Radius Health, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
$
|
(56,939
|
)
|
|
$
|
(40,463
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
252
|
|
|
96
|
|
|
Amortization of premium (discount) on marketable securities, net
|
(45
|
)
|
|
566
|
|
|
Stock-based compensation
|
9,071
|
|
|
4,192
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
(4,233
|
)
|
|
4,214
|
|
|
Other long-term assets
|
—
|
|
|
(78
|
)
|
|
Accounts payable
|
599
|
|
|
(2,420
|
)
|
|
Accrued expenses and other current liabilities
|
(1,350
|
)
|
|
155
|
|
|
Other non-current liabilities
|
(119
|
)
|
|
—
|
|
|
Net cash used in operating activities
|
(52,764
|
)
|
|
(33,738
|
)
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchases of property and equipment
|
(406
|
)
|
|
(379
|
)
|
|
Purchases of marketable securities
|
(72,045
|
)
|
|
(157,922
|
)
|
|
Sales and maturities of marketable securities
|
38,447
|
|
|
135,846
|
|
|
Net cash used in investing activities
|
(34,004
|
)
|
|
(22,455
|
)
|
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
1,792
|
|
|
929
|
|
|
Proceeds from issuance of shares under employee stock purchase plan
|
1,030
|
|
|
—
|
|
|
Net cash provided by financing activities
|
2,822
|
|
|
929
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(83,946
|
)
|
|
(55,264
|
)
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
258,567
|
|
|
159,678
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
174,621
|
|
|
$
|
104,414
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
11
|
|
|
$
|
—
|
|
|
Property and equipment purchases in accrued expenses at period end
|
$
|
1,030
|
|
|
$
|
—
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
Radius Health, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Radius Health, Inc. (“Radius” or the “Company”) is a science-driven fully integrated biopharmaceutical company that is committed to developing innovative therapeutics in the areas of osteoporosis, oncology and endocrine diseases. On April 28, 2017, the Company's first commercial product, TYMLOS
TM
(abaloparatide) injection, was approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. The Company's European Marketing Authorisation Application ("MAA") for abaloparatide for subcutaneous injection (“abaloparatide-SC”) is under review by the Committee for Medicinal Products for Human Use of the EMA ("CHMP"). The Company's clinical pipeline includes an investigational abaloparatide transdermal patch ("abaloparatide-TD") for potential use in the treatment of women with postmenopausal osteoporosis and the investigational drug elacestrant (RAD1901) for potential use in the treatment of hormone-driven and/or hormone-resistant breast cancer, as well as for potential use in the treatment of vasomotor symptoms in postmenopausal women. Radius is also developing RAD140, a non-steroidal, selective androgen receptor modulator under investigation for potential use in the treatment of hormone receptor positive breast cancer.
The Company is subject to the risks associated with biopharmaceutical companies with a limited operating history, including dependence on key individuals, a developing business model, the necessity of securing regulatory approvals to market its investigational product candidates, market acceptance and the successful commercialization of TYMLOS, or any of the Company’s investigational product candidates following receipt of regulatory approval, competition for TYMLOS or any of the Company's investigational product candidates following receipt of regulatory approval, and the continued ability to obtain adequate financing to fund the Company’s future operations. The Company has incurred losses and expects to continue to incur additional losses for the foreseeable future. As of
March 31, 2017
, the Company had an accumulated deficit of $
685.0
million, and total cash, cash equivalents and marketable securities of $
282.1
million.
Based upon its cash, cash equivalents and marketable securities balance as of
March 31, 2017
, the Company believes that, prior to the consideration of proceeds from partnering and/or collaboration activities, it has sufficient capital to fund its development plans, U.S. commercial activities and other operational activities for not less than
twelve
months from the date of this filing and into 2018. The Company expects to finance its commercial launch activities in the United States and development costs of its clinical product portfolio with its existing cash and cash equivalents and marketable securities, or through strategic financing opportunities that could include, but are not limited to partnering or other collaboration agreements, future offerings of its equity, royalty-based financing arrangements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may be unable to complete its planned preclinical studies and clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
—The accompanying unaudited condensed consolidated financial statements and the related disclosures of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.
