Item 1. Financial Statements
AFFYMAX, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2014
|
|
2013
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash
|
$
|
3,399
|
|
|
$
|
5,597
|
|
Prepaid expenses
|
1,055
|
|
|
725
|
|
Total current assets
|
4,454
|
|
|
6,322
|
|
Other assets
|
930
|
|
|
1,121
|
|
Total assets
|
$
|
5,384
|
|
|
$
|
7,443
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Accounts payable
|
$
|
80
|
|
|
$
|
101
|
|
Accrued restructuring
|
65
|
|
|
315
|
|
Other accrued liabilities
|
69
|
|
|
266
|
|
Advance from Takeda
|
—
|
|
|
8,189
|
|
Total current liabilities
|
214
|
|
|
8,871
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
Common stock: $0.001 par value, 100,000,000 shares authorized, 37,490,095 shares issued and outstanding
|
37
|
|
|
37
|
|
Additional paid-in capital
|
557,453
|
|
|
556,672
|
|
Accumulated deficit
|
(552,320
|
)
|
|
(558,137
|
)
|
Total stockholders’ equity (deficit)
|
5,170
|
|
|
(1,428
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
$
|
5,384
|
|
|
$
|
7,443
|
|
The accompanying notes are an integral part of these condensed financial statements.
AFFYMAX, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Revenue:
|
|
|
|
|
|
|
|
Collaboration revenue
|
$
|
—
|
|
|
$
|
525
|
|
|
$
|
—
|
|
|
$
|
1,364
|
|
License and royalty revenue
|
42
|
|
|
—
|
|
|
42
|
|
|
5
|
|
Total revenue
|
42
|
|
|
525
|
|
|
42
|
|
|
1,369
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
—
|
|
|
2,235
|
|
|
—
|
|
|
12,024
|
|
Selling, general and administrative
|
1,066
|
|
|
528
|
|
|
2,559
|
|
|
25,173
|
|
Collaboration cost reimbursement
|
—
|
|
|
(23,073
|
)
|
|
—
|
|
|
(43,451
|
)
|
Impairment (gain on disposal) of prepaid expenses, fixed assets and intangible assets
|
—
|
|
|
(560
|
)
|
|
—
|
|
|
4,580
|
|
Restructuring charge
|
(71
|
)
|
|
7,124
|
|
|
(172
|
)
|
|
15,340
|
|
Total operating expenses
|
995
|
|
|
(13,746
|
)
|
|
2,387
|
|
|
13,666
|
|
Income (loss) from operations
|
(953
|
)
|
|
14,271
|
|
|
(2,345
|
)
|
|
(12,297
|
)
|
Interest income
|
—
|
|
|
6
|
|
|
—
|
|
|
21
|
|
Interest expense
|
—
|
|
|
(1,073
|
)
|
|
—
|
|
|
(1,565
|
)
|
Other income, net
|
8,162
|
|
|
10
|
|
|
8,162
|
|
|
10
|
|
Income (loss) before provision (benefit) for income taxes
|
7,209
|
|
|
13,214
|
|
|
5,817
|
|
|
(13,831
|
)
|
(Benefit) for income taxes
|
—
|
|
|
(2,158
|
)
|
|
—
|
|
|
(2,158
|
)
|
Net income (loss) and comprehensive income (loss)
|
$
|
7,209
|
|
|
$
|
15,372
|
|
|
$
|
5,817
|
|
|
$
|
(11,673
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.19
|
|
|
$
|
0.41
|
|
|
$
|
0.16
|
|
|
$
|
(0.31
|
)
|
Diluted
|
$
|
0.19
|
|
|
$
|
0.41
|
|
|
$
|
0.16
|
|
|
$
|
(0.31
|
)
|
Weighted-average number of shares used in computing net income (loss) per share
|
|
|
|
|
|
|
|
Basic
|
37,490
|
|
|
37,490
|
|
|
37,490
|
|
|
37,480
|
|
Diluted
|
37,490
|
|
|
37,495
|
|
|
37,490
|
|
|
37,480
|
|
The accompanying notes are an integral part of these condensed financial statements.
AFFYMAX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2014
|
|
2013
|
Cash flows from operating activities
|
|
|
|
Net income (loss)
|
$
|
5,817
|
|
|
$
|
(11,673
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Collaboration cost reimbursement
|
—
|
|
|
(41,777
|
)
|
Impairment of prepaid expenses, fixed assets and intangible assets
|
—
|
|
|
4,580
|
|
Noncash restructuring charge
|
—
|
|
|
193
|
|
Depreciation and amortization
|
—
|
|
|
574
|
|
Amortization of premium on investments
|
—
|
|
|
6
|
|
Stock-based compensation expense
|
781
|
|
|
3,445
|
|
Loss (gain) on disposal of property and equipment
|
—
|
|
|
(579
|
)
|
Noncash interest expense
|
—
|
|
|
808
|
|
Changes in operating assets and liabilities:
|
|
|
|
Receivable from Takeda
|
—
|
|
|
18,365
|
|
Prepaid expenses and other current assets
|
(330
|
)
|
|
3,052
|
|
Other assets
|
191
|
|
|
220
|
|
Accounts payable
|
(21
|
)
|
|
(5,121
|
)
|
Accrued liabilities
|
(447
|
)
|
|
(27,045
|
)
|
Accrued clinical trial expenses
|
—
|
|
|
(2,702
|
)
|
Deposit from Takeda
|
—
|
|
|
(559
|
)
|
Advance from Takeda
|
(8,189
|
)
|
|
—
|
|
Long-term income tax liability
|
—
|
|
|
(2,159
|
)
|
Other long-term liabilities
|
—
|
|
|
(799
|
)
|
Net cash (used in) operating activities
|
(2,198
|
)
|
|
(61,171
|
)
|
Cash flows from investing activities
|
|
|
|
Proceeds from sale of investments
|
—
|
|
|
12,038
|
|
Proceeds from sale of property and equipment
|
—
|
|
|
1,100
|
|
Net cash provided by investing activities
|
—
|
|
|
13,138
|
|
Cash flows from financing activities
|
|
|
|
Proceeds from issuance of common stock upon exercise of stock options
|
—
|
|
|
271
|
|
Repayment of note payable
|
—
|
|
|
(10,000
|
)
|
Net cash (used in) financing activities
|
—
|
|
|
(9,729
|
)
|
Net (decrease) in cash and cash equivalents
|
(2,198
|
)
|
|
(57,762
|
)
|
Cash and cash equivalents at beginning of the period
|
5,597
|
|
|
68,265
|
|
Cash and cash equivalents at end of the period
|
$
|
3,399
|
|
|
$
|
10,503
|
|
The accompanying notes are an integral part of these condensed financial statements.
AFFYMAX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1.
The Company
Affymax, Inc., a Delaware corporation, was incorporated in July 2001. In March 2012, the U.S. Food and Drug Administration, or FDA, approved our only product, OMONTYS® (peginesatide) Injection for the treatment of anemia due to chronic kidney disease in adult patients on dialysis. OMONTYS is a synthetic, peptide-based erythropoiesis stimulating agent, or ESA, designed to stimulate production of red blood cells and had been the only once-monthly ESA available to the adult dialysis patient population in the U.S. We co-commercialized OMONTYS with our collaboration partner, Takeda Pharmaceutical Company Limited, or Takeda during 2012 until February 2013, when we and Takeda announced a nationwide voluntary recall of OMONTYS as a result of safety concerns. Effective April 1, 2013, we entered into an amendment of our collaboration with Takeda pursuant to which Takeda assumed full responsibility for OMONTYS, including responsibility for the ongoing recall and investigation with the FDA, and we granted them an exclusive worldwide license to OMONTYS in consideration for potential milestones and royalties.
