UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____________ to _____________
Commission file number 001-37569
Strongbridge Biopharma plc
(Exact name of Registrant as specified in its charter)
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Ireland |
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98-1275166 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
900 Northbrook Drive
Suite 200
Trevose, PA 19053
(Address of principal executive offices)
Registrant’s Telephone Number, Including Area Code: +1 610-254-9200
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of each class: |
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Trading Symbol(s) |
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Name of each exchange on which registered: |
Ordinary shares, par value $0.01 per share |
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SBBP |
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The Nasdaq Global Select Market |
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
☐ |
Accelerated Filer |
☐ |
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Non-Accelerated Filer |
☒ |
Smaller Reporting Company |
☒ |
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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 ☒
As of May 10, 2021, there were 67,588,878 ordinary shares of the registrant issued and outstanding.
TABLE OF CONTENTS
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Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 |
1 |
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2 |
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3 |
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Consolidated Statements of Cash Flow for the Three Months Ended March 31, 2021 and 2020 |
4 |
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5 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
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24 |
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26 |
Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are referred to without the ® and ™ symbols, but absence of such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. The trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STRONGBRIDGE BIOPHARMA plc
Consolidated Balance Sheets
(In thousands, except share and per share data)
(unaudited)
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March 31, |
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December 31, |
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2021 |
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2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
73,898 |
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$ |
87,522 |
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Accounts receivable |
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2,846 |
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2,801 |
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Inventory |
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1,007 |
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1,103 |
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Prepaid expenses and other current assets |
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1,913 |
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|
926 |
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Total current assets |
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79,664 |
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92,352 |
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Property and equipment, net |
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205 |
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216 |
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Right-of-use asset, net |
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544 |
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597 |
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Intangible asset, net |
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18,832 |
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20,088 |
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Goodwill |
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7,256 |
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7,256 |
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Other assets |
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1,549 |
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|
591 |
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Total assets |
$ |
108,050 |
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$ |
121,100 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
5,738 |
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$ |
1,483 |
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Accrued and other current liabilities |
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16,238 |
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19,648 |
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Total current liabilities |
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21,976 |
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21,131 |
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Long-term debt, net |
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17,399 |
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17,114 |
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Warrant liability |
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5,715 |
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4,941 |
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Supply agreement liability, noncurrent |
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6,471 |
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11,556 |
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Other long-term liabilities |
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642 |
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753 |
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Total liabilities |
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52,203 |
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55,495 |
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Commitments and contingencies (Note 8) |
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Shareholders’ equity: |
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Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at March 31, 2021 and December 31, 2020 |
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44 |
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44 |
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Ordinary shares, $0.01 par value, 600,000,000 shares authorized; 67,545,369 and 67,243,772 shares issued and outstanding at March 31, 2021 and December 31, 2020 |
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675 |
|
|
672 |
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Additional paid-in capital |
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372,500 |
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370,447 |
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Accumulated deficit |
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(317,372) |
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(305,558) |
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Total shareholders’ equity |
|
55,847 |
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65,605 |
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Total liabilities and shareholders’ equity |
$ |
108,050 |
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$ |
121,100 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
STRONGBRIDGE BIOPHARMA plc
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(unaudited)
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Three Months Ended |
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March 31, |
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2021 |
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2020 |
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Total revenues |
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$ |
8,382 |
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$ |
6,674 |
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Cost and expenses: |
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Cost of sales (excluding amortization of intangible asset) |
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411 |
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969 |
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Selling, general and administrative |
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10,946 |
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10,403 |
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Research and development |
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5,839 |
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7,552 |
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Amortization of intangible asset |
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1,256 |
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1,256 |
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Total cost and expenses |
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18,452 |
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20,180 |
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Operating loss |
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(10,070) |
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(13,506) |
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Other (expense) income, net: |
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Interest expense |
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(782) |
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— |
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Unrealized (loss) gain on fair value of warrants |
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(774) |
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580 |
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Other (expense) income, net |
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(188) |
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228 |
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Total other (expense) income, net |
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(1,744) |
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808 |
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Loss before income taxes |
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(11,814) |
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(12,698) |
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Income tax benefit (expense) |
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— |
|
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— |
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Net loss |
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(11,814) |
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(12,698) |
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Other comprehensive loss: |
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Unrealized gain on marketable securities |
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— |
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3 |
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Comprehensive loss |
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$ |
(11,814) |
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$ |
(12,695) |
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Net loss attributable to ordinary shareholders: |
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Basic |
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$ |
(11,814) |
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$ |
(12,698) |
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Diluted |
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$ |
(11,814) |
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$ |
(13,278) |
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Net loss per share attributable to ordinary shareholders: |
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Basic |
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$ |
(0.18) |
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$ |
(0.23) |
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Diluted |
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$ |
(0.18) |
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$ |
(0.24) |
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Weighted-average shares used in computing net loss per share attributable to ordinary shareholders: |
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Basic |
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67,375,383 |
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54,231,024 |
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Diluted |
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67,375,383 |
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54,444,681 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
STRONGBRIDGE BIOPHARMA plc
Consolidated Statement of Shareholders’ Equity
(In thousands, except share amounts)
(unaudited)
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Additional |
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Accumulated Other |
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Total |
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Deferred Shares |
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Ordinary Shares |
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Paid-In |
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Accumulated |
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Comprehensive |
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Shareholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Equity |
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Balance—December 31, 2019 |
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40,000 |
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$ |
