Notes to Unaudited Condensed Consolidated Financial Statements
1. Business
Cerecor Inc. (the "Company," or "Cerecor") is an integrated biopharmaceutical company that is focused on pediatric healthcare. The Company has a diverse portfolio of marketed products. Our marked products are led by our prescribed dietary supplements and prescribed drugs. Our prescribed dietary supplements include Poly-Vi-Flor and Tri-Vi-Flor which are prescription vitamin and fluoride supplements used in infants and children to treat or prevent deficiency of essential vitamins and fluoride, often caused by poor diet or low levels of fluoride in drinking water and other sources. Poly-Vi-Flor and Tri-Vi-Flor are available in various formulations, including an oral suspension and chewable tablets. The Company also markets a number of prescription drugs that treat a range of pediatric diseases, disorders and conditions. Cerecor's prescription drugs include Millipred®, Veripred®, Ulesfia®, Karbinal™ ER, AcipHex® Sprinkle™ and Cefaclor for Oral Suspension. Finally, the Company has one marketed medical device, Flexichamber™. The Company's pipeline is led by CERC-301, which is currently in a Phase I safety study for Neurogenic Orthostatic Hypotension ("nOH"). In March 2018, Cerecor gained clearance of its Investigational New Drug ("IND") application from the U.S. Food & Drug Administration to initiate clinical studies of CERC-301 in nOH. The Company is also developing
three
preclinical stage compounds, CERC-611,CERC-406 and CERC-425.
Cerecor was incorporated in 2011 and commenced operations in the second quarter of 2011. In August 2017, the Company sold its worldwide rights to CERC-501 to Janssen Pharmaceuticals, Inc. (“Janssen”) in exchange for initial gross proceeds of
$25 million
, of which
$3.75 million
was deposited into a
twelve
-month escrow to secure indemnification obligations to Janssen, as well as a potential future
$20 million
regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501. On November 17, 2017, the Company acquired TRx Pharmaceuticals, LLC (“TRx”) and its wholly-owned subsidiaries (see "TRx Acquisition" in
Note 4
below for a description of the transaction).
On February 16, 2018, Cerecor purchased and acquired all rights to Avadel Pharmaceuticals PLC’s (“Avadel”) marketed pediatric products (the “Acquired Products”) for the assumption of certain of Avadel's financial obligations to Deerfield CSF, LLC ("Deerfield"), which includes
$15.3 million
in debt due in January 2021 and its related interest payments as well as a
15%
annual royalty on net sales of the Acquired Products through February 2026 (see "Avadel Pediatric Products Acquisition" in
Note 4
below for a description of the transaction).
Liquidity
For the
three months ended March 31, 2018
, Cerecor generated
a net loss
of
$3.9 million
and
negative
cash flow from operations of
$0.3 million
. As a result of the TRx and Avadel acquisitions, the Company's commercial operations are expected to generate positive cash flows from product sales.
As of
March 31, 2018
, Cerecor had an accumulated deficit of
$62.0 million
and a balance of
$2.5 million
in cash and cash equivalents. The Company anticipates generating positive cash flows from the Company's commercial operations to offset costs related to its preclinical programs, clinical development for CERC-301 in nOH, business development, costs associated with its organizational infrastructure and debt principal and interest payments to be incurred from the acquisition of Avadel products. The Company applies a disciplined decision making methodology as it evaluates the optimal allocation of the Company's resources between investing in the Company's current commercial product line, the Company's development portfolio and acquisitions or in-licensing of new assets in order to meet its cash flow needs. The Company, however, may require additional financing to continue to execute its clinical development strategy. The Company plans to meet its capital requirements primarily through gross profits from product sales and potentially some combination of equity or debt financings, collaborations, or out-licensing arrangements, strategic alliances, federal and private grants, marketing, distribution or licensing arrangements.
The Company expects its cash on hand as of
March 31, 2018
and its cash flows from operations to fund future expenses and other non-operating payments such as debt payments through at least May 2019.
2. Significant Accounting Policies
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company’s financial position, results of operations and cash flows. The condensed consolidated balance sheet at
December 31, 2017
has been derived from audited financial statements at that date. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the United States Securities and Exchange Commission (“SEC”). Certain prior period amounts have been reclassified to conform to the current year presentation.
The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the
December 31, 2017
audited consolidated financial statements.
Reclassification
The company has reclassified
$317,287
from accrued expenses and other current liabilities to accounts receivable, net in the December 31, 2017 balance sheet to conform with current period presentation. During 2018, the Company concluded that going forward it would net amounts due to distributors against open receivable balances.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Cerecor Inc. and its wholly-owned subsidiaries after elimination of all intercompany balances and transactions.
Variable Interest Entities
The primary beneficiary of a variable interest entity ("VIE") must consolidate the related assets and liabilities. Certain disclosures are required by sponsors, significant interest holders in VIEs and potential VIEs. The Company regularly assesses its relationships with contractual third party and other entities for potential VIEs. In making this assessment, the Company considers the potential that its contracts or other arrangements provide subordinated financial support, absorb losses or rights to residual returns of the entity and the ability to directly or indirectly make decisions about the entities’ activities. Based on the Company’s assessments performed, management concluded that there were no relationships that constitute a VIE for which the Company was determined to be the primary beneficiary at
March 31, 2018
. If the Company’s management makes the determination that it is the primary beneficiary of a VIE, the Company will consolidate the statements of operations and financial condition of the VIE into its condensed consolidated financial statements.
Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement. The objective of a fair value measurement is to estimate the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Such transactions to sell an asset or transfer a liability are assumed to occur in the principal market for that asset or liability, or in the absence of the principal market, the most advantageous market for the asset or liability.
Assets and liabilities subject to fair value measurement disclosures are required to be classified according to a three-level fair value hierarchy with respect to the inputs (or assumptions) used to determine fair value. The level in which an asset or liability is disclosed within the fair value hierarchy is based on the lowest level input that is significant to the related fair value measurement in its entirety. The guidance under the fair value measurement framework applies to other existing accounting guidance in the FASB codification that requires or permits fair value measurements. Refer to related disclosures in
Note 5
,
Fair Value Measurements
.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to but not limited to, revenue recognition, share-based compensation, fair value measurements (including those relating to contingent consideration), income taxes, goodwill and other intangible assets, and clinical trial accruals. The Company bases its estimates on historical experience and other market‑specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.
Net Income (Loss) per Share, Basic and Diluted
Earnings per share are computed using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Shares of the unexercised warrants issued in the Armistice private placement (See
Note 9
) in 2017 are considered participating securities because these warrants contain a non-forfeitable right to dividends irrespective of whether the warrants are ultimately exercised. Under the two-class method, earnings per common share for the common stock and participating warrants are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted-average number of shares of common stock and participating warrants outstanding for the period. In applying the two-class method, undistributed earnings are allocated to common stock and participating warrants based on the weighted-average shares outstanding during the period. As the warrants issued in the Armistice transaction do not share in net losses of the Company, they are excluded from weighted average shares and warrants outstanding during periods of net loss.
