Quarterly Report (10-q)

Date : 04/30/2019 @ 8:06PM
Source : Edgar (US Regulatory)
Stock : VIVUS Inc (VVUS)
Quote : 2.82  -0.06 (-2.08%) @ 5:00AM
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Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2019

OR

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

For the transition period from              to            

Commission File Number 001-33389

VIVUS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

94-3136179

(State or other jurisdiction of

 

(IRS employer

incorporation or organization)

 

identification number)

 

 

 

 

 

900 E. Hamilton Avenue, Suite 550

 

 

Campbell, California

 

95008

(Address of principal executive office)

 

(Zip Code)

 

(650) 934-5200

(Registrant’s telephone number, including area code)

N/A

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the 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 Act).  ☐ Yes  ☒ No

At April 22, 2019, 10,637,164 shares of common stock, par value $.001 per share, were outstanding.

 

 

 

 


 

VIVUS, INC.

 

Quarterly Report on Form 10-Q 

 

INDEX

 

 

 

 

 

PART I —  FINANCIAL INFORMATION

3

 

 

 

Item 1  

Condensed Consolidated Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months ended March 31, 2019 and 2018

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3  

Quantitative and Qualitative Disclosures about Market Risk

32

Item 4  

Controls and Procedures

32

 

 

 

 

PART II  — OTHER INFORMATION

34

 

 

 

Item 1  

Legal Proceedings

34

Item 1A  

Risk Factors

34

Item 2  

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 3  

Defaults Upon Senior Securities

69

Item 4  

Mine Safety Disclosures

69

Item 5  

Other Information

69

Item 6  

Exhibits

69

 

Signatures

72

 

 

2


 

PART I: FINANCIA L INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

VIVUS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEET S

(In thousands, except par value )

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

2019

 

2018

ASSETS

 

Unaudited

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

23,021

 

$

30,411

Available-for-sale securities

 

81,632

 

 

80,838

Accounts receivable, net

 

24,554

 

 

25,608

Inventories

 

21,946

 

 

23,132

Prepaid expenses and other current assets

 

6,568

 

 

7,538

Total current assets

 

157,721

 

 

167,527

Fixed assets, net

 

325

 

 

341

Right-of-use assets

 

1,496

 

 

 —

Intangible and other non-current assets

 

130,641

 

 

134,279

Total assets

$

290,183

 

$

302,147

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

3,615

 

$

8,921

Accrued and other liabilities

 

33,391

 

 

33,044

Deferred revenue

 

1,255

 

 

1,235

Current portion of lease liability

 

705

 

 

 —

Total current liabilities

 

38,966

 

 

43,200

Long-term debt

 

293,396

 

 

294,446

Deferred revenue, net of current portion

 

3,975

 

 

4,290

Lease liability, net of current portion

 

1,091

 

 

 —

Non-current accrued and other liabilities

 

 —

 

 

234

Total liabilities

 

337,428

 

 

342,170

Commitments and contingencies

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

Preferred stock; $.001 par value; 5,000 shares authorized; no shares issued and outstanding at March 31, 2019 and December 31, 2018

 

 —

 

 

 —

Common stock; $.001 par value; 200,000 shares authorized; 10,637 and 10,636 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

11

 

 

11

Additional paid-in capital

 

841,219

 

 

840,751

Accumulated other comprehensive loss

 

(21)

 

 

(270)

Accumulated deficit

 

(888,454)

 

 

(880,515)

Total stockholders’ deficit

 

(47,245)

 

 

(40,023)

Total liabilities and stockholders’ deficit

$

290,183

 

$

302,147

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

VIVUS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

    

2018

Revenue:

 

    

    

 

    

Net product revenue

$

13,497

 

$

9,632

Supply revenue

 

1,604

 

 

1,683

Royalty revenue

 

1,045

 

 

585

Total revenue

 

16,146

 

 

11,900

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Cost of goods sold (excluding amortization)

 

4,308

 

 

2,630

Amortization of intangible assets

 

3,638

 

 

91

Sales and marketing

 

4,534

 

 

4,279

General and administrative

 

5,284

 

 

5,789

Research and development

 

2,469

 

 

1,403

Total operating expenses

 

20,233

 

 

14,192

 

 

 

 

 

 

Loss from operations

 

(4,087)

 

 

(2,292)

 

 

 

 

 

 

Interest expense and other expense, net

 

3,870

 

 

8,349

Loss before income taxes

 

(7,957)

 

 

(10,641)

(Benefit) provision for income taxes

 

(8)

 

 

12

Net loss

$

(7,949)

 

$

(10,653)

 

 

 

 

 

 

Basic and diluted net loss per share:

$

(0.75)

 

$

(1.00)

Shares used in per share computation:

 

 

 

 

 

Basic and diluted

 

10,637

 

 

10,601

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

 

2018

Net loss

$

(7,949)

 

$

(10,653)

Unrealized gain (loss) on securities, net of taxes

 

249

 

 

(477)

Translation adjustment

 

(1)

 

 

 —

Comprehensive loss

$

(7,701)

 

