NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. DESCRIPTION OF BUSINESS
AMAG Pharmaceuticals, Inc., a Delaware corporation, was founded in 1981. We are a pharmaceutical company focused on bringing innovative products to patients with unmet medical needs by leveraging our development and commercial expertise to invest in and grow our pharmaceutical products and product candidates across a range of therapeutic areas. Our currently marketed products support the health of patients in the areas of hematology and maternal and women’s health, including Feraheme® (ferumoxytol injection) for intravenous use, Makena® (hydroxyprogesterone caproate injection) auto-injector, Intrarosa® (prasterone) vaginal inserts and Vyleesi® (bremelanotide injection). In addition to our approved products, our portfolio includes two product candidates, AMAG-423 (digoxin immune fab (ovine)), which is being studied for the treatment of severe preeclampsia, and ciraparantag, which is being studied as an anticoagulant reversal agent.
In December 2019, we completed a review of our product portfolio and strategy. This strategic review resulted in our intention to divest Intrarosa® (prasterone) and Vyleesi® (bremelanotide injection), as announced in January 2020. We determined that these anticipated actions did not result in the related assets meeting the criteria to be recorded as held for sale at March 31, 2020.
Throughout this Quarterly Report on Form 10-Q, AMAG Pharmaceuticals, Inc. and our consolidated subsidiaries are collectively referred to as “the Company,” “AMAG,” “we,” “us,” or “our.”
COVID-19
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption on a global scale, including in the United States, where we market our products, where our operations and employees reside and where we conduct clinical trials, as well as in Europe and other countries where we are conducting our AMAG-423 Phase 2b/3a study. The COVID-19 pandemic did not significantly impact our financial results during the three months ended March 31, 2020, but will likely impact our financial results in future periods in 2020. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. While there have been no material impairments to date, any prolonged material disruptions to our sales, supply, research and development efforts and/or operations could negatively impact the Company’s business, operations and/or financial results.
B. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments necessary for a fair statement of our financial position and results of operations for the interim periods presented. Such adjustments consisted only of normal recurring items. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
In accordance with GAAP for interim financial reports and the instructions for Form 10-Q and the rules of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. Our accounting policies are described in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “Annual Report”). Interim results are not necessarily indicative of the results of operations for the full year. These interim financial statements should be read in conjunction with our Annual Report.
Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including product sales revenue; product sales allowances and accruals; allowance for expected credit losses; marketable securities; inventory; fair value estimates used to assess impairment of long-lived assets, including goodwill and other intangible assets; debt obligations; certain accrued liabilities, including clinical trial accruals; equity-based compensation expense; and income taxes, inclusive of valuation allowances, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain or treat its impact, as well as the economic impact on local, regional and national customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ materially from these estimates.
Restricted Cash
We classified $0.5 million of our cash as restricted cash, a non-current asset on the balance sheet, as of March 31, 2020 and December 31, 2019. This amount represented the security deposit delivered to the landlord of our Waltham, Massachusetts headquarters.
Concentrations and Significant Customer Information
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, and accounts receivable. We currently hold our excess cash primarily in institutional money market funds, corporate debt securities, U.S. treasury and government agency securities and certificates of deposit. As of March 31, 2020, we did not have a material concentration in any single investment.
Our operations are located entirely within the U.S. We focus primarily on developing, manufacturing, and commercializing our products and product candidates. The following table sets forth customers who represented 10% or more of our total revenues for the three months ended March 31, 2020 and 2019:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
McKesson Corporation
|
40
|
%
|
|
37
|
%
|
|
|
|
|
AmerisourceBergen Drug Corporation
|
31
|
%
|
|
27
|
%
|
|
|
|
|
Cardinal Health
|
12
|
%
|
|
13
|
%
|
|
|
|
|
Our net accounts receivable primarily represent amounts due for products sold directly to wholesalers, distributors and specialty pharmacies. Accounts receivable for our products are recorded net of reserves for estimated chargeback obligations, prompt payment discounts and any allowance for expected credit losses. At March 31, 2020 and December 31, 2019, three customers accounted for 10% or more of our accounts receivable balances, representing approximately 87% and 85% in the aggregate of our total accounts receivable, respectively.
We are currently dependent on a single supplier for certain of our manufacturing processes, including for Feraheme drug substance (produced in two separate facilities) and a single supplier for our Makena auto-injector product. We have been and may continue to be exposed to a significant loss of revenue from the sale of our products in the event that our suppliers and/or manufacturers are not able to fulfill demand for any reason.
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”). We adopted Topic 326 effective January 1, 2020 using a modified retrospective approach. The adoption of Topic 326 did not have a material impact on our condensed consolidated financial statements and accordingly, no transition adjustment was recorded at the adoption date. Under Topic 326, we estimate expected credit losses for our trade receivables held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We also evaluate any impaired marketable securities against the new impairment model within Topic 326 to determine whether any loss or allowance for credit loss should be recorded at the reporting date.