Diluted net income (loss) per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options issued under the Company's long-term incentive plans, which are included under the "treasury stock method" when dilutive; (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option shares, which are included under the "if-converted method" when dilutive; (iii) the contingently issuable shares in the TRx acquisition if contingencies would have been satisfied if the end of the contingency period were as of the balance sheet date under the “if converted method” when dilutive; and (iv) common stock to be issued upon the exercise of outstanding warrants which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In addition, net losses are not allocated to the participating securities.
Contingently issuable shares
are included in the calculation of basic income (loss) per share as of the beginning of the period in which all the necessary conditions have been satisfied. Contingently issuable shares are included in diluted net income (loss) per share based on the number of shares, if any, that would be issuable under the terms of the arrangement if the end of the reporting period was the end of the contingency period, if the results are dilutive.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents are valued at cost, which approximates their fair value.
Escrowed Cash Receivable
On August 14. 2017, the Company sold all of its rights to CERC-501 to Janssen in exchange for initial gross proceeds of
$25 million
, of which
$3.75 million
was deposited into a
twelve
-month escrow to secure certain indemnification obligations to Janssen. The Company evaluates its escrowed cash receivable balance each reporting period and establishes a reserve for amounts deemed uncollectible.
No
reserve was recorded as of
March 31, 2018
and
December 31, 2017
.
Restricted Cash
The Company established the Employee Stock Purchase Plan in 2016 (the "Plan"). Eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the Plan administrator. At
March 31, 2018
, approximately
$14,000
of deposits had been made by employees for potential future stock purchases.
In 2016, the Company entered into a bank services pledge agreement with Silicon Valley Bank. In exchange for receiving business credit card services from Silicon Valley Bank, the Company deposited
$50,000
as collateral with Silicon Valley Bank. This amount will remain deposited with Silicon Valley Bank for the duration the business credit card services are used by the Company. In
addition, the Company has deposited
$13,000
with the landlord of the Company's office space as a security deposit. These deposits are recorded as restricted cash, net of current portion on the balance sheet as of
March 31, 2018
and
December 31, 2017
.
The Company adopted ASU 2016-18 effective January 1, 2018 and now includes restricted cash balances within the cash, cash equivalents and restricted cash balance on the statement of cash flows. All prior periods were retrospectively adjusted to conform to the current period presentation.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company maintains a portion of its cash and cash equivalent balances in the form of a money market account with a financial institution that management believes to be creditworthy. The Company has no financial instruments with off‑balance sheet risk of loss.
Inventory
Inventory consists primarily of finished goods stated
at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.
The Company reviews the composition of
inventory at each reporting period in order to identify obsolete, slow-moving, quantities in excess of expected demand, or otherwise non-saleable items. If non-saleable
items are observed and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the
decline in value is first recognized. These valuation adjustments are recorded based upon various factors for the Company’s products, including the level of
product manufactured by the Company, the level of product in the distribution channel, current and projected product demand, the expected shelf life of the
product and firm inventory purchase commitments.
Goodwill
Goodwill relates to the amount that arose in connection with the acquisitions of TRx and Avadel. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired when accounted for using the acquisition method of accounting for business combinations. Goodwill is not amortized but is evaluated for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company's reporting unit below its carrying amount.
Intangible Assets
Intangible assets with definite useful lives are amortized over their estimated useful lives and reviewed for impairment if certain events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset might not be recoverable. Impairment losses are measured and recognized to the extent the carrying value of such assets exceeds their fair value.
Contingent Consideration
The Company’s business acquisitions involve the potential for future payment of consideration that is contingent upon the achievement of operational and commercial milestones and royalty payments on future product sales. The preliminary fair value of contingent consideration liabilities was determined at the acquisition date using unobservable level 3 inputs. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at current fair value with changes recorded in the condensed consolidated statements of operations. Changes in any of the inputs may result in a significantly different fair value adjustment.
License and Other Revenue
The Company recognizes revenues from collaboration, license or other research or sale arrangements when or as performance obligations are satisfied. For milestone payments, the Company assesses, at contract inception, whether the milestones are considered probable of being achieved. If it is probable that a significant revenue reversal will occur, the Company will not record revenue until the uncertainty has been resolved. Milestone payments that are contingent upon regulatory approval are not considered probable of being achieved until the approvals are obtained as it is outside the control of the Company. If it is probable that a significant revenue reversal will not occur, the Company will estimate the milestone payments using the most likely amount method. The Company will re-assess the milestones each reporting period to determine the probability of achievement.
Grant Revenue
Grant revenues are derived from government grants that support the Company’s efforts on specific research projects. We have determined that the government agencies providing grants to the Company are not our customers. The Company recognizes grant revenue when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant revenue will be received.
Product Revenues, net
The Company generates substantially all of its revenue from sales of prescription pharmaceutical products to its customers and has identified a single product delivery performance obligation, which is the provision of prescription pharmaceutical products to its customers based upon Master Service Agreements in place with wholesaler distributors, purchase orders from retail pharmacies or other direct customers and a contractual arrangement with a specialty pharmacy. The performance obligation is satisfied at a point in time, when control of the product has been transferred to the customer, either at the time the product has been received by the customer or to a lesser extent when the product is shipped. The Company determines the transaction price based on fixed consideration in its contractual agreements and the transaction price is allocated entirely to the performance obligation to provide pharmaceutical products. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers product to when the customers pay for the product is less than one year and the customers do not pay for product in advance of the transfer of the product.
Revenues from sales of products are recorded net of any variable consideration for estimated allowances for returns, chargebacks, distributor fees, prompt payment discounts, government rebates and other common gross-to-net revenue adjustments. The identified variable consideration is recorded as a reduction of revenue at the time revenues from product sales are recognized. The Company recognizes revenue only to the extent that it is probable that a significant revenue reversal will not occur in a future period.
Provisions for returns and government rebates are included within current liabilities in the condensed consolidated balance sheet. Provisions for prompt payment discounts and distributor fees, are included as a reduction to accounts receivable. Calculating these items involves estimates and judgments based on sales or invoice data, contractual terms, historical utilization rates, new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates, our expectations regarding future utilization rates for these programs, and channel inventory data. These estimates may differ from actual consideration amount received and the Company will re-assess these estimates and judgments each reporting period to adjust accordingly.
The following table presents net revenues disaggregated by type (in thousands):
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For the period ended
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March 31, 2018
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March 31, 2017
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Prescribed dietary supplements
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$
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2,231
|
|
|
$
|
—
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|
Prescription drugs
|
|
2,029
|
|
|
—
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Sales force revenue
|
|
223
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—
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Grant revenue
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—
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384
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Total revenue
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$
|
4,483
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$
|
384
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Concentration with Customer
The Company sells its prescription pharmaceutical products in the United States primarily through wholesale distributors and a specialty contracted pharmacy. Wholesale distributors account for substantially all of the Company’s net product revenues and trade receivables. In addition, the Company earns revenue from sales of its prescription pharmaceutical products directly to retail pharmacies and research and development grants. For the three months ended March 31, 2018, the Company’s three largest customers accounted for approximately
22%
,
25%
and
29%
, respectively, of the Company’s total net product revenues from sale of prescription pharmaceutical products.
Concentrations of Products and Sales
Six
of the Company’s products accounted for
100%
of the Company’s total product revenue, net for three months ended March 31, 2018.