When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the
three
months ended
March 31, 2017
are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending
December 31, 2017
. Subsequent events have been evaluated up to the date of issuance of these financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes, which are contained in our Annual Report on Form 10-K for the year ended
December 31, 2016
(“2016 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 24, 2017.
Significant Accounting Policies
— The significant accounting policies identified in the Company’s 2016 Form 10-K that require the Company to make estimates and assumptions include: research and development costs, stock-based compensation and fair value measures. There were no changes to significant accounting policies during the
three
months ended
March 31, 2017
, except for the adoption of two Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB").
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”). This revised standard affects the accounting for forfeitures, cash flow presentation and income taxes. Specifically, this standard provides an accounting policy election to account for forfeitures as they occur, requires all excess tax benefits and deficiencies on share-based payment awards to be recognized as income tax expense or benefit in the statement of operations, requires the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur, and requires that excess tax benefits to be classified with other income tax cash flows as an operating activity. The standard permits early adoption in any annual or interim period and will be applied by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.
Historically, the Company recognized share-based compensation net of estimated forfeitures over the vesting period of the respective grant. Effective January 1, 2017, the Company elected to early adopt ASU 2016-09 and changed its accounting policy to recognize forfeitures as they occur. The new forfeiture policy election was adopted using a modified retrospective approach with a cumulative effect adjustment of
approximately
$0.5 million
to retained earnings as of January 1, 2017.
In addition, the Company recognized
$6.1 million
of accumulated excess tax benefits as deferred tax assets that under the previous guidance could not be recognized until the benefits were realized through a reduction in cash taxes paid. This part of the guidance was applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit for the excess tax benefits not previously recognized. However, given the full valuation allowance placed on the additional
$6.1 million
of deferred tax assets, the recognition upon adoption had
no
impact to our accumulated deficit as of January 1, 2016. The adoption of ASU 2016-09 effective January 1, 2017 had no other material impacts on the Company’s results of operations, financial position or cash flows.
Accounting Standards Updates
— In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASC 606”), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The standard is effective for public business entities for annual reporting periods beginning after December 15, 2017, with earlier adoption permitted as of annual reporting periods beginning after December 15, 2016. At this time, the Company does not have and has never had any contracts that are within the scope of ASC 606 or its predecessor guidance, ASC 605
Revenue Recognition
. The Company will evaluate the timing of the adoption of ASC 606 and the related accounting considerations when it has a contract that is within its scope.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Statements—Overall (Subtopics 825-10)
(“ASU 2016-01”). ASU 2016-01 provides updated guidance on the recognition and measurement of financial assets and financial liabilities that will supersede most current guidance. ASU 2016-01 primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The amendments in ASU 2016-01 supersede the guidance to classify equity securities with readily determinable fair values into different categories and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments under ASU 2016-01 are effective, for public business entities, for periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-01 to have a material impact on its results of operations, financial position or cash flows.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(“ASU 2016-02”). ASU 2016-02 supersedes the lease guidance under FASB Accounting Standards Codification (“ASC”) Topic 840,
Leases
, resulting in the creation of FASB ASC Topic 842,
Leases
. ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Measurement of Credit Losses on Financial Statements
("ASU 2016-13"). ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 affects loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have contractual right to receive cash. ASU 2016-13 requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented at the net amount expected to be collected using an allowance for credit losses valuation account. ASU 2016-13
requires that credit losses relating to available-for-sale debt securities should be limited by the amount which the fair value is below amortized cost. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the potential impact of adopting ASU 2016-13 on its financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its results of operations, financial position or cash flows.
3. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Research costs - Nordic (1)
|
$
|
—
|
|
|
$
|
1,228
|
|
|
Research costs - other
|
10,057
|
|
|
8,404
|
|
|
Payroll and employee benefits
|
5,643
|
|
|
9,338
|
|
|
Professional fees
|
10,482
|
|
|
7,532
|
|
|
Other current liabilities
|
$
|
95
|
|
|
$
|
95
|
|
|
Total accrued expenses and other current liabilities
|
$
|
26,277
|
|
|
$
|
26,597
|
|
(1)
Includes amounts accrued ratably over the estimated per patient treatment period in connection with services provided by Nordic Bioscience Clinical Development VII A/S on the Company's
24
-month extension trial of TYMLOS. Amounts do not include pass-through costs which are expensed as incurred or upon delivery. See note 7 for additional information.
4. Marketable Securities
Available-for-sale marketable securities and cash and cash equivalents as of
March 31, 2017
and
December 31, 2016
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
Amortized Cost Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
96,823
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,823
|
|
|
Money market funds
|
77,798
|
|
|
—
|
|
|
—
|
|
|
77,798
|
|
|
Total
|
$
|
174,621
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
174,621
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic corporate debt securities
|
$
|
37,444
|
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
|
$
|
37,431
|
|
|
Domestic corporate commercial paper
|
51,859
|
|
|
48
|
|
|
—
|
|
|
51,907
|
|
|
Asset-backed securities
|
18,149
|
|
|
—
|
|
|
(1
|
)
|
|
18,148
|
|
|
Total
|
$
|
107,452
|
|
|
$
|
48
|
|
|
$
|
(14
|
)
|
|
$
|
107,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Amortized Cost Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
77,443
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
77,443
|
|
|
Money market funds
|
173,631
|
|
|
—
|
|
|
—
|
|
|
173,631
|
|
|
Domestic corporate commercial paper
|
5,487
|
|
|
—
|
|
|
—
|
|
|
5,487
|
|
|
Domestic corporate debt securities
|
2,006
|
|
|
—
|
|
|
—
|
|
|
2,006
|
|
|
Total
|
$
|
258,567
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
258,567
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic corporate debt securities
|
$
|
19,317
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
19,315
|
|
|
Domestic corporate commercial paper
|
31,852
|
|
|
78
|
|
|
—
|
|
|
31,930
|
|
|
Asset-backed securities
|
22,639
|
|
|
—
|
|
|
(4
|
)
|
|
22,635
|
|
|
Total
|
$
|
73,808
|
|
|
$
|
78
|
|
|
$
|
(6
|
)
|
|
$
|
73,880
|
|
There were
no
debt securities that had been in an unrealized loss position for more than 12 months as of
March 31, 2017
or
December 31, 2016
. There were
15
debt securities in an unrealized loss position for less than 12 months at
March 31, 2017
and there were
13
debt securities that had been in an unrealized loss position for less than 12 months at
December 31, 2016
. The aggregate unrealized loss on these securities as of
March 31, 2017
and
December 31, 2016
was approximately
$14
thousand and
$6
thousand, respectively, and the fair value was
$50.1
million and
$35.7
million, respectively. The Company considered the increase in market value for these securities to be primarily attributable to current economic conditions. As it was not more likely than not that the Company would be required to sell these securities before the recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of
March 31, 2017
.
As of
March 31, 2017
, marketable securities consisted of investments that mature within
one
year.