$

(11,130)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Capital

 

Loss

 

Deficit

 

Total

Balances, January 1, 2018

10,603

 

$

11

 

$

834,824

 

$

(608)

 

$

(843,565)

 

$

(9,338)

Vesting of restricted stock units

7

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Share-based compensation expense

 —

 

 

 —

 

 

925

 

 

 —

 

 

 —

 

 

925

Net unrealized loss on securities

 —

 

 

 —

 

 

 —

 

 

(477)

 

 

 —

 

 

(477)

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,653)

 

 

(10,653)

Balances, March 31, 2018

10,610

 

 

11

 

 

835,749

 

 

(1,085)

 

 

(854,218)

 

 

(19,543)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2019

10,636

 

$

11

 

$

840,751

 

$

(270)

 

$

(880,515)

 

$

(40,023)

Vesting of restricted stock units

 1

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Share-based compensation expense

 —

 

 

 —

 

 

468

 

 

 —

 

 

 —

 

 

468

Net unrealized gain on securities

 —

 

 

 —

 

 

 —

 

 

249

 

 

 —

 

 

249

Cumulative effect of accounting change

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10

 

 

10

Net loss

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(7,949)

 

 

(7,949)

Balances, March 31, 2019

10,637

 

$

11

 

$

841,219

 

$

(21)

 

$

(888,454)

 

$

(47,245)

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

 

2018

Operating activities:

 

    

    

 

    

Net loss

$

(7,949)

 

$

(10,653)

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

 

 

 

 

 

Depreciation and amortization

 

3,675

 

 

157

Amortization of debt issuance costs and discounts

 

(1,050)

 

 

5,414

Amortization of discount or premium on available-for-sale securities

 

(116)

 

 

121

Share-based compensation expense

 

468

 

 

925

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

1,054

 

 

896

Inventories

 

1,186

 

 

(3,294)

Prepaid expenses and other assets

 

1,004

 

 

730

Accounts payable

 

(5,306)

 

 

(5,286)

Accrued and other liabilities

 

389

 

 

(707)

Deferred revenue

 

(295)

 

 

(291)

Net cash used for operating activities

 

(6,940)

 

 

(11,988)

Investing activities:

 

 

 

 

 

Fixed asset purchases

 

(21)

 

 

(34)

Purchases of available-for-sale securities

 

(13,876)

 

 

(7,604)

Proceeds from maturity of available-for-sale securities

 

12,885

 

 

28,336

Proceeds from sales of available-for-sale securities

 

562

 

 

6,293

Net cash (used for) provided by investing activities

 

(450)

 

 

26,991

Financing activities:

 

 

 

 

 

Repayments of notes payable

 

 —

 

 

(4,590)

Net cash used for financing activities

 

 —

 

 

(4,590)

Net (decrease) increase in cash and cash equivalents

 

(7,390)

 

 

10,413

Cash and cash equivalents:

 

 

 

 

 

Beginning of year

 

30,411

 

 

66,392

End of period

$

23,021

 

$

76,805

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

VIVUS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

VIVUS is a specialty pharmaceutical company with three approved therapies (Qsymia®, PANCREAZE® and STENDRA®/SPEDRA™) and one product candidate in active clinical development (VI-0106). Qsymia (phentermine and topiramate extended release) is approved by the U.S. Food and Drug Administration (“FDA”) for chronic weight management. In June 2018, the Company acquired the U.S. and Canadian commercial rights for PANCREAZE (pancrelipase), which is indicated for the treatment of exocrine pancreatic insufficiency due to cystic fibrosis or other conditions. STENDRA (avanafil) is approved by FDA for erectile dysfunction (“ED”), and by the European Commission (“EC”) under the trade name SPEDRA, for the treatment of ED. The Company commercializes Qsymia and PANCREAZE in the U.S. through a specialty sales force supported by an internal commercial team. The Company licenses the commercial rights to STENDRA/SPEDRA in the U.S., EU and other countries and to PANCREAZE in Canada on a transitional basis. VI-0106 (tacrolimus) is in active clinical development and is being studied in patients with pulmonary arterial hypertension (“PAH”).

When reference is made to the “Company” or “VIVUS” in these footnotes, it refers to the Delaware corporation, or VIVUS, Inc., and, unless the context otherwise requires, its California predecessor, as well as all of its consolidated subsidiaries.

At March 31, 2019, the Company’s accumulated deficit was approximately $888.5 million. Management believes that the Company’s existing capital resources combined with anticipated future cash flows will be sufficient to support its operating needs for at least the next twelve months. However, the Company anticipates that it may require additional funding to service its existing debt, pursue development and commercial opportunities, which could come in the form of a license, a co-development agreement, a merger or acquisition or in some other form, or to create a pathway for centralized approval of the marketing authorization application for Qsymia in the EU, conduct post-approval clinical studies for Qsymia, conduct non-clinical and clinical research and development work to support regulatory submissions and applications for its current and future investigational drug candidates, finance the costs involved in filing and prosecuting patent applications and enforcing or defending its patent claims, if any, to fund operating expenses and manufacture quantities of the Company’s investigational drug candidates and to make payments under its existing license agreements and supply agreements.