On June 10, 2014, we received from Takeda a written notice of termination of the Collaboration and License Agreement between the Parties, dated June 27, 2006, as amended and the Agreement will be terminated effective as of September 10, 2014. Takeda’s decision to terminate the Agreement is a result of its detailed investigation of safety concerns of OMONTYS, which confirmed no quality or manufacturing issues were present, but did not identify a specific root cause for the reactions that were observed in patients treated with the product. Based on these findings and related discussions with Takeda, Affymax has determined not to exercise its rights with respect to the OMONTYS New Drug Application ("NDA") and Takeda will work with the FDA to withdraw the NDA.
We have experienced significant operating losses since inception. The recall of OMONTYS has severely harmed our business, financial condition, access to funds and prospects as a going concern. We may be unable to continue our operations or to succeed in existing and potential future litigation, in view of our limited resources and funds. As of
June 30, 2014
, we had an accumulated deficit of
$552.3 million
.
On June 24, 2014, we issued a press release announcing that our Board of Directors determined that it is in the best interests of Affymax’s stockholders to liquidate Affymax’s assets and to dissolve Affymax and had approved a Plan of Liquidation subject to stockholder approval. Affymax intends to hold a special meeting of stockholders to seek approval of the Plan. Affymax will file proxy materials with the U.S. Securities and Exchange Commission as soon as practicable and in any event in advance of that meeting in accordance with applicable laws. In connection with the proposed dissolution, if approved by Affymax' stockholders, Affymax intends to distribute to its stockholders all available cash, if any, other than as may be required to pay expenses and pay or make reasonable provision for known and potential claims and obligations of Affymax, as required by applicable law. If approved by Affymax’s stockholders, Affymax intends to file a certificate of dissolution, pay, satisfy, resolve or make reasonable provisions for claims and obligations as well as anticipated costs associated with the dissolution and liquidation as soon as reasonable, practicable and financially prudent.
Product Recall
On February 23, 2013, we and Takeda announced a nationwide voluntary recall of OMONTYS as a result of post marketing reports regarding safety concerns, including anaphylaxis, which can be life-threatening or fatal. As a result of the voluntary recall of OMONTYS, all marketing activities were suspended and we have also suspended or terminated manufacturing activities. Takeda is currently in the process of withdrawal of the NDA for OMONTYS, and we do not expect this product to return to development or the market.
Restructuring and Impairment
In March 2013, we commenced a restructuring plan to reduce operating costs, which included a reduction in force of approximately
305
employees. As of June 30, 2014 there are
two
employees remaining. We incurred approximately
$16.1 million
in restructuring charges for the year ended December 31, 2013, all of which are related to expenditures for one-time employee termination benefits (see Note 6 of the Notes to Condensed Financial Statements). As a result of this restructuring and the recall, we also recorded impairment charges with respect to our property and equipment and intangible assets related to our license from Janssen Biotech, Inc. (a subsidiary of Johnson & Johnson) and certain of its affiliated companies, collectively referred to as Janssen, in the first quarter of 2013 (see Note 4 of the Notes to Condensed Financial Statements).
Effective April 1, 2013, we and Takeda, collectively the Parties, entered into the Fourth Amendment, or the Amendment, to the February 13, 2006 and June 27, 2006 Collaboration and License Agreements to amend and restate the ongoing respective roles and responsibilities and related commitments and financial terms between the Parties, including the termination of the Collaboration and License Agreement dated as of February 13, 2006, under which we granted Takeda a certain right and license for the development and commercialization in Japan of OMONTYS, as amended by the First Amendment, dated April 1, 2007, the Second Amendment, dated January 1, 2008 and the Third Amendment, dated November 7, 2011, as well as the related manufacturing supply, safety, quality and co-promotion agreements between the Parties. The Amendment revised the economics from a profit-sharing arrangement to a milestone and royalty-based compensation structure to us effective as of April 1, 2013. This Amendment is part of our ongoing restructuring efforts resulting from the voluntary recall announced on February 23, 2013 related to OMONTYS, the suspension of U.S. marketing and promotional activities, and the ongoing investigation with the FDA. The arrangement with Takeda including the Amendment is referred to as the Arrangement.
The Amendment effectuated a transfer of product and regulatory responsibilities, including the OMONTYS New Drug Application, or NDA, and all manufacturing, and development responsibilities from us to Takeda. Takeda received a worldwide, exclusive royalty-bearing license under our and joint Takeda-Affymax patents to develop, manufacture and commercialize OMONTYS.
As a result of the Amendment, Takeda assumed full responsibility for OMONTYS, including the ongoing recall and investigation of OMONTYS.
On June 10, 2014, Affymax, Inc. received from Takeda Pharmaceutical Company Limited, a written notice of termination of the Collaboration and License Agreement between the Parties, dated June 27, 2006, as amended, and the Agreement will be terminated effective as of September 10, 2014. Takeda’s decision to terminate the Agreement is a result of its detailed investigation of safety concerns of OMONTYS, which confirmed no quality or manufacturing issues were present, but did not identify a specific root cause for the reactions that were observed in patients treated with the product. Based on these findings and related discussions with Takeda, Affymax has determined not to exercise its rights with respect to OMONTYS and Takeda will work with the FDA to withdraw the NDA.
Going Concern
On June 24, 2014, we issued a press release announcing that our Board of Directors determined that it is in the best interests of Affymax’s stockholders to liquidate Affymax’s assets and to dissolve Affymax and had approved a Plan of Liquidation subject to stockholder approval. Affymax intends to hold a special meeting of stockholders to seek approval of the Plan. Affymax will file proxy materials with the U.S. Securities and Exchange Commission as soon as practicable in advance of that meeting in accordance with applicable laws. In connection with the proposed dissolution, if approved by Affymax' stockholders, Affymax intends to distribute to its stockholders all available cash, if any, other than as may be required to pay expenses and pay or make reasonable provision for known and potential claims and obligations of Affymax, as required by applicable law. If approved by Affymax’s stockholders, Affymax intends to file a certificate of dissolution, pay, satisfy, resolve or make reasonable provisions for claims and obligations as well as anticipated costs associated with the dissolution and liquidation as soon as reasonable, practicable and financially prudent.
Because our stockholders have yet to vote and approve the Plan of Liquidation, the accompanying condensed financial statements have been prepared under the assumption of a going concern basis that contemplates the realization of assets and liabilities in the ordinary course of business. Operating losses have been incurred each year since inception, resulting in an accumulated deficit of
$552.3 million
as of
June 30, 2014
.
2.
Summary of Significant Accounting Policies
Basis of Presentation
Our accompanying condensed financial statements have been prepared following the requirements of the Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted. The condensed financial statements are unaudited and reflect all adjustments, consisting of only normal recurring adjustments, which, in the opinion of management, are necessary to fairly state the financial position at, and the results of operations and cash flows for, the interim periods presented. The financial information included herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013, which includes our audited financial statements and the notes thereto.
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in the condensed financial statements and accompanying notes may not be indicative of the results for the full year or any future period.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market value. As of December 31, 2013 and June 30, 2014, the Company did not hold any investments in marketable debt or equity securities, including any cash equivalents.
Revenue Recognition
Collaboration Revenue
We account for our Arrangement with Takeda under ASC 605-25 and through the date of the recall, had been operating in the commercialization period as defined in the Arrangement. Before the recall, we were performing commercialization services such as promotions and marketing as well as development work related to OMONTYS post approval. In return for these services, we received a 50/50 share of operating profit from the sale and distribution of OMONTYS (as described below), certain milestone payments and contingent payments due under the Arrangement. We also received reimbursement of costs for commercial and development costs as described in the Arrangement. Prior to approval of OMONTYS, our primary source of revenue consisted of milestone payments and Takeda’s reimbursement of commercialization and development costs.