Concentration with Vendor
The Company’s top
five
vendors accounted for approximately
51%
and
57%
of the Company’s accounts payable at March 31, 2018 and 2017, respectively.
Returns and Allowances
Consistent with industry practice, the Company maintains a return policy that allows customers to return product within a specified period both prior to and, in certain cases, subsequent to the product's expiration date. The Company’s return policy generally allows customers to receive credit for expired products within
six
months prior to expiration and within
one
year after expiration. The provision for returns and allowances consists of estimates for future product returns, pricing adjustments and delivery errors. The primary factors considered in estimating potential product returns include:
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•
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the shelf life or expiration date of each product;
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•
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historical levels of expired product returns;
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•
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external data with respect to inventory levels in the wholesale distribution channel;
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•
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external data with respect to prescription demand for the Company’s products; and
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•
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the estimated returns liability to be processed by year of sale based on analysis of lot information related to actual historical returns.
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The Company’s estimate for returns and allowances may be impacted by a number of factors, but the principal factor relates to the level of inventory in the distribution channel. If the Company becomes aware of an increase in the level of inventory of its products in the distribution channel, the Company considers the reasons for the increase to determine whether the Company believes the increase is temporary or other-than-temporary. Increases in inventory levels assessed as temporary will not result in an adjustment to the provision for returns and allowances. Conversely, other-than-temporary increases in inventory levels may be an indication that future product returns could be higher than originally anticipated and, accordingly, the Company may need to adjust the provision for returns and allowances. Some of the factors that may be an indication that an increase in inventory levels will be other-than-temporary include:
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•
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declining sales trends based on prescription demand;
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•
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regulatory approvals that could shorten the shelf life of our products, which could result in a period of higher returns related to older product still in the distribution channel;
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•
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introduction of new product or generic competition; and
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•
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increasing price competition from generic competitors.
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Distribution Fees and Rebates
Consistent with pharmaceutical industry practices, the Company establishes contracts with wholesalers that provide for Distribution Service Fees (“DSA fees”). Settlement of DSA fees may generally occur on a monthly or quarterly basis based on net sales for the period. DSA fee accruals are based on contractual fees to be paid to the wholesaler distributors applied to purchases of our products.
The Company is also subject to rebates on sales made under governmental pricing programs. For example, Medicaid rebates are amounts owed based upon contractual agreements or legal requirements with public sector (Medicaid) benefit providers after the final dispensing of the product by a pharmacy to a benefit plan participant. Medicaid reserves are based on expected payments, which are driven by patient us age, contract performance and field inventory that will be subject to a Medicaid rebate. Medicaid rebates are typically billed up to
180
days after the product is shipped, but can be as much as
270
days after the quarter in which the product is dispensed to the Medicaid participant. In addition to the estimates mentioned above, the Company’s calculation also requires other estimates, such as estimates of sales mix, to determine which sales are subject to rebates and the amount of such rebates. Periodically, the Company adjusts the Medicaid rebate provision based on actual claims paid. Due to the delay in billing, adjustments to actual claims paid may incorporate revisions of this provision for several periods. Because Medicaid pricing programs involve particularly difficult interpretations of complex statutes and regulatory guidance, our estimates could differ from actual experience.
In determining estimates for these rebates, the Company considers the terms of the contracts, relevant statutes, historical relationships of rebates to revenues, past payment experience, estimated inventory levels and estimated future trends.
Chargebacks and Sales Discounts
Chargeback accruals are based on the differentials between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Sales discounts accruals are based on payment terms extended to customers.
Sales Force Revenue
Pursuant to a Marketing Agreement with Pharmaceutical Associates, Inc. (“PAI”), the Company receives a monthly marketing fee to promote, market and sell certain products on behalf of PAI. The Company also receives a matching fee payment for each month of the term of the Marketing Agreement if certain provisions calculated in accordance with the terms and inputs set forth in the Marketing Agreement are met. Marketing fees and any matching payments are recognized as sale force revenue when all the performance obligations have been satisfied, as earned on a monthly basis.
Accounting Policy Elections
The Company elected the following practical expedients in applying Topic 606 to its identified revenue streams:
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Portfolio approach - contracts within each revenue stream have similar characteristics and the Company believes this approach would not differ materially than if applying Topic 606 to each individual contract.
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Modified retrospective approach - the Company applied Topic 606 only to contracts with customers which were not completed at the date of initial application, January 1, 2018.
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Significant financing component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
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Shipping and handling activities - the Company considers any shipping and handling costs that are incurred after the customer has obtained control of the product as a cost to fulfill a promise and will account for them as an expense.
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Contract costs - the Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.
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The Company does not incur costs to obtain a contract or costs to fulfill a contract that would result in the capitalization of contract costs. Specifically, internal sales commissions are costs to fulfill a contract and are expensed in the same period that revenue is recognized, which is typically within the same quarterly reporting period. Contract costs are expensed or amortized in “Operating expenses” on the accompanying Condensed Consolidated Statements of Operations.
The Company has not made significant changes to the judgments made in applying ASU 2014-09,
Revenue from Contracts with Customers
(Topic 606) ("ASU 2014-09") for the
three months ended March 31, 2018
.
Cost of Product Sales
Cost of product sales is comprised of (i) costs to acquire products sold to customers, (ii) royalty, license payments and other agreements granting the Company rights to sell related products, (iii) distribution costs incurred in the sale of products, and (iv) the value of any write-offs of obsolete or damaged inventory that cannot be sold. The Company acquired the rights to sell certain of its commercial products through license and assignment agreements with the original developers or other parties with interests in these products. These agreements obligate the Company to make payments under varying payment structures based on its net revenue from related products.
Shipping, Handling, and Freight
The Company includes the cost of shipping, handling, and freight associated with product sales as part of cost of goods sold.
Research and Development
Research and development costs are expensed as incurred. These costs include, but are not limited to, employee‑related expenses, including salaries, benefits and stock‑based compensation of research and development personnel; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies; the cost of acquiring, developing and manufacturing clinical trial materials; other supplies; facilities, depreciation and other expenses, such as direct and allocated expenses for rent, utilities and insurance; and costs associated with preclinical activities, regulatory operations, pharmacovigilance, quality and travel.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors, such as clinical research organizations, with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of professional fees, advertising and marketing cost and salaries, benefits and related costs for sales and sales support personnel, including stock‑based compensation and travel expenses.
Amortization Expense
Amortization expense includes the amortization of the Company's acquired intangible assets.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non‑owner sources. Comprehensive loss was equal to net loss for all periods presented.
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Deferred tax assets primarily include net operating loss and tax credit carryforwards, accrued expenses not currently deductible and the cumulative temporary differences related to certain research and patent costs. Certain tax attributes, including net operating losses and research and development credit carryforwards, may be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code (the "Code"). See Note
11. Income Taxes
for further information. The portion of any deferred tax asset for which it is more likely than not that a tax benefit will not be realized must then be offset by recording a valuation allowance. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of
March 31, 2018
, the Company did not believe any material uncertain tax positions were present.
On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” ("TCJA"), that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. See
Note 11
below for further discussion related to the tax impact to the Company.