C. REVENUE RECOGNITION
Product Revenue and Allowances and Accruals
The following table provides information about disaggregated revenue by products for the three months ended March 31, 2020 and 2019 (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Product sales, net
|
|
|
|
|
|
|
|
Feraheme
|
$
|
44,433
|
|
|
$
|
40,015
|
|
|
|
|
|
Makena
|
21,777
|
|
|
31,257
|
|
|
|
|
|
Intrarosa
|
3,169
|
|
|
4,414
|
|
|
|
|
|
Other
|
(751)
|
|
|
43
|
|
|
|
|
|
Total product sales, net
|
$
|
68,628
|
|
|
$
|
75,729
|
|
|
|
|
|
Total gross product sales were offset by product sales allowances and accruals for the three months ended March 31, 2020 and 2019 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Gross product sales
|
$
|
232,741
|
|
|
$
|
211,718
|
|
|
|
|
|
Provision for product sales allowances and accruals:
|
|
|
|
|
|
|
|
Contractual adjustments
|
143,175
|
|
|
108,884
|
|
|
|
|
|
Governmental rebates
|
20,938
|
|
|
27,105
|
|
|
|
|
|
Total
|
164,113
|
|
|
135,989
|
|
|
|
|
|
Product sales, net
|
$
|
68,628
|
|
|
$
|
75,729
|
|
|
|
|
|
The following table summarizes the product revenue allowance and accrual activity for the three months ended March 31, 2020 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
Governmental
|
|
|
|
Adjustments
|
|
Rebates
|
|
Total
|
Balance at December 31, 2019
|
$
|
95,221
|
|
|
$
|
41,319
|
|
|
$
|
136,540
|
|
Provisions related to current period sales
|
147,235
|
|
|
18,175
|
|
|
165,410
|
|
Adjustments related to prior period sales
|
(4,060)
|
|
|
2,762
|
|
|
(1,298)
|
|
Payments/returns relating to current period sales
|
(95,284)
|
|
|
—
|
|
|
(95,284)
|
|
Payments/returns relating to prior period sales
|
(37,969)
|
|
|
(29,646)
|
|
|
(67,615)
|
|
Balance at March 31, 2020
|
$
|
105,143
|
|
|
$
|
32,610
|
|
|
$
|
137,753
|
|
D. MARKETABLE SECURITIES
As of March 31, 2020 and December 31, 2019, our marketable securities consisted of securities classified as available-for-sale in accordance with accounting standards which provide guidance related to accounting and classification of certain investments in marketable securities.
The following is a summary of our marketable securities as of March 31, 2020 and December 31, 2019 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Short-term marketable securities:*
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
44,888
|
|
|
$
|
42
|
|
|
$
|
(101)
|
|
|
$
|
44,829
|
|
Certificates of deposit
|
4,800
|
|
|
—
|
|
|
—
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Total short-term marketable securities
|
$
|
50,688
|
|
|
$
|
42
|
|
|
$
|
(101)
|
|
|
$
|
50,629
|
|
Long-term marketable securities:**
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
18,858
|
|
|
$
|
29
|
|
|
$
|
(228)
|
|
|
$
|
18,659
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Total long-term marketable securities
|
$
|
19,858
|
|
|
$
|
29
|
|
|
$
|
(228)
|
|
|
$
|
19,659
|
|
Total marketable securities
|
$
|
70,546
|
|
|
$
|
71
|
|
|
$
|
(329)
|
|
|
$
|
70,288
|
|
* Represents marketable securities with a remaining maturity of less than one year.
** Represents marketable securities with a remaining maturity of one to three years classified as short-term on our condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Short-term marketable securities:*
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
46,186
|
|
|
$
|
140
|
|
|
$
|
(2)
|
|
|
$
|
46,324
|
|
U.S. treasury and government agency securities
|
2,750
|
|
|
—
|
|
|
—
|
|
|
2,750
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
Total short-term marketable securities
|
$
|
50,436
|
|
|
$
|
140
|
|
|
$
|
(2)
|
|
|
$
|
50,574
|
|
Long-term marketable securities:**
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
8,016
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
8,168
|
|
Total long-term marketable securities
|
8,016
|
|
|
152
|
|
|
—
|
|
|
8,168
|
|
Total marketable securities
|
$
|
58,452
|
|
|
$
|
292
|
|
|
$
|
(2)
|
|
|
$
|
58,742
|
|
* Represents marketable securities with a remaining maturity of less than one year.
** Represents marketable securities with a remaining maturity of one to three years classified as short-term on our condensed consolidated balance sheets.
Impairments and Unrealized Gains and Losses on Marketable Securities
We adopted Topic 326 effective January 1, 2020. Under Topic 326, we evaluate any impaired marketable securities against the new impairment model within Topic 326 to determine whether any loss or allowance for credit loss should be recorded at March 31, 2020.
We did not recognize any allowance for credit losses on our condensed consolidated statements of operations related to our marketable securities during the three months ended March 31, 2020. As of March 31, 2020, we had no losses in an unrealized loss position for more than one year. Based on the contractual terms and credit ratings of these investments, we expect to recover the entire amortized cost basis of each security. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases. We considered various factors, including the length of time that each security was in an unrealized loss position and our ability and intent to hold these securities until the recovery of their amortized cost basis occurs. Future events may occur, or additional information may become available, which may cause us to identify credit losses where we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of a security and may necessitate the recording of future realized losses on securities in our portfolio. Significant losses in the estimated fair values of our marketable securities could have a material adverse effect on our earnings in future periods.
As of March 31, 2019, we had no material losses in an unrealized loss position for more than one year and did not recognize any other-than-temporary impairment losses in our condensed consolidated statements of operations related to our marketable securities during the three months ended March 31, 2019.
E. FAIR VALUE MEASUREMENTS
The following tables present information about our assets and liabilities that we measure at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value as of March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 Using:
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
1,890
|
|
|
$
|
1,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
63,488
|
|
|
—
|
|
|
63,488
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
5,800
|
|
|
—
|
|
|
5,800
|
|
|
—
|
|
Commercial paper
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
72,178
|
|
|
$
|
1,890
|
|
|
$
|
70,288
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using:
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
13,732
|
|
|
$
|
13,732
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
54,492
|
|
|
—
|
|
|
54,492
|
|
|
—
|
|
U.S. treasury and government agency securities
|
2,750
|
|
|
—
|
|
|
2,750
|
|
|
—
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
1,500
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
72,474
|
|
|
$
|
13,732
|
|
|
$
|
58,742
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration - MuGard
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
Total liabilities
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
Cash Equivalents
Our cash equivalents are classified as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets and do not have any restrictions on redemption. As of March 31, 2020 and December 31, 2019, cash equivalents were primarily comprised of funds in money market accounts.