During the commercialization period, our obligations included ongoing regulatory work to obtain and maintain FDA approval and commercialization efforts related to our product launch and promotion and marketing of OMONTYS.
For each source of collaboration revenue, we apply the following revenue recognition model:
|
|
•
|
Expense reimbursement revenue.
Revenues related to reimbursements by Takeda of third-party development expenses (70/30 split per the Arrangement) and commercialization expenses (shared 50/50 according to the Arrangement) are recognized as revenue in the period the related costs are incurred. Revenues related to reimbursement of costs of full-time equivalents, or FTEs, engaged in development related activities such as post-marketing studies, are recognized as revenue in the period the related costs are incurred. Such reimbursement is based on contractually negotiated reimbursement rates for each FTE as specified in the Arrangement. Subsequent to the launch of OMONTYS and recognition of product revenue by Takeda, reimbursement of commercialization expenses and development costs (both FTE and out of pocket costs) associated with post-marketing development activities, is incorporated into the profit equalization revenue as required under the Arrangement in order to effect the 50/50 profit split, as described below. As part of the Amendment with Takeda, both Parties agreed that they will no longer share expenses related to third-party development (70/30 split) and commercialization (50/50 split) as of April 1, 2013. Except for certain transition services that we performed in April 2013 for full reimbursement
|
of
$0.5 million
, any expenses incurred by either us or Takeda after April 1, 2013 shall be the responsibility of the respective party and neither us or Takeda has the obligation to share expenses with each other.
|
|
•
|
Profit equalization revenue/loss.
Subsequent to the launch of OMONTYS and prior to the Amendment, as to the recognition of product revenue by Takeda, Takeda allocates the quarterly profit equalization revenue/loss to us in order to effect the 50/50 profit/loss split from the sale of OMONTYS, as called for by the Arrangement. Profit equalization revenue/loss is calculated as the amount required so that the profit or loss realized by both us and Takeda on the product equates to
50%
of the total product profit or loss. Total product profit or loss on OMONTYS is calculated on a quarterly basis as gross product sales recorded by Takeda less the following deductions also recorded by Takeda: rebates and discounts, cost of goods, and other gross-to-net adjustments incurred by Takeda; royalty expenses incurred by us, commercialization expenses (FTE related and out of pocket costs) incurred by both Takeda and us, and certain development costs associated with post-marketing development activities (FTE related and out of pocket costs) incurred by both Takeda and us. Profit equalization revenue is recognized as revenue in the period product revenue is recognized by Takeda. As a result of the voluntary recall of OMONTYS in February 2013, all marketing activities were suspended. As part of the Amendment with Takeda, the profit equalization revenue for the three months ended March 31, 2013 was the final profit equalization payment under the Arrangement. Upon signing the Amendment with Takeda, the economics of the collaboration changed from a profit sharing arrangement to a milestone and royalty-based compensation structure to us, effective April 1, 2013.
|
Below is a summary of the components of our collaboration revenue for the three and six months ended
June 30, 2014
, and
2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net expense reimbursement after CAPM
|
—
|
|
|
525
|
|
|
—
|
|
|
1,364
|
|
Total collaboration revenue
|
$
|
—
|
|
|
$
|
525
|
|
|
$
|
—
|
|
|
$
|
1,364
|
|
License and Royalty Revenue
Royalties are recognized as earned in accordance with contract terms, when third party results are reported and collectability is reasonably assured. Royalties received under agreements that were acquired by us in the 2001 spin out from GlaxoSmithKline or Glaxo are recorded at gross and
50%
remitted to Glaxo.
Below is a summary of license and royalty revenue for the three and six months ended
June 30, 2014
, and
2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
License and royalty revenue
|
42
|
|
|
—
|
|
|
42
|
|
|
5
|
|
Total license and royalty revenue
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
5
|
|
Net Income (Loss) Per Common Share
Basic net income (loss) per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for potential common shares.
Diluted net income (loss) per share is computed similarly to basic net loss per share, except that the denominator is increased to include all dilutive potential common shares using the treasury stock method. For purposes of this calculation, options to purchase common stock, common stock issuable pursuant to the 2006 Employee Stock Purchase Plan, restricted stock units, or RSUs, and warrants are considered to be potential common shares and are only included in the calculation of diluted income (loss) per share when their effect is dilutive. The computations for basic and diluted net income (loss) per share were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
7,209
|
|
|
$
|
15,372
|
|
|
$
|
5,817
|
|
|
$
|
(11,673
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
37,490
|
|
|
37,490
|
|
|
37,490
|
|
|
37,480
|
|
Effect of dilutive securities
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
Weighted-average diluted shares
|
37,490
|
|
|
37,495
|
|
|
37,490
|
|
|
37,480
|
|
Basic net income (loss) per share
|
$
|
0.19
|
|
|
$
|
0.41
|
|
|
$
|
0.16
|
|
|
$
|
(0.31
|
)
|
Diluted net income (loss) per share
|
$
|
0.19
|
|
|
$
|
0.41
|
|
|
$
|
0.16
|
|
|
$
|
(0.31
|
)
|
The following shares were excluded in the computation of diluted net income (loss) per common share for the periods presented because including them would have an anti-dilutive effect (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Options to purchase common stock
|
1,025
|
|
|
2,494
|
|
|
1,025
|
|
|
2,494
|
|
Warrant to purchase common stock
|
—
|
|
|
424
|
|
|
—
|
|
|
424
|
|
3.
Advance from Takeda
Under our agreement with Takeda, Takeda bore responsibility for
70%
of all third-party expenses related to U.S. development and
50%
of all third party expenses related to U.S. commercialization. Takeda also provided a launch allowance to help fund the initial costs associated with preparing to launch under which it committed to fund the first
$20.0 million
of U.S. commercial expenses incurred in total by us and Takeda. Amounts received under the launch allowance are non-refundable; under the Amendment, however, Takeda was entitled to deduct up to
8%
f
rom any future payments made to us under the royalty or milestone provisions
until they have recouped an amount equal to
$11.0 million
(
$10.0 million
plus a
$1.0 million
fixed amount that represents interest).
As a result of the written notice of termination of the Collaboration and License Agreement received from Takeda on June 10, 2014 we have been relieved of the entire balance of the launch loan due Takeda of
$8.2 million
. We have derecognized the liability and recorded a credit to other income, as there is
no
obligation to repay this amount. As of
June 30, 2014
, our liability balance under the launch allowance is
zero
.
4. Commitments and Contingencies
Legal Proceedings
Shareholder Litigation
On February 27, 2013, a securities class action complaint was filed in the United States District Court for the Northern District of California, naming as defendants the Company, certain of its officers, Takeda Pharmaceutical Company Limited,
Takeda Pharmaceuticals U.S.A., Inc. and Takeda Global Research & Development Center, Inc. A second complaint naming the same defendants was filed on March 6, 2013. On May 2, 2013, the securities class action complaint that was filed on February 27, 2013 was voluntarily dismissed by the plaintiff. On May 21, 2013, the Court appointed a lead plaintiff in the remaining securities class action complaint that had been filed on March 6, 2013. On July 22, 2013, a consolidated amended class action complaint was filed on behalf of purported stockholders of the Company, naming as defendants the Company and certain of its former officers. The consolidated amended complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, in connection with allegedly false and misleading statements made by the defendants regarding OMONTYS, the Company's business practices, financial projections and other disclosures between August 8, 2012 and February 22, 2013, or the Class Period. The plaintiff seeks to represent a class comprised of purchasers of the Company's common stock during the Class Period and seeks damages, costs and expenses and such other relief as determined by the Court. On September 20, 2013, the Company and the individual defendants (collectively, “Defendants”) filed a motion to dismiss the consolidated amended complaint. On November 19, 2013, the plaintiff filed her opposition to the motion to dismiss and on December 19, 2013, Defendants filed their reply in support of their motion to dismiss. The hearing on the motion to dismiss occurred on January 15, 2014. On January 21, 2014, the Court issued its order granting the motion to dismiss regarding violations of Section 20(a) against all Defendants and it granted the motion to dismiss in part, denying the motion to dismiss in part, and providing plaintiffs with an opportunity to amend the complaint. On February 18, 2014, the Court, pursuant to a stipulation by the parties, stayed the litigation for
ninety
days to allow the parties to conduct settlement discussions. On July 2, 2014, the parties executed a Stipulation of Settlement of the securities class action suit. The Stipulation, which is subject to court approval, provides in part for a settlement payment of
$6.5 million
and the dismissal of all claims against the defendants in connection with the securities class action suit. The $6.5 million settlement payment, less any remaining retention at the time of payment, which is estimated to be less than
$100,000
, will be paid by the Company’s insurance provider under its insurance policy. On July 3, 2014, plaintiffs filed a motion for preliminary approval of the settlement. The preliminary approval hearing is set for August 27, 2014.
On March 19, 2013 and March 29, 2013, respectively,
two
derivative lawsuits were filed purportedly on behalf of the Company in California Superior Court for the County of Santa Clara naming certain of our current and former officers and directors as defendants (the “State Court Derivative Action”). The lawsuits allege that certain of the Company's officers and directors breached their fiduciary duties related to the clinical trials for OMONTYS and for representations regarding the Company's business health, which was tied to the success of OMONTYS. The lawsuits also assert claims for unjust enrichment and corporate waste. On May 31, 2013, the Court consolidated the
two
actions and appointed lead plaintiff. On June 11, 2013, lead plaintiff designated the complaint filed on March 29, 2013 as the operative complaint. On August 6, 2013, the Court stayed the State Court Derivative Action pending the outcome of the motion to dismiss in the securities class action. Subsequent to the order regarding the motion to dismiss in the securities class action, on January 31, 2014, the Court ordered that the State Court Derivative Action be stayed in its entirety until resolution of the securities class action. On May 29, 2014, the parties entered into a Stipulation of Settlement of the State Court Derivative Action. The Stipulation, which is subject to court approval, provides in part that the Company will enter into certain corporate governance reforms, that the Company shall cause to be paid an attorneys’ fee to plaintiffs of
$375,000
(subject to court approval), and for the dismissal of all claims against the defendants in connection with the State Court Derivative Action. On July 16, 2014, the Court entered an order preliminarily approving the Stipulation and setting a final approval hearing date for September 19, 2014.
On August 19, 2013, another derivative lawsuit was filed purportedly on behalf of the Company in the United States District Court for the Northern District of California naming certain of our current and former officers and directors as defendants (the “Federal Derivative Action”). The lawsuit’s allegations are substantially similar to the allegations in the State Court Derivative Action. On October 21, 2013, the Court ordered a stay in the Federal Derivative Action pending the outcome of the motion to dismiss in the securities class action. Subsequent to the order regarding the motion to dismiss in the securities class action, on January 31, 2014, the Court ordered that the Federal Derivative Action be stayed until resolution of the securities class action. On April 30, 2014, plaintiff in the Federal Derivative Action filed a notice of voluntary dismissal without prejudice. On May 7, 2014, the Court dismissed the Federal Derivative Action without prejudice.
Additional complaints may be filed against us and our directors and officers related to our recall of OMONTYS.
Product Liability Litigation
On or about February 13, 2014, a complaint was filed by an individual plaintiff in the Fourth Judicial District Court (Ouachita Parish) of the State of Louisiana, naming as defendants the Company, Takeda Pharmaceuticals America, Inc., Takeda Pharmaceuticals U.S.A., Inc., Takeda Development Center Americas, Inc., Takeda Pharmaceuticals International, Inc., Takeda Pharmaceutical Company Limited, Fresenius Medical Care Monroe, LLC, and Fresenius Medical Care Holdings, Inc., and
indicating an intention to add two physicians as defendants. The plaintiff seeks to hold the defendants liable in connection with the death of her husband on February 15, 2013. The complaint alleges that the Company and certain other defendants are liable under the Louisiana Products Liability Act, La.R.S. 9:2800.51, et seq., other Louisiana statutes, and otherwise in connection with their alleged acts and omissions with respect to OMONTYS. The plaintiff seeks various categories or types of damages, including, without limitation, damages for her and her late husband’s alleged losses and injuries, punitive or exemplary damages, the price of OMONTYS and reasonable expenses occasioned by the sale of that drug, and other relief as set forth in the complaint. On April 11, 2014, we filed our initial response to the claim, denying that the Company is liable for the plaintiff's damages as set forth in the complaint. The Company has product liability insurance which we believe is adequate and we believe a material loss is not probable. However, it is possible losses could exceed the insurance coverage or coverage may be denied. Although this is the only lawsuit that the Company is aware of at this time, there can be no assurances that additional product liability complaints will not be brought.
Our management believes that we have meritorious defenses and intends to defend these lawsuits vigorously. However, these lawsuits are subject to inherent uncertainties, the actual cost may be significant, and we may not prevail. We believe we are entitled to coverage under our relevant insurance policies, subject to a retention, but coverage could be denied or prove to be insufficient.
We assess litigation to determine if an unfavorable outcome would lead to a probable loss or reasonable possible loss, which could be estimated. We accrue for losses that are both probable and reasonably estimable. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range. In the cases where we believe that a reasonable possible loss exists, we disclose the facts and circumstances of the litigation, including an estimable range, if possible. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonable possible loss.
Accordingly, no loss accrual has been established for the above.
While it is not possible to accurately predict or determine the eventual outcome of these matters, an adverse determination in one or more of these matters currently pending could have a material adverse effect on our financial condition, results of operations or cash flows.
5.
Stock-Based Compensation
Stock-based compensation was recorded in the statements of operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Research and development
|
$
|
—
|
|
|
$
|
(366
|
)
|
|
$
|
—
|
|
|
$
|
825
|
|
Selling, general and administrative
|
297
|
|
|
93
|
|
|
781
|
|
|
2,248
|
|
Total
|
$
|
297
|
|
|
$
|
(273
|
)
|
|
$
|
781
|
|
|
$
|
3,073
|
|
Stock Option Activity
The following table summarize information about stock option activity for the six months ended
June 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average Exercise Price
(Per Share)(1)
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic Value
(in thousands)(2)
|
Stock Options:
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
1,839,857
|
|
|
$
|
16.24
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Cancelled
|
(815,128
|
)
|
|
18.13
|
|
|
|
|
|
|
Balances at June 30, 2014
|
1,024,729
|
|
|
$
|
14.72
|
|
|
5.45
|
$
|
—
|
|
Options exercisable at June 30, 2014
|
844,418
|
|
|
$
|
15.35
|
|
|
4.98
|
$
|
—
|
|
.
6.
Restructuring Charge
2013 Restructuring
InMarch 2013, we implemented plans to restructure our operations in order to reduce operating costs and focus on the OMONTYS safety and other related FDA issues associated with the recall of the product. As of June 30, 2013, we completed a reduction in force of almost all our personnel, including all of our commercial and medical affairs field forces as well as other employees throughout the organization. We recorded
$15.3 million
in restructuring charges related to the workforce reduction during the first half of 2013. We recorded adjustments to the restructuring charge in subsequent periods, primarily related to the forfeiture of restructuring benefits by affected former employees.
The following table summarizes the accrual balance and utilization by type for the restructuring (in thousands):
|
|
|
|
|
|
Total
|
Balance at December 31, 2013
|
$
|
315
|
|
Cash payments
|
(35
|
)
|
Adjustments
|
(215
|
)
|
Balance at June 30, 2014
|
$
|
65
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our audited financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2013 and our unaudited condensed financial statements for the three and six month period ended June 30, 2014.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “intend”, “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “estimate,” “future” and similar expressions intended to identify forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q under Item 1A “Risk Factors,” and in “Management's Discussion and Analysis of Financial Conditions and Results of Operations” in Part I, Item 2 of this Form 10-Q. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Overview
We are a biopharmaceutical company restructuring operations and our Board has approved, subject to stockholder approval, a plan of dissolution and liquidation of the Company. In March 2012, the U.S. Food and Drug Administration, or FDA, approved the Company’s first and only product, OMONTYS® (peginesatide) Injection for the treatment of anemia due to chronic kidney disease in adult patients on dialysis. OMONTYS is a synthetic, peptide-based erythropoiesis stimulating agent, or ESA, designed to stimulate production of red blood cells and has been the only once-monthly ESA available to the adult dialysis patient population in the U.S. We co-commercialized OMONTYS with our collaboration partner, Takeda Pharmaceutical Company Limited, or Takeda during 2012 until February 2013, when we and Takeda announced a nationwide voluntary recall of OMONTYS as a result of safety concerns. Effective April 1, 2013, we entered into an amendment of our collaboration agreement with Takeda pursuant to which Takeda assumed full responsibility for OMONTYS, including responsibility for the ongoing recall and investigation with the FDA, and we granted them an exclusive license to OMONTYS in consideration for potential royalties and milestones.
On June 10, 2014, Affymax, Inc. received from Takeda Pharmaceutical Company Limited, a written notice of termination of the Collaboration and License Agreement between the Parties, dated June 27, 2006, as amended, and the Agreement will be terminated effective as of September 10, 2014. Takeda’s decision to terminate the Agreement is a result of its detailed investigation of safety concerns of OMONTYS, which confirmed no quality or manufacturing issues were present, but did not identify a specific root cause for the reactions that were observed in patients treated with the product. Based on these findings and related discussions with Takeda, Affymax has determined not to exercise its rights with respect to OMONTYS and Takeda will work with the FDA to withdraw the OMONTYS New Drug Application (the "NDA").
Restructuring
In March 2013, we implemented plans to restructure our operations in order to reduce operating costs and focus on the OMONTYS safety and other related FDA issues associated with the recall of the product. As of December 31, 2013, we completed a reduction in force of almost all our personnel, including all of our commercial and medical affairs field forces as well as other employees throughout the organization. We have recorded $16.1 million in restructuring charges related to the workforce reduction during the year ended December 31, 2013. As a result of this restructuring and the recall, we also recorded impairment charges of $4.4 million with respect to our property and equipment and intangible assets related to our
license from Janssen Biotech, Inc. (a subsidiary of Johnson & Johnson) and certain of its affiliated companies, collectively referred to as Janssen, in the year ended December 31, 2013.
In April 2013, as part of our efforts to restructure our operations in order to reduce costs, in addition to our reduction in force, we engaged an experienced restructuring firm, The Brenner Group, Inc. With the engagement of the restructuring firm, we terminated the employment of our remaining executive officers, including our Chief Executive Officer and Chief Financial Officer.
Takeda Amendment
Effective April 1, 2013, we and Takeda, collectively the Parties, entered into the Fourth Amendment, or the Amendment, to the February 13, 2006 and June 27, 2006 Collaboration and License Agreements to amend and restate the ongoing respective roles and responsibilities and related commitments and financial terms between the Parties, including the termination of the Collaboration and License Agreement dated as of February 13, 2006, under which we have granted Takeda a certain right and license for the development and commercialization in Japan of OMONTYS, as amended by the First Amendment, dated April 1, 2007, the Second Amendment, dated January 1, 2008 and the Third Amendment, dated November 7, 2011, as well as the related manufacturing supply, safety, quality and co-promotion agreements between the parties. The Amendment revised the economics from a profit-sharing arrangement to a milestone and royalty-based compensation structure to us effective as of April 1, 2013. This Amendment is part of our ongoing restructuring efforts resulting from the voluntary recall announced on February 23, 2013 related to OMONTYS, the suspension of U.S. marketing and promotional activities, and the ongoing investigation with the FDA. The arrangement with Takeda including the Amendment is referred to as the Arrangement.
The Amendment effectuated a transfer of regulatory responsibilities, including the OMONTYS New Drug Application, or NDA, and all manufacturing, and development responsibilities from us to Takeda. Takeda received a worldwide, exclusive royalty-bearing license under our and joint Takeda-Affymax patents to develop, manufacture and commercialize OMONTYS.
On June 10, 2014, Affymax, Inc. received from Takeda Pharmaceutical Company Limited , a written notice of termination of the Collaboration and License Agreement between the Parties, dated June 27, 2006, as amended, and the Agreement will be terminated effective as of September 10, 2014. Takeda’s decision to terminate the Agreement is a result of its detailed investigation of safety concerns of OMONTYS, which confirmed no quality or manufacturing issues were present, but did not identify a specific root cause for the reactions that were observed in patients treated with the product. Based on these findings and related discussions with Takeda, Affymax has determined not to exercise its rights with respect to OMONTYS and Takeda will work with the FDA to withdraw the NDA.
We have experienced significant operating losses since inception. We have funded our operations primarily through the sale of equity securities, reimbursement for development expenses and API production, license fees, milestone payments and profit equalization revenue from Takeda, issuance of notes payable, capital lease financings, interest earned on investments and limited license fees and royalties from licensing intellectual property. As of June 30, 2014, we had an accumulated deficit of
$552.3 million
.
On June 24, 2014, we issued a press release announcing that our Board of Directors determined that it is in the best interests of Affymax’s stockholders to liquidate Affymax’s assets and to dissolve Affymax. The Affymax, Inc. Plan of Liquidation was unanimously approved by the Board, but is subject to stockholder approval. Affymax intends to hold a special meeting of stockholders to seek approval of the Plan. Affymax will file proxy materials with the U.S. Securities and Exchange Commission in advance of that meeting. In connection with the proposed dissolution, Affymax intends to distribute to its stockholders all available cash, if any, other than as may be required to pay expenses and pay or make reasonable provision for known and potential claims and obligations of Affymax, as required by applicable law. If approved by Affymax’s stockholders, Affymax intends to file a certificate of dissolution, pay, satisfy, resolve or make reasonable provisions for claims and obligations as well as anticipated costs associated with the dissolution and liquidation as soon as reasonable, practicable and financially prudent.
Litigation
Shareholder Litigation
On February 27, 2013, a securities class action complaint was filed in the United States District Court for the Northern District of California, naming as defendants the Company, certain of its officers, Takeda Pharmaceutical Company Limited, Takeda Pharmaceuticals U.S.A., Inc. and Takeda Global Research & Development Center, Inc. A second complaint naming the same defendants was filed on March 6, 2013. On May 2, 2013, the securities class action complaint that was filed on February 27, 2013 was voluntarily dismissed by the plaintiff. On May 21, 2013, the Court appointed a lead plaintiff in the remaining securities class action complaint that had been filed on March 6, 2013. On July 22, 2013, a consolidated amended class action complaint was filed on behalf of purported stockholders of the Company, naming as defendants the Company and certain of its former officers. The consolidated amended complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, in connection with allegedly false and misleading statements made by the defendants regarding OMONTYS, the Company's business practices, financial projections and other disclosures between August 8, 2012 and February 22, 2013, or the Class Period. The plaintiff seeks to represent a class comprised of purchasers of the Company's common stock during the Class Period and seeks damages, costs and expenses and such other relief as determined by the Court. On September 20, 2013, the Company and the individual defendants (collectively, “Defendants”) filed a motion to dismiss the consolidated amended complaint. On November 19, 2013, the plaintiff filed her opposition to the motion to dismiss and on December 19, 2013, Defendants filed their reply in support of their motion to dismiss. The hearing on the motion to dismiss occurred on January 15, 2014. On January 21, 2014, the Court issued its order granting the motion to dismiss regarding violations of Section 20(a) against all Defendants and it granted the motion to dismiss in part, denying the motion to dismiss in part, and providing plaintiffs with an opportunity to amend the complaint. On February 18, 2014, the Court, pursuant to a stipulation by the parties, stayed the litigation for ninety days to allow the parties to conduct settlement discussions. On July 2, 2014, the parties executed a Stipulation of Settlement of the securities class action suit. The Stipulation, which is subject to court approval, provides in part for a settlement payment of $6.5 million and the dismissal of all claims against the defendants in connection with the securities class action suit. The $6.5 million settlement payment, less any remaining retention at the time of payment, which is estimated to be less than $100,000, will be paid by the Company’s insurance provider under its insurance policy. On July 3, 2014, plaintiffs filed a motion for preliminary approval of the settlement. The preliminary approval hearing is set for August 27, 2014.
On March 19, 2013 and March 29, 2013, respectively, two derivative lawsuits were filed purportedly on behalf of the Company in California Superior Court for the County of Santa Clara naming certain of our current and former officers and directors as defendants (the “State Court Derivative Action”). The lawsuits allege that certain of the Company's officers and directors breached their fiduciary duties related to the clinical trials for OMONTYS and for representations regarding the Company's business health, which was tied to the success of OMONTYS. The lawsuits also assert claims for unjust enrichment and corporate waste. On May 31, 2013, the Court consolidated the two actions and appointed lead plaintiff. On June 11, 2013, lead plaintiff designated the complaint filed on March 29, 2013 as the operative complaint. On August 6, 2013, the Court stayed the State Court Derivative Action pending the outcome of the motion to dismiss in the securities class action. Subsequent to the order regarding the motion to dismiss in the securities class action, on January 31, 2014, the Court ordered that the State Court Derivative Action be stayed in its entirety until resolution of the securities class action. On May 29, 2014, the parties entered into a Stipulation of Settlement of the State Court Derivative Action. The Stipulation, which is subject to court approval, provides in part that the Company will enter into certain corporate governance reforms, that the Company shall cause to be paid an attorneys’ fee to plaintiffs of $375,000 (subject to court approval), and for the dismissal of all claims against the defendants in connection with the State Court Derivative Action. On July 16, 2014, the Court entered an order preliminarily approving the Stipulation and setting a final approval hearing date for September 19, 2014.
On August 19, 2013, another derivative lawsuit was filed purportedly on behalf of the Company in the United States District Court for the Northern District of California naming certain of our current and former officers and directors as defendants (the “Federal Derivative Action”). The lawsuit’s allegations are substantially similar to the allegations in the State Court Derivative Action. On October 21, 2013, the Court ordered a stay in the Federal Derivative Action pending the outcome of the motion to dismiss in the securities class action. Subsequent to the order regarding the motion to dismiss in the securities class action, on January 31, 2014, the Court ordered that the Federal Derivative Action be stayed until resolution of the securities class action. On April 30, 2014, plaintiff in the Federal Derivative Action filed a notice of voluntary dismissal without prejudice. On May 7, 2014, the Court dismissed the Federal Derivative Action without prejudice.
Additional complaints may be filed against us and our directors and officers related to our recall of OMONTYS.
Product Liability Litigation
On or about February 13, 2014, a complaint was filed by an individual plaintiff in the Fourth Judicial District Court (Ouachita Parish) of the State of Louisiana, naming as defendants the Company, Takeda Pharmaceuticals America, Inc., Takeda Pharmaceuticals U.S.A., Inc., Takeda Development Center Americas, Inc., Takeda Pharmaceuticals International, Inc., Takeda Pharmaceutical Company Limited, Fresenius Medical Care Monroe, LLC, and Fresenius Medical Care Holdings, Inc., and indicating an intention to add two physicians as defendants. The plaintiff seeks to hold the defendants liable in connection with the death of her husband on February 15, 2013. The complaint alleges that the Company and certain other defendants are liable under the Louisiana Products Liability Act, La.R.S. 9:2800.51, et seq., other Louisiana statutes, and otherwise in connection with their alleged acts and omissions with respect to OMONTYS. The plaintiff seeks various categories or types of damages, including, without limitation, damages for her and her late husband’s alleged losses and injuries, punitive or exemplary damages, the price of OMONTYS and reasonable expenses occasioned by the sale of that drug, and other relief as set forth in the complaint. On April 11, 2014, we filed our initial response to the claim, denying that the Company is liable for the plaintiff's damages as set forth in the complaint. The Company has product liability insurance which we believe is adequate and we believe a material loss is not probable. However, it is possible losses could exceed the insurance coverage or coverage may be denied. Although this is the only product liability lawsuit that the Company is aware of at this time, there can be no assurances that additional product liability complaints will not be brought.
Additional complaints may be filed against us and our directors and officers related to our recall of OMONTYS. Our management believes that we have meritorious defenses and intends to defend these lawsuits vigorously. However, these lawsuits are subject to inherent uncertainties, the actual cost may be significant, and we may not prevail. We believe we are entitled to coverage under our relevant insurance policies, subject to a retention, but coverage could be denied or prove to be insufficient.
Financial Outlook
On June 24, 2014, we issued a press release announcing that our Board of Directors determined that it is in the best interests of Affymax’s stockholders to liquidate Affymax’s assets and to dissolve Affymax and had approved a Plan of Liquidation, subject to stockholder approval. Affymax intends to hold a special meeting of stockholders to seek approval of the Plan. Affymax will file proxy materials with the U.S. Securities and Exchange Commission as soon as practicable and in any event in advance of that meeting in accordance with applicable laws. In connection with the proposed dissolution, if approved by Affymax' stockholders, Affymax intends to distribute to its stockholders all available cash, if any, other than as may be required to pay expenses and pay or make reasonable provision for known and potential claims and obligations of Affymax, as required by applicable law. If approved by Affymax’s stockholders, Affymax intends to file a certificate of dissolution, pay, satisfy, resolve or make reasonable provisions for claims and obligations as well as anticipated costs associated with the dissolution and liquidation as soon as reasonable, practicable and financially prudent.
Results of Operations
Revenue
During the commercialization period we received reimbursement for certain collaboration expenses. Takeda bore responsibility for 70% of third-party expenses related to U.S. development and 50% of third party expenses related to the commercialization of OMONTYS in the U.S. incurred by us and we were responsible for the reciprocal amount of development and commercialization expenses. Certain employee-related expenses supporting preparation for commercialization of OMONTYS in the U.S. were also shared equally. Such employee-related costs included the cost of certain employees that are required to commercialize OMONTYS such as field sales representatives, sales operations, medical science liaisons, nurse educators, conversion specialists, national accounts managers and reimbursement specialists. In addition, costs of employees in clinical, regulatory and other development functions supporting any post-marketing development activity required by the FDA or separately agreed to by the parties in the U.S. were generally shared equally.
OMONTYS sales by Takeda commenced in September 2012. Subsequent to the launch of OMONTYS and recognition of product revenue by Takeda, our collaboration revenue consisted of profit equalization revenue generated from our Arrangement with Takeda, milestone payments, reimbursements of certain eligible development and commercial expenses, net of Takeda's own eligible expenses, and revenue previously deferred related to payments we received associated with previously expensed API, which have been sold by Takeda. Revenue from profit equalization was calculated on a quarterly basis as the amount required so that the profit or loss realized by both Affymax and Takeda on OMONTYS equated to 50% of the total product profit or loss. Total product profit or loss on OMONTYS was calculated as gross product sales recorded by Takeda, less the following deductions recorded by Takeda: rebates and discounts, cost of goods and other gross-to-net adjustments incurred by Takeda, royalty expense incurred by us, commercialization expenses (full-time equivalents or FTE, related and out of pocket costs) incurred by both Takeda and us, and certain development costs associated with post-marketing development activities (FTE related and out of pocket costs) incurred by both Takeda and us.
Revenue as compared to the prior year is as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Collaboration revenue
|
$
|
—
|
|
|
$
|
525
|
|
|
(100
|
)%
|
|
$
|
—
|
|
|
$
|
1,364
|
|
|
(100
|
)%
|
License and royalty revenue
|
42
|
|
|
—
|
|
|
100
|
%
|
|
42
|
|
|
5
|
|
|
88
|
%
|
Total revenue
|
$
|
42
|
|
|
$
|
525
|
|
|
(92
|
)%
|
|
$
|
42
|
|
|
$
|
1,369
|
|
|
(97
|
)%
|
Revenue decreased
$0.5 million
from
$0.5 million
for the three months ended June 30, 2013 to
$0.0 million
for the three months ended June 30, 2014. The collaboration revenue received in the three months ended June 30, 2013 was the final payment received from Takeda for reimbursement of certain personnel costs incurred by us to assist in the transition of regulatory responsibilities, including the OMONTYS NDA, and all manufacturing, and development responsibilities from us to Takeda. Collaboration revenue decreased from $1.3 million for the six months ended June 30, 2013 to $0.0 million for the six month ended June 30, 2014. The decrease was primarily the result of receipt of the final profit sharing payment from Takeda, as a result of the product recall of OMONTYS and the one time payment for transition services.
The following table presents our collaboration revenue, by revenue type, for the periods presented (in thousands):
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|
|
|
Three Months Ended June 30,
|
|
Six Months Ended
June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net expense reimbursement after CAPM
|
$
|
—
|
|
|
$
|
525
|
|
|
$
|
—
|
|
|
$
|
1,364
|
|
Total collaboration revenue
|
$
|
—
|
|
|
$
|
525
|
|
|
$
|
—
|
|
|
$
|
1,364
|
|
Takeda Amendment
On February 23, 2013, we and Takeda announced a nationwide voluntary recall of OMONTYS as a result of post marketing reports regarding safety concerns, including anaphylaxis, which can be life-threatening or fatal. As a result of the voluntary recall of OMONTYS, all marketing activities were suspended.
Effective April 1, 2013, we and Takeda, collectively the Parties, entered into the Fourth Amendment, or the Amendment, to the February 13, 2006 and June 27, 2006 Collaboration and License Agreements to amend and restate the ongoing respective roles and responsibilities and related commitments and financial terms between the Parties, including the termination of the Collaboration and License Agreement dated as of February 13, 2006, under which we have granted Takeda a certain right and license for the development and commercialization in Japan of OMONTYS, as amended by the First Amendment, dated April 1, 2007, the Second Amendment, dated January 1, 2008 and the Third Amendment, dated November 7, 2011, as well as the related manufacturing supply, safety, quality and co-promotion agreements between the parties. The Amendment revised the economics from a profit-sharing arrangement to a milestone and royalty-based compensation structure to us effective as of April 1, 2013. This Amendment is part of our ongoing restructuring efforts resulting from the voluntary recall announced on February 23, 2013 related to OMONTYS, the suspension of U.S. marketing and promotional activities, and the ongoing investigation with the FDA. The arrangement with Takeda including the Amendment is referred to as the Arrangement.
The Amendment effectuated a transfer of regulatory responsibilities, including the OMONTYS New Drug Application, or NDA, and all manufacturing, and development responsibilities from us to Takeda. Takeda received a worldwide, exclusive royalty-bearing license under our and joint Takeda-Affymax patents to develop, manufacture and commercialize OMONTYS.
On June 10, 2014, Affymax, Inc. received from Takeda Pharmaceutical Company Limited, a written notice of termination of the Collaboration and License Agreement between the Parties, dated June 27, 2006, as amended, and the Agreement will be terminated effective as of September 10, 2014. Takeda’s decision to terminate the Agreement is a result of its detailed investigation of safety concerns of OMONTYS, which confirmed no quality or manufacturing issues were present, but did not identify a specific root cause for the reactions that were observed in patients treated with the product. Based on these findings and related discussions with Takeda, Affymax has determined not to exercise its rights with respect toOMONTYS and Takeda will work with the FDA to withdraw the NDA.
Research and Development Expenses
The major components of R&D expenses include clinical trial expenses, consulting and other third-party costs, API manufacturing costs incurred prior to FDA approval, salaries and employee benefits, license fees paid to third parties for use of their intellectual property, supplies and allocations of various overhead and occupancy costs. Clinical trial expenses include, but are not limited to, contract research organization, or CRO, and investigator fees, site costs, comparator drug costs and clinical research organization costs. All R&D expenses are expensed as incurred. R&D expenses, as compared to the prior year are as follows (in thousands):
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|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended
June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Research and development expenses
|
$
|
—
|
|
|
$
|
2,235
|
|
|
(100
|
)%
|
|
$
|
—
|
|
|
$
|
12,024
|
|
|
(100
|
)%
|
R&D expenses declined $
2.2 million
and $12.0 million for the three and six months ended June 30, 2014, respectively,when compared to the same periods in 2013.. The decrease in R&D expenses in 2014 compared to 2013 was due to the recall of OMONTYS in February 2013. After the recall, we undertook a restructuring of the Company which involved the cessation of all R&D activity and a significant reduction in workforce including all R&D personnel.
Selling, General and Administrative Expenses
SG&A expenses consist principally of salaries, employee benefits, consulting, professional fees for legal, auditing and tax services, marketing and commercial support for OMONTYS, allocation for overhead and occupancy costs and royalty expense. SG&A, expenses as compared to the prior year are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Selling, general and administrative expenses
|
$
|
1,066
|
|
|
$
|
528
|
|
|
102
|
%
|
|
$
|
2,559
|
|
|
$
|
25,173
|
|
|
(90
|
)%
|
SG&A expenses increased $
0.5 million
from the second quarter of 2013 to the second quarter of 2014. The increase in SG&A expenses in 2014 compared to 2013 was primarily due to the reclassification of operating expenses from SG&A to R&D in the second quarter of 2013 offset by the recall of OMONTYS and our subsequent cost reduction efforts, including the reduction in force of nearly all of our employees. SG&A expense decreased $22.6 million from $25.2 million for the six months ended June 30, 2013 to $2.6 million for the six months ended June 30, 2014. The decrease was primarily the result of the recall of OMONTYS and our subsequent cost reduction efforts, including the reduction in force of nearly all of our employees.
Collaboration Cost Reimbursement
Collaboration cost reimbursement as compared to the prior year are as follows (in thousands):
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|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Collaboration cost reimbursement
|
$
|
—
|
|
|
$
|
(23,073
|
)
|
|
—
|
|
$
|
—
|
|
|
$(43,451)
|
|
—
|
Prior to the Amendment, we initiated orders for API with our contract manufacturing organizations, or CMOs based on forecasts from Takeda, which were based on expected demand for OMONTYS. Orders generally have commenced once there was a contractual commitment for the API from Takeda. As a result of the inability to sell OMONTYS and the uncertainty of future revenues, we have written down our API inventory and prepayments for API being produced by our CMOs to a net realizable value of zero and recorded a
$10.4 million
impairment charge related to this write-down during the year ended December 31, 2012. We have also recorded a
$34.6 million
loss on firm purchase commitments by applying the same lower of cost or market approach that is used to value inventory during the same period. Of the total $45.0 million charge for impairment of inventory and loss on CMO purchase commitments recorded at year end, we recorded a benefit of $20.4 million in the quarter ended March 30, 2013, primarily related to the Takeda Q1 profit equalization payment.
Impairment (Gain on Disposal) of Prepaid Expenses, Fixed Assets and Intangible Assets
Impairment of prepaid expenses, fixed assets and intangible assets and percentage changes as compared to the prior year are as follows (in thousands):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Impairment (gain on disposal) of prepaid expenses, fixed assets and intangible assets
|
$
|
—
|
|
|
$
|
(560
|
)
|
|
—
|
|
$
|
—
|
|
|
$
|
4,580
|
|
|
—
|
As a result of the product recall and related restructuring activities that occurred in the quarter ended March 31, 2013, we incurred impairment charges of $5.1 million. The impairment related to our prepaid expenses, fixed assets and our intangible assets related to our license with Janssen was $1.3 million, $1.9 million and $1.9 million respectively during the first quarter of 2013. In the quarter ended June 30, 2013 realized a gain upon the sale of property and equipment of
$0.6 million
.
Restructuring Charges
Restructuring charges and percentage changes as compared to the prior year are as follows (in thousands):
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|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Restructuring charges
|
$
|
(71
|
)
|
|
$
|
7,124
|
|
|
101%
|
|
$
|
(172
|
)
|
|
$
|
15,340
|
|
|
101
|
%
|
Beginning in March 2013, we undertook plans to reorganize our operations in order to reduce operating costs and focus on the OMONTYS safety and other related FDA issues associated with the recall of the product. By June 30, 2013, in addition to transitioning most activities to our collaborator, Takeda, we completed a reduction in force of most of our remaining employees, including all of our commercial and medical affairs field forces as well as other employees throughout the organization and incurred $15.3 million in restructuring charges. The benefit recorded in the three and six months ended June 30, 2014 was due to an adjustment in the estimate of remaining benefits due to employees.
Other Income (Expense), Net
Other income (expense), net as compared to prior years are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
Interest income
|
$
|
—
|
|
|
$
|
6
|
|
|
(100
|
)%
|
|
$
|
—
|
|
|
$
|
21
|
|
|
(100
|
)%
|
Interest expense
|
—
|
|
|
(1,073
|
)
|
|
(100
|
)%
|
|
—
|
|
|
(1,565
|
)
|
|
(100
|
)%
|
Other income, net
|
8,162
|
|
|
10
|
|
|
81520
|
%
|
|
8,162
|
|
|
10
|
|
|
81520
|
%
|
Other income (expense), net
|
$
|
8,162
|
|
|
$
|
(1,067
|
)
|
|
(865
|
)%
|
|
$
|
8,162
|
|
|
$
|
(1,544
|
)
|
|
(629
|
)%
|
The decrease in interest (expense), net during the three and six months ended June 30, 2014 compared to the same periods in 2013 was due primarily to final payment of interest and prepayment fees associated with the discharge of obligations under our loan agreement with Lenders, our launch allowance with Takeda, lower interest rates and lower average cash balance.
The increase in other income, net during the three and six months ended June 30, 2014 compared to the same periods in 2013 was due primarily to receipt of the written notice of termination of the Collaboration and License Agreement received from Takeda on June 10, 2014. As a result of the termination notice we have been relieved of the launch loan due Takeda of $8.2 million. As a result, we have derecognized the liability and recorded a credit to other income, as there is no obligation to repay this amount. As of
June 30, 2014
, our liability balance under the launch allowance is zero.
Provision for Income Taxes
We are subject to federal and state income taxes. We anticipate no taxable income for 2014 and therefore have not recorded any federal or state taxes, other than the minimum statutory California tax, related to the current period for the three and six months ended June 30, 2014.
Liquidity and Capital Resources
Our cash, at
June 30, 2014
and
December 31, 2013
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31
|
|
2014
|
|
2013
|
Cash and cash equivalents
|
$
|
3,399
|
|
|
$
|
5,597
|
|
Working Capital
Working capital was $
4.2 million
at June 30, 2014, an increase of $
6.8 million
from working deficit of December 31, 2013. The increase is due to the derecognition of the Takeda launch allowance in the second quarter of 2014.
On June 24, 2014, we issued a press release announcing that our Board of Directors determined that it is in the best interests of Affymax’s stockholders to liquidate Affymax’s assets and to dissolve Affymax and had approved a Plan of Liquidation subject to stockholder approval. Affymax intends to hold a special meeting of stockholders to seek approval of the Plan. Affymax will file proxy materials with the U.S. Securities and Exchange Commission as soon as practicable and in any event in advance of that meeting in accordance with applicable laws. In connection with the proposed dissolution, if approved by Affymax' stockholders, Affymax intends to distribute to its stockholders all available cash, if any, other than as may be required to pay expenses and pay or make reasonable provision for known and potential claims and obligations of Affymax, as required by applicable law. If approved by Affymax’s stockholders, Affymax intends to file a certificate of dissolution, pay, satisfy, resolve or make reasonable provisions for claims and obligations as well as anticipated costs associated with the dissolution and liquidation as soon as reasonable, practicable and financially prudent.
Cash Flows During the Six Months Ended June 30, 2014 and 2013
In summary, our cash flows for the periods presented are as follows (in thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2014
|
|
2013
|
Net cash used in operating activities
|
$
|
(2,198
|
)
|
|
$
|
(61,171
|
)
|
Net cash provided by investing activities
|
—
|
|
|
13,138
|
|
Net cash used in financing activities
|
—
|
|
|
(9,729
|
)
|
Net cash used in operating activities for the six months ended June 30, 2014 and 2013 was
$2.2 million
and
$61.2 million
, respectively. Net cash used in operations for the six months ended June 30, 2014 reflects our net income, non-cash stock based compensation charges partially offset by changes in accrued liabilities associated with compensation related accruals and prepaid expenses and derecognition of the Takeda launch loan allowance. Net cash used in operations for the six months ended June 30, 2013 reflects our net loss, non-cash credit related to collaboration cost reimbursement and changes in accrued liabilities associated with compensation related accruals partially offset by the benefit of payments received from Takeda related to profit equalization revenue, and reimbursement for development and commercial expense and purchases of API by Takeda.
Net cash provided by investing activities for the six months ended June 30, 2013 of
$13.1 million
was due to proceeds from maturities of investments of $4.8 million, proceeds from the sale of securities of $7.2 million and proceeds from the sale of property and equipment of $1.1 million.
Net cash used in financing activities for the six months ended June 30, 2013 was primarily attributable to repayment of our note payable of
$10.0 million
partially offset by proceeds of
$0.3 million
received from the issuance of common stock upon exercise of stock options.
Contractual Obligations and Significant Commitments
There were no significant changes in our commercial commitments and capital obligations from the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.
Off-Balance Sheet Arrangements
At
June 30, 2014
, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the Securities and Exchange Commission, or SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.