Stock‑Based Compensation
The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock‑based awards made to employees and non‑employees, including employee stock options, in the statements of operations.
For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black‑Scholes option pricing model. The use of the Black‑Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk‑free interest rates and expected dividend yields of the common stock. For awards subject to service‑based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock‑based compensation expense equal to the grant date fair value of stock options on a straight‑line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
For stock option grants with market-based conditions, compensation expense is recognized ratably over the attribution period. The Company estimates the fair value of the market-based stock option grants using a Monte-Carlo simulation. The Company generally estimates fair value using assumptions, including the risk-free interest rate, the expected volatility of a peer group of similar companies, the expected term of the awards and the expected dividend yield. The expected term for market-based stock option awards is based on the expected term calculated using a Monte-Carlo simulation. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
For stock options issued to non‑employees, the Company initially measures the options at their grant date fair values and revalues as the underlying equity instruments vest and are recognized as expense over the earlier of the period ending with the performance commitment date or the date the services are completed in accordance with the provisions of ASC 718 and ASC 505‑50, Equity‑Based Payments to Non‑Employees (“ASC 505‑50”).
Clinical Trial Expense Accruals
As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate trial expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third‑party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed might vary and might result in it reporting amounts that are too high or too low for any particular period. For the
three months ended March 31, 2018
and
2017
, there were
no
material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision‑making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is currently represented by the Company's management team and consists of the Company's Chief Executive Officer, Chief Commercial Officer and Chief Financial Officer. The Company and the management team view the Company’s operations and manage its business as
one
operating segment. All long‑lived assets of the Company reside in the United States. The Company and the management team view the Company’s operations and manage its business as
one
operating segment.
Recently Adopted Accounting Pronouncements
Adoption of ASC 606
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(Topic 606) ("ASU 2014-09"). Topic 606, along with amendments issued in 2015, 2016 and 2017, supersedes the revenue recognition requirements in Topic 605,
Revenue Recognition
, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. ASU 2014-09 provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services. On January 1, 2018, the Company adopted the new revenue recognition standard for all contracts not completed as of the adoption date using the modified retrospective method. The implementation of the new revenue recognition standard did not have a material quantitative impact on the Company’s condensed consolidated financial statements as the timing of revenue recognition for product sales did not significantly change. In addition, the Company did not have a material cumulative effect adjustment to Accumulated deficit upon adoption of the new revenue recognition standard on January 1, 2018. The information presented for the periods prior to January 1, 2018 has not been restated and is reported under Topic 605.
The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if a contract is within the scope of Topic 606 and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Other Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
("ASU 2017-01"). The standard provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. ASU 2017-01 is effective for fiscal periods beginning after December 15, 2017 (including interim periods within those periods) with early adoption permitted. The Company adopted this standard on January 1, 2018.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting
(“ASU 2017-09”) to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for all companies for annual periods and interim periods within those annual periods, beginning on or after December 15, 2017. The adoption of this standard on January 1, 2018 did not have a significant impact on the Company’s financial statements.
In November 2016, the FASB issued ASU No. 2016-18,
Restricted Cash ("
ASU
2016-18"
)
. The guidance is intended to address the diversity that currently exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The new standard requires that entities show the changes in the total of cash and cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows and no longer present transfers between cash and cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2018. Upon adoption of ASU 2016-18 the Company applied the retrospective transaction method for each period presented and included
$133,312
and
$145,314
of restricted cash in the beginning period and end of period cash, cash equivalents and restricted cash balance. The March 31, 2017 statement of cash flows has been updated to include
$83,037
of restricted cash balances.
In October 2016, the FASB issued ASU No. 2016-16, “
Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory
” ("ASU 2016-16"), which requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The adoption of this standard on January 1, 2018 did not
have a significant impact on the Company’s financial statements.
In August 2016, the FASB issued ASU No. 2016-15
Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"), which reduces existing diversity in the classification of certain cash receipts and cash payments on the statements of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The adoption of this standard on January 1, 2018 did not have a significant impact on the Company’s financial statements.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842) ("ASU 2016-02"). This guidance revises existing practice related to accounting for leases under ASC No. 840,
Leases
(“ASC 840”) for both lessees and lessors. The new guidance in ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability for nearly all leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating leases or capital leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while capital leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company does not currently believe the adoption of ASU 2016-02 will have a significant impact on the Company's financial statements, but is still in the process of finalizing its evaluation.
In January 2017, the FASB issued ASU No. 2017-04 “
Intangibles-Goodwill and Other (Topic 350)
:
Simplifying the Test for Goodwill Impairment
” ("ASU 2017-04"). ASU-2017 eliminates step two of the goodwill impairment test and specifies that goodwill
impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements.
3. Net Loss Per Share of Common Stock, Basic and Diluted
The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months ended
March 31, 2018
and
2017
, which includes both classes of participating securities:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
Net loss per share, basic and diluted calculation
|
|
2018
|
|
2017
|
Basic and diluted loss per share:
|
|
|
|
|
Net loss
|
|
$
|
(3,882,847
|
)
|
|
$
|
(1,960,638
|
)
|
|
|
|
|
|
Weighted average shares, basic and diluted
|
|
|
|
|
Common stock
|
|
31,316,246
|
|
|
10,216,014
|
|
Participating warrants
|
|
—
|
|
|
—
|
|
|
|
31,316,246
|
|
|
10,216,014
|
|
Basic and diluted loss per share:
|
|
|
|
|
Common stock
|
|
$
|
(0.12
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
The following outstanding securities at
March 31, 2018
and
2017
have been excluded from the computation of diluted weighted shares outstanding, as they could have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2018
|
|
2017
|
Stock options
|
|
3,909,384
|
|
|
2,067,095
|
|
Warrants on common stock
|
|
18,986,659
|
|
|
7,400,934
|
|
Underwriters' unit purchase option
|
|
40,000
|
|
|
40,000
|
|
4. Acquisitions
Avadel Pediatric Products Acquisition
On February 16, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Avadel US Holdings, Inc., Avadel Pharmaceuticals (USA), Inc., Avadel Pediatrics, Inc., Avadel Therapeutics, LLC and Avadel Pharmaceuticals PLC (collectively, the “Sellers”) to purchase and acquire all rights to the Sellers’ pediatric products. Total consideration transferred to the Sellers consisted of a cash payment of
$1
and contingent consideration with a fair value of
$240,744
at the acquisition date related to future royalty obligations for the use of the Sellers' LiquiTime process technology. In addition, the Company assumed existing seller debt due in January 2021 with a fair value of
$(15.3) million
and contingent consideration, referred to as Deferred payments, relating to royalty obligation through February 2026 with a fair value at acquisition date of approximately
$7.9 million
. As a result of the Avadel Acquisition, the Company recorded goodwill of
$4.4 million
, which is deductible over
15
years for income tax purposes.