5. Fair Value Measurements
The Company determines the fair values of its financial instruments based upon the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:
|
|
|
|
•
|
Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
|
|
•
|
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
•
|
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The following table summarizes the financial instruments measured at fair value on a recurring basis in the accompanying condensed consolidated balance sheets as of
March 31, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
96,823
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,823
|
|
|
Money market funds (1)
|
77,798
|
|
|
—
|
|
|
—
|
|
|
77,798
|
|
|
Total
|
$
|
174,621
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
174,621
|
|
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic corporate debt securities (2)
|
$
|
—
|
|
|
$
|
37,431
|
|
|
$
|
—
|
|
|
37,431
|
|
|
Domestic corporate commercial paper (2)
|
—
|
|
|
51,907
|
|
|
—
|
|
|
51,907
|
|
|
Asset-backed securities (2)
|
—
|
|
|
18,148
|
|
|
—
|
|
|
18,148
|
|
|
Total
|
$
|
—
|
|
|
$
|
107,486
|
|
|
$
|
—
|
|
|
$
|
107,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
77,443
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
77,443
|
|
|
Money market funds (1)
|
173,631
|
|
|
—
|
|
|
—
|
|
|
173,631
|
|
|
Domestic corporate commercial paper (2)
|
—
|
|
|
5,487
|
|
|
—
|
|
|
5,487
|
|
|
Domestic corporate debt securities (2)
|
—
|
|
|
2,006
|
|
|
—
|
|
|
2,006
|
|
|
Total
|
$
|
251,074
|
|
|
$
|
7,493
|
|
|
$
|
—
|
|
|
$
|
258,567
|
|
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic corporate debt securities (2)
|
$
|
—
|
|
|
$
|
19,315
|
|
|
$
|
—
|
|
|
19,315
|
|
|
Domestic corporate commercial paper (2)
|
—
|
|
|
31,930
|
|
|
—
|
|
|
31,930
|
|
|
Asset-backed securities (2)
|
—
|
|
|
22,635
|
|
|
—
|
|
|
22,635
|
|
|
Total
|
$
|
—
|
|
|
$
|
73,880
|
|
|
$
|
—
|
|
|
$
|
73,880
|
|
(1)
Fair value is based upon quoted market prices.
(2)
Fair value is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources, including market participants, dealers and brokers.
6. License Agreements
Ipsen
In September 2005, the Company entered into a license agreement (the "License Agreement"), as amended, with an affiliate of Ipsen Pharma SAS ("Ipsen") under which the Company exclusively licensed certain Ipsen compound technology and related patents covering abaloparatide to research, develop, manufacture and commercialize certain compounds and related products in all countries, except Japan (where the Company does not hold abaloparatide development and commercialization rights) and France (where the Company’s commercialization rights were subject to certain co-marketing and co-promotion rights exercisable by Ipsen, provided that certain conditions included in the License Agreement were met). The Company believes that Ipsen's co-marketing and co-promotion rights in France have permanently expired. Ipsen also granted the Company an exclusive right and license under the Ipsen compound technology and related patents to make and have made compounds or product in Japan. Ipsen further granted the Company an exclusive right and license under certain Ipsen formulation technology and related patents solely for purposes of enabling the Company to develop, manufacture and commercialize compounds and products covered by the compound technology license in all countries, except Japan and France (as discussed above).
In consideration for these rights, the Company made nonrefundable, non-creditable payments in the aggregate of
$4.3 million
to Ipsen, including payment in recognition of certain milestones having been achieved through 2016. The License Agreement provides for further payments upon the achievement of certain future regulatory and commercial milestones. Total additional milestone payments that could be payable under the agreement is
€32.0 million
(approximately
$33.6 million
). In connection
with the FDA's approval of TYMLOS in April 2017, the Company is obligated to pay Ipsen a milestone of
€8.0 million
(approximately
$8.7 million
) under the License Agreement, which the Company will record as an intangible asset and amortize over the remaining term of the License Agreement or the expected product life-cycle for TYMLOS, whichever is shorter. The agreement also provides that the Company will pay to Ipsen a fixed
five percent
royalty based on net sales of the product by the Company or its sublicensees on a country-by-country basis until the later of the last to expire of the licensed patents or for a period of
10
years after the first commercial sale in such country. The date of the last to expire of the abaloparatide patents licensed from or co-owned with Ipsen, barring any extension thereof, is expected to be March 26, 2028.
If the Company sublicenses abaloparatide to a third party, then the agreement provides that the Company would pay Ipsen a percentage of certain payments received from such sublicensee (in lieu of milestone payments not achieved at the time of such sublicense). The applicable percentage is in the low double digit range. In addition, if the Company or its sublicensees commercialize a product that includes a compound discovered by it based on or derived from confidential Ipsen know-how, then the agreement provides that the Company would pay to Ipsen a fixed low single digit royalty on net sales of such product on a country-by-country basis until the later of the last to expire of licensed patents that cover such product or for a period of
10
years after the first commercial sale of such product in such country.