If the Company requires additional capital, it may seek any required additional funding through collaborations, public and private equity or debt financings, capital lease transactions or other available financing sources. Additional financing may not be available on acceptable terms, or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If adequate funds are not available, the Company may be required to delay, reduce the scope of or eliminate one or more of its commercialization or development programs or obtain funds through collaborations with others that are on unfavorable terms or that may require the Company to relinquish rights to certain of its technologies, product candidates or products that it would otherwise seek to develop on its own.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Management has evaluated all events and transactions that occurred after March 31, 2019 through the date these unaudited condensed consolidated financial statements were filed. There were no events or transactions during this period that require recognition or disclosure in these unaudited condensed consolidated financial statements. The condensed

7


 

consolidated balance sheet data as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed on February 26, 2019 with the Securities and Exchange Commission (“SEC”). Certain amounts have been reclassified to conform to current year presentation. The unaudited condensed consolidated financial statements include the accounts of VIVUS, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Reverse Stock Split

On September 10, 2018, the Company effected a one-for-10 reverse stock split of its common stock. As a result of the reverse stock split, every 10 shares of the Company’s pre-reverse split common stock issued and outstanding was combined and converted into one issued and outstanding share of post-reverse split common stock without any change in the par value of the shares. Accordingly, an amount equal to the par value of the decreased shares resulting from the reverse stock split was reclassified from “Common stock” to “Additional paid-in capital.” No fractional shares were issued as a result of the reverse stock split; any fractional shares that would have resulted were rounded up to the nearest whole share. Proportionate voting rights and other rights of stockholders were not affected by the reverse stock split, other than as a result of the rounding up of potential fractional shares. All stock options, warrants and restricted stock units outstanding and common stock reserved for issuance under the Company’s equity incentive plans immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 10 and, where applicable, multiplying the exercise price by 10. All share and per share amounts related to common stock, stock options, warrants and restricted stock units have been restated for all periods to give retroactive effect to the reverse stock split.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including critical accounting policies or estimates related to available-for-sale securities, debt instruments, research and development expenses, income taxes, inventories, revenues, contingencies and litigation and share-based compensation. The Company bases its estimates on historical experience, information received from third parties and on various market specific and other relevant assumptions that it believes 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 could differ significantly from those estimates under different assumptions or conditions.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies since the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 with the exception of accounting for leases. See Note 12.

Recent Accounting Pronouncement Adopted

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), which modifies the accounting by lessees for all leases with a term greater than 12 months. This standard requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Company adopted this standard on January 1, 2019 using the modified retrospective transition method, and as a result did not adjust comparative periods. The Company’s only significant lease is its operating lease for its corporate headquarters, although it has several smaller leases, including financing leases for its automobile fleet and copiers. See Note 12.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments , which requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. This standard is effective for fiscal years beginning after December 15, 2019 and early adoption is

8


 

permitted. The Company is evaluating the potential impact of this standard, but does not expect it to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement   (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement , which adds disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard is effective for fiscal years beginning after December 31, 2019 and early adoption is permitted. The Company is evaluating the provisions of this guidance, but currently does not expect it to have a material impact on its consolidated financial statements.

 

2. REVENUES

On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers , (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in Topic 605 Revenue Recognition (“Topic 605”) and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

Revenue Recognition

For all revenue transactions, the Company evaluates its contracts with its customers to determine revenue recognition using the following five-step model:

1) The Company identifies the contract(s) with a customer

2) The Company identifies the performance obligations in the contract

3) The Company determines the transaction price

4) The Company allocates the transaction price to the identified performance obligations

5) The Company recognizes revenue when (or as) the entity satisfies a performance obligation

Product Revenue

Product revenue is recognized at the time of shipment at which time the Company has satisfied its performance obligation. Product revenue is recognized net of consideration paid to the Company’s customers, wholesalers and certified pharmacies. Such consideration is for services rendered by the wholesalers and pharmacies in accordance with the wholesalers and certified pharmacy services network agreements, and includes a fixed rate per prescription shipped and monthly program management and data fees. These services are not deemed sufficiently separable from the customers’ purchase of the product; therefore, they are recorded as a reduction of revenue at the time of revenue recognition.

Other product revenue allowances include a reserve for estimated product returns, certain prompt pay discounts and allowances offered to the Company’s customers, program rebates and chargebacks. These product revenue allowances are recognized as a reduction of revenue at the date at which the related revenue is recognized. The Company also offers discount programs to patients. Calculating certain of these items involves estimates and judgments based on sales or invoice data, contractual terms, utilization rates, new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates or chargebacks. The Company reviews the adequacy of product revenue allowances on a quarterly basis. Amounts accrued for product revenue allowances are adjusted when trends or significant events indicate that adjustment is appropriate and to reflect actual experience. See Note 9 for product reserve balances.