The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to an expanded commercial footprint and diversified pediatric product portfolio that is expected to provide revenue and cost synergies. Transaction costs of
$0.1 million
were included as general and administrative expense in the condensed consolidated statements of operations for the
three months ended March 31, 2018
.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
|
At
|
|
|
February 16,
|
|
|
2018 (preliminary)
|
|
|
|
Inventory
|
|
$
|
2,549,000
|
|
Intangible assets
|
|
16,453,000
|
|
Fair value of debt assumed
|
|
(15,272,303
|
)
|
Fair value of contingent consideration and deferred payments
|
|
(7,875,165
|
)
|
Total net liabilities assumed
|
|
(4,145,468
|
)
|
Consideration exchanged
|
|
240,745
|
|
Goodwill
|
|
$
|
4,386,213
|
|
Based on valuation estimates utilizing the income approach, a step-up in the value of inventory of
$1,597,000
was recorded in the opening balance sheet, of which approximately
$16,196
was charged to cost of goods sold during the post-acquisition period, February 16, 2018 through
March 31, 2018
.
The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the February 16, 2018 acquisition date.
The fair values of intangible assets, including marketing rights, licenses, developed technology and IPR&D, were determined using variations of the income approach. Varying discount rates were also applied to the projected net cash flows. We believe the assumptions are representative of those a market participant would use in estimating fair value. The preliminary fair value of intangible assets includes the following:
|
|
|
|
|
|
|
|
|
At
|
|
|
|
February 16,
|
Useful
|
|
|
2018 (preliminary)
|
Life
|
|
|
|
|
Acquired Product Marketing Rights - Karbinal
|
|
$
|
6,221,000
|
|
16 years
|
Acquired Product Marketing Rights - AcipHex
|
|
2,520,000
|
|
10 years
|
Acquired Product Marketing Rights - Cefaclor
|
|
6,291,000
|
|
7 years
|
Acquired Developed Technology - Flexichamber
|
|
1,131,000
|
|
10 years
|
Acquired IPR&D - LiquiTime formulations
|
|
290,000
|
|
Indefinite
|
Total
|
|
$
|
16,453,000
|
|
|
TRx Acquisition
On November 17, 2017, the Company entered into, and consummated the transactions contemplated by, an Equity Interest Purchase Agreement (the “TRx Purchase Agreement”) by and among the Company, TRx, Fremantle Corporation and LRS International LLC, the selling members of TRx (collectively, the “TRx Sellers”) which provided for the purchase of all of the equity and ownership interests of TRx by the Company (the "TRx Acquisition"). The consideration for the TRx acquisition consists of
$18.9 million
in cash, as adjusted for Estimated Working Capital, Estimated Cash on Hand, Estimated Indebtedness and Estimated Transaction Expenses, as well as
7,534,884
shares of the Company’s common stock having an aggregate value on the closing date of
$8.5 million
(the "Equity Consideration") and certain contingent payments, if any become payable. Upon closing, the Company issued
5,184,920
shares of its common stock to the TRx Sellers. Pursuant to the TRx Purchase Agreement, the issuance of the remaining
2,349,968
shares is subject to Cerecor stockholder approval and entirely contingent upon gaining such stockholder approval. These shares have been recorded within stockholder's equity on the condensed consolidating balance sheet date. As a result of the TRx Acquisition, the Company recorded goodwill of
$14.3 million
, of which
$9.2 million
was deductible for income taxes.
The November 17, 2017 acquisition-date fair value of the consideration transferred is as follows:
|
|
|
|
|
|
Cash
|
|
$
|
18,900,000
|
|
Common stock (including contingently issuable shares)
|
|
8,514,419
|
|
Contingent payments
|
|
2,576,633
|
|
Total consideration transferred
|
|
$
|
29,991,052
|
|
The TRx Acquisition was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to leveraging TRx’s research and development, intellectual property, and processes.
The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the acquisition date. There were no measurement adjustments recorded through
March 31, 2018
. The purchase price of
$30.0 million
was allocated as follows:
|
|
|
|
|
|
|
|
Amounts Recognized
|
|
|
as of Acquisition Date
|
|
|
(as previously reported)
|
Fair value of assets acquired:
|
|
|
Cash and cash equivalents
|
|
$
|
11,068
|
|
Accounts receivable, net
|
|
2,872,545
|
|
Inventory
|
|
495,777
|
|
Prepaid expenses and other current assets
|
|
134,281
|
|
Identifiable Intangible Assets:
|
|
|
|
Acquired product marketing rights - Metafolin
|
|
10,465,000
|
|
PAI sales and marketing agreement
|
|
2,334,000
|
|
Acquired product marketing rights - Millipred
|
|
4,714,000
|
|
Acquired product marketing rights - Ulesfia
|
|
555,000
|
|
Total assets acquired
|
|
$
|
21,581,671
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
Accounts payable
|
|
$
|
192,706
|
|
Accrued expenses and other current liabilities
|
|
4,850,422
|
|
Deferred tax liability
|
|
839,773
|
|
Total liabilities assumed
|
|
5,882,901
|
|
Total identifiable net assets
|
|
15,698,770
|
|
Fair value of consideration transferred
|
|
29,991,052
|
|
Goodwill
|
|
$
|
14,292,282
|
|
Based on valuation estimates utilizing the income approach, a step-up in the value of inventory of
$0.2 million
was recorded in the opening balance sheet, of which approximately
$29,254
was charged to cost of goods sold during the
three months ended March 31, 2018
.
The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the November 17, 2017 acquisition date.
The intangible assets acquired included a sales and marketing agreement with an estimated useful life of
two
years; and the product marketing rights to Metafolin, Millipred, and Ulesfia, which are estimated to have useful lives of
fifteen
,
four
, and
three
years, respectively. The fair values of intangible assets, including product marketing rights, were determined using variations of the income approach, specifically the multi-period excess earnings method. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.
The Company has received written notice to terminate the PAI Sales and Marketing Agreement. As such, once the
30
day notice period has ended, the contract will be terminated. The termination will likely result in an impairment write-off of the remaining asset value in the second quarter of 2018. There was
$2.3 million
of fair value assigned to the agreement at the acquisition date as part of our purchase price allocation.
Pro Forma Impact of Business Combinations
The following supplemental unaudited pro forma information presents Cerecor’s financial results as if the acquisitions of the Avadel pediatric products business, which was completed on February 16, 2018, and of TRx, which was completed on November 17, 2017, had each occurred on January 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
2017
|
|
Pro forma
|
Pro forma
|
|
|
|
Total revenues, net
|
$
|
6,187,775
|
|
$
|
5,052,790
|
|
Net loss
|
$
|
(4,928,446
|
)
|
$
|
(3,732,319
|
)
|
Diluted net loss per share
|
$
|
(0.16
|
)
|
$
|
(0.36
|
)
|
|
|
|
The above unaudited pro forma information was determined based on the historical GAAP results of Cerecor, TRx, and Avadel. The unaudited pro forma condensed consolidated results are provided for informational purposes only and are not necessarily indicative of what Cerecor’s condensed consolidated results of operations would have been had the acquisition been completed on the dates indicated or what the condensed consolidated results of operations will be in the future.
5. Fair Value Measurements
ASC No. 820,
Fair Value Measurements and Disclosures
(“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
|
|
•
|
Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
|
|
|
•
|
Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model‑derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
|
|
|
•
|
Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.
|
As of
March 31, 2018
and
December 31, 2017
, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other current liabilities, the term loan warrant liability, contingent consideration and the underwriters’ unit purchase option liability. The carrying amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts payable, accrued expenses, long-term debt - current portion and other current liabilities approximate their respective fair values because of the short-term nature of these accounts. The estimated fair value of the Company’s long-term debt of
$14.6 million
as of March 31, 2018 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy.