The License Agreement expires on a country-by-country basis on the later of (1) the date the last remaining valid claim in the licensed patents expires in that country, or (2) a period of
10
years after the first commercial sale of the licensed products in such country, unless it is sooner terminated in accordance with its terms.
The Company is currently in arbitration proceedings with Ipsen in connection with the License Agreement. See "Legal Proceedings" for more information.
Eisai Co. Ltd.
In June 2006, the Company entered into a license agreement (the “Eisai Agreement”), with Eisai Co. Ltd. (“Eisai”). Under the Eisai Agreement, Eisai granted to the Company an exclusive right and license to research, develop, manufacture and commercialize elacestrant (RAD1901) and related products from Eisai in all countries, except Japan. In consideration for the rights to elacestrant, the Company paid Eisai an initial license fee of
$0.5 million
, which was expensed during 2006. In March 2015, the Company entered into an amendment to the Eisai Agreement (the “Eisai Amendment”) in which Eisai granted to the Company the exclusive right and license to research, develop, manufacture and commercialize elacestrant in Japan. In consideration for the rights to elacestrant in Japan, the Company paid Eisai an initial license fee of
$0.4 million
upon execution of the Eisai Amendment, which was recognized as research and development expense in
2015
. The Eisai Amendment, as amended, also provides for additional payments of up to
$22.3 million
, payable upon the achievement of certain clinical and regulatory milestones.
Under the Eisai Agreement, as amended, should a product covered by the licensed technology be commercialized, the Company will be obligated to pay to Eisai royalties in a variable mid-single digit range based on net sales of the product on a country-by-country basis. The royalty rate will be reduced, on a country-by-country basis, at such time as the last remaining valid claim in the licensed patents expires, lapses or is invalidated and the product is not covered by data protection clauses. In addition, the royalty rate will be reduced, on a country-by-country basis, if, in addition to the conditions specified in the previous sentence, sales of lawful generic versions of such product account for more than a specified minimum percentage of the total sales of all products that contain the licensed compound during a calendar quarter. The latest licensed patent is expected to expire, barring any extension thereof, on August 18, 2026.
The Eisai Agreement, as amended, also grants the Company the right to grant sublicenses with prior written approval from Eisai. If the Company sublicenses the licensed technology to a third party, the Company will be obligated to pay Eisai, in addition to the milestones referenced above, a fixed low double digit percentage of certain fees received from such sublicensee and royalties in the low single digit range based on net sales of the sublicensee. The Eisai Agreement expires on a country-by-country basis on the later of (1) the date the last remaining valid claim in the licensed patents expires, lapses or is invalidated in that country, the product is not covered by data protection clauses, and the sales of lawful generic versions of the product account for more than a specified percentage of the total sales of all pharmaceutical products containing the licensed compound in that country; or (2) a period of
10
years after the first commercial sale of the licensed products in such country, unless it is sooner terminated.
7. Research Agreements
Abaloparatide-SC Phase 3 Extension Study
The Company contracted with Nordic Bioscience Clinical Development VII A/S ("Nordic") to conduct a Phase 3 clinical trial of abaloparatide-SC (the "Phase 3 Clinical Trial"). The Company also contracted with Nordic to perform an extension study to
evaluate
six
months of standard-of-care osteoporosis management following the completion of the Phase 3 Clinical Trial (the "Extension Study"), and, upon completion of this initial
six
months, an additional period of
18
months of standard-of-care osteoporosis management (the “Second Extension”).
In April 2015, the Company contracted with Nordic to perform additional services, including additional monitoring of patients enrolled in the Second Extension. Payments in cash to be made to Nordic for these additional services were denominated in euros and totaled up to approximately €
4.1
million (approximately $
4.3
million).
Payments in cash to be made to Nordic for the services related to the Extension Study and Second Extension were denominated in both euros and U.S. dollars and totaled up to €
11.9
million (approximately $
12.5
million) and $
1.1
million, respectively. As of December 31, 2016, the last patient's final visit in the Second Extension had occurred and all obligations due to Nordic in relation to the Extension Study had been paid.