Supply Revenue

The Company produces STENDRA/SPEDRA through a contract manufacturing partner and then sells it to the Company’s commercialization partners. The Company is the primary responsible party in the commercial supply arrangements and bears significant risk in the fulfillment of the obligations, including risks associated with manufacturing, regulatory compliance and quality assurance, as well as inventory, financial and credit loss. As such, the Company recognizes supply revenue on a gross basis as the principal party in the arrangements. The Company recognizes supply revenue at the time of shipment and, in the unusual case where the product does not meet

9


 

contractually-specified product dating criteria at the time of shipment to the partner, the Company records a reserve for estimated product returns. There are no such reserves as of March 31, 2019.

License and Milestone Revenue

License and milestone revenues related to arrangements, usually license and/or supply agreements, entered into by the Company are recognized by following the five-step process outlined above. The allocation and timing of recognition of such revenue will be determined by that process and the amounts recognized and the timing of that recognition may not exactly follow the wording of the agreement as the amount allocated following the accounting analysis of the agreement may differ and the timing of recognition of a significant performance obligation may predate the contractual date.

Royalty Revenue

The Company relies on data provided by its collaboration partner in determining its contractually-based royalty revenue. Such data includes accounting estimates and reports for various discounts and allowances, including product returns. The Company records royalty revenues based on the best data available and makes any adjustments to such revenues as such information becomes available.

Revenue by Source and Geography

Revenue disaggregated by revenue source and by geographic region was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

2019

 

2018

 

U.S.

 

ROW

 

Total

 

U.S.

 

ROW

 

Total

Qsymia—Net product revenue

$

8,423

 

$

 —

 

$

8,423

 

$

9,632

 

$

 —

 

$

9,632

PANCREAZE - Net product revenue

 

5,074

 

 

 —

 

 

5,074

 

 

 —

 

 

 —

 

 

 —

PANCREAZE - Royalty revenue

 

 —

 

 

570

 

 

570

 

 

 —

 

 

 —

 

 

 —

STENDRA/SPEDRA—Supply revenue

 

 —

 

 

1,604

 

 

1,604

 

 

547

 

 

1,136

 

 

1,683

STENDRA/SPEDRA—Royalty revenue

 

 —

 

 

475

 

 

475

 

 

 —

 

 

585

 

 

585

Total revenue

$

13,497

 

$

2,649

(1)

$

16,146

 

$

10,179

 

$

1,721

(2)

$

11,900

 


(1)

$2.0 million of which was attributable to Germany and $0.6 million of which was attributable to Canada.

(2)

$1.7 million of which was attributable to Germany.

 

Revenue and cost of goods sold by source was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

2019

 

2018

 

Qsymia

 

PANCREAZE

 

STENDRA/ SPEDRA

 

Total

 

Qsymia

 

STENDRA/ SPEDRA

 

Total

Net product revenue

$

8,423

 

$

5,074

 

$

 —

 

$

13,497

 

$

9,632

 

$

 —

 

$

9,632

Supply revenue

 

 —

 

 

 —

 

 

1,604

 

 

1,604

 

 

 —

 

 

1,683

 

 

1,683

Royalty revenue

 

 —

 

 

570

 

 

475

 

 

1,045

 

 

 —

 

 

585

 

 

585

Total revenue

$

8,423

 

$

5,644

 

$

2,079

 

$

16,146

 

$

9,632

 

$

2,268

 

$

11,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (excluding amortization)

$

1,382

 

$

1,461

 

$

1,465

 

$

4,308

 

$

1,044

 

$

1,586

 

$

2,630

Amortization of intangible assets

$

91

 

$

3,547

 

$

 —

 

$

3,638

 

$

91

 

$

 —

 

$

91

 

 

10


 

 

3. SHARE-BASED COMPENSATION

Total share-based compensation expense for all of the Company’s share-based awards was as follows (in thousands):

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

   

2018

Cost of goods sold

$

14

 

$

13

Selling and marketing

 

70

 

 

87

General and administrative

 

329

 

 

745

Research and development

 

55

 

 

80

Total share-based compensation expense

$

468

 

$

925

There were no share-based compensation costs capitalized as part of the cost of inventory for the three months ended March 31, 2019. Share-based compensation costs capitalized as part of the cost of inventory were $1,000 for the three months ended March 31, 2018.

 

4. CASH, CASH EQUIVALENTS, AND AVAILABLE-FOR-SALE SECURITIES

The fair value and the amortized cost of cash, cash equivalents, and available-for-sale securities by major security type are presented in the tables that follow (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

Cash and cash equivalents and available-for-sale securities

Cost

     

Gains

     

Losses

     

Fair Value

Cash and money market funds

$

23,021

 

$

 —

 

$

 —

 

$

23,021

U.S. Treasury securities

 

39,004

 

 

51

 

 

(59)

 

 

38,996

Corporate debt securities

 

42,649

 

 

77

 

 

(90)

 

 

42,636

Total

 

104,674

 

 

128

 

 

(149)

 

 

104,653

Less amounts classified as cash and cash equivalents

 

(23,021)

 

 

 —

 

 

 —

 

 

(23,021)

Total available-for-sale securities

$

81,653

 