The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s assets and liabilities that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
Fair Value Measurements Using
|
|
|
Quoted prices in
|
|
Significant other
|
|
Significant
|
|
|
active markets for
|
|
observable
|
|
unobservable
|
|
|
identical assets
|
|
inputs
|
|
inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets
|
|
|
|
|
|
|
Investments in money market funds*
|
|
$
|
258,966
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,651,081
|
|
Royalties payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
304,020
|
|
Warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,590
|
|
Unit purchase option liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Fair Value Measurements Using
|
|
|
Quoted prices in
|
|
Significant other
|
|
Significant
|
|
|
active markets for
|
|
observable
|
|
unobservable
|
|
|
identical assets
|
|
inputs
|
|
inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets
|
|
|
|
|
|
|
Investments in money market funds*
|
|
$
|
471,183
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,576,633
|
|
Warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,185
|
|
Unit purchase option liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,991
|
|
*Investments in money market funds are reflected in cash and cash equivalents on the accompanying Balance Sheets.
Level 3 Valuation
The Company’s TRx and Avadel Pediatric Products acquisitions (see
Note 4
) involve the potential for future payment of consideration that is contingent upon the achievement of operational and commercial milestones. The fair value of contingent consideration is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at current fair value with changes recorded in the Company’s condensed consolidated statements of operations. Changes in any of the inputs may result in a significantly different fair value adjustment.
The warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of
March 31, 2018
, include (i) volatility of
55%
, (ii) risk free interest rate of
2.39%
, (iii) strike price
($8.40)
, (iv) fair value of common stock
($4.29)
, and (v) expected life of
2.55
years.
The underwriters’ unit purchase option (the “UPO”) was issued to the underwriters of the Company's initial public offering ("IPO") in 2015 and provides the underwriters the option to purchase up to a total of
40,000
units. The units underlying the UPO will be, immediately upon exercise, separated into shares of common stock, underwriters’ Class A warrants and underwriters’ Class B warrants (such warrants together referred to as the Underwriters’ Warrants). The Underwriters’ Warrants are warrants to purchase shares of common stock (see
Note 9
for additional information on the UPO). The Company classifies the UPO as a liability as it is a freestanding marked-to-market derivative instrument that is precluded from being classified in stockholders’ equity. The UPO liability is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the UPO is exercised, expires or other facts and circumstances lead the UPO to be reclassified to stockholders’ equity. The fair value of the UPO liability is estimated using a Black-Scholes option-pricing model within a Monte Carlo simulation model framework. The
significant assumptions used in preparing the simulation model for valuing the UPO as of
March 31, 2018
, include (i) volatility range of
35%
to
50%
, (ii) risk free interest rate range of
1.63%
to
2.34%
, (iii) unit strike price
($7.48)
, (iv) underwriters’ Class A warrant strike price
($5.23)
, (v) underwriters’ Class B warrant strike price
($4.49)
, (vi) fair value of underlying equity
($4.29)
, and (vii) optimal exercise point of immediately prior to the expiration of the underwriters’ Class B warrants, which occurred on April 20, 2017.
The tables presented below are a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability, UPO liability and contingent consideration for the
three months ended March 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
Unit purchase option liability
|
|
Contingent Consideration
|
|
Royalty Obligation
|
|
Total
|
Balance at December 31, 2017
|
|
$
|
8,185
|
|
|
$
|
26,991
|
|
|
$
|
2,576,633
|
|
|
$
|
—
|
|
|
$
|
2,611,809
|
|
Issuance of contingent consideration and royalty
|
|
—
|
|
|
—
|
|
|
7,875,165
|
|
|
240,744
|
|
|
8,115,909
|
|
Change in fair value
|
|
7,405
|
|
|
15,846
|
|
|
199,283
|
|
|
63,486
|
|
|
286,020
|
|
Balance at March 31, 2018
|
|
$
|
15,590
|
|
|
$
|
42,837
|
|
|
$
|
10,651,081
|
|
|
$
|
304,230
|
|
|
$
|
11,013,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
|
|
Unit purchase
|
|
|
|
|
liability
|
|
option liability
|
|
Total
|
Balance at December 31, 2016
|
|
$
|
5,501
|
|
|
$
|
51
|
|
|
$
|
5,552
|
|
Change in fair value
|
|
(2,795
|
)
|
|
6,556
|
|
|
3,761
|
|
Balance at March 31, 2017
|
|
$
|
2,706
|
|
|
$
|
6,607
|
|
|
$
|
9,313
|
|
No
other changes in valuation techniques or inputs occurred during
three months ended March 31, 2018
and
2017
.
No
transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three months ended
March 31, 2018
and
2017
.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Sales returns and allowances
|
|
$
|
4,374,892
|
|
|
$
|
3,829,030
|
|
Compensation and benefits
|
|
1,096,107
|
|
|
1,401,514
|
|
General and administrative
|
|
1,042,952
|
|
|
1,001,454
|
|
Royalties payable
|
|
755,641
|
|
|
743,010
|
|
Research and development expenses
|
|
236,279
|
|
|
299,480
|
|
Other
|
|
233,398
|
|
|
256,634
|
|
Total accrued expenses and other current liabilities
|
|
$
|
7,739,269
|
|
|
$
|
7,531,122
|
|
7. Agreements
Significant changes to our outstanding Agreements since December 31, 2017 are as follows:
Development Agreements
IPR-D LiquiTime
On February 16, 2018, in connection with the acquisition of Avadel’s pediatric products, the Company entered into a Licensing and Development Agreement with Flamel Ireland Limited (“Avadel Ireland”), a subsidiary of Avadel, under which Avadel Ireland will develop and provide the Company with
four
stable product formulations utilizing its proprietary LiquiTime® and Micropump® technology. Upon transfer of the product formulations, the Company will assume all remaining development and regulatory costs. Once approved and marketed, the Company will pay Avadel Ireland a royalty equal to
6.0%
of net sales of such products
Commercial, Supply, and Distribution Agreements
Acquired Product Marketing Rights - Karbinal
On February 16, 2018, in connection with the acquisition of Avadel's pediatric products, the Company entered into a supply and distribution agreement with TRIS Pharma (the "Karbinal Agreement"), under which the Company is granted the exclusive right to distribute and sell the product in the United States. The initial term of the Karbinal Agreement is
20
years. The Company will pay TRIS a royalty equal to
23.5%
of net sales. Avadel has agreed to pay the Company a make-whole payment equal to
8.5%
of fiscal year 2018 and 2019 net sales of Karbinal. The make-whole payment is capped at
$750,000
each year. The Karbinal Agreement also contains minimum unit sales commitments. The Karbinal Agreement also has multiple commercial milestone obligations that aggregate up to
$3.0 million
based on cumulative net sales, the first of which is triggered at
$40.0 million
.