44 |
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54,205,852 |
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$ |
542 |
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$ |
332,085 |
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$ |
(260,483) |
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3 |
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$ |
72,191 |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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(12,698) |
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— |
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(12,698) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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1,751 |
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— |
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— |
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1,751 |
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Ordinary shares issued, net of shares withheld for employee taxes |
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— |
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— |
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41,649 |
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* |
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(68) |
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— |
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— |
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(68) |
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Unrealized gain on marketable securities |
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— |
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— |
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— |
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— |
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— |
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— |
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3 |
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3 |
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Balance—March 31, 2020 |
|
40,000 |
|
$ |
44 |
|
54,247,501 |
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$ |
542 |
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$ |
333,768 |
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$ |
(273,181) |
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6 |
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$ |
61,179 |
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Balance—December 31, 2020 |
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40,000 |
|
|
44 |
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67,243,772 |
|
|
672 |
|
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370,447 |
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(305,558) |
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— |
|
|
65,605 |
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Net loss |
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— |
|
|
— |
|
— |
|
|
— |
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— |
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(11,814) |
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— |
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(11,814) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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|
2,277 |
|
|
— |
|
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— |
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2,277 |
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Common stock issued, net of shares withheld for employee taxes |
|
— |
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— |
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242,129 |
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3 |
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(400) |
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— |
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— |
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(397) |
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Exercise of stock options |
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— |
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— |
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48,157 |
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* |
|
|
138 |
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|
— |
|
|
— |
|
|
138 |
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Issuance of shares, net of expenses |
|
— |
|
|
— |
|
11,311 |
|
|
* |
|
|
38 |
|
|
— |
|
|
— |
|
|
38 |
|
Balance—March 31, 2021 |
|
40,000 |
|
$ |
44 |
|
67,545,369 |
|
$ |
675 |
|
$ |
372,500 |
|
$ |
(317,372) |
|
|
— |
|
$ |
55,847 |
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|
|
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* Represents an amount less than $1.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
STRONGBRIDGE BIOPHARMA plc
Consolidated Statements of Cash Flow
(In thousands)
(unaudited)
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Three Months Ended |
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March 31, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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|
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|
|
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Net loss |
|
$ |
(11,814) |
|
$ |
(12,698) |
|
Adjustments to reconcile net loss income to net cash used in operating activities: |
|
|
|
|
|
|
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Stock-based compensation |
|
|
2,277 |
|
|
1,751 |
|
Amortization of intangible asset |
|
|
1,256 |
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|
1,256 |
|
Change in fair value of warrant liability |
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|
774 |
|
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(580) |
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Amortization of debt discounts and debt issuance costs |
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|
285 |
|
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— |
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Accretion of discounts on marketable securities |
|
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— |
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(48) |
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Depreciation |
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21 |
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21 |
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Changes in operating assets and liabilities: |
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|
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Accounts receivable |
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(45) |
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(401) |
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Inventory |
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(865) |
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|
101 |
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Prepaid expenses and other current assets |
|
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(987) |
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|
79 |
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Other assets |
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|
55 |
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|
266 |
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Accounts payable |
|
|
4,256 |
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|
1,954 |
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Accrued and other liabilities |
|
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(8,606) |
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(6,941) |
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Net cash used in operating activities |
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(13,393) |
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(15,240) |
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Cash flows from investing activities: |
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Sales and maturities of marketable securities |
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— |
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14,830 |
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Purchases of property and equipment |
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(10) |
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— |
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Net cash (used in) provided by investing activities |
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(10) |
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14,830 |
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Cash flows from financing activities: |
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|
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Payments related to tax withholding for net-share settled equity awards |
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(397) |
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(68) |
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Proceeds from exercise of stock options |
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|
138 |
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|
— |
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Proceed from issuance of ordinary shares in connection with at-the-market offering, net |
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38 |
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|
— |
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Net cash used in financing activities |
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(221) |
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(68) |
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Net decrease in cash and cash equivalents |
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(13,624) |
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(478) |
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Cash and cash equivalents—beginning of period |
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|
87,522 |
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|
57,032 |
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Cash and cash equivalents—end of period |
|
$ |
73,898 |
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$ |
56,554 |
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Supplemental disclosures of cash flow information: |
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Cash paid during the year for: |
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Interest |
|
$ |
499 |
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$ |
— |
|
Income taxes other, net of refunds |
|
$ |
1,301 |
|
$ |
— |
|
Supplemental non-cash financing activities: |
|
|
|
|
|
|
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Changes in unrealized gain on marketable securities |
|
$ |
— |
|
$ |
3 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
STRONGBRIDGE BIOPHARMA plc
Notes to Unaudited Consolidated Financial Statements
1. Organization
We are a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs.
Our first commercial product is Keveyis (dichlorphenamide), the first and only treatment approved by the U.S. Food and Drug Administration (the “FDA”) for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis (“PPP”), a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis.
We have two clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole), the pure 2S,4R enantiomer of the enantiomeric pair comprising ketoconazole, is a next-generation steroidogenesis inhibitor being investigated as a chronic therapy for adults with endogenous Cushing’s syndrome. Veldoreotide is a next-generation somatostatin analog being investigated for potential applications in conditions amenable to somatostatin receptor activation. Both levoketoconazole and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”)
Liquidity
We believe that our cash and cash equivalents of $73.9 million at March 31, 2021, will be sufficient to allow us to fund planned operations for at least 12 months beyond the issuance date of these unaudited consolidated financial statements.
We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital. We plan to continue to fund our operations and capital funding needs through equity or debt financing along with revenues from Keveyis. There can be no assurances, however, that additional funding will be available on terms acceptable to us.
2. Summary of significant accounting policies and basis of presentation
Basis of presentation
These unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). The unaudited consolidated financial statements reflect all adjustments, which include only normal recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the operating results and financial position for the periods presented.
The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures in the consolidated financial statements. Actual results could differ from those estimates. Results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
These unaudited consolidated financial statements should be read in conjunction with the accounting policies and notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission on March 3, 2021 (the “2020 Annual Report”). Our significant accounting policies are described in Note 2 of the notes to the audited consolidated financial statements included in our 2020 Annual Report. Since the date of those financial statements, there have been no changes to our significant accounting policies.
5
Leases
We account for leases in accordance with Accounting Standards Codification Topic 842, Leases (“ASC 842”). We determine if an arrangement is a lease at contract inception. A lease exists when a contract conveys to us the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) we have the right to control the use of the identified asset.
Operating leases where we are the lessee are included in Right of use (“ROU”) assets and Accrued and other current liabilities and Other long-term liabilities on our Consolidated Balance Sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.
Key estimates and judgments include how we determined (1) the discount rate we use to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.
ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
The lease term for all of our leases includes the noncancellable period of the lease. Lease payments included in the measurement of the lease asset or liability are comprised of our fixed payments.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date less any lease incentives received.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We monitor for events or changes in circumstances that require a reassessment of a lease. If a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
We have elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. We recognize the lease payments associated with our short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all of our other leases.
Cash, cash equivalents and marketable securities
We consider all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of account balances at banks and money market accounts, respectively.
We occasionally invest our excess cash balances in marketable debt securities of highly rated financial institutions. We seek to diversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. We classify marketable debt securities as available-for-sale and, accordingly, record such securities at fair value. We classify these securities as current assets as these investments are
6
available to us for use in funding current operations. There were no marketable securities as of March 31, 2021 nor December 31, 2020.
Unrealized gains and losses on marketable debt securities are recorded as a separate component of Accumulated other comprehensive income (loss) included in stockholders’ equity.
Segment information
Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions on how to allocate resources and assess performance. We view our operations and manage our business in one operating segment.
Net loss per share
Basic net loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss attributable to shareholders by the weighted-average number of ordinary shares outstanding for the period, including any dilutive effect from outstanding stock options or other equity-based instruments. Shares used in the diluted net loss per share calculations exclude anti-dilutive ordinary share equivalents, which currently consist of outstanding stock options, unvested restricted stock units (“RSUs”), equity-classified warrants and the conversion feature in our outstanding term loan agreement.
The following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding for the periods ending March 31, 2021 and 2020, as they would be anti-dilutive:
Due to the gain on the revaluation of warrants for the three months ended March 31, 2020, our warrants that we issued in connection with our private equity placement, were included in the dilutive calculation, therefore excluded from the table above.
Recent accounting pronouncements – not yet adopted
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded through net income instead of directly reducing the amortized cost of the investment under the current other-than-temporary impairment model. For smaller reporting companies, the standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.
3. Revenue recognition
Product sales, net
We sell Keveyis to one specialty pharmacy provider (the “Customer”), who is the exclusive distributor of Keveyis in the United States. The Customer subsequently resells Keveyis to patients, most of whom are covered by
7
payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of Keveyis.
Revenues from sales of Keveyis are recognized when we satisfy a performance obligation by transferring control of the product to the Customer. Transfer of control occurs upon receipt of the product by the Customer. We expense incremental costs related to the set-up of contracts with the Customer when incurred, as these costs do not meet the criteria for capitalization.
Reserves for variable consideration
Revenues from sales of Keveyis are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and that result from rebates, co-pay assistance and other allowances that are offered between us and the patients’ payors. There is no variable consideration reserve for returns as we do not accept returns of Keveyis. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the Customer) or a current liability (if the amount is payable to a party other than the Customer). Where appropriate, these estimates may take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted buying and payment patterns of the Customer. Overall, these reserves reflect our best estimates of the amount of consideration to which we are 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 our estimates. We reassess our estimates on an ongoing basis. If actual results in the future vary from our estimates, we will adjust our estimates. Any such adjustments would affect net product revenue and earnings in the period such variances become known.
Trade Discount: We provide the Customer with a discount that is explicitly stated in our contract and is recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, we receive sales order management, data and distribution services from the Customer. To the extent the services received are distinct from our sale of Keveyis to the Customer, these payments are classified in selling, general and administrative expenses in our consolidated statement of operations and comprehensive loss.
Funded Co-pay Assistance Program: We contract with a third-party to manage the co-pay assistance program intended to provide financial assistance to qualified insured patients. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with Keveyis that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. These payments are consideration payable to the Customer and the related reserve is recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the consolidated balance sheet.
Government Rebates: We are subject to discount obligations under state Medicaid programs and Medicare. We estimate our Medicaid and Medicare rebates for the estimated patient mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses on the consolidated balance sheet. For Medicaid, accruals are based on estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. Manufacturers of pharmaceutical products are responsible for 70% of the patient’s cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this Medicare coverage gap responsibility, we estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for Keveyis transactions that have been recognized as revenue but remain in the Customer’s inventory at the end of each reporting period.
Temporary Supply and Patient Assistance Programs: We provide free Keveyis to uninsured patients who satisfy pre-established criteria for either the Temporary Supply Program or the Patient Assistance Program. Patients who meet
8
the Temporary Supply Program eligibility criteria may receive a temporary supply of free Keveyis for no more than 60 days while there is a determination of the patient’s third-party insurance, prescription drug benefit or other third-party coverage for Keveyis. The Patient Assistance Program provides free Keveyis for up to 12 months to uninsured patients who satisfy pre-established criteria for financial need. We do not recognize any revenue related to these free products and the associated costs are classified in selling, general and administrative expenses in our consolidated statements of operations and comprehensive loss.
4. Fair value measurements
We record financial assets and liabilities at fair value. Because of their short-term nature, the amounts reported in the balance sheet for cash, accounts receivable and accounts payable approximate fair value.
The guidance requires fair value measurements to maximize the use of “observable inputs.” The three-level hierarchy of inputs to measure fair value are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Because of their short-term nature, the amounts reported in the balance sheet for cash and accounts payable approximate fair value.
Level 2: Significant observable inputs other than Level 1 prices such as quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The fair values of the outstanding warrants were measured using the Black-Scholes option-pricing model. Inputs used to determine estimated fair value of the warrant liabilities include the estimated term of the warrants, risk-free interest rates, and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the volatility rate and the estimated term of the warrants. Generally, increases and decreases in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.
We did not have any transfers between the different levels.
The following table presents our assets and liabilities that are measured at fair value on a recurring basis for the periods presented (in thousands):
9
The following table presents a reconciliation of our level 3 warrant liability (in thousands):
5. Intangible asset and goodwill
The following represents the balance of our intangible asset and goodwill as follows (in thousands):
Our finite-lived intangible asset consists of acquired developed product rights obtained from our acquisition of Keveyis (dichlorphenamide) from a subsidiary of Taro Pharmaceutical Industries Ltd. (“Taro”).
Pursuant to the terms of the Asset Purchase Agreement and Supply Agreement that we entered into with Taro in December 2016, we paid Taro an upfront payment in two installments of $1 million in December 2016 and $7.5 million in March 2017, and will pay an aggregate of $7.5 million in potential milestone payments upon the achievement of certain product sales targets. Taro has agreed to continue to manufacture Keveyis for us under an exclusive supply agreement through the orphan exclusivity period. We are obligated to purchase certain annual minimum amounts of product totaling approximately $29 million over a six-year period. We have concluded that the supply price payable by us exceeds fair value and, therefore, have used a discounted cash flow method with a probability assumption to value the payments in excess of fair value at $29.3 million, for which we have recorded an intangible asset and corresponding liability. This liability is being reduced as we purchase inventory over the term of the Supply Agreement that we entered into with Taro. In addition, we incurred transaction costs of $2.4 million. The transaction resulted in the recording of an intangible asset of $40.2 million. This asset is being amortized over an eight-year period using the straight-line method.
We recorded amortization expense of $1.3 million for the three months ended March 31, 2021 and 2020.
6. Long-term debt
On May 19, 2020, we entered into a $30 million Term Loan Agreement (the “Loan Agreement”) with Avenue Venture Opportunities Fund L.P. (“Avenue”), as administrative agent and collateral agent, and the lenders named therein and from time to time a party thereto (the “Lenders”). Pursuant to the terms of the Loan Agreement, our wholly-owned subsidiary Strongbridge U.S. Inc. (the “Borrower”) borrowed $10 million (the “Initial Loan”) from the Lenders at closing. As a result of achieving positive top-line data for Recorlev in our Phase 3 LOGICS clinical trial in September 2020, we borrowed an additional $10 million under the Loan Agreement (the “Second Loan”), on December 30, 2020. The remaining $10 million tranche (the “Third Loan”) will become available to us between October 1, 2021 and March 31, 2022 if we achieve FDA approval of Recorlev and subject to Avenue’s investment committee approval.
The Loan Agreement has a four-year term, no minimum revenue or cash balance financial covenants and an interest-only period for 24 months that can increase to 36 months assuming we receive FDA approval of Recorlev. Amounts borrowed under the Loan Agreement accrue interest at a floating rate per annum (based on a year of 365 days) equal to the sum of (a) the greater of (x) the Prime Rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, and (y) 3.25%, plus (b) 6.75%. The interest rate as of March 31, 2021 was 10%.
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We paid a commitment fee of $200,000 (1% of the amounts of the Initial Loan and the Second Loan) at closing. We are also required to pay the Lenders a final payment fee upon repayment or prepayment of any loans made under the Loan Agreement in accordance with the terms and conditions of the Loan Agreement.
Under the terms of the Loan Agreement, we may prepay all or a portion of the outstanding principal amount of any loans outstanding under the Loan Agreement at any time upon prior notice to the Lenders subject to a prepayment premium (which reduces after the first year) and the payment of the pro rata portion of the final payment fee (to the extent not already paid) based on the amount of loans being prepaid. In certain circumstances, including a change of control and certain asset sales or licensing transactions, we may be required to prepay all or a portion of loans outstanding, and, to the extent required under the terms of the Loan Agreement, the applicable prepayment premium and final payment fee.
As security for our obligations under the Loan Agreement, we entered into a security agreement with Avenue, pursuant to which we granted a lien on substantially all of our assets, including intellectual property, to the Secured Parties (as such term is defined in the Loan Agreement).
Avenue has the right to convert up to $3 million of the aggregate principal amount of any loans outstanding under the Loan Agreement into ordinary shares at a price per share of $2.24. We have accounted for this term as a beneficial conversion feature, and the fair value is recorded in Additional paid-in capital. This amount is recorded as a debt discount and classified as a contra-liability on the consolidated balance sheet and amortized to interest expense over the term of the loan.
In connection with the execution of both the Loan Agreement and the Second Loan, we issued to Avenue warrants to purchase up to an aggregate of 267,390 ordinary shares at an exercise price (the “Exercise Price”) of $1.87 (which is equal to the five-day volume weighted average price as of the trading day immediately prior to execution of the financing agreement) for each of the tranches of debt, respectively. The warrants are exercisable, in full or in part, at any time prior to five years following the issue date for both tranches of the loan. We have accounted for these warrants as equity, and the fair value is recorded into Additional paid-in capital. This amount is recorded as a debt discount and classified as a contra-liability on the consolidated balance sheet and amortized to interest expense over the term of the loan. If we borrow the Third Loan, we will be required to issue to the Lenders or their designees additional warrants to purchase ordinary shares equal to an aggregate of 5% of the Third Loan divided by the Exercise Price, rounded down to the nearest whole share.
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Future principal payments due under the Loan Agreement, if the interest payment only period is not extended beyond the current 24-month period, are as follows (in thousands):
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|
|
|
|
|
Principal |
|
|
|
|
Payments |
|
|
|
|
|
|
|
2021 |
|
$ |
— |
|
2022 |
|
|
5,833 |
|
2023 |
|
|
10,000 |
|
2024 |
|
|
4,167 |
|
Total future payments |
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$ |
20,000 |
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7. Accrued and other current liabilities
Accrued and other current liabilities consist of the following (in thousands):
8. Commitments and contingencies
(a) Commitments to Taro Pharmaceuticals Industries Ltd.
As of March 31, 2021, our remaining obligation under the Supply Agreement (see note 5) was $14.1 million. The agreement with Taro may extend beyond the orphan exclusivity period unless terminated by either party pursuant to the terms of the agreement. If terminated by Taro at the conclusion of the orphan exclusivity period, we have the right to manufacture the product on our own or have the product manufactured by a third party on our behalf. We are also required to reimburse Taro for its royalty obligation resulting from its sale of Keveyis to us.
(b) Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often agree to indemnify our counterparties against certain liabilities that may arise in connection with a transaction or that are related to events and activities prior to or following a transaction, such as breaches of contracts, unfavorable tax consequences and employee liabilities. If a counterparty were to make a successful indemnification claim against us, we may be required to reimburse the loss and such amount could be material to our consolidated financial statements. Where appropriate, the obligation for such indemnifications is recorded as a liability. Because these agreements generally do not specify the maximum amount of indemnification a counterparty may be entitled to, the overall maximum amount of our potential indemnification liability under these agreements cannot be reasonably estimated. However, we believe that the likelihood of a material liability being triggered under these indemnification obligations is not probable at this time.
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9. Taxes
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized.
We assess our ability to realize deferred tax assets. Changes in future earnings projections, among other factors, may cause us to adjust our valuation allowance on deferred tax assets. Any such adjustments would impact our income tax expense in the period in which it is determined that these factors have changed.
We did not incur income any tax expense for the three months ended March 31, 2021 and 2020.
10. Ordinary Shares
Equity transactions
We entered into an equity distribution agreement with JMP Securities LLC (“JMP”) on April 28, 2017, pursuant to which we could sell, at our option, from time to time, up to an aggregate of $40 million of our ordinary shares through JMP, as sales agent. The agreement provided for a commission to JMP equal to 3% of the gross proceeds from the sale of our ordinary shares under this at-the-market (“ATM”) facility. Pursuant to the terms of the equity distribution agreement, we reimbursed JMP for certain out-of-pocket expenses, including the fees and disbursements of counsel to JMP, incurred in connection with establishing the ATM facility and provided JMP with customary indemnification rights. During the three months ended March 31, 2021, we sold an aggregate of 11,311 ordinary shares under the ATM facility at an average selling price of $3.36 per share, resulting in net proceeds of approximately $38,000 after payment of fees to JMP of $1,100. This equity distribution agreement was terminated on March 24, 2021.
We entered into an equity distribution agreement with Jefferies LLC (“Jefferies”) on March 25, 2021, pursuant to which we may sell, at our option, from time to time, up to an aggregate of $50 million of our ordinary shares through Jefferies, as sales agent. We will pay Jefferies a commission equal to 3% of the gross proceeds from the sale of our ordinary shares under ATM facility. Pursuant to the terms of the equity distribution agreement, we reimbursed Jefferies for certain out-of-pocket expenses, including the fees and disbursements of counsel to Jefferies, incurred in connection with establishing the ATM facility and have provided Jefferies with customary indemnification rights. During the three months ended March 31, 2021, we did not sell any shares under this agreement.
13
Warrants
Our outstanding warrants as of March 31, 2021 are as follows:
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|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
Exercise |
|
Expiration |
|
Warrants |
|
Warrants |
|
March 31, |
|
|
|
|
Classification |
|
Price |
|
Date |
|
Issued |
|
Exercised |
|
2021 |
|
|
Warrants in connection with private equity placement |
|
Liability |
|
$ |
2.50 |
|
6/28/2022 |
|
7,000,000 |
|
(1,970,000) |
|
5,030,000 |
|
Warrants in connection with Horizon and Oxford loan agreement |
|
Equity |
|
$ |
2.45 |
|
12/28/2026 |
|
428,571 |
|
(267,857) |
|
160,714 |
|
Warrants in connection with CRG loan agreement |
|
Equity |
|
$ |
7.37 |
|
7/14/2024 |
|
394,289 |
|
— |
|
394,289 |
|
Warrants in connection with CRG loan amendment in January 2018 |
|
Equity |
|
$ |
10.00 |
|
1/16/2025 |
|
1,248,250 |
|
— |
|
1,248,250 |
|
Warrants in connection with Avenue Capital loan agreement |
|
Equity |
|
$ |
1.87 |
|
5/19/2025 |
|
267,390 |
|
— |
|
267,390 |
|
Warrants in connection with Avenue Capital loan agreement |
|
Equity |
|
$ |
1.87 |
|
12/30/2025 |
|
267,390 |
|
— |
|
267,390 |
|
|
|
|
|
|
|
|
|
|
9,605,890 |
|
|
|
7,368,033 |
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11. Stock-based compensation
Our board of directors has adopted the 2017 Inducement Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of equity-based awards to new employees. The purpose of the Inducement Plan is to attract valued employees by offering them a greater stake in our success and a closer identity with us, and to encourage ownership of our ordinary shares by such employees. The Inducement Plan became effective on February 23, 2017. As of March 31, 2021, 1,349,603 shares are available for issuance pursuant to the Inducement Plan.
Our board of directors has adopted, and our shareholders have approved, the 2015 Equity Compensation Plan (the “2015 Plan”). The 2015 Plan provides for the grant of incentive stock options to our employees and any parent or subsidiary corporation’s employees, and for the grant of nonstatutory stock options, stock awards, and RSUs to our employees, directors and consultants and our parent or subsidiary corporations’ employees and consultants. The 2015 Plan became effective on September 3, 2015. As of March 31, 2021, 2,056,084 shares are available for issuance pursuant to the 2015 Plan.
Our board of directors has adopted, and our shareholders have approved, the Non-Employee Director Equity Compensation Plan (the “Non-Employee Director Plan”). The Non-Employee Director Plan provides for the grant of nonstatutory stock options, stock awards, and RSUs to our non-employee directors. The Non-Employee Director Plan became effective on September 3, 2015. As of March 31, 2021, 407,247 shares are available for issuance pursuant to the Non-Employee Director Plan.
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A summary of our outstanding stock options as of March 31, 2021 is as follows:
The weighted average grant date fair value of stock options granted during the three months ended March 31, 2021 and 2020 was $2.46 and $2.01, respectively.
Restricted stock units
We grant RSUs to employees and to members of our board of directors. RSUs that are granted to employees vest two years from the date of issuance, provided that the employee is employed by us on such vesting date. RSUs that are granted to directors, vest on the one-year anniversary of the grant date, provided that the director continues to serve as a member of the board of directors continuously from the grant date through such one-year anniversary. All RSUs will fully vest upon a change of control of our company. If and when the RSUs vest, we will issue one ordinary share for each whole RSU that has vested, subject to satisfaction of the employee’s or director’s tax withholding obligations. The RSUs will cease to be outstanding upon the issuance of ordinary shares upon vesting. We recorded expense related to RSUs, which is included in the stock-based compensation table below, of $1.2 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the total unrecognized compensation expense related to unvested RSUs is $6.5 million, which we expect to recognize over an estimated weighted-average period of 1.41 years.
A summary of our unvested RSUs as of March 31, 2021 is as follows:
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|
|
|
|
Number of |
|
|
|
Shares |
|
Outstanding—January 1, 2021 |
|
1,350,300 |
|
Granted |
|
2,204,525 |
|
Forfeited |
|
(156,500) |
|
Vested |
|
(355,150) |
|
Unvested—March 31, 2021 |
|
3,043,175 |
|
15
Stock-based compensation expense
We recognized stock-based compensation expense for employees and directors for stock options and RSUs as follows (in thousands):
As of March 31, 2021, the total unrecognized compensation expense related to unvested stock options is $5.6 million, which we expect to recognize over an estimated weighted-average period of 2.04 years.
In determining the estimated fair value of our service-based awards, we use the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment. The fair value of our service-based awards that were granted during the three months period ending March 31, 2021 and 2020 was estimated with the following assumptions:
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our interim unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on 10-Q (this “Quarterly Report”) and the audited financial statements and related notes for the year ended December 31, 2020 and related Management’s Discussion and Analysis of Financial Condition and Results of Operations that are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 3, 2021. As used in this Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” or “Strongbridge” refer to Strongbridge Biopharma plc.
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, prospective products, size of market or patient population, plans, objectives of management, expected market growth and the anticipated effects of the coronavirus (COVID-19) pandemic on our business, operating results and financial condition are forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
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By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our 2020 Annual Report and Part II, Item 1A of this Quarterly Report, in each case under the heading “Risk Factors.” In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report except as required by law. You should read carefully the factors described in the “Risk Factors” section of our 2020 Annual Report and this Quarterly Report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.
Overview
We are a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs.
Our first commercial product is Keveyis (dichlorphenamide), the first and only treatment approved by the U.S. Food and Drug Administration (the “FDA”) for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis (“PPP”), a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis.
We have two clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole), the pure 2S,4R enantiomer of the enantiomeric pair comprising ketoconazole, is a next-generation steroidogenesis inhibitor being investigated as a chronic therapy for adults with endogenous Cushing’s syndrome. Veldoreotide is a next-generation somatostatin analog being investigated for potential applications in conditions amenable to somatostatin receptor activation. Both levoketoconazole and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).
Recent Developments
We have received a notice of allowance, dated April 22, 2021, from the United States Patent and Trademark Office relating to patent application 17/010,387 (entitled “Methods of Treating Disease with Levoketoconazole”). The patent application covers a method of treating Cushing’s syndrome patients with Recorlev who also have Type 2 diabetes. We expect the notice of allowance to result in the issuance of a U.S. patent after administrative processes are completed.
We have submitted our NDA for Recorlev with the FDA.
COVID-19
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in the financial markets.
While the COVID-19 pandemic did not have a material impact on our business, financial condition or results of operations for the three months ended March 31, 2021, we have experienced operational business disruptions as a result
17
of the outbreak. For example, most of our corporate employees are currently working remotely from home, we have suspended all commercial air and train travel for business, and any other employee travel is done in accordance with state and local guidelines. In addition, our field teams have had limited access to physicians.
We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will last or to what degree further disruption might impact our operations and financial results. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, as well as our ability to execute our business strategies and initiatives in their respective expected time frames.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
Product Sales, net
We sell Keveyis to one specialty pharmacy provider (the “Customer”), who is the exclusive specialty pharmacy for Keveyis in the United States. The Customer subsequently dispenses Keveyis to patients, most of whom are covered by payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of Keveyis. Revenues from sales of Keveyis are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and that result from rebates, co-pay assistance and other allowances that are offered by us and the patients’ payors.
Cost of Sales
Cost of sales includes third-party acquisition costs, third-party warehousing and product distribution charges.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include personnel costs, costs for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, benefits, travel and stock-based compensation. Outside professional services consist of legal, accounting and audit services, commercial evaluation and strategy services, sales, market access, marketing, investor relations, public relations, recruiting and other consulting services.
Research and Development Expenses
We expense all research and development costs as incurred. Our research and development expenses consist primarily of costs incurred in connection with the development of our product candidates, including:
● | personnel-related costs, such as salaries, bonuses, benefits, travel and other related expenses, including stock-based compensation; |
● | expenses incurred under our agreements with contract research organizations (CROs), clinical sites, contract laboratories, medical institutions and consultants that plan and conduct our preclinical studies and clinical trials. We recognize costs for each grant project, preclinical study or clinical trial that we conduct based on our evaluation of the progress to completion, including the use of information and data provided to us by our external research and development vendors and clinical sites; |
● | costs associated with regulatory filings; and |
● | costs of acquiring preclinical study and clinical trial materials, and costs associated with formulation, process development and statistical analysis. |
18
We do not allocate personnel-related research and development costs, including stock-based compensation or other indirect costs, to specific programs, as they are deployed across multiple projects under development.
Amortization of Intangible Asset
Amortization of intangible asset relates to the amortization of our product rights to Keveyis. This intangible asset is being amortized over an eight-year period using the straight-line method.
Interest Expense
Interest expense represents interest paid to our lender, amortization of our debt discount, and issuance costs associated with loan and security agreements.
Other (Expense) Income, Net
Other (expense) income, net, consists of unrealized loss or gain on the remeasurement of the fair value of the warrant liability, interest income generated from our cash, cash equivalents and marketable securities, foreign exchange gains and losses and gains and losses on investments.
Critical Accounting Policies and Significant Judgments and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe there have been no significant changes in our critical accounting policies and significant judgments and estimates as discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Annual Report.
19
Results of Operations
Comparison of the Three Months Ended March 31, 2021 and 2020.
The following table sets forth our results of operations for the three months ended March 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
||||
|
|
March 31, |
|
Change |
|
|||||
|
|
2021 |
|
2020 |
|
$ |
|
|||
|
|
(in thousands) |
|
|||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
Net product sales |
|
$ |
8,382 |
|
$ |
6,674 |
|
$ |
1,708 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses: |
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding amortization of intangible asset) |
|
$ |
411 |
|
$ |
969 |
|
$ |
(558) |
|
Selling, general and administrative |
|
|
10,946 |
|
|
10,403 |
|
|
543 |
|
Research and development |
|
|
5,839 |
|
|
7,552 |
|
|
(1,713) |
|
Amortization of intangible asset |
|
|
1,256 |
|
|
1,256 |
|
|
— |
|
Total cost and expenses |
|
|
18,452 |
|
|
20,180 |
|
|
(1,728) |
|
Operating loss |
|
|
(10,070) |
|
|
(13,506) |
|
|
3,436 |
|
Other (expense) income, net |
|
|
(1,744) |
|
|
808 |
|
|
(2,552) |
|
Loss before income taxes |
|
|
(11,814) |
|
|
(12,698) |
|
|
884 |
|
Income tax benefit (expense) |
|
|
— |
|
|
— |
|
|
— |
|
Net loss |
|
$ |
(11,814) |
|
$ |
(12,698) |
|
$ |
884 |
|
Revenues and cost of sales
Net product sales were $8.4 million for the three months ended March 31, 2021, an increase of $1.7 million compared to the three months ended March 31, 2020. Product sales from Keveyis increased primarily due to an increase in the number of patients on Keveyis and an increase in price. Cost of sales decreased due to changes in the assumptions underlying the allocation between the purchase price of our inventory and the supply agreement.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses during the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
||||
|
|
March 31, |
|
Change |
|
|||||
|
|
2021 |
|
2020 |
|
$ |
|
|||
|
|
(in thousands) |
|
|||||||
Compensation and other personnel costs |
|
$ |
5,206 |
|
$ |
5,185 |
|
$ |
21 |
|
Outside professional and consulting services |
|
|
3,847 |
|
|
3,780 |
|
|
67 |
|
Stock-based compensation expense |
|
|
1,719 |
|
|
1,270 |
|
|
449 |
|
Facility costs |
|
|
174 |
|
|
168 |
|
|
6 |
|
Total selling, general and administrative expenses |
|
$ |
10,946 |
|
$ |
10,403 |
|
$ |
543 |
|
Selling, general and administrative expenses were $10.9 million for the three months ended March 31, 2021, an increase of $0.5 million compared to the three months ended March 31, 2020, primarily due to an increase in our noncash stock-based compensation expense.
20
Research and Development Expenses
The following table summarizes our research and development expenses during the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
||||
|
|
March 31, |
|
Change |
|
|||||
|
|
2021 |
|
2020 |
|
$ |
|
|||
|
|
(in thousands) |
|
|||||||
Product development and supporting activities |
|
$ |
3,873 |
|
$ |
5,537 |
|
$ |
(1,664) |
|
Compensation and other personnel costs |
|
|
1,408 |
|
|
1,534 |
|
|
(126) |
|
Stock-based compensation expense |
|
|
558 |
|
|
481 |
|
|
77 |
|
Total research and development expenses |
|
$ |
5,839 |
|
$ |
7,552 |
|
$ |
(1,713) |
|
Research and development expenses were $5.8 million for the three months ended March 31, 2021, a decrease of $1.7 million compared to the three months ended March 31, 2020. The decrease was primarily due to decreases in costs associated with our LOGICS and OPTICS trials offset by increases in regulatory costs associated with our NDA submission during the three months ended March 31, 2021.
Amortization of Intangible Asset
Amortization of intangible asset was $1.3 million for the three months ended March 31, 2021 and 2020.
Other Income (Expense), Net
The following table summarizes our other income, net, during the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
||||
|
|
March 31, |
|
Change |
|
|||||
|
|
2021 |
|
2020 |
|
$ |
|
|||
|
|
(in thousands) |
|
|||||||
Unrealized (loss) gain on fair value of warrants |
|
$ |
(774) |
|
$ |
580 |
|
$ |
(1,354) |
|
Interest expense |
|
|
(782) |
|
|
— |
|
|
(782) |
|
Other (expense) income, net |
|
|
(188) |
|
|
228 |
|
|
(416) |
|
Total other (expense) income, net |
|
$ |
(1,744) |
|
$ |
808 |
|
$ |
(2,552) |
|
Total other expense, net was $1.7 million in for the three months ended March 31, 2021 compared to other income, net of $0.8 million in 2020. This $2.6 million change was largely due to the net $1.3 million impact from the revaluation of the fair value of our warrant liability mostly due to the change in our stock price and an additional $0.8 million in interest expense on our Term Loan Agreement which we entered into in May 2020.
Income Tax
We did not incur any income tax expense for the three months ended March 31, 2021 and 2020.
21
Cash Flows
Comparison for the Three Months Ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
||||
|
|
March 31 |
|
||||
|
|
2021 |
|
2020 |
|
||
|
|
(in thousands) |
|
||||
Net cash (used in) provided by: |
|
|
|
|
|
|
|
Operating activities |
|
$ |
(13,393) |
|
$ |
(15,240) |
|
Investing activities |
|
|
(10) |
|
|
14,830 |
|
Financing activities |
|
|
(221) |
|
|
(68) |
|
Net decrease in cash and cash equivalents |
|
$ |
(13,624) |
|
$ |
(478) |
|
Operating Activities
Net cash used in operating activities was $13.4 million for the three months ended March 31, 2021 compared to $15.2 million for the three months ended March 31, 2020. The decrease in net cash used in operating activities resulted primarily from an increase of $1.7 million in net revenues.
Investing Activities
Net cash used in investing activities was insignificant for the three months ended March 31, 2021 compared to proceeds of $14.8 million for the three months ended March 31, 2020. The decrease is due to the sale of marketable securities during 2020. We did not hold marketable securities during 2021.
Financing Activities
The increase in net cash used in financing activities was due to payments related to tax withholding of net share settled equity awards offset by stock option exercises and sales of shares under our ATM facility.
Liquidity and Capital Resources
We continuously and critically review our liquidity and anticipated capital requirements in light of our clinical trial activities and the significant uncertainty created by the COVID-19 global pandemic.
We believe that our cash and cash equivalents of $73.9 million at March 31, 2021 will be sufficient to allow us to fund planned operations for at least 12 months beyond the issuance date of the unaudited consolidated financial statements.
Cash used to fund operating expenses is affected by the timing of when we make payments to our vendors, as reflected in the change in our outstanding accounts payable and accrued expenses set forth in the consolidated financial statements, included in this Quarterly Report.
Our future funding requirements will depend on many factors, including the following:
● | the amount of revenue that we receive from sales of Keveyis; |
● | the cost and timing of establishing sales, marketing, distribution and administrative capabilities; |
● | the scope, rate of progress, results and cost of our clinical trials testing and other related activities for Recorlev and veldoreotide and our ability to obtain the necessary regulatory approval of our Recorlev NDA; |
22
● | the number and characteristics of product candidates that we pursue, including any additional product candidates we may in-license or acquire; |
● | the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
● | the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates; |
● | the cost, timing and outcomes of regulatory approvals, including product labeling; |
● | adequate reimbursement from payors for Keveyis and Recorlev (if approved) on a timely basis; |
● | the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone and royalty payments thereunder; |
● | the emergence of competing technologies and their achieving commercial success before we do or other adverse market developments; and |
● | any extended impact of COVID-19. |
We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital. We plan to continue to fund our operations and capital funding needs through equity or debt financing along with revenues from Keveyis. There can be no assurances, however, that additional funding will be available on terms acceptable to us.
Long-term Debt
On May 19, 2020, we entered into the $30 million Loan Agreement with Avenue Venture Opportunities Fund L.P. (“Avenue”), as administrative agent and collateral agent, and the lenders named therein and from time to time a party thereto (the “Lenders”). Pursuant to the terms of the Loan Agreement, our wholly-owned subsidiary Strongbridge U.S. Inc. (the “Borrower”) borrowed $10 million (the “Initial Loan”) from the Lenders at closing. As a result of achieving positive top-line data for Recorlev in our Phase 3 LOGICS clinical trial in September 2020, we were eligible to and did borrow an additional $10 million under the Loan Agreement (the “Second Loan”), on December 30, 2020. The remaining $10 million tranche (the “Third Loan”) will become available to us between October 1, 2021 and March 31, 2022 if we achieve FDA approval of Recorlev and subject to Avenue’s investment committee approval.
At-The-Market Facility
We entered into an equity distribution agreement with Jefferies LLC (“Jefferies”) on March 25, 2021, pursuant to which we may sell, at our option, from time to time, up to an aggregate of $50 million of our ordinary shares through Jefferies, as sales agent. We will pay Jefferies a commission equal to 3% of the gross proceeds from the sale of our ordinary shares under this at-the-market (“ATM”) facility. Pursuant to the terms of the equity distribution agreement, we reimbursed Jefferies for certain out-of-pocket expenses, including the fees and disbursements of counsel to Jefferies, incurred in connection with establishing the ATM facility and have provided Jefferies with customary indemnification rights. During the three months ended March 31, 2021, we did not sell any shares under this agreement.
Off-Balance Sheet Arrangements
We do not have variable interests in variable interest entities or any off-balance sheet arrangements.
23
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our market risk exposures since December 31, 2020.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021, the end of the period covered by this Quarterly Report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of March 31, 2021 were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not currently involved in any legal matters arising in the normal course of business. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters.
ITEM 1A. Risk Factors
The risks described in Item 1A. Risk Factors of our 2020 Annual Report could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in our 2020 Annual Report do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
24
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
EXHIBIT INDEX
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|||
|
STRONGBRIDGE BIOPHARMA PLC |
||
|
|||
|
By: |
|
/s/ Richard S. Kollender |
|
Name: |
|
Richard S. Kollender |
|
Title: |
|
President & Chief Financial Officer |
Date: May 12, 2021
26
Exhibit 31.1
CERTIFICATIONS
I, John Johnson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Strongbridge Biopharma plc;
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
Date: May 12, 2021 |
|
|
|
|
|
|
By: |
/s/ John Johnson |
|
|
John Johnson |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Richard S. Kollender, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Strongbridge Biopharma plc;
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
Date: May 12, 2021 |
|
|
|
|
|
|
By: |
/s/Richard S. Kollender |
|
|
Richard S. Kollender |
|
|
President & Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. 1350
Pursuant to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, John Johnson, the Chief Executive Officer (principal executive officer) of Strongbridge Biopharma plc (the “Company”), and Richard S. Kollender, the President and Chief Financial Officer (principal financial officer) of the Company, each hereby certifies that, to his knowledge on the date hereof:
(a) The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2021 filed on the date hereof with the Securities and Exchange Commission (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(b) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Quarterly Report.
This certification shall not be deemed to be filed with the Securities and Exchange Commission and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained and furnished to the Securities and Exchange Commission or its staff upon request.
|
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|
|
By: |
/s/ John Johnson |
|
|
John Johnson |
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
May 12, 2021 |
|
|
|
|
By: |
/s/ Richard S. Kollender |
|
|
Richard S. Kollender |
|
|
President & Chief Financial Officer (Principal Financial Officer) |
|
|
May 12, 2021 |