$

128

 

$

(149)

 

$

81,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

Cash and cash equivalents and available-for-sale securities

Cost

     

Gains

     

Losses

     

Fair Value

Cash and money market funds

$

30,411

 

$

 —

 

$

 —

 

$

30,411

U.S. Treasury securities

 

42,261

 

 

34

 

 

(111)

 

 

42,184

Corporate debt securities

 

38,848

 

 

 9

 

 

(203)

 

 

38,654

Total

 

111,520

 

 

43

 

 

(314)

 

 

111,249

Less amounts classified as cash and cash equivalents

 

(30,411)

 

 

 —

 

 

 —

 

 

(30,411)

Total available-for-sale securities

$

81,109

 

$

43

 

$

(314)

 

$

80,838

As of March 31, 2019, the Company’s available-for-sale securities had original contractual maturities up to 57 months. However, the Company may sell these securities prior to their stated maturities in response to changes in the availability of and the yield on alternative investments as well as liquidity requirements. As these securities are readily marketable and are viewed by the Company as available to support current operations, securities with maturities beyond 12 months are classified as current assets. Due to their short-term maturities, the Company believes that the fair value of its bank deposits, accounts payable and accrued expenses approximate their carrying value.

11


 

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or 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. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value. The three levels are:

·

Level 1 — Quoted prices in active markets for identical assets or liabilities.

·

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; 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 assets or liabilities.

·

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents the fair value hierarchy for our cash equivalents and available-for-sale securities by major security type (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

Level 1

     

Level 2

     

Level 3

     

Total

Cash and money market funds

$

23,021

 

$

 —

 

$

 —

 

$

23,021

U.S. Treasury securities

 

38,996

 

 

 —

 

 

 —

 

 

38,996

Corporate debt securities

 

 —

 

 

42,636

 

 

 —

 

 

42,636

Total

$

62,017

 

$

42,636

 

$

 —

 

$

104,653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

Level 1

     

Level 2

     

Level 3

     

Total

Cash and money market funds

$

30,411

 

$

 —

 

$

 —

 

$

30,411

U.S. Treasury securities

 

42,184

 

 

 —

 

 

 —

 

 

42,184

Corporate debt securities

 

 —

 

 

38,654

 

 

 —

 

 

38,654

Total

$

72,595

 

$

38,654

 

$

 —

 

$

111,249

 

 

 

 

 

 

 

 

 

5. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2019

 

2018

Qsymia

$

14,231

 

$

13,987

PANCREAZE

 

7,637

 

 

10,213

STENDRA/SPEDRA

 

2,967

 

 

1,560

 

 

24,835

 

 

25,760

Allowance for cash discounts

 

(281)

 

 

(152)

Net

$

24,554

 

$

25,608

 

 

12


 

6. INVENTORIES

Inventories consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2019

 

2018

Raw materials

$

16,576

    

$

17,813

Work-in-process

 

1,895

 

 

1,719

Finished goods

 

3,475

 

 

3,600

Inventories, net

$

21,946

 

$

23,132

Raw materials inventories consist primarily of the active pharmaceutical ingredients (“API”) for Qsymia and STENDRA/SPEDRA. Work-in-process and finished goods inventory consist of Qsymia, STENDRA/SPEDRA and PANCREAZE inventory. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first in, first out method for all inventories, which are valued using a weighted-average cost method calculated for each production batch. The Company periodically evaluates the carrying value of inventory on hand for potential excess amounts over demand using the same lower of cost or net realizable value approach as that used to value the inventory.

7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2019

 

2018

Prepaid sales and marketing expenses

$

1,874

 

$

1,525

Prepaid insurance

 

992

 

 

1,451

Taxes receivable

 

770

 

 

779

Other prepaid expenses and assets

 

2,932

 

 

3,783

Total

$

6,568

 

$

7,538

 

These costs have been deferred as prepaid expenses and other current assets on the condensed consolidated balance sheets and will be either (i) charged to expense accordingly when the related prepaid services are rendered to the Company, or (ii) converted to cash when the receivable is collected by the Company. The amounts included in other prepaid expenses and assets consist primarily of prepayments for future services, non-trade receivables, prepaid interest and interest income receivable.

 

8. INTANGIBLE AND OTHER NON-CURRENT ASSETS

Intangible and other non-current assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

December 31, 2018

 

Cost

 

Accumulated Amortization

 

Net

 

Cost

 

Accumulated Amortization

 

Net

PANCREAZE license (1)

$

141,895

 

$

(11,825)

 

$

130,070

 

$

141,895

 

$

(8,277)

 

$

133,618

Janssen patents (2)

 

3,050

 

 

(2,687)

 

 

363

 

 

3,050

 

 

(2,597)

 

 

453

Other non-current assets

 

208

 

 

 —

 

 

208

 

 

208

 

 

 —

 

 

208

Total

$

145,153

 

$

(14,512)

 

$

130,641

 

$

145,153

 

$

(10,874)

 

$

134,279

_________________

(1)

In June 2018, the Company acquired the rights to license PANCREAZE in the U.S. and Canada, as described further in Note 13. The rights are being amortized over their estimated useful life of 10 years using the straight-line method.

