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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 September 30, 2019

or

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

Commission File Number: 000-50768

 

ACADIA PHARMACEUTICALS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

06-1376651

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

3611 Valley Centre Drive, Suite 300

San Diego, California

92130

(Address of Principal Executive Offices)

(Zip Code)

 

(858) 558-2871

(Registrant’s Telephone Number, Including Area Code)

 

 

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

 

Title of Each Class 

Trading Symbol

Name of Each Exchange on Which Registered 

Common Stock, par value $0.0001 per share

ACAD

The Nasdaq Stock Market LLC

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☐  

Smaller reporting company

 

 

 

 

Emerging growth company

  

 

 

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

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

Total shares of common stock outstanding as of the close of business on October 23, 2019:

 

Class 

 

Number of Shares Outstanding 

Common Stock, $0.0001 par value

 

154,025,462

 

 

 

 


 

ACADIA PHARMACEUTICALS INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

PAGE NO.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

23

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24

 

 

 

 

 

Item 6.

 

Exhibits

 

57

 

 

 

SIGNATURES

 

58

 

 

 

i


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

385,474

 

 

$

134,758

 

Investment securities, available-for-sale

 

 

298,373

 

 

 

338,762

 

Accounts receivable, net

 

 

30,804

 

 

 

26,090

 

Interest and other receivables

 

 

1,465

 

 

 

1,699

 

Inventory

 

 

4,846

 

 

 

4,070

 

Prepaid expenses

 

 

21,368

 

 

 

20,727

 

Total current assets

 

 

742,330

 

 

 

526,106

 

Property and equipment, net

 

 

3,249

 

 

 

3,309

 

Operating lease right-of-use assets

 

 

9,959

 

 

 

 

Intangible assets, net

 

 

2,954

 

 

 

4,062

 

Restricted cash

 

 

4,787

 

 

 

4,826

 

Other assets

 

 

2,307

 

 

 

1,899

 

Total assets

 

$

765,586

 

 

$

540,202

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,444

 

 

$

3,167

 

Accrued liabilities

 

 

64,300

 

 

 

56,398

 

Total current liabilities

 

 

67,744

 

 

 

59,565

 

Operating lease liabilities

 

 

6,379

 

 

 

 

Other long-term liabilities

 

 

2,174

 

 

 

1,558

 

Total liabilities

 

 

76,297

 

 

 

61,123

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000,000 shares authorized at September 30, 2019

   and December 31, 2018; no shares issued and outstanding at September 30, 2019 and

   December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value; 225,000,000 shares authorized at September 30, 2019

   and December 31, 2018; 153,539,153 shares and 143,853,597 shares issued and

   outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

15

 

 

 

14

 

Additional paid-in capital

 

 

2,339,940

 

 

 

1,948,300

 

Accumulated deficit

 

 

(1,651,086

)

 

 

(1,468,863

)

Accumulated other comprehensive gain (loss)

 

 

420

 

 

 

(372

)

Total stockholders’ equity

 

 

689,289

 

 

 

479,079

 

Total liabilities and stockholders’ equity

 

$

765,586

 

 

$

540,202

 

 

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

 

 

1


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales, net

 

$

94,586

 

 

$

58,305

 

 

$

240,750

 

 

$

164,236

 

Total revenues

 

 

94,586

 

 

 

58,305

 

 

 

240,750

 

 

 

164,236

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

2,416

 

 

 

3,839

 

 

 

8,324

 

 

 

9,554

 

License fees and royalties

 

 

2,273

 

 

 

1,536

 

 

 

5,940

 

 

 

4,384

 

Research and development

 

 

62,622

 

 

 

53,112

 

 

 

182,865

 

 

 

138,980

 

Selling, general and administrative

 

 

72,696

 

 

 

61,089

 

 

 

233,767

 

 

 

191,487

 

Total operating expenses

 

 

140,007

 

 

 

119,576

 

 

 

430,896

 

 

 

344,405

 

Loss from operations

 

 

(45,421

)

 

 

(61,271

)

 

 

(190,146

)

 

 

(180,169

)

Interest income, net

 

 

2,432

 

 

 

1,229

 

 

 

7,893

 

 

 

3,678

 

Other income (expense)

 

 

747

 

 

 

(1,720

)

 

 

506

 

 

 

(1,967

)

Loss before income taxes

 

 

(42,242

)

 

 

(61,762

)

 

 

(181,747

)

 

 

(178,458

)

Income tax (benefit) expense

 

 

(264

)

 

 

376

 

 

 

476

 

 

 

1,242

 

Net loss

 

$

(41,978

)

 

$

(62,138

)

 

$

(182,223

)

 

$

(179,700

)

Net loss per common share, basic and diluted

 

$

(0.29

)

 

$

(0.50

)

 

$

(1.26

)

 

$

(1.44

)

Weighted average common shares outstanding, basic and diluted

 

 

145,906

 

 

 

125,009

 

 

 

144,741

 

 

 

124,883

 

 

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

 

 

2


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(41,978

)

 

$

(62,138

)

 

$

(182,223

)

 

$

(179,700

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investment securities

 

 

(136

)

 

 

186

 

 

 

789

 

 

 

83

 

Foreign currency translation adjustments

 

 

2

 

 

 

 

 

 

3

 

 

 

2

 

Comprehensive loss

 

$

(42,112

)

 

$

(61,952

)

 

$

(181,431

)

 

$

(179,615

)

 

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

 

 

3


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(182,223

)

 

$

(179,700

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

62,502

 

 

 

61,163

 

Amortization of premiums and accretion of discounts on investment securities

 

 

(3,052

)

 

 

(415

)

Amortization of intangible assets

 

 

1,108

 

 

 

1,107

 

(Gain) loss on strategic investment

 

 

(506

)

 

 

1,967

 

Depreciation

 

 

1,023

 

 

 

1,116

 

Loss on disposal of assets

 

 

 

 

 

27

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,714

)

 

 

(2,615

)

Interest and other receivables

 

 

234

 

 

 

363

 

Inventory

 

 

(426

)

 

 

1,464

 

Prepaid expenses

 

 

(641

)

 

 

(6,494

)

Operating lease right-of-use assets

 

 

2,856

 

 

 

 

Other assets

 

 

98

 

 

 

111

 

Accounts payable

 

 

277

 

 

 

(5,856

)

Accrued liabilities

 

 

3,301

 

 

 

(1,647

)

Operating lease liabilities

 

 

(2,070

)

 

 

 

Long-term liabilities

 

 

810

 

 

 

1,018

 

Net cash used in operating activities

 

 

(121,423

)

 

 

(128,391

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investment securities

 

 

(260,859

)

 

 

(95,379

)

Maturities of investment securities

 

 

305,089

 

 

 

217,562

 

Purchases of strategic investments

 

 

 

 

 

(3,150

)

Proceeds from sale of property and equipment

 

 

 

 

 

5

 

Purchases of property and equipment

 

 

(922

)

 

 

(1,578

)

Net cash provided by investing activities

 

 

43,308

 

 

 

117,460

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

328,789

 

 

 

6,044

 

Net cash provided by financing activities

 

 

328,789

 

 

 

6,044

 

Effect of exchange rate changes on cash

 

 

3

 

 

 

2

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

250,677

 

 

 

(4,885

)

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

139,584

 

 

 

71,893

 

End of period

 

$

390,261

 

 

$

67,008

 

Supplemental disclosure of noncash information:

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued liabilities

 

$

41

 

 

$

280

 

 

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

 


4


 

ACADIA PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Total stockholders’ equity, beginning balances

 

$

388,914

 

 

$

264,720

 

 

$

479,079

 

 

$

335,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

14

 

 

 

12

 

 

 

14

 

 

 

12

 

Issuance of common stock in public offering, net of issuance

   costs

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Ending balance

 

 

15

 

 

 

12

 

 

 

15

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

1,997,454

 

 

 

1,606,441

 

 

 

1,948,300

 

 

 

1,559,343

 

Issuance of common stock in public offering, net of

   issuance costs

 

 

271,462

 

 

 

 

 

 

271,462

 

 

 

 

Issuance of common stock from exercise of stock options

 

 

48,504

 

 

 

211

 

 

 

55,127

 

 

 

3,679

 

Issuance of common stock pursuant to employee stock

   purchase plan

 

 

 

 

 

 

 

 

2,199

 

 

 

2,365

 

Stock-based compensation

 

 

22,520

 

 

 

20,461

 

 

 

62,852

 

 

 

61,726

 

Ending balance

 

 

2,339,940

 

 

 

1,627,113

 

 

 

2,339,940

 

 

 

1,627,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(1,609,108

)

 

 

(1,341,233

)

 

 

(1,468,863

)

 

 

(1,223,671

)

Net loss

 

 

(41,978

)

 

 

(62,138

)

 

 

(182,223

)

 

 

(179,700

)

Ending balance

 

 

(1,651,086

)

 

 

(1,403,371

)

 

 

(1,651,086

)

 

 

(1,403,371

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

554

 

 

 

(500

)

 

 

(372

)

 

 

(399

)

Other comprehensive (loss) income

 

 

(134

)

 

 

186

 

 

 

792

 

 

 

85

 

Ending balance

 

 

420

 

 

 

(314

)

 

 

420

 

 

 

(314

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity, ending balances

 

$

689,289

 

 

$

223,440

 

 

$

689,289

 

 

$

223,440

 

 

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

 

5


 

ACADIA PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

ACADIA Pharmaceuticals Inc. (the “Company”), based in San Diego, California, is a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in central nervous system disorders. The Company was originally incorporated in Vermont in 1993 as Receptor Technologies, Inc. and reincorporated in Delaware in 1997.

In April 2016, the U.S. Food and Drug Administration (“FDA”) approved the Company’s first drug, NUPLAZID® (pimavanserin), for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis (“PD Psychosis”). NUPLAZID became available for prescription in the United States in May 2016.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (the “SEC”). The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations, cash flows, and stockholders’ equity for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of cash flows that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):

 

 

 

Nine Months Ended September 30, 2019

 

 

Nine Months Ended September 30, 2018

 

 

 

Beginning of

period

 

 

End of

period

 

 

Beginning of

period

 

 

End of

period

 

Cash and cash equivalents

 

$

134,758

 

 

$

385,474

 

 

$

69,418

 

 

$

63,897

 

Restricted cash

 

 

4,826

 

 

 

4,787

 

 

 

2,475

 

 

 

3,111

 

Total cash, cash equivalents and restricted cash shown in

   the statement of cash flows

 

$

139,584

 

 

$

390,261

 

 

$

71,893

 

 

$

67,008

 

Accounts Receivable

Accounts receivable are recorded net of customer allowances for distribution fees, prompt payment discounts, chargebacks, and doubtful accounts. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. At September 30, 2019, the Company determined that an allowance for doubtful accounts was not required. No accounts were written off during the periods presented.

License Fees and Royalties

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale.

6


 

In connection with the FDA approval of NUPLAZID in April 2016, the Company made a one-time milestone payment of $8.0 million pursuant to its 2006 license agreement with the Ipsen Group in which the Company licensed certain intellectual property rights that complement its patent portfolio for its serotonin platform, including NUPLAZID. The Company capitalized the $8.0 million payment as an intangible asset and is amortizing the asset on a straight-line basis over the estimated useful life of the licensed patents through the second half of 2021. The Company recorded amortization expense related to its intangible asset of $0.4 million and $1.1 million for each of the three and nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, estimated future amortization expense related to the Company’s intangible asset was $0.4 million for the remainder of 2019, $1.5 million for 2020, and $1.0 million for 2021.

Royalties incurred in connection with the Company’s license agreement with the Ipsen Group, as disclosed in Note 9, Commitments and Contingencies, are expensed to license fees and royalties as revenue from product sales is recognized.

Revenue Recognition

The Company recognizes revenue when its customer obtains control of the product, in an amount that reflects the consideration which the Company expects to receive in exchange for that product. To determine revenue recognition for arrangements that the Company determines are within the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers (Topic 606), the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods promised within each contract, determines those that are performance obligations, and assesses whether each promised good is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company transfers control of the product and when the Company receives payment will be one year or less.

Product Sales, Net

The Company’s net product sales consist of U.S. sales of NUPLAZID. NUPLAZID was approved by the FDA in April 2016 and the Company commenced shipments of NUPLAZID to specialty pharmacies (“SPs”) and specialty distributors (“SDs”) in late May 2016. SPs dispense product to a patient based on the fulfillment of a prescription and SDs sell product to government facilities, long-term care pharmacies, or in-patient hospital pharmacies. Product shipping and handling costs are included in cost of product sales.

The Company recognizes revenue from product sales at the net sales price (the “transaction price”) which includes estimates of variable consideration for which reserves are established and reflects each of these as either a reduction to the related account receivable or as an accrued liability, depending on how the amount payable is settled. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which the Company is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from estimates, the Company may need to adjust its estimates, which would affect net revenue in the period of adjustment. The following are the Company’s significant categories of sales discounts and allowances:

Distribution Fees: Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”), fees for data, and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.

Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with, or statutory requirements pertaining to, Medicaid and Medicare benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company’s estimates for expected utilization of rebates is based on historical data received from the SPs and SDs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates.

7


 

Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to the Company the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization fees for transactions through certain purchasing organizations. The Company estimates sales with these entities and accrues for anticipated chargebacks and organization fees, based on the applicable contractual terms. 

Co-Payment Assistance: The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Returns: Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages, shipment errors, and expiring product; provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SPs and SDs and has the ability to control the amount of product that is sold to the SPs and SDs, it is able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at its estimate for product returns, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

Leases

As described further in Note 10, Recent Accounting Pronouncements, the Company adopted Topic 842 as of January 1, 2019. The Company determines if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use assets, accrued liabilities, and operating lease liabilities on the Company’s Condensed Consolidated Balance Sheet. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The Company’s leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that it will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected not to apply the recognition requirements of Topic 842 for short-term leases.

3. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, employee stock purchase plan rights, restricted stock units, and warrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be anti-dilutive. The Company incurred net losses for all periods presented and there were no reconciling items for potentially dilutive securities. More specifically, at September 30, 2019 and 2018, stock options, employee stock purchase plan rights, restricted stock units, and warrants totaling approximately 20,912,000 shares and 19,775,000 shares, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive.

4. Stock-Based Compensation

The following table summarizes the total stock-based compensation expense included in the Company’s statements of operations for the periods presented (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Cost of product sales

 

$

372

 

 

$

838

 

 

$

2,344

 

 

$

3,025

 

Research and development

 

 

8,680

 

 

 

8,066

 

 

 

24,461

 

 

 

23,617

 

Selling, general and administrative

 

 

12,971

 

 

 

11,265

 

 

 

35,697

 

 

 

34,521

 

 

 

$

22,023

 

 

$

20,169

 

 

$

62,502

 

 

$

61,163

 

 

8


 

5. Balance Sheet Details

Inventory consisted of the following (in thousands):

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Raw material

 

$

1,695

 

 

$

2,477

 

Work in process

 

 

1,953

 

 

 

483

 

Finished goods

 

 

1,198

 

 

 

1,110

 

 

 

$

4,846

 

 

$

4,070

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Accrued compensation and benefits

 

$

18,540

 

 

 

17,028

 

Accrued research and development services

 

 

14,964

 

 

 

10,367

 

Accrued consulting and professional fees

 

 

14,831

 

 

 

19,325

 

Accrued sales allowances

 

 

8,182

 

 

 

5,849

 

Current portion of lease liabilities

 

 

3,889

 

 

 

 

Accrued royalties

 

 

1,917

 

 

 

1,200

 

Other

 

 

1,977

 

 

 

2,629

 

 

 

$

64,300

 

 

$

56,398

 

 

6. Investments

The carrying value and amortized cost of the Company’s investments, summarized by major security type, consisted of the following (in thousands):

 

 

 

September 30, 2019

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Corporate debt securities

 

$

108,951

 

 

$

306

 

 

$

(23

)

 

$

109,234

 

Commercial paper

 

 

189,018

 

 

 

138

 

 

 

(17

)

 

 

189,139

 

 

 

$

297,969

 

 

$

444

 

 

$

(40

)

 

$

298,373

 

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Corporate debt securities

 

$

187,371

 

 

$

39

 

 

$

(344

)

 

$

187,066

 

Commercial paper

 

 

151,774

 

 

 

 

 

 

(78

)