Marketable Securities
Our marketable securities are classified as Level 2 assets under the fair value hierarchy as the values of these assets are primarily determined from independent pricing services, which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based upon other significant observable market transactions. At the end of each reporting period, we perform quantitative and qualitative analysis of prices received from third parties to determine whether prices are reasonable estimates of fair value. After completing our analysis, we did not adjust or override any fair value measurements provided by our pricing services as of March 31, 2020. In addition, there were no transfers or reclassifications of any securities between Level 1 and Level 2 during the three months ended March 31, 2020.
Debt
We estimate the fair value of our debt obligations using quoted market prices obtained from third-party pricing services, which are classified as Level 2 inputs. As of March 31, 2020, the estimated fair value of our 2022 Convertible Notes (as defined below) was $247.7 million, which differed from its carrying value. See Note Q, “Debt” for additional information on our debt obligations.
F. INVENTORIES
Our major classes of inventories were as follows as of March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Raw materials
|
$
|
8,438
|
|
|
$
|
5,211
|
|
Work in process
|
5,131
|
|
|
6,248
|
|
Finished goods
|
20,107
|
|
|
20,094
|
|
Total inventories
|
$
|
33,676
|
|
|
$
|
31,553
|
|
G. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Computer equipment and software
|
$
|
1,568
|
|
|
$
|
1,568
|
|
Furniture and fixtures
|
1,714
|
|
|
1,714
|
|
Leasehold improvements
|
4,985
|
|
|
4,984
|
|
Laboratory and production equipment
|
6,278
|
|
|
6,570
|
|
Construction in progress
|
236
|
|
|
656
|
|
|
14,781
|
|
|
15,492
|
|
Less: accumulated depreciation
|
(11,469)
|
|
|
(11,376)
|
|
Property and equipment, net
|
$
|
3,312
|
|
|
$
|
4,116
|
|
H. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
During the first quarter, as a result of a number of business factors, including our market capitalization being below our carrying value and the potential impact of the COVID-19 pandemic, we performed a qualitative interim impairment assessment of our goodwill balance as of March 31, 2020. We determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying value and therefore, did not perform a quantitative interim impairment test as of March 31, 2020. Our qualitative assessment was based on management’s estimates and assumptions, a number of which are dependent on external factors, including the severity and duration of the COVID-19 pandemic. To the extent actual results differ materially from these estimates and we experience further negative developments in subsequent periods, interim impairment assessments could be required, which could result in an impairment of goodwill.
Intangible Assets
As of March 31, 2020 and December 31, 2019, our intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Cumulative
|
|
|
|
|
|
Accumulated
|
|
Cumulative
|
|
|
|
Cost
|
|
Amortization
|
|
Impairments
|
|
Net
|
|
Cost
|
|
Amortization
|
|
Impairments
|
|
Net
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Makena auto-injector developed technology
|
$
|
79,100
|
|
|
$
|
17,755
|
|
|
$
|
55,426
|
|
|
$
|
5,919
|
|
|
$
|
79,100
|
|
|
$
|
15,782
|
|
|
$
|
55,426
|
|
|
$
|
7,892
|
|
Intrarosa developed technology
|
77,655
|
|
|
18,786
|
|
|
56,881
|
|
|
1,988
|
|
|
77,655
|
|
|
16,798
|
|
|
56,881
|
|
|
3,976
|
|
Vyleesi developed technology
|
60,000
|
|
|
15,140
|
|
|
38,984
|
|
|
5,876
|
|
|
60,000
|
|
|
9,264
|
|
|
38,984
|
|
|
11,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
$
|
216,755
|
|
|
$
|
51,681
|
|
|
$
|
151,291
|
|
|
$
|
13,783
|
|
|
$
|
216,755
|
|
|
$
|
41,844
|
|
|
$
|
151,291
|
|
|
$
|
23,620
|
|
As of March 31, 2020, the weighted average remaining amortization period for our finite-lived intangible assets was less than one year. Total amortization expense for the three months ended March 31, 2020 and 2019 was $9.8 million and $3.9 million, respectively. Amortization expense is recorded in cost of product sales on our condensed consolidated statements of operations. We expect our finite-lived intangible assets to be fully amortized in 2020.
I. CURRENT LIABILITIES
Accrued expenses consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Commercial rebates, fees and returns
|
$
|
117,854
|
|
|
$
|
118,427
|
|
Manufacturing costs
|
17,014
|
|
|
21,364
|
|
Salaries, bonuses, and other compensation
|
16,356
|
|
|
18,693
|
|
Professional, license, and other fees and expenses
|
10,232
|
|
|
13,392
|
|
Research and development expense
|
2,270
|
|
|
3,539
|
|
Interest expense
|
3,467
|
|
|
867
|
|
Restructuring expense
|
468
|
|
|
797
|
|
Total accrued expenses
|
$
|
167,661
|
|
|
$
|
177,079
|
|
J. INCOME TAXES
The following table summarizes our effective tax rate and income tax expense (benefit) for the three months ended March 31, 2020 and 2019 (in thousands except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Effective tax rate
|
—
|
%
|
|
—
|
%
|
|
|
|
|
Income tax expense (benefit)
|
$
|
100
|
|
|
$
|
(137)
|
|
|
|
|
|
For the three months ended March 31, 2020, we recognized an immaterial income tax expense, representing an effective tax rate of 0%. The difference between the statutory federal tax rate of 21% and the effective tax rate of 0% for the three months ended March 31, 2020, was primarily attributable to the valuation allowance established against our current period losses generated. We have established a valuation allowance on our deferred tax assets to the extent that our existing taxable temporary differences would not be available as a source of income to realize the benefits of those deferred tax assets. The income tax expense for the three months ended March 31, 2020 primarily related to state income taxes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law making several changes to the Internal Revenue Code. The changes include, but are not limited to, temporarily increasing the limitation on the amount of deductible interest expense, allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax
Cuts and Jobs Act, allowing companies to carryback certain net operating losses, and temporarily increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income. The tax law changes in the CARES Act did not have a material impact on our income tax provision.