Acquired Product Marketing Rights - AcipHex
On February 16, 2018, in connection with the acquisition of Avadel's pediatric products, the Company assumed the License and Assignment Agreement for AcipHex (“AcipHex Agreement”) between Eisai, Inc. and FSC Therapeutics, LLC dated June 2014 and the Supply Agreement between Eisai, Inc. and FSC Laboratories, Inc. dated June 2014. Per the AcipHex Agreement, the Company is granted the exclusive license to exploit the products in the territory (U.S.) and an exclusive license to use Eisai trademarks to sell the products. Eisai will manufacture and supply the requirements for supply of the products. The term of the AcipHex Agreement is perpetual unless terminated per the agreement. Eisai will receive (a) a royalty with respect to the sales of AcipHex equal to
15.0%
of Net Sales. The royalties are payable until the first commercial sale of an unauthorized generic product in the territory or the date that is
five
years from the effective date of the agreement. A maximum
$8.0 million
of sales-based milestone payments is possible should AcipHex accumulated net sales exceed
$50.0 million
.
Acquired Product Marketing Rights- Cefaclor
On February 16, 2018, in connection with the acquisition of Avadel's pediatric products, the Company assumed the License, Supply and Distribution Agreement for Cefaclor between Yung Shin Pharm. Ind, Co., Ltd. and FSC Therapeutics, LLC dated March 2015 (“Cefaclor Agreement”). The initial term of the Cefaclor Agreement runs through December 31, 2024 and will automatically renew for additional, successive
twelve
-month periods unless terminated by either party. Yung Shin will receive a royalty equal to
15.0%
of Net Sales of Cefaclor. A maximum
$6.5 million
of sales-based milestone payments is possible should Cefaclor accumulated net sales exceed
$40.0 million
.
8. Deerfield Obligation
In relation to the Company's acquisition of the Avadel pediatric products on February 16, 2018, the Company assumed an obligation that Avadel had to Deerfield CSF, (the "Deerfield Obligation"). The payment obligation assumed consists of the
two
components described below.
Deerfield Debt Obligation
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Deerfield Obligation
|
|
$
|
15,377,754
|
|
|
$
|
—
|
|
Less: debt discount
|
|
—
|
|
|
—
|
|
Deerfield Obligation, net of debt discount
|
|
15,377,754
|
|
|
—
|
|
Less: current portion
|
|
787,500
|
|
|
—
|
|
Long term debt, net of current portion and debt discount
|
|
$
|
14,590,254
|
|
|
$
|
—
|
|
|
|
|
|
|
Beginning in July 2018 through October 2020, the Company will pay a quarterly payment of
$262,500
to Deerfield. In January 2021, a balloon payment of
$15,250,000
is due. On the acquisition date, the Company determined the fair value of these payments to be
$15,272,303
using its estimated cost of debt. Management performed a credit risk analysis that determined the Company's credit rating to be B to BB plus the yield on a
ten
-year treasury security. The difference between the gross value and fair value of these payments will be recorded as interest expense in the Company's condensed consolidated statements of operations through January 2021 using the effective interest method. Interest expense for the three months ended March 31, 2018 was
$105,451
. The amounts due within the next year are included in Current portion of long-term debt on the Company's condensed consolidated balance sheets. The amounts due in greater than one year are included in Long-term debt on the Company's condensed consolidated balance sheets.
Deerfield Contingent Consideration
The Deerfield Contingent Consideration represents potential future royalty payments that are contingent upon the achievement of net sales volumes. Management estimated the amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows and determined the fair value of the Deerfield Contingent Consideration on the acquisition date was
$7,875,165
. Subsequent to the acquisition date, at each reporting period, the Deerfield Contingent Consideration liability will be remeasured at its current fair value with changes recorded in the Company’s condensed consolidated statements of operations. At March 31, 2018, the fair value of the Deerfield Contingent Consideration was
$7,920,356
which resulted in a charge of
$45,191
to change in fair value on the statement of operations.
9. Capital Structure
According to the Company's amended and restated certificate of incorporation, the Company is authorized to issue
two
classes of stock, common stock and preferred stock. As of
March 31, 2018
, the total number of shares of capital stock the Company was authorized to issue was
205,000,000
of which
200,000,000
was common stock and
5,000,000
was preferred stock. All shares of common and preferred stock have a par value of
$0.001
per share. On April 27, 2017, the Company further amended its certificate of incorporation in connection with the closing of the Armistice Private Placement (as defined below) with the filing of a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (“Series A Preferred Stock”) of Cerecor Inc. (the “Certificate of Designation”). The Certificate of Designation authorized the issuance of
4,179
shares of Series A Preferred Stock to Armistice with a stated value of
$1,000
per share, convertible into
11,940,000
shares of the Company’s common stock at a conversion price of
$0.35
per share and was approved by its shareholders on June 30, 2017. On July 6, 2017, Armistice converted all of its outstanding shares of Series A Preferred Stock into common stock. Subsequent to the conversion of Armistice’s Series A Preferred Stock into common stock, Armistice has a majority voting control over the Company.
Common Stock
The Aspire Capital Transaction
On September 8, 2016, the Company entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC ("Aspire Capital"), pursuant to which Aspire Capital committed to purchase up to an aggregate of
$15.0 million
of shares of the Company’s common stock over the
30
-month term of the Purchase Agreement. Under the Aspire Purchase Agreement, on any trading day selected by the Company on which the closing price of the Company’s common stock exceeds
$0.50
, the Company may, in its sole discretion, present a purchase notice directing Aspire Capital to purchase up to
50,000
shares of common stock per day, up to
$15.0 million
of the Company’s common stock in the aggregate at a per share price calculated by references to the prevailing market price of the Company’s common stock. Upon execution of the Aspire Purchase Agreement, the Company issued and sold to Aspire Capital
250,000
shares of common stock at a price per share of
$4.00
, for gross proceeds of
$1.0 million
, and concurrently entered into
a registration rights agreement with Aspire Capital registering the shares of the Company’s common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. Additionally, as consideration for Aspire Capital entering into the Aspire Purchase Agreement, the Company issued
175,000
shares of common stock as a commitment fee. The net proceeds of the Aspire Capital transaction, after offering expenses, to the Company were approximately
$1.9 million
for the year ended December 31, 2016. During the twelve months ended December 31, 2017, the Company sold an additional
965,165
shares of common stock to Aspire Capital under the terms of the Aspire Purchase Agreement for gross proceeds of approximately
$789,000
. The Board of Directors approved a board resolution to terminate this agreement on January 20, 2018.
The Maxim Group Equity Distribution Agreement
On January 27, 2017, the Company entered into an Equity Distribution Agreement with Maxim Group LLC ("Maxim"), as sales agent, pursuant to which the Company could offer and sell, from time to time, through Maxim, up to
$12,075,338
in shares of its common stock. This agreement expired on January 16, 2018, and as of this date, the Company had sold
1,336,433
shares of its common stock through Maxim under the Equity Distribution Agreement for total gross proceeds of
$905,000
, including
$33,000
of issuance costs.