13


 

(2)

In September 2014, the Company acquired certain patents relating to Qsymia from Janssen Pharmaceuticals, approximately $3.1 million of which was recorded as an intangible asset. The patents are being amortized over their estimated useful life of 5.5 years using the straight-line method.  

Other non-current assets primarily consist of real estate deposits. Amortization of intangible assets was $3.6 million and $91,000 for the three months ended March 31, 2019 and 2018, respectively. Future expected amortization expenses for intangible assets as of March 31, 2019 are as follows (in thousands):

 

 

 

2019 (rest of year)

$

10,916

2020

 

14,280

2021

 

14,189

2022

 

14,189

2023

 

14,189

Thereafter

 

62,670

Total

$

130,433

 

 

 

9. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2019

 

2018

Reserve for product returns (see Note 2)

$

13,655

 

$

14,878

Product-related accruals (see Note 2)

 

7,979

 

 

8,272

Accrued manufacturing costs

 

4,502

 

 

4,313

Accrued interest on debt (see Note 14)

 

2,327

 

 

 —

Accrued employee compensation and benefits

 

1,085

 

 

2,591

Other accrued liabilities

 

3,843

 

 

2,990

Total

$

33,391

 

$

33,044

The amounts included in other accrued liabilities consist of obligations primarily related to sales, marketing, research, clinical development, corporate activities, the STENDRA license and royalties.

 

10. NON-CURRENT ACCRUED AND OTHER LIABILITIES

Non-current accrued and other liabilities at December 31, 2018 were comprised of deferred rent. See Note 12.

 

 

 

11. DEFERRED REVENUE

Deferred revenue relates to a prepayment for future royalties on sales of SPEDRA. In the three months ended March 31, 2019 and 2018, the Company recorded $0.3 million and $0.3 million, respectively, of revenues which had been deferred as of December 31, 2018 and 2017, respectively. These amounts were applied against the prepayment for future royalties.

 

 

14


 

12. LEASES

The Company adopted Accounting Standards Update 2016-02, Leases (Topic 842) on January 1, 2019 using the modified retrospective transition method, and as a result did not adjust comparative periods. The Company’s only significant lease is its operating lease for its corporate headquarters, although it has several smaller leases, including financing leases for its automobile fleet and copiers. At the time of adoption, the Company recorded the following amounts (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-Use Asset

 

Current Portion of Lease Liability

 

Lease Liability, Net of Current Portion

 

Current Portion of Deferred Rent

 

Deferred Rent, Net of Current Portion

 

Accumulated Deficit

Operating leases

$

1,201

 

$

512

 

$

1,017

 

$

(94)

 

$

(234)

 

$

 —

Financing leases

 

329

 

 

131

 

 

188

 

 

 —

 

 

 —

 

 

10

Total

$

1,530

 

$

643

 

$

1,205

 

$

(94)

 

$

(234)

 

$

 10

 

The Company’s leases have remaining lease terms of from less than 1 year to 2½ years, some of which include options to extend the leases for up to 2 years.

The components of lease expense were as follows (in thousands):

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

Operating lease cost

$

130

 

 

 

Finance lease cost:

 

 

  Amortization of right-of-use assets

$

53

  Interest on lease liabilities

 

 3

Total finance lease cost

$

56

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

 

Balance as of

 

March 31, 

 

2019

Right-of-use assets:

 

 

Operating leases

$

1,099

Financing leases

 

397

Total right-of-use assets

$

1,496

 

 

 

Current portion of lease liability:

 

 

Operating leases

$

528

Financing leases

 

177

Total current portion of lease liability

$

705

 

 

 

Lease liability, net of current portion

 

 

Operating leases

$

880

Financing leases

 

211

Total lease liability, net of current portion

$

1,091

 

The weighted average remaining lease term as of March 31, 2019 was 2.4 years for operating leases and 2.1 years for financing leases. The weighted average discount rate as of March 31, 2019 was 7.8% for operating leases and 2.8% for financing leases.

15


 

Future payments of lease liabilities are as follows:

 

 

 

 

 

 

 

Operating Leases

 

Finance Leases

2019 (rest of year)

$

464

 

$

142

2020

 

610

 

 

175

2021

 

482

 

 

75

Total lease payments

 

1,556

 

 

392

Less imputed interest

 

(148)

 

 

(4)

Total

$

1,408

 

$

388

 

 

13. LICENSE, COMMERCIALIZATION AND SUPPLY AGREEMENTS

MTPC

In January 2001, the Company entered into an exclusive development, license and clinical trial and commercial supply agreement with Tanabe Seiyaku Co., Ltd., now Mitsubishi Tanabe Pharma Corporation (“MTPC”), for the development and commercialization of avanafil. Under the terms of the agreement, MTPC agreed to grant an exclusive license to the Company for products containing avanafil outside of Japan, North Korea, South Korea, China, Taiwan, Singapore, Indonesia, Malaysia, Thailand, Vietnam and the Philippines. The Company agreed to grant MTPC an exclusive, royalty free license within those countries for oral products that we develop containing avanafil. The MTPC agreement contains a number of milestone payments to be made by us based on various triggering events. The term of the MTPC agreement is based on a country by country and on a product by product basis. In August 2012, the Company entered into an amendment to the agreement with MTPC that permitted the Company to manufacture the API and tablets for STENDRA/SPEDRA by itself or through third parties. In 2015, the Company transferred the manufacturing of the API and tablets for STENDRA/SPEDRA to Sanofi. The Company maintains royalty obligations to MTPC which have been passed through to our commercialization partners.

Menarini

In July 2013, the Company entered into a license and commercialization agreement (the “Menarini License Agreement”) and a supply agreement (the “Menarini Supply Agreement”) with the Menarini Group through its subsidiary Berlin Chemie AG (“Menarini”). Under the terms of the Menarini License Agreement, Menarini received an exclusive license to commercialize and promote SPEDRA for the treatment of ED in over 40 countries, including the EU Member States, plus Australia and New Zealand. Additionally, the Company transferred to Menarini ownership of the marketing authorization for SPEDRA in the EU for the treatment of ED, which was granted by the EC in June 2013. Under the Menarini License Agreement, the Company has and is entitled to receive milestone payments based on certain net sales targets, plus royalties on SPEDRA sales. Under the terms of the Menarini Supply Agreement, the Company supplied Menarini with SPEDRA drug product until December 31, 2018. Menarini also has the right to manufacture SPEDRA independently, provided that it continues to satisfy certain minimum purchase obligations to the Company. Following the expiration of the Menarini Supply Agreement, Menarini is responsible for its own supply of SPEDRA. Either party may terminate the Menarini Supply Agreement for the other party’s uncured material breach or bankruptcy, or upon the termination of the Menarini License Agreement.

Sanofi

In December 2013, the Company entered into a license and commercialization agreement (the “Sanofi License Agreement”) with Sanofi. Under the terms of the Sanofi License Agreement, Sanofi received an exclusive license to commercialize and promote avanafil for therapeutic use in humans in Africa, the Middle East—Turkey and Commonwealth of Independent States, including Russia (the “Sanofi Territory”).

In July 2013, the Company entered into a Commercial Supply Agreement with Sanofi Chimie to manufacture and supply the API for avanafil on an exclusive basis in the United States and other territories and on a semi-exclusive basis in Europe, including the EU Member States, Latin America and other territories.

16


 

On December 7, 2018, the Company entered into an amendment to the Commercial Supply Agreement with Sanofi Chimie, pursuant to which certain amendments were made to the Commercial Supply Agreement, which include: (i) beginning January 1, 2019, Sanofi Chimie will manufacture and supply API for avanafil on an exclusive basis in all countries where the Company has the right to sell avanafil; (ii) beginning January 1, 2019, the yearly minimum quantities of API that the Company must purchase from Sanofi Chimie will be adjusted, as well as adjustments to the associated pricing and payment terms; and (iii) with the initial five year term of the Commercial Supply Agreement expiring on December 31, 2018, the Company and Sanofi Chimie have agreed to extend the term of the Commercial Supply Agreement until December 31, 2023 unless either party makes a timely election to terminate the agreement and that thereafter the Commercial Supply Agreement will auto-renew for successive one year terms unless either party makes a timely election not to renew.

In November 2013, the Company entered into a Manufacturing and Supply Agreement with Sanofi Winthrop Industrie to manufacture and supply the avanafil tablets on an exclusive basis in the United States and other territories and on a semi exclusive basis in Europe, including the EU Member States, Latin America and other territories. The Company has minimum annual purchase commitments under these agreements for at least the initial five-year term.

On March 23, 2017, the Company and Sanofi entered into the Termination, Rights Reversion and Transition Services Agreement (the “Transition Agreement”) effective February 28, 2017. Under the Transition Agreement, effective upon the thirtieth (30th) day following February 28, 2017, the Sanofi License Agreement terminated for all countries in the Sanofi Territory. In addition, under the Transition Agreement, Sanofi provides the Company with certain transition services in support of ongoing regulatory approval efforts while the Company seeks to obtain a new commercial partner or partners for the Sanofi Territory. The Company pays certain transition service fees to Sanofi as part of the Transition Agreement.

Metuchen

On September 30, 2016, the Company entered into a license and commercialization agreement (the “Metuchen License Agreement”) and a commercial supply agreement (the “Metuchen Supply Agreement”) with Metuchen Pharmaceuticals LLC (“Metuchen”). Under the terms of the Metuchen License Agreement, Metuchen received an exclusive license to develop, commercialize and promote STENDRA in the United States, Canada, South America and India (the “Metuchen Territory”) effective October 1, 2016. The Company and Metuchen have agreed not to develop, commercialize, or in-license any other product that operates as a PDE-5 inhibitor in the Metuchen Territory for a limited time period, subject to certain exceptions. The Metuchen License Agreement will terminate upon the expiration of the last-to-expire payment obligations under the Metuchen License Agreement; upon expiration of the term of the Metuchen License Agreement, the exclusive license granted under the Metuchen License Agreement shall become fully paid-up, royalty-free, perpetual and irrevocable as to the Company but not certain trademark royalties due to MTPC.