For the three months ended March 31, 2019, we recognized an immaterial income tax benefit, representing an effective tax rate of 0%. The income tax benefit for the three months ended March 31, 2019 primarily related to state taxes and the offset of the recognition of the income tax expense recorded in other comprehensive loss associated with the increase in the fair value of the available-for-sale debt securities that we carried at fair market value during the period. The difference between the statutory federal tax rate of 21% and the effective tax rate of 0% for the three months ended March 31, 2019 was primarily attributable to the valuation allowance established against our current period losses generated and the non-deductible IPR&D expense related to the Perosphere acquisition.
K. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in the accumulated balances of other comprehensive loss during the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Beginning balance
|
$
|
(3,239)
|
|
|
$
|
(3,985)
|
|
|
|
|
|
Holding (losses) gains associated with marketable securities arising during period, net of tax
|
(548)
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
$
|
(3,787)
|
|
|
$
|
(3,376)
|
|
|
|
|
|
L. EARNINGS PER SHARE
The components of basic and diluted earnings per share for the three months ended March 31, 2020 and 2019 were as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(24,491)
|
|
|
$
|
(122,084)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
34,104
|
|
|
34,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(0.72)
|
|
|
$
|
(3.54)
|
|
|
|
|
|
The following table sets forth the potential common shares issuable upon the exercise of outstanding options, the vesting of restricted stock units (“RSUs”), and the conversion of the 2022 Convertible Notes, which were excluded from our computation of diluted net loss per share because their inclusion would have been anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
Options to purchase shares of common stock
|
4,013
|
|
|
3,946
|
|
Shares of common stock issuable upon the vesting of RSUs
|
1,608
|
|
|
1,720
|
|
2022 Convertible Notes
|
11,695
|
|
|
11,695
|
|
Total
|
17,316
|
|
|
17,361
|
|
M. EQUITY-BASED COMPENSATION
We currently maintain three equity compensation plans; our 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by our stockholders at our 2019 annual meeting and replaced our Fourth Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”), the Lumara Health Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Lumara Health 2013 Plan”) and our 2015 Employee Stock Purchase Plan (“2015 ESPP”). All outstanding stock options granted under each of our equity compensation plans other than our 2015 ESPP have an exercise price equal to the closing price of a share of our common stock on the grant date.
Stock Options
The following table summarizes stock option activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2007
|
|
Lumara Health
|
|
Inducement
|
|
|
|
Plan
|
|
Plan
|
|
2013 Plan
|
|
Grants
|
|
Total
|
Outstanding at December 31, 2019
|
472,412
|
|
|
2,585,466
|
|
|
131,775
|
|
|
696,164
|
|
|
3,885,817
|
|
Granted
|
228,650
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
228,650
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expired or terminated
|
(35,600)
|
|
|
(113,530)
|
|
|
(2,988)
|
|
|
(32,598)
|
|
|
(184,716)
|
|
Outstanding at March 31, 2020
|
665,462
|
|
|
2,471,936
|
|
|
128,787
|
|
|
663,566
|
|
|
3,929,751
|
|
Restricted Stock Units
The following table summarizes RSU activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2007
|
|
Lumara Health
|
|
Inducement
|
|
|
|
Plan
|
|
Plan
|
|
2013 Plan
|
|
Grants
|
|
Total
|
Outstanding at December 31, 2019
|
128,742
|
|
|
1,407,305
|
|
|
2,167
|
|
|
41,223
|
|
|
1,579,437
|
|
Granted
|
647,029
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
647,029
|
|
Vested
|
—
|
|
|
(402,993)
|
|
|
(366)
|
|
|
(2,001)
|
|
|
(405,360)
|
|
Expired or terminated
|
(6,200)
|
|
|
(204,161)
|
|
|
—
|
|
|
(3,001)
|
|
|
(213,362)
|
|
Outstanding at March 31, 2020
|
769,571
|
|
|
800,151
|
|
|
1,801
|
|
|
36,221
|
|
|
1,607,744
|
|
Equity-Based Compensation Expense
Equity-based compensation expense for the three months ended March 31, 2020 and 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Cost of product sales
|
$
|
203
|
|
|
$
|
202
|
|
|
|
|
|
Research and development
|
70
|
|
|
680
|
|
|
|
|
|
Selling, general and administrative
|
3,512
|
|
|
3,325
|
|
|
|
|
|
Total equity-based compensation expense
|
3,785
|
|
|
4,207
|
|
|
|
|
|
Income tax effect
|
—
|
|
|
—
|
|
|
|
|
|
After-tax effect of equity-based compensation expense
|
$
|
3,785
|
|
|
$
|
4,207
|
|
|
|
|
|
In addition to the equity-based compensation expense presented in the table above, we incurred $0.7 million of equity-based compensation expense related to the restructuring activities during the first quarter of 2019, (as discussed further in Note R, below), which is classified within restructuring expense on our condensed consolidated statement of operations for the three months ended March 31, 2019.
N. STOCKHOLDERS’ EQUITY
As of January 1, 2020, we had $26.8 million available under the share repurchase program initially approved by our Board of Directors in January 2016, which was updated in March 2019 to permit the repurchase of up to an aggregate of $80.0 million in shares of our common stock. During the three months ended March 31, 2020, we did not repurchase shares of common stock under this program. As of March 31, 2020, $26.8 million remains available for future repurchases under this program.
O. COMMITMENTS AND CONTINGENCIES
Commitments
Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. These include commitments related to our facility and vehicle leases, purchases of inventory, debt obligations, and other purchase obligations.
Operating Lease Obligations
As of March 31, 2020, we had operating lease liabilities of $23.5 million and related right-of-use assets of $22.8 million related to operating leases for real estate, including our corporate headquarters, vehicles and office equipment. As of March 31, 2020, our leases have remaining terms of one to eight years. The weighted average remaining lease term and discount rate for our operating leases was 7.7 years and 5.1% at March 31, 2020, respectively.
Lease costs for our operating leases were $1.3 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively. Operating cash outflows for operating leases were $1.2 million for each of the three months ended March 31, 2020 and 2019, respectively.
Future minimum payments under our non-cancelable operating leases as of March 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
Period
|
Future Minimum Lease Payments
|
Remainder of Year Ending December 31, 2020
|
$
|
3,076
|
|
Year Ending December 31, 2021
|
3,357
|
|
Year Ending December 31, 2022
|
3,898
|
|
Year Ending December 31, 2023
|
3,261
|
|
Year Ending December 31, 2024
|
3,246
|
|
Thereafter
|
12,192
|
|
Total
|
$
|
29,030
|
|
Less: Interest
|
5,532
|
|
Operating lease liability
|
$
|
23,498
|
|
Purchase Obligations
Purchase obligations primarily represent minimum purchase commitments for inventory. As of March 31, 2020, our minimum purchase commitments totaled $99.2 million.
Contingent Regulatory and Commercial Milestone Payments
We are required to make payments contingent on the achievement of certain regulatory and/or commercial milestones under the terms of our collaboration, license and other strategic agreements. Please refer to Note P, “Acquisitions, Collaboration, License and Other Strategic Agreements” for additional details regarding these contingent payments.
Contingencies
Legal Proceedings
We accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change,
changes in our accrued liabilities would be recorded in the period in which such determination is made. For certain matters referenced below, the liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of material loss is at least reasonably possible, we will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, we will provide disclosure to that effect. We expense legal costs as they are incurred.
On November 6, 2019, we were served with a summons in a case filed in the U.S. District Court, Northern District of Ohio, captioned Civil Case in Saginaw Chippewa Indian Tribe v. Purdue Pharma et al (Case No. 1-19-op-45841). The complaint names K-V Pharmaceutical Company (“KV”) (Lumara Health’s predecessor company), certain of its successor entities, subsidiaries and affiliate entities as defendants, along with over forty other pharmaceutical companies. We acquired Lumara Health in November 2014, a year after KV emerged from bankruptcy protection, at which time it and its then-existing subsidiaries became our wholly-owned subsidiaries. The plaintiff in this action alleges that KV’s subsidiary, Ethex Corporation (as well as the other pharmaceutical companies named in the complaint), manufactured, promoted, sold, and distributed opioids, including a generic version of morphine. Defendants KV and Ethex Corporation were dismissed without prejudice from this Chippewa case pursuant to an order dated March 26, 2020. KV and Ethex were also named but not served in several other similar cases and were dismissed without prejudice from these other cases by orders dated March 26, 2020.
On November 1, 2019, we were named as a defendant in a class action lawsuit filed in the United States District Court for the Western District of Missouri, captioned Barnes v. AMAG Pharmaceuticals, Inc., Case No. 3:19-cv-05088-RK (W.D. Mo.). Subsequently, other plaintiffs represented by the same law firm filed similar class action lawsuits in other jurisdictions, and the lawsuits have been consolidated in the United States District Court for the District of New Jersey, Zamfirova et al. v. AMAG Pharmaceuticals, Inc., Case No. 20-00152-JMV-SCM (April 2, 2020). The plaintiffs in this action, on behalf of themselves and purported state-wide classes of similarly situated consumers in California, Kansas, Missouri, New Jersey, New York, and Wisconsin, assert claims for violation of state consumer protection laws and unjust enrichment based on allegations that we and/or our predecessor companies made misrepresentations and omissions regarding the effectiveness of Makena in connection with the sale and marketing of that product from 2011 through the present. Because this case is at the earliest stage, we are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On August 29, 2019, Lunar Representative, LLC (“Plaintiff”), on behalf of the former equity holders of Lumara Health Inc. (“Lumara”), filed a complaint against us in the Delaware Court of Chancery, captioned Lunar Representative, LLC v. AMAG Pharmaceuticals, Inc. (No. 2019-0688-JTL). On September 25, 2019, we filed a motion to dismiss the complaint. On January 9, 2020, Plaintiff filed an amended complaint. Plaintiff alleges that we did not exercise commercially reasonable efforts to market and sell the drug product Makena, and failed to achieve sales milestones for Makena, in breach of certain provisions of the September 28, 2014 Agreement and Plan of Merger between, among other parties, us and Lumara. Plaintiff filed an amended complaint on January 9, 2020. On January 24, 2020, we filed a motion to dismiss the amended complaint and filed our opening brief in support of such motion to dismiss the amended complaint on April 14, 2020. Plaintiff is seeking damages of $50.0 million, together with pre- and post-judgment interest, as well as attorneys’ fees and costs. At this time, based on available information, we are unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.
On or about April 6, 2016, we received Notice of a Lawsuit and Request to Waive Service of a Summons in a case entitled Plumbers’ Local Union No. 690 Health Plan v. Actavis Group et. al. (“Plumbers’ Union”), which was filed in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania and, after removal to federal court, is now pending in the United States District Court for the Eastern District of Pennsylvania (Civ. Action No. 16-65-AB). Thereafter, we were also made aware of a related complaint entitled Delaware Valley Health Care Coalition v. Actavis Group et. al. (“Delaware Valley”), which was filed with the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania District Court of Pennsylvania (Case ID: 160200806). The complaints name K-V Pharmaceutical Company (“KV”) (Lumara Health’s predecessor company), certain of its successor entities, subsidiaries and affiliate entities (the “Subsidiaries”), along with a number of other pharmaceutical companies. We acquired Lumara Health in November 2014, a year after KV emerged from bankruptcy protection, at which time it, along with its then existing subsidiaries, became our wholly-owned subsidiary. We have not been served with process or waived service of summons in either case. The actions are being brought alleging unfair and deceptive trade practices with regard to certain pricing practices that allegedly resulted in certain payers overpaying for certain of KV’s generic products. On July 21, 2016, the Plaintiff in the Plumbers’ Union case dismissed KV with prejudice to refiling and on October 6, 2016, all claims against the Subsidiaries were dismissed without prejudice. We are in discussions with Plaintiff’s counsel to similarly dismiss all claims in the Delaware Valley case. Because we have not been served with process in the Delaware Valley case, we are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On July 20, 2015, the Federal Trade Commission (the “FTC”) notified us that it is conducting an investigation into whether Lumara Health or its predecessor engaged in unfair methods of competition with respect to Makena or any
hydroxyprogesterone caproate product. As previously disclosed, we provided the FTC with a response in August 2015. We believe we have fully cooperated with the FTC and we have had no further interactions with the FTC on this matter since we provided our response to the FTC in August 2015. For further information on this matter, see Note P, “Commitments and Contingencies” to our Annual Report.
We may periodically become subject to other legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which we are focused. Other than the above actions, we are not aware of any material claims against us as of March 31, 2020.
P. ACQUISITIONS, COLLABORATION, LICENSE AND OTHER STRATEGIC AGREEMENTS
During the three months ended March 31, 2020, we were a party to the following collaboration, license or other strategic agreements:
Perosphere
On January 16, 2019, we acquired Perosphere pursuant to the Agreement and Plan of Merger (the “Perosphere Agreement”), dated as of December 12, 2018 between AMAG and Perosphere. We accounted for this transaction as an asset acquisition under ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”).
Under and subject to the terms and conditions set forth in the Perosphere Agreement, we are obligated to pay future contingent consideration of up to an aggregate of $365.0 million (the “Milestone Payments”), including (a) up to an aggregate of $140.0 million that becomes payable upon the achievement of specified regulatory milestones for ciraparantag (the “Regulatory Milestone Payments”), including a $40.0 million milestone payment upon approval of ciraparantag by the European Medicines Agency and (b) up to an aggregate of $225.0 million that becomes payable conditioned upon the achievement of specified sales milestones (the “Sales Milestone Payments”). If the final label approved for ciraparantag in the U.S. includes a boxed warning, the Regulatory Milestone Payments shall no longer be payable, and any previously paid Regulatory Milestone Payments shall be credited against 50% of any future Milestone Payments that otherwise becomes payable. The first sales milestone payment of $20.0 million will be payable upon annual net sales of ciraparantag of at least $100.0 million.
Velo
In September 2018, we exercised our option to acquire the global rights to the AMAG-423 program, pursuant to an option agreement entered into in July 2015 with Velo Bio, LLC (“Velo”), the terms of which were amended at the time of exercise. We accounted for this transaction as an asset acquisition under ASU No. 2017-01. Under the terms of the agreement, we are obligated to pay Velo a $30.0 million milestone payment upon FDA approval of AMAG-423. In addition, we are obligated to pay sales milestone payments to Velo of up to $240.0 million in the aggregate, triggered at various annual net sales thresholds between $300.0 million and $900.0 million and low-single digit royalties based on net sales. Further, we have assumed additional obligations under a previous agreement entered into by Velo with a third-party, including a $5.0 million milestone payment upon regulatory approval and $10.0 million following the first commercial sale of AMAG-423, payable in quarterly installments as a percentage of quarterly gross commercial sales until the obligation is met. We are also obligated to pay the third-party low-single digit royalties based on net sales.
Antares
We are party to a development and license agreement (the “Antares License Agreement”) with Antares Pharma, Inc. (“Antares”), which grants us an exclusive, worldwide, royalty-bearing license, with the right to sublicense, to certain intellectual property rights, including know-how, patents and trademarks, to develop, use, sell, offer for sale and import and export the Makena auto-injector. Under the terms of the Antares License Agreement, as amended in March 2018, we are responsible for the clinical development and preparation, submission and maintenance of all regulatory applications in each country where we desire to market and sell the Makena auto-injector, including the U.S. We are required to pay royalties to Antares on net sales of the Makena auto-injector until the Antares License Agreement is terminated (the “Antares Royalty Term”). The royalty rates range from high single digit to low double digits and are tiered based on levels of net sales of the Makena auto-injector and decrease after the expiration of licensed patents or where there are generic equivalents to the Makena auto-injector being sold in a particular country. In addition, we are required to pay Antares sales milestone payments upon the achievement of certain annual net sales. The Antares License Agreement terminates at the end of the Antares Royalty Term, but is subject to early termination by us for convenience and by either party upon an uncured breach by or bankruptcy of the other
party. In March 2018, the Antares License Agreement was amended to, among other things, transfer the agreement to AMAG from our subsidiary, amend certain confidentiality provisions, and to provide for co-termination with the Antares Manufacturing Agreement (described below).
We are also party to a Manufacturing Agreement with Antares (the “Antares Manufacturing Agreement”) that sets forth the terms and conditions pursuant to which Antares agreed to sell to us on an exclusive basis, and we agreed to purchase, the fully packaged Makena auto-injector for commercial distribution. Antares remains responsible for the manufacture and supply of the device components and assembly of the Makena auto-injector. We are responsible for the supply of the drug to be used in the assembly of the finished auto-injector product. The Antares Manufacturing Agreement terminates at the expiration or earlier termination of the Antares License Agreement, but is subject to early termination by us for certain supply failure situations, and by either party upon an uncured breach by or bankruptcy of the other party or our permanent cessation of commercialization of the Makena auto-injector for efficacy or safety reasons.
Endoceutics
In February 2017, we entered into the Endoceutics License Agreement with Endoceutics, Inc. (“Endoceutics”) to obtain an exclusive right to commercialize Intrarosa for the treatment of vulvar and vaginal atrophy (“VVA”) and FSD in the United States. We have agreed to use commercially reasonable efforts to market, promote and otherwise commercialize Intrarosa for the treatment of VVA. The transactions contemplated by the Endoceutics License Agreement closed on April 3, 2017. We accounted for the Endoceutics License Agreement as an asset acquisition under ASU 2017-01.
Upon the closing of the Endoceutics License Agreement, we made an upfront payment of $50.0 million and issued 600,000 shares of unregistered common stock to Endoceutics, which had a value of $13.5 million, as measured on April 3, 2017, the date of closing. In addition, we paid Endoceutics $10.0 million in the third quarter of 2017 upon the delivery by Endoceutics of Intrarosa launch quantities and $10.0 million in 2018 following the first anniversary of the closing. In the second quarter of 2017, we recorded a total of $83.5 million of consideration, of which $77.7 million was allocated to the Intrarosa developed technology intangible asset and $5.8 million was recorded as IPR&D expense based on their relative fair values. In 2019, we recorded impairment charges of $56.9 million to reduce the carrying value of the asset group containing the Intrarosa developed technology intangible asset to its estimated fair value based on our intention to divest Intrarosa in 2020.
Under the terms of the Endoceutics License Agreement, we pay tiered royalties to Endoceutics equal to a percentage of net sales of Intrarosa in the U.S. ranging from mid-teens to mid twenty percent. Endoceutics is also eligible to receive certain sales milestone payments up to an aggregate of $895.0 million, including a first sales milestone payment of $15.0 million, which would be triggered when Intrarosa annual net U.S. sales exceed $150.0 million.
In April 2017, we entered into an exclusive commercial supply agreement with Endoceutics pursuant to which Endoceutics, itself or through affiliates or contract manufacturers, agreed to manufacture and supply Intrarosa to us (the “Endoceutics Supply Agreement”) and is our exclusive supplier of Intrarosa in the U.S., subject to certain rights for us to manufacture and supply Intrarosa in the event of a cessation notice or supply failure (as such terms are defined in the Endoceutics Supply Agreement). The Endoceutics Supply Agreement will generally remain in effect until the termination of the Endoceutics License Agreement.
The Endoceutics License Agreement expires on the date of expiration of all royalty obligations due thereunder unless earlier terminated in accordance with the Endoceutics License Agreement.
Palatin
In January 2017, we entered into a license agreement with Palatin Technologies, Inc. (“Palatin”) under which we acquired (a) an exclusive license in all countries of North America (the “Palatin Territory”), with the right to grant sub-licenses, to research, develop and commercialize the Vyleesi Products, (b) a worldwide non-exclusive license, with the right to grant sub-licenses, to manufacture the Vyleesi Products, and (c) a non-exclusive license in all countries outside the Palatin Territory, with the right to grant sub-licenses, to research and develop (but not commercialize) the Vyleesi Products (the “Palatin License Agreement”). The transaction closed in February 2017 and was accounted for as an asset acquisition under ASU 2017-01.
Under the terms of the Palatin License Agreement, in February 2017 we paid Palatin $60.0 million as a one-time upfront payment and subject to agreed-upon deductions reimbursed Palatin approximately $25.0 million for reasonable, documented, out-of-pocket expenses incurred by Palatin in connection with the development and regulatory activities necessary to submit an NDA in the U.S. for Vyleesi for the treatment of HSDD in pre-menopausal women. The $60.0 million upfront payment made in February 2017 to Palatin was recorded as IPR&D expense as the product candidate had not received regulatory approval. In June 2018, our NDA submission to the FDA for Vyleesi was accepted, which triggered a $20.0 million milestone payment, which we paid in the second quarter of 2018 and recorded as an IPR&D expense in the first quarter of 2018 when acceptance
was deemed probable. In June 2019, the FDA approval of Vyleesi triggered a $60.0 million milestone payment to Palatin, which we paid in July 2019 and recorded as a developed technology intangible asset in the second quarter of 2019. During the fourth quarter of 2019, we recorded impairment charges of $39.0 million to reduce the carrying value of the asset group containing the Vyleesi developed technology intangible asset to its estimated fair value based on our intention to divest Vyleesi in 2020.
In addition, the Palatin License Agreement requires us to make contingent payments of up to $300.0 million of aggregate sales milestone payments upon the achievement of certain annual net sales milestones over the course of the license. The first sales milestone payment of $25.0 million will be triggered when Vyleesi annual net sales exceed $250.0 million. We are also obligated to pay Palatin tiered royalties on annual net sales of the Vyleesi Products, on a product-by-product basis, in the Palatin Territory ranging from the high-single digits to the low double-digits. After the expiration of the applicable royalties for any Vyleesi Product in a given country, the license for such Vyleesi Product in such country would become a fully paid-up, royalty-free, perpetual and irrevocable license. The Palatin License Agreement expires on the date of expiration of all royalty obligations due thereunder, unless earlier terminated in accordance with the Palatin License Agreement.
Q. DEBT
Our outstanding debt obligations as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):
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|
|
|
|
|
|
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|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
2022 Convertible Notes
|
$
|
281,038
|
|
|
$
|
277,034
|
|
Total long-term debt
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281,038
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|
|
277,034
|
|
Less: current maturities
|
—
|
|
|
—
|
|
Long-term debt, net of current maturities
|
$
|
281,038
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|
|
$
|
277,034
|
|
Convertible Notes
The outstanding balance of our 2022 Convertible Notes as of March 31, 2020 consisted of the following (in thousands):
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|
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|
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|
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2022 Convertible Notes
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Liability component:
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Principal
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$
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320,000
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Less: debt discount and issuance costs, net
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38,962
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|
|
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|
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Net carrying amount
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|
$
|
281,038
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|
|
|
|
|
Gross equity component
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|
$
|
72,576
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|
|
|
|
|
|
|
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|
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|
In accordance with accounting guidance for debt with conversion and other options, we separately account for the liability and equity components of our 2022 Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option (the “Equity Component”) due to our ability to settle the 2022 Convertible Notes in cash, common stock or a combination of cash and common stock, at our option. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt. The Equity Component of the 2022 Convertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2022 Convertible Notes and the fair value of the liability of the 2022 Convertible Notes on the date of issuance. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense using the effective interest method over five years. The Equity Component is not remeasured as long as it continues to meet the conditions for equity classification.
2022 Convertible Notes
In the second quarter of 2017, we issued $320.0 million aggregate principal amount of convertible senior notes due in 2022 (the “2022 Convertible Notes”) and received net proceeds of $310.4 million from the sale of the 2022 Convertible Notes, after deducting fees and expenses of $9.6 million. The approximate $9.6 million of debt issuance costs primarily consisted of underwriting, legal and other professional fees, and we allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $9.6 million of debt issuance costs, $2.2 million was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $7.4 million was allocated to the liability component and is now recorded as a reduction of the 2022 Convertible Notes on our condensed consolidated balance sheets. The portion allocated to the liability component is amortized to interest expense using the effective interest method over five years.
The 2022 Convertible Notes are governed by the terms of an indenture between us, as issuer, and Wilmington Trust, National Association, as the trustee. The 2022 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.25% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2017. The 2022 Convertible Notes will mature on June 1, 2022, unless earlier repurchased or converted. Upon conversion of the 2022 Convertible Notes, such 2022 Convertible Notes will be convertible into, at our election, cash, shares of our common stock, or a combination thereof, at a conversion rate of 36.5464 shares of common stock per $1,000 principal amount of the 2022 Convertible Notes, which corresponds to an initial conversion price of approximately $27.36 per share of our common stock.
The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends. At any time prior to the close of business on the business day immediately preceding March 1, 2022, holders may convert their 2022 Convertible Notes at their option only under the following circumstances:
1)during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
2)during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2022 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or
3)upon the occurrence of specified corporate events.
On or after March 1, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their 2022 Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The 2022 Convertible Notes were not convertible as of March 31, 2020.
We determined the expected life of the debt was equal to the five-year term on the 2022 Convertible Notes. The effective interest rate on the liability component was 9.49% for the period from the date of issuance through March 31, 2020. As of March 31, 2020, the “if-converted value” did not exceed the remaining principal amount of the 2022 Convertible Notes.
2019 Convertible Notes
In February 2014, we issued $200.0 million aggregate principal amount of the 2019 Convertible Notes. During 2017, we entered into privately negotiated transactions with certain investors to repurchase approximately $178.5 million aggregate principal amount of the 2019 Convertible Notes for an aggregate repurchase price of approximately $192.7 million, including accrued interest. The remaining $21.4 million of 2019 Convertible Notes matured on February 15, 2019 and were settled with cash.
Convertible Notes Interest Expense
The following table sets forth total interest expense recognized related to the Convertible Notes during the three months ended March 31, 2020 and 2019 (in thousands):
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Three Months Ended March 31,
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2020
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2019
|
|
|
|
|
Contractual interest expense
|
$
|
2,600
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|
|
$
|
2,667
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|
|
|
|
|
Amortization of debt issuance costs
|
370
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|
|
354
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|
|
|
|
|
Amortization of debt discount
|
3,634
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|
|
3,429
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|
|
|
|
|
Total interest expense
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$
|
6,604
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|
|
$
|
6,450
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|
|
|
|
|
Future Payments
Future annual principal payments on our long-term debt as of March 31, 2020 include $320.0 million due during the year ending December 31, 2022.
R. RESTRUCTURING EXPENSES
In February 2019, we completed a restructuring to combine our women’s health and maternal health sales forces into one integrated sales team, which promotes Intrarosa, the Makena auto-injector and Vyleesi. Approximately 110 employees were displaced through this workforce reduction. We recorded one-time restructuring charges of $7.4 million primarily related to severance and related benefits on our condensed consolidated statement of operations during the first quarter of 2019. The remaining accrued restructuring charges incurred under this program will be paid in cash by the end of the first quarter of 2021.
The following table displays a rollforward of the changes to the accrued balances as of March 31, 2020 (in thousands):
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|
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|
|
|
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|
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Workforce reduction
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|
Contract termination
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|
Other
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Total
|
Balance accrued at December 31, 2019
|
$
|
797
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
797
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|
Payments
|
(329)
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|
|
|
—
|
|
|
|
—
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|
|
(329)
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|
Balance accrued at March 31, 2020
|
$
|
468
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
468
|
|
S. RECENTLY ISSUED AND PROPOSED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by us as of the specified effective date. There were no applicable accounting pronouncements issued but not adopted as of March 31, 2020.
T. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We adopted ASU 2016-13 effective January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted ASU 2019-12 effective January 1, 2020. The adoption of ASU 2019-12 did not have a material impact on our condensed consolidated financial statements.
U. SUBSEQUENT EVENTS
In May 2020, we announced a restructuring to reduce the size of our organization in conjunction with the divestiture of Intrarosa and Vyleesi and expected declines in our revenue due to the COVID-19 pandemic. Approximately 30 percent of the workforce is being displaced through this workforce reduction. We expect to record a one-time restructuring charge of approximately $8.0 million primarily related to severance and related benefits in the second quarter of 2020 and expect the workforce reduction to be substantially completed by the end of the second quarter of 2020.