Armistice Private Placement
On April 27, 2017, the Company entered into a securities purchase agreement with Armistice, pursuant to which Armistice purchased
$5.0 million
of the Company’s securities, consisting of
2,345,714
shares of the Company’s common stock at a purchase price of
$0.35
per share and
4,179
shares of Series A Preferred Stock at a price of
$1,000
per share. The Company received
$4.65 million
in net proceeds from the Armistice Private Placement. The number of shares of common stock that were purchased in the private placement constituted approximately
19.99%
of the Company’s outstanding shares of common stock immediately prior to the closing of the Armistice Private Placement. Armistice also received warrants to purchase up to
14,285,714
shares of the Company’s common stock at an exercise price of
$0.40
per share. Under the terms of the securities purchase agreement, the Series A Preferred Stock were not convertible into common stock, and the warrants were not exercisable until the Company received approval of the private placement by the Company’s shareholders as required by the rules and regulations of the NASDAQ Capital Market. The Company received shareholder approval for this transaction on June 30, 2017, at which time the warrants became exercisable and the Series A Preferred Stock became convertible into common stock.
As multiple instruments were issued in a single transaction, the Company initially allocated the issuance proceeds among the preferred stock, common stock and warrants using the relative allocation method. As the warrants were determined to be indexed to the Company’s stock, and would only be settled in common shares, entirely in the control of the Company, the warrant instrument was accounted for as an equity instrument. Fair value of the warrants was initially determined upon issuance using the Black-Scholes Model (level 3 fair value measurement). Armistice converted all of the Series A Preferred Stock into
11,940,000
shares of common stock on July 6, 2017.
Contingently Issuable Shares
Under the terms of TRx acquisition noted above in
Note 4
, the Company is required to issues common stock having an aggregate value as calculated in the TRx Purchase Agreement on the Closing Date of
$8.1 million
(the “Equity Consideration”). Upon closing, the Company issued
5,184,920
shares of its common stock. Pursuant to the TRx Purchase Agreement, the issuance of the remaining
2,349,968
shares as a part of the Equity Consideration is subject to stockholder approval and entirely contingent upon gaining such stockholder approval at the Company's 2018 Annual Stockholder's Meeting.
Voting
Common stock is entitled to
one
vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and does not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election.
Dividends
The holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of legally available funds.
Liquidation
In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities.
Rights and Preferences
Holders of the Company’s common stock have
no
preemptive, conversion or subscription rights, and there are
no
redemption or sinking fund provisions applicable to the Company’s common stock.
Common Stock Warrants
At
March 31, 2018
, the following common stock warrants were outstanding:
|
|
|
|
|
|
|
|
Number of shares
|
|
Exercise price
|
|
Expiration
|
underlying warrants
|
|
per share
|
|
date
|
80,966
|
|
$
|
28.00
|
|
|
August 2018
|
4,551,700
|
|
$
|
4.55
|
|
|
October 2018
|
40,000*
|
|
$
|
5.23
|
|
|
October 2018
|
3,571
|
|
$
|
28.00
|
|
|
December 2018
|
22,328*
|
|
$
|
8.40
|
|
|
October 2020
|
2,380*
|
|
$
|
8.68
|
|
|
May 2022
|
14,285,714
|
|
$
|
0.40
|
|
|
June 2022
|
18,986,659
|
|
|
|
|
*Accounted for as a liability instrument (see
Note 5
)
10. Stock-Based Compensation
2016 Equity Incentive Plan
On April 5, 2016, the Company’s board of directors adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as the successor to the 2015 Omnibus Plan (the “2015 Plan”). The 2016 Plan was approved by the Company’s stockholders and became effective on May 18, 2016 (the “2016 Plan Effective Date”).
As of the 2016 Plan Effective Date, no additional grants will be made under the 2015 Plan or the 2011 Stock Incentive Plan (the “2011 Plan”), which was previously succeeded by the 2015 Plan effective October 13, 2015. Outstanding grants under the 2015 Plan and 2011 Plan will continue according to their terms as in effect under the applicable plan.
Upon the 2016 Plan Effective Date, the 2016 Plan reserved and authorized up to
600,000
additional shares of common stock for issuance, as well as
464,476
unallocated shares remaining available for grant of new awards under the 2015 Plan. During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year, beginning in 2017, by an amount equal to
4%
of the total number of outstanding shares of common stock of the Company on the last trading day in December of the prior calendar year. As of
March 31, 2018
, there were
no
shares available for future issuance under the 2016 Plan.
Option grants to employees and directors expire after
ten
years. Employee options typically vest over
four
years. Options granted to directors typically vest over
three
years. Directors may elect to receive stock options in lieu of board compensation which vest immediately. For stock options granted to employees and non-employee directors, the estimated grant date fair market value of the Company’s stock-based awards is amortized ratably over the individuals’ service periods, which is the period in which the awards vest.
For stock options issued to non‑employees, the Company measures the options at their fair value on the date at which the related service is complete. Expense is recognized over the period during which services are rendered by such non-employees until completed. At the end of each financial reporting period prior to the completion of the service, the fair value of the awards is remeasured using the then current fair market value of the Company's common stock and updated assumptions in the Black-Scholes option pricing model. Stock-based compensation expense includes stock options and ESPP shares. The amount of stock based compensation expense recognized for the three months ended
March 31, 2018
and
2017
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
Research and development
|
|
$
|
11,497
|
|
|
$
|
48,852
|
|
General and administrative
|
|
207,382
|
|
|
283,367
|
|
Sales and marketing
|
|
23,945
|
|
|
—
|
|
Total stock-based compensation
|
|
$
|
242,824
|
|
|
$
|
332,219
|
|
Stock options with service-based vesting conditions
The Company has granted awards that contain service-based vesting conditions. The compensation cost for these options is recognized on a straight-line basis over the vesting periods. A summary of option activity for the
three months ended March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Number of shares
|
|
Weighted average exercise price
|
|
Grant date fair value of options
|
|
Weighted average remaining contractual term (in years)
|
Balance at December 31, 2017
|
|
2,823,489
|
|
|
$
|
3.93
|
|
|
|
|
|
7.29
|
Granted
|
|
1,030,070
|
|
|
$
|
3.77
|
|
|
$
|
2,335,255
|
|
|
|
Exercised
|
|
(143,148
|
)
|
|
$
|
2.53
|
|
|
|
|
|
Forfeited
|
|
(301,027
|
)
|
|
$
|
2.21
|
|
|
|
|
|
|
Balance at March 31, 2018
|
|
3,409,384
|
|
|
$
|
4.09
|
|
|
|
|
|
9.48
|
Exercisable at March 31, 2018
|
|
1,671,978
|
|
|
$
|
5.03
|
|
|
|
|
|
6.68
|
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. As of
March 31, 2018
, the aggregate intrinsic value of options outstanding, vested and expected to vest was
$3.7 million
. The total grant date fair value of shares which vested during the
three months ended March 31, 2018
was
$355,527
. The per‑share weighted‑average grant date fair value of the options granted during
three months ended March 31, 2018
was estimated at
$2.27
. There were
122,932
options that vested during the
three months ended March 31, 2018
with a weighted average grant date fair value of
$2.89
. There were
143,148
options exercised during
three months ended March 31, 2018
.
Stock options with market-based vesting conditions
The Company has granted awards that contain market-based vesting conditions. Activity for the market-based options was as follows for the three months ended March 31, 2018: