruption, or cause our customers to
delay making purchases or payments for our products. Any of
the foregoing could harm our business. In addition, the
COVID-19 pandemic has resulted in significant governmental measures
being implemented to control the spread of the virus, including, at
various times, quarantines, shelter-in-place or work-from-home
orders or policies, travel restrictions, social distancing and
business shutdowns. The effects of such measures could
negatively impact productivity of our employees and disrupt our
business activities, the magnitude of which will depend, in part,
on the length and severity of the restrictions and our ability to
conduct business in the ordinary course. Although we have
taken precautions intended to avoid the spread of the coronavirus
among our employees, our operations could be adversely affected by
outbreaks of COVID-19 among our employees. If we, our
customers, or any of the third parties with whom we engage,
including the suppliers, manufacturers, regulators and other third
parties with whom we conduct business or have business
relationships, were to experience shutdowns or other business
disruptions, our ability to conduct our business in the manner
presently anticipated could be materially and negatively
impacted.
We rely on third parties to conduct our clinical trials. If
these third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may be unable to obtain, or
may experience delays in obtaining, regulatory approval, or may not
be successful in commercializing our planned and future
products.
Like many companies our size, we do not have the ability to conduct
preclinical or clinical studies for our product candidates without
the assistance of third parties who conduct the studies on our
behalf. These third parties are often toxicology facilities
and clinical research organizations, or CROs, that have significant
resources and experience in the conduct of pre-clinical and
clinical studies. The toxicology facilities conduct the
pre-clinical safety studies as well as associated tasks connected
with these studies. The CROs typically perform patient
recruitment, project management, data management, statistical
analysis, and other reporting functions. We have relied on
and intend to rely on third parties to conduct clinical trials of
our product candidates and to use third party toxicology facilities
and CROs for our pre-clinical and clinical studies. We may
also rely on academic institutions or clinical research
organizations to conduct, supervise or monitor some or all aspects
of clinical trials involving our products.
Our reliance on these third parties for development activities will
reduce our control over these activities. If these third
parties do not successfully carry out their contractual duties or
obligations or meet expected deadlines, or if the quality or
accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols or for other reasons,
we may be required to replace them, and our clinical trials may be
extended, delayed or terminated. Although we believe there
are a number of third-party contractors that we could engage to
continue these activities, replacing a third-party contractor may
result in a delay of the affected trial.
* If there are injuries or deaths associated with
use of our products, or if there is a product recall affecting one
or more of our products, we may be exposed to significant
liabilities.
The production, manufacturing,
labeling of pharmaceutical products and compounded pharmaceutical
preparations is inherently risky. We could be adversely affected if
any of our products, or the formulations or other products
previously sold by USC, prove to be, or are asserted to be, harmful
to patients. There are a number of factors that could result in the
injury or death of a patient who receives one of our products or
one of the compounded formulations previously sold by USC,
including quality issues, manufacturing or labeling flaws, improper
packaging or unanticipated or improper uses of the products, any of
which could result from human or other error. Any of these
situations could lead to a recall of, safety alert, or other
proceedings or actions, relating to one or more of such products.
On March 21, 2022, we announced a voluntary recall of four lots of
SYMJEPI (epinephrine) Injection 0.15 mg (0.15 mg/0.3 mL) and 0.3 mg
(0.3 mg/0.3 mL) Pre-Filled Single-Dose Syringes, due to the
potential clogging of the needle preventing the dispensing of
epinephrine. As of the date of this Report, the manufacturing of
SYMJEPI is currently on hold. There can be no assurance
concerning the timing of resumption of manufacturing or resupplying
USWM with product to enable a relaunch of SYMJEPI. If adverse
events or deaths or a product recall, either voluntarily or as
required by the FDA or a state board of pharmacy, were associated
with our products, or one of the formulations or compounds
previously sold by USC, we could become subject to product and
professional liability lawsuits or other proceedings, including
enforcement actions by state and federal authorities or other
healthcare self-regulatory bodies or product liability claims or
lawsuits. In addition, such matters could result in indemnification
claims by third parties or claims relating to the product recall or
associated expenses, including third parties that have purchased
our SYMJEPI products or that may purchase our ZIMHI product, or to
which we have sold certain assets of USC, including claims pursuant
to our agreements with third parties. Any of the foregoing matters
could result in a material adverse effect on our business, results
of operations, financial condition and liquidity. Our consolidated
financial statements for the year ended December 31, 2021, included
in our 2021 Form 10-K, and our consolidated financial statements
for the three months ended March 31, 2022, included in our
Quarterly Report on Form 10-Q for the three months ended March 31,
2022, included and reflected a reserve of approximately $2.0
million associated with the SYMJEPI recall. The recall may have an
adverse effect on the amount or the timing of our revenues, and on
our financial results and liquidity, for fiscal quarters in 2022 or
thereafter. In addition, current or future insurance coverage may
prove insufficient to cover any liability claims brought against
USC or us with respect to the SYMJEPI recall, products previously
sold by USC, or other matters. As of June 30, 2022, the remaining
balance of the reserve relating to the SYMJEPI recall was
approximately $601,000, after payments made to USWM for the
identified recalled products.
Delays in the commencement or completion of clinical testing
of our product candidates could result in increased costs and delay
our ability to generate significant revenues.
The actual timing of commencement and completion of clinical trials
can vary substantially from our anticipated timing due to factors
such as funding limitations, scheduling conflicts with
participating clinicians and clinical institutions, and the rate of
patient enrollment. Clinical trials involving our product
candidates may not commence or be completed as forecast. Delays in
the commencement or completion of clinical testing could
significantly impact our product development costs. We do not know
whether current or planned clinical trials will begin on time or be
completed on schedule, if at all. The commencement of clinical
trials can be delayed for a variety of reasons, including delays
in:
|
● |
obtaining
required funding; |
|
● |
obtaining
regulatory approval to commence a clinical trial; |
|
● |
reaching
agreement on acceptable terms with prospective contract research
organizations and clinical trial sites; |
|
● |
obtaining
sufficient quantities of clinical trial materials for product
candidates; |
|
● |
obtaining
institutional review board approval to conduct a clinical trial at
a prospective site; |
|
● |
recruiting participants for a clinical trial;
and |
|
● |
delays
related to the impact of the COVID-19 pandemic. |
In addition, once a clinical trial has begun, it may be suspended
or terminated by us or the FDA or other regulatory authorities due
to a number of factors, including:
|
● |
failure
to conduct the clinical trial in accordance with regulatory
requirements; |
|
● |
inspection of the clinical trial operations or
clinical trial site by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold; |
|
● |
failure
to achieve certain efficacy and/or safety standards; or |
|
● |
lack of
adequate funding to continue the clinical trial. |
Clinical trials require sufficient participant enrollment, which is
a function of many factors, including the size of the target
patient population, the nature of the trial protocol, the proximity
of participants to clinical trial sites, the availability of
effective treatments for the relevant disease, the eligibility
criteria for our clinical trials and competing trials. Delays
in enrollment can result in increased costs and longer development
times. Our failure to enroll participants in our clinical
trials could delay the completion of the clinical trials beyond
current expectations. In addition, the FDA could require us
to conduct clinical trials with a larger number of participants
than we may project for any of our product candidates. As a
result of these factors, we may not be able to enroll a sufficient
number of participants in a timely or cost-effective manner.
Furthermore, enrolled participants may drop out of clinical trials,
which could impair the validity or statistical significance of the
clinical trials. A number of factors can influence the
discontinuation rate, including, but not limited to: the
inclusion of a placebo in a trial; possible lack of effect of the
product candidate being tested at one or more of the dose levels
being tested; adverse side effects experienced, whether or not
related to the product candidate; and the availability of numerous
alternative treatment options that may induce participants to
withdraw from the trial.
We may be required to suspend, repeat or terminate our
clinical trials if the trials are not well designed, do not meet
regulatory requirements or the results are negative or
inconclusive, which may result in significant negative
repercussions on business and financial
condition.
Before regulatory approval for a potential product can be obtained,
we must undertake clinical testing on humans to demonstrate the
tolerability and efficacy of the product. We cannot assure you that
we will obtain authorization to permit product candidates that are
in the preclinical development phase to enter the human clinical
testing phase. In addition, we cannot assure you that any
authorized preclinical or clinical testing will be completed
successfully within any specified time period by us, or without
significant additional resources or expertise to those originally
expected to be necessary. For example, there are no assurances
concerning the outcome of any future meetings of the DSMB to
evaluate interim data for our ongoing clinical trial regarding our
Tempol product candidate or concerning the results of trial, and an
adverse outcome regarding the results of the trial could have a
material adverse effect on our business, financial conditions and
results of operations. We cannot assure you that any testing or
clinical trials will show potential products to be safe and
efficacious or that any such product will be approved for a
specific indication. Further, the results from preclinical studies
and early clinical trials may not be indicative of the results that
will be obtained in later-stage clinical trials. In addition, we or
regulatory authorities may suspend clinical trials at any time on
the basis that the participants are being exposed to unacceptable
health risks.
We are subject to the risk of clinical trial and product
liability lawsuits.
The testing of human health care product candidates entails an
inherent risk of allegations of clinical trial liability, while the
marketing and sale of approved products entails an inherent risk of
allegations of product liability and associated adverse publicity.
We currently maintain liability insurance. However, such insurance
policies are expensive, may not provide sufficient coverage, and
may not be available in the future on acceptable terms, or at
all. As we conduct additional clinical trials and introduce
products into the United States market, the risk of adverse events
increases and our requirements for liability insurance coverage are
likely to increase. We are subject to the risk that substantial
liability claims from the testing or marketing of pharmaceutical
products could be asserted against us in the future. There can be
no assurance that we will be able to obtain or maintain insurance
on acceptable terms, particularly in overseas locations, for
clinical and commercial activities or that any insurance obtained
will provide adequate protection against potential liabilities. An
inability to obtain sufficient insurance coverage on reasonable
terms or to otherwise protect against potential product liability
claims could inhibit our business.
Moreover, our current and future coverages may not be adequate to
protect us from all of the liabilities that we may incur. If losses
from liability claims exceed our insurance coverage, we may incur
substantial liabilities that exceed our financial resources. In
addition, a product or clinical trial liability action against us
would be expensive and time-consuming to defend, even if we
ultimately prevailed. If we are required to pay a claim, we may not
have sufficient financial resources and our business and results of
operations may be harmed. A product liability claim brought against
us in excess of our insurance coverage, if any, could have a
material adverse effect upon our business, financial condition and
results of operations.
We do not have commercial-scale manufacturing capability, and
we lack commercial manufacturing experience. We will likely rely on
third parties to manufacture and supply our product candidates for
which we will be seeking FDA approval.
Except for our facilities at USC that were previously utilized to
prepare compounded formulations, we do not own or operate
manufacturing facilities for clinical or commercial production of
pharmaceutical products and product candidates, we do not have
any experience in drug formulation or manufacturing, and we lack
the resources and the capability to manufacture any of our product
candidates on a clinical or commercial scale. Accordingly, we
expect to depend on third-party contract manufacturers for the
foreseeable future. Any performance failure on the part of our
contract manufacturers could delay clinical development, regulatory
approval or commercialization of our current or future product
candidates, or result in product recalls or shortages or
manufacturing halts or delays, depriving us of potential product
revenue and resulting in additional losses. Any manufacturing
problem or the loss of a contract manufacturer could be disruptive
to our operations and result in lost sales. Additionally, we
rely on third parties to supply the raw materials needed to
manufacture our existing and potential products.
Any business interruptions resulting from geopolitical
actions, including war and terrorism, adverse public health
developments such as the outbreak of the COVID-19 coronavirus, or
natural disasters including earthquakes, typhoons, floods and
fires, could adversely affect our supply chain. These risks
and uncertainties are compounded in the presence of the COVID-19
pandemic. Any reliance on suppliers may involve several risks,
including a potential inability to obtain critical materials and
reduced control over production costs, delivery schedules,
reliability and quality. Any unanticipated disruption to our
manufacturers or suppliers could delay shipment of any of our
products, increase our cost of goods sold and result in lost sales.
The manufacture of pharmaceutical products requires significant
expertise and capital investment, including the development of
advanced manufacturing techniques and process controls.
Manufacturers of pharmaceutical products often encounter
difficulties in production, particularly in scaling up initial
production.
These problems can include difficulties with production costs and
yields, quality control (including stability of the product
candidate and quality assurance testing), shortages of qualified
personnel, and compliance with strictly enforced federal, state and
foreign regulations. If our third-party contract manufacturers were
to encounter any of these difficulties or otherwise fail to comply
with their obligations or under applicable regulations, our ability
to provide product candidates to patients in our clinical trials or
commercially would be jeopardized. If we file an application for
marketing approval of the product and the FDA grants marketing
approval, any delay or interruption in the supply of product could
delay the commercial launch of the product or impair our ability to
meet demand for the product. Difficulties in supplying products for
clinical trials could increase the costs associated with our
clinical trial programs and, depending upon the period of delay,
require us to commence new trials or qualify new manufacturers at
significant additional expense, possibly causing commercial delays
or termination of the trials.
Our products can only be manufactured in a facility that has
undergone a satisfactory inspection by the FDA and other relevant
regulatory authorities. For these reasons, we may not be able to
replace manufacturing capacity for our products quickly if we or
our contract manufacturer(s) were unable to use manufacturing
facilities as a result of a fire, natural disaster (including an
earthquake), equipment failure, or other difficulty, or if such
facilities were deemed not in compliance with the regulatory
requirements and such non-compliance could not be rapidly
rectified. An inability or reduced capacity to manufacture our
products could have a material adverse effect on our business,
financial condition, and results of operations.
We are subject to substantial government regulation, which
could materially adversely affect our business. If we do not
receive regulatory approvals, we may not be able to develop and
commercialize our technologies.
We need FDA approval to market our products in the United States
that are subject to regulatory approval, and similar approvals from
foreign regulatory authorities to market products outside the
United States. The production and marketing of such products and
potential products and our ongoing research and development,
pre-clinical testing and clinical trial activities are subject to
extensive regulation and review by numerous governmental
authorities in the United States and will face similar regulation
and review for overseas approval and sales from governmental
authorities outside of the United States. The regulatory review and
approval process, which may include evaluation of preclinical
studies and clinical trials of our products that are subject to
regulatory review, as well as the evaluation of manufacturing
processes and contract manufacturers’ facilities, is lengthy,
expensive and uncertain. We have limited experience in filing and
pursuing applications necessary to gain regulatory approvals. Many
of the product candidates that we are currently developing must
undergo rigorous pre-clinical and clinical testing and an extensive
regulatory approval process before they can be marketed. This
process makes it longer, more difficult and more costly to bring
our potential products to market, and we cannot guarantee that any
of our potential products will be approved. Many products for which
FDA approval has been sought by other companies have never been
approved for marketing. In addition to testing and approval
procedures, extensive regulations also govern marketing,
manufacturing, distribution, labeling, and record-keeping
procedures. If we or our collaboration partners do not comply with
applicable regulatory requirements, such violations could result in
non-approval, suspensions of regulatory approvals, civil penalties
and criminal fines, product seizures and recalls, operating
restrictions, injunctions, and criminal
prosecution.
Regulatory authorities generally have substantial discretion in the
approval process and may either refuse to accept an application, or
may decide after review of an application that the data submitted
is insufficient to allow approval of the proposed product, as we
have experienced with previous CRLs that we have received from the
FDA. If regulatory authorities do not accept or approve our
applications, they may require that we conduct additional clinical,
preclinical or manufacturing studies and submit that data before
regulatory authorities will reconsider such application. We may
need to expend substantial resources to conduct further studies to
obtain data that regulatory authorities believe is sufficient.
Depending on the extent of these studies, acceptance or approval of
applications may be delayed by several years, or may require us to
expend more resources than we may have available. It is also
possible that additional studies may not suffice to make
applications approvable. If any of these outcomes occur, we may be
forced to abandon our applications for approval.
Failure to obtain FDA or other required regulatory approvals, or
withdrawal of previous approvals, would adversely affect our
business. Even if regulatory approval of a product is granted, this
approval may entail limitations on uses for which the product may
be labeled and promoted, or may prevent us from broadening the uses
of products for different applications.
Following regulatory approval of any of our drug
candidates, we will be subject to ongoing regulatory obligations
and restrictions, which may result in significant expense and limit
our ability to commercialize our potential
products.
With regard to our drug candidates that are approved by the FDA or
by another regulatory authority, we are held to extensive
regulatory requirements over product manufacturing, labeling,
packaging, adverse event reporting, storage, advertising, promotion
and record keeping. Regulatory approvals may also be subject to
significant limitations on the indicated uses or marketing of the
drug candidates. Potentially costly follow-up or post-marketing
clinical studies may be required as a condition of approval to
further substantiate safety or efficacy, or to investigate specific
issues of interest to the regulatory authority. Previously unknown
problems with the drug candidate, including adverse events of
unanticipated severity or frequency, may result in restrictions on
the marketing of the drug, and could include withdrawal of the drug
from the market. In addition, the law or regulatory policies
governing pharmaceuticals may change. New statutory requirements
may be enacted or additional regulations may be enacted that could
prevent or delay regulatory approval of our drug candidates. We
cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or
administrative action, either in the United States or elsewhere. If
we are not able to maintain regulatory compliance, we might not be
permitted to market our drugs and our business could suffer.
We intend to pursue Section 505(b)(2) regulatory approval
filings with the FDA for our products where applicable. Such
filings involve significant costs, and we may also encounter
difficulties or delays in obtaining regulatory approval for our
products. Similar difficulties or delays may also arise in
connection with any Abbreviated New Drug Applications that we may
file.
We submitted a Section 505(b)(2) NDA regulatory filing to the FDA
in connection with our approved SYMJEPI products and our ZIMHI
(naloxone) Injection product, and we may pursue Section 505(b)(2)
NDA filings with the FDA in connection with one or more other
product candidates. A Section 505(b)(2) NDA is a special type
of NDA that enables the applicant to rely, in part, on the FDA’s
findings of safety and efficacy of an existing previously approved
product, or published literature, in support of its application.
Section 505(b)(2) NDAs often provide an alternate path to FDA
approval for new or improved formulations or new uses of previously
approved products. Such filings involve significant filing
costs, including filing fees.
To the extent that a Section 505(b)(2) NDA relies on published
literature relating to a previously approved drug product or the
FDA’s prior findings of safety and effectiveness for a previously
approved drug product, where the underlying studies were not
conducted by or for the applicant and the applicant lacks a right
of reference or use to the underlying data, the Section 505(b)(2)
applicant must submit in its Section 505(b)(2) application a patent
certification or statement with respect to any patents that are
subject to the Orange Book listing requirement in connection with
the previously approved product on which the applicant’s
application relies. Specifically, the applicant must certify for
each such patent that, in relevant part, (1) the required patent
information has not been filed; (2) the patent has expired; (3) the
patent has not expired, but will expire on a particular date and
approval is not sought until after patent expiration; or (4) the
listed patent is invalid, unenforceable or will not be infringed by
the proposed new product. Alternatively, with respect to a method
of use patent, the applicant may submit a statement that the patent
does not claim a use for which the applicant is seeking approval. A
certification that the new product will not infringe the previously
approved product’s listed patent or that such patent is invalid or
unenforceable is known as a Paragraph IV certification. If the
applicant does not challenge the listed patents through a Paragraph
IV certification or submit a statement that a method of use patent
does not claim a use for which the applicant is seeking approval,
the FDA will not approve the Section 505(b)(2) NDA application
until all the listed patents for the previously approved product
have expired. Further, the FDA will also not approve a Section
505(b)(2) NDA until any applicable non-patent exclusivity, such as,
for example, five-year exclusivity for obtaining approval of a new
chemical entity, three-year exclusivity for an approval based on
new clinical trials, or pediatric exclusivity, listed in the Orange
Book for the referenced product, has expired.
If the Section 505(b)(2) NDA applicant has provided a Paragraph IV
certification to the FDA, the applicant must also send notice of
the Paragraph IV certification to the owner of the referenced NDA
for the previously approved product and relevant patent holders
within 20 days after the FDA sends the Section 505(b)(2) NDA
applicant notice that the Section 505(b)(2) NDA has been accepted
for filing by the FDA. The NDA and patent holders may then initiate
a patent infringement suit against the Section 505(b)(2) applicant.
Under the FDCA, the filing of a patent infringement lawsuit within
45 days of receipt of the notification regarding a Paragraph IV
certification automatically prevents the FDA from approving the
Section 505(b)(2) NDA for 30 months beginning on the date the
patent holder receives notice, unless, before the end of the
30-month period, a court determines that the patent is invalid,
unenforceable or not infringed; a court enters a settlement order
or consent decree stating that the patent is invalid,
unenforceable, or not infringed; the patent owner or exclusive
licensee consents to approval of the Section 505(b)(2) NDA; or the
court enters an order of dismissal without a finding of
infringement.
If we rely in our Section 505(b)(2) regulatory filings on published
literature relating to a previously approved drug product or the
FDA’s prior findings of safety and effectiveness for a previously
approved drug product where the underlying studies were not
conducted by or for us and we lack a right of reference or use to
the underlying data, and that involves patents referenced in the
Orange Book, then we will need to make the patent certifications or
the Paragraph IV certification described above. If we make a
Paragraph IV certification and the holder of the previously
approved product that we referenced in our application initiates
patent litigation within the time periods described above, then any
FDA approval of our 505(b)(2) application would be delayed until
the earlier of 30 months, resolution of the lawsuit, or the other
events described above. Accordingly, our anticipated dates relating
to review and approval of a product that was subject to such
litigation would be delayed. In addition, we would incur the
expenses, which could be material, involved with any such patent
litigation. As a result, we may invest a significant amount of time
and expense in the development of our product only to be subject to
significant delay and patent litigation before our product may be
commercialized, if at all.
In addition, even if we submit a Section 505(b)(2) application,
such as we may submit for other future products, that relies on
published literature relating to a previously approved drug product
or the FDA’s prior findings of safety and effectiveness for a
previously approved drug product where there are no patents
referenced in the Orange Book for such other product with respect
to which we have to provide certifications, we are subject to the
risk that the FDA could disagree with our reliance on the
particular previously approved product that we chose to rely on,
conclude that such previously approved product is not an acceptable
reference product, and require us instead to rely as a reference
product on another previously approved product that involves
patents referenced in the Orange Book, requiring us to make the
certifications described above and subjecting us to additional
delay, expense and the other risks described above.
Similarly, if we submit one or more ANDA applications to the FDA
pursuant to Section 505(j) of the FDCA in connection with one or
more of our product candidates, we could encounter generally
similar difficulties or delays, including difficulties or delays
resulting from the Paragraph IV certification process or from the
development of any bioequivalence or other data that might be
required in connection with any such ANDAs.
If we fail to obtain acceptable prices or appropriate
reimbursement for our products, our ability to successfully
commercialize our products will be impaired.
Government and insurance reimbursements for healthcare expenditures
play an important role for all healthcare providers, including
physicians and pharmaceutical companies such as Adamis, that plan
to offer various products in the United States and other countries
in the future. Physicians and patients may decide not to order our
products unless third-party payors, such as managed care
organizations as well as government payors such as Medicare and
Medicaid, pay a substantial portion of the price of the products.
Market acceptance and sales of our specialty pharmaceutical
products and potential products will depend in part on the extent
to which reimbursement for the costs of such products will be
available from government health administration authorities,
private health coverage insurers, managed care organizations, and
other organizations. In the United States, our ability to have our
products eligible for Medicare, Medicaid or private insurance
reimbursement will be an important factor in determining the
ultimate success of our products. If, for any reason, Medicare,
Medicaid or the insurance companies decline to provide
reimbursement for our products, our ability to commercialize our
products would be adversely affected.
Third-party payors may challenge the price of medical and
pharmaceutical products. Reimbursement by a third-party payor may
depend on a number of factors, including a payor’s determination
that our product candidates are:
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not experimental or
investigational; |
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effective; |
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medically necessary; |
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appropriate for the specific
patient; |
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cost-effective; |
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supported by peer-reviewed
publications; or |
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included in clinical practice
guidelines. |
If purchasers or users of our products and related treatments are
not able to obtain appropriate reimbursement for the cost of using
such products, they may forego or reduce such use. Significant
uncertainty exists as to the reimbursement status of newly approved
pharmaceutical products, and there can be no assurance that
adequate third-party coverage will be available for any of our
products. Even if our products are approved for reimbursement by
Medicare, Medicaid and private insurers, of which there can be no
assurance, the amount of reimbursement may be reduced at times or
even eliminated, which could have a material adverse effect on our
business, financial condition and results of
operations.
Legislative or regulatory reform of the healthcare system may
affect our ability to sell our products
profitably.
In both the United States and certain foreign jurisdictions, there
have been and are expected to be a number of legislative and
regulatory changes to the healthcare system in ways that could
impact our ability to sell our products profitably. The
impact of these changes on the biotechnology and pharmaceutical
industries and our business is uncertain. The U.S. Congress
continues to consider issues relating to the healthcare system, and
future legislation or regulations may affect our ability to market
and sell products on favorable terms, which would affect our
results of operations, as well as our ability to raise capital,
obtain additional collaborators or profitably market our products.
Such legislation or regulation may reduce our revenues, increase
our expenses or limit the markets for our products. In particular,
we expect to experience pricing pressures in connection with the
sale of our products due to the influence of health maintenance and
managed health care organizations and additional legislative
proposals.
We are subject to a variety of federal, state and local laws
and regulations relating to the general healthcare industry, which
are subject to frequent change.
Participants in the healthcare industry, including the company and,
before the winding down of its business as described elsewhere in
this Report, USC, are subject to a variety of federal, state, and
local laws and regulations. Laws and regulations in the
healthcare industry are extremely complex and, in many instances,
industry participants do not have the benefit of significant
regulatory or judicial interpretation. Such laws and
regulations are subject to change and often are uncertain in their
application. There can be no assurance that we will not be
subject to scrutiny or challenge under one or more of these laws or
regulations or that any such challenge would not be successful.
Any such challenge, whether or not successful, could
adversely affect our business, financial condition or results of
operations.
In addition, we are subject to the federal anti-kickback statute,
which prohibits, among other things, knowingly and willfully
offering, paying, soliciting or receiving remuneration to induce or
in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service
reimbursable under a federal healthcare program, or purchasing,
leasing, ordering or arranging for the purchase, lease or order of
any healthcare item or service reimbursable under a federal
healthcare program. We are also subject to state
anti-kickback laws and regulations. Violations of the
anti-kickback statutes can result in imprisonment, civil or
criminal fines, and fines and disciplinary actions relating to our
state licensure. Any violation or alleged violation of such
federal or state laws could harm our reputation, customer
relationships or otherwise have a material adverse effect on our
business, financial condition and results of operations.
We have limited sales, marketing and distribution
experience.
We have limited experience in the sales, marketing, and
distribution of pharmaceutical products. There can be no assurance
that we will be able to establish sales, marketing, and
distribution capabilities or make arrangements with collaborators
or others to perform such activities or that such efforts will be
successful. If we decide to market any products directly ourselves,
we would be required to either acquire or internally develop a
marketing and sales force with technical expertise and with
supporting distribution capabilities. The acquisition or
development of a sales, marketing and distribution infrastructure
would require substantial resources, which may not be available to
us or, even if available, could divert the attention of our
management and key personnel and have a negative impact on further
product development efforts.
We may seek to enter into arrangements to develop and
commercialize our products. These collaborations, even if secured,
may not be successful.
We have entered and sought to enter into arrangements with third
parties regarding development or commercialization of some of our
products or product candidates and may in the future seek to enter
into collaborative arrangements to develop and commercialize some
of our potential products both in North America and international
markets. There can be no assurance that we will be able to
negotiate commercialization or collaborative arrangements on
favorable terms or at all or that our current or future
collaborative arrangements will be successful. The amount and
timing of resources such third parties will devote to these
activities may not be within our control. There can be no assurance
that such parties will perform their obligations as expected. There
can be no assurance that our collaborators will devote adequate
resources to our products.
Even if they are approved and commercialized, if our
potential products are unable to compete effectively with current
and future products targeting similar markets as our potential
products, our commercial opportunities will be reduced or
eliminated.
The markets for our SYMJEPI products and ZIMHI product, and our
other product candidates, are intensely competitive and
characterized by rapid technological progress. We face
competition from numerous sources, including major biotechnology
and pharmaceutical companies worldwide. Many of our
competitors have substantially greater financial and technical
resources, and development, production and marketing capabilities,
than we do. Our SYMJEPI product competes with a number of
other currently marketed epinephrine products for use in the
emergency treatment of acute allergic reactions, including
anaphylaxis. Our ZIMHI product competes with a number of
other currently marketed products utilizing naloxone, for the
treatment of acute opioid overdose. Our Tempol product
candidate for use in treatment of COVID-19, if successfully
developed, approved and commercialized, will compete with a number
of other current and future products and therapies for use in the
treatment of COVID-19. Certain companies have established
technologies that may be competitive with our product candidates
and any future products that we may develop or acquire. Some
of these products may use d