Metuchen will obtain STENDRA exclusively from the Company for a mutually agreed term pursuant to the Metuchen Supply Agreement. Metuchen may elect to transfer the control of the supply chain for STENDRA for the Metuchen Territory to itself or its designee by assigning to Metuchen the Company’s agreements with the contract manufacturer. For 2016 and each subsequent calendar year during the term of the Metuchen Supply Agreement, if Metuchen fails to purchase an agreed minimum purchase amount of STENDRA from the Company, it will reimburse the Company for the shortfall as it relates to the Company’s out of pocket costs to acquire the API needed to manufacture the agreed upon minimum purchase amount of STENDRA. Upon the termination of the Metuchen Supply Agreement (other than by Metuchen for the Company’s uncured material breach or upon completion of the transfer of the control of the supply chain), Metuchen’s agreed minimum purchase amount of STENDRA from the Company shall accelerate for the entire then current initial term or renewal term, as applicable. The initial term under the Metuchen Supply Agreement will be for a period of five years, with automatic renewal for successive two-year periods unless either party provides a termination notice to the other party at least two years in advance of the expiration of the then current term.

Alvogen

In September 2017, the Company entered into a license and commercialization agreement (the “Alvogen License Agreement”) and a commercial supply agreement (the “Alvogen Supply Agreement”) with Alvogen Malta Operations (ROW) Ltd (“Alvogen”). Under the terms of the Alvogen License Agreement, Alvogen will be solely

17


 

responsible for obtaining and maintaining regulatory approvals for all sales and marketing activities for Qsymia in South Korea. The Company received an upfront payment of $2.5 million in September 2017, which was recorded in license and milestone revenue in the third quarter of 2017, and is eligible to receive additional payments upon Alvogen achieving marketing authorization, commercial launch and reaching a sales milestone. Additionally, the Company will receive a royalty on Alvogen’s Qsymia net sales in South Korea. Under the Alvogen Supply Agreement, the Company will supply product to Alvogen on an exclusive basis.

PANCREAZE

In June 2018, the Company closed on an Asset Purchase Agreement (the “PANCREAZE Purchase Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”) pursuant to which the Company acquired the rights to PANCREAZE and PANCREASE MT in the U.S. and Canada and certain existing inventory for a purchase price of $135.0 million in cash.

The Company also acquired all of the outstanding shares of Willow Biopharma Inc. (“Willow”). Willow had no significant assets at the time of acquisition. The Company issued fully-exercisable warrants to the former owners of Willow, including John Amos, M. Scott Oehrlein and Kenneth Suh, for the purchase of 357,000 shares of the Company’s common stock at an exercise price of $3.70 per share and agreed to assume certain of Willow’s liabilities. The amounts paid to the former owners were accounted for as a fee for the acquisition of PANCREAZE.

As all the PANCREAZE assets acquired were a part of one product line, the PANCREAZE Purchase Agreement was accounted for as an asset acquisition, with an intangible asset of $141.9 million for the PANCREAZE license recorded on the consolidated balance sheet, which was comprised of the purchase price of $135.0 million, the fair value of the warrants issued of $0.8 million, the value of liabilities assumed of $0.4 million, the value of the Willow liabilities assumed of $1.5 million and accruals for estimated destruction of future unsalable inventory of $6.3 million, less the net value of PANCREAZE inventory acquired of $2.1 million. The fair value of the warrants issued was recorded in additional paid-in capital and was estimated using the Black-Scholes option pricing model, using a term of 7.0 years, an estimated volatility of 61.6%, a risk-free interest rate of 2.91% and an expected dividend yield of 0%. The intangible asset is being amortized over an expected useful life of 10 years, which corresponds with the expiration of certain significant patent rights related to PANCREAZE.

In connection with the PANCREAZE Purchase Agreement, the Company and Janssen also entered into transition services agreements pursuant to which Janssen and a Canadian affiliate of Janssen will provide certain transition services to the Company in the U.S. and Canada as the Company transitions to full control over the PANCREAZE supply chain. The Company and Johnson & Johnson Health Care Systems Inc., a New Jersey corporation and an affiliate of Janssen, also entered into a Long-Term Collaboration Agreement pursuant to which they will cooperate in the reporting and certification of pricing and sales data and the payment of rebates and discounts under certain governmental programs.

 

14. LONG-TERM DEBT AND COMMITMENTS

The Company’s indebtedness consists of the following (in thousands):

 

 

 

 

 

 

 

Balance as of

 

March 31, 

 

December 31, 

 

2019

 

2018

Convertible senior notes due 2020

$

181,426

 

$

181,426

Unamortized discount and debt issuance costs

 

5,138

 

 

6,358

Convertible senior notes due 2020, net

 

186,564

 

 

187,784

 

 

 

 

 

 

Senior secured notes due 2024

 

110,000