8. Stock-Based Compensation
Stock Options
A summary of stock option activity during the
three
months ended
March 31, 2017
is as follows (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price (in
dollars per
share)
|
|
Weighted-
Average
Contractual
Life (In
Years)
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at December 31, 2016
|
6,374
|
|
|
$
|
31.60
|
|
|
|
|
|
|
|
Granted
|
1,365
|
|
|
45.36
|
|
|
|
|
|
|
|
Exercised
|
(76
|
)
|
|
23.59
|
|
|
|
|
|
|
|
Cancelled
|
(45
|
)
|
|
35.94
|
|
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2017
|
7,618
|
|
|
$
|
34.12
|
|
|
8.11
|
|
$
|
77,755
|
|
|
Options exercisable at March 31, 2017
|
3,414
|
|
|
$
|
24.33
|
|
|
7.02
|
|
$
|
60,263
|
|
|
Options vested or expected to vest at March 31, 2017
|
7,618
|
|
|
$
|
34.12
|
|
|
8.11
|
|
$
|
77,755
|
|
The weighted-average grant-date fair value per share of options granted during the
three
months ended
March 31, 2017
was $
24.82
. As of
March 31, 2017
, there was approximately
$89.0 million
of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately
2.9
years.
Restricted Stock Units
The Company awards restricted stock units ("RSUs") to employees under its 2011 Equity Incentive Plan. Each RSU entitles the holder to receive one share of the Company's common stock if and when the RSU vests. The RSUs vest in
four
substantially equal installments on each of the first
four
anniversaries of the vesting commencement date, subject to the employee's continued employment with, or service to, the Company on such vesting date. Compensation expense is recognized on a straight line basis. In February 2017, the Company awarded
84,950
restricted stock units ("RSUs") to employees at an average grant date fair value of $
45.65
per RSU.
A summary of RSU activity during the
three
months ended
March 31, 2017
is as follows (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted-
Average
Grant Date
Fair Value
(in dollars
per share)
|
|
RSUs Outstanding at December 31, 2016
|
57
|
|
|
$
|
33.03
|
|
|
Granted
|
85
|
|
|
45.65
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited
|
(1
|
)
|
|
45.65
|
|
|
RSUs Outstanding at March 31, 2017
|
141
|
|
|
$
|
41.95
|
|
As of
March 31, 2017
, there was approximately
$5.4 million
of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately
3.5
years.
Employee Stock Purchase Plan
In September 2016, the Company initiated the first offering period under the Company's 2016 Employee Stock Purchase Plan (the “ESPP”), pursuant to which eligible employees may purchase shares of the Company’s common stock on the last day of each predetermined
six
-month offering period at
85%
of the lower of the fair market value per share at the beginning or end of the applicable offering period. The offering periods run from March 1 through August 31 and from September 1 through February 28 (or February 29, in a leap year) of each year.
As of
March 31, 2017
, the Company had recorded a liability of
$0.3 million
related to its ESPP obligations.
9. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the three months ended
March 31, 2017
and
2016
due to the expected loss before income taxes to be incurred for the years ended
December 31, 2017
and
2016
, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
10. Net Loss Per Share
Basic and diluted net loss per share is calculated as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
$
|
(56,939
|
)
|
|
$
|
(40,463
|
)
|
|
Loss attributable to common stockholders - basic and diluted
|
$
|
(56,939
|
)
|
|
$
|
(40,463
|
)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted-average number of common shares used in loss per share - basic and diluted
|
43,185,952
|
|
|
43,012,924
|
|
|
Loss per share - basic and diluted
|
$
|
(1.32
|
)
|
|
$
|
(0.94
|
)
|
The following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding, as they would be anti-dilutive. For the
three
months ended
March 31, 2017
and
2016
, all of the Company’s options to purchase common stock, warrants, and restricted stock units outstanding were assumed to be anti-dilutive as earnings attributable to common stockholders was in a loss position.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Options to purchase common stock
|
6,968,155
|
|
|
4,973,694
|
|
|
Warrants
|
605,415
|
|
|
631,588
|
|
|
Restricted stock units
|
76,215
|
|
|
—
|
|
11. Commitments and Contingencies
Litigation
- The Company may be subject to legal proceedings and claims which arise in the ordinary course of its business. In the Company's opinion, the ultimate resolution of these matters is not expected to have a material effect on its consolidated financial statements. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.
In November 2016, the Company received notice that in October 2016, Ipsen had initiated arbitration proceedings against the Company in the International Chamber of Commerce’s International Court of Arbitration. Ipsen’s Request for Arbitration alleged that the Company breached various provisions of the License Agreement concerning abaloparatide, including with regard to Ipsen's right to co-promote abaloparatide in France and a license from the Company with respect to Japan. Ipsen is seeking declaratory relief, compliance with the License Agreement, damages, costs and fees as a result of the purported breaches, and has alleged that the monetary value of these claims is approximately
€50 million
.
In January 2017, the Company submitted an Answer denying Ipsen’s claims and alleging counterclaims against Ipsen for breach of the License Agreement and other declaratory judgment. The Company asserted, among other things, that Ipsen's claimed rights to co-promote abaloparatide in France and to a license from the Company with respect to Japan have permanently expired, and that Ipsen has breached the License Agreement by, among other things, allowing certain patents to expire and by purporting to license to a third party certain manufacturing and other rights that the Company contends Ipsen exclusively licensed to the Company. The Company is seeking dismissal of Ipsen’s claims, as well as declaratory relief, compliance with the License Agreement, and other damages, costs and fees to be determined by the Arbitral Tribunal.
In February 2017, Ipsen submitted a Reply denying the Company's counterclaims and alleging that the Company is precluded from asserting them. Given that this matter is at a preliminary stage, the Company cannot predict or assess the likely outcome of these proceedings.
Manufacturing Agreements -
In June 2016, the Company entered into a supply agreement with Ypsomed AG (“Ypsomed”), pursuant to which Ypsomed agreed to supply commercial and clinical supplies of a disposable pen injection device (the “Device”) customized for subcutaneous injection of TYMLOS. The Company agreed to purchase a minimum number of Devices at prices per Device that decrease with an increase in quantity supplied. In addition, the Company agreed to make milestone payments for Ypsomed’s capital developments in connection with the initiation of the commercial supply of the Device and to pay a one-time capacity fee. All costs and payments under the agreement are delineated in Swiss Francs. The agreement has an initial term of
three
years from the earlier of the date of delivery of the first commercial Devices for regulatory approval and June 1, 2017, after which it automatically renews for
two
-year terms until terminated. The Company agreed to purchase the Device subject to certain minimum annual quantity requirements under the agreement. During the initial term of the agreement, the Company estimates that it will be obligated to make total minimum payments to Ypsomed of approximately CHF
3.9 million
($
4.0 million
) in the aggregate, including the milestone payments and one-time capacity fee.
In June 2016, the Company entered into a commercial supply agreement with Vetter Pharma International, GmbH (“Vetter”), pursuant to which Vetter agreed to formulate the finished TYMLOS drug product containing the active pharmaceutical ingredient (“API”) of TYMLOS, to fill cartridges with the drug product, to assemble the pen delivery device, and to package and label the pen for commercial distribution. The Company agreed to purchase the cartridges and pens in specified batch sizes at a price per unit. For labeling and packaging services, the Company agreed to pay a per unit price dependent upon the number
of pens loaded with cartridges that are labeled and packaged. These prices are subject to an annual price adjustment. The agreement has an initial term of
five
years, which began on January 1, 2016, after which, it automatically renews for
two
-year terms unless either party provides notice of non-renewal
two
years before the end of the then current term.
In July 2016, the Company entered into a manufacturing services agreement with Polypeptide Laboratories Holding AB ("PPL"), as successor-in-interest to Lonza Group Ltd., pursuant to which PPL agreed to manufacture the commercial and clinical supplies of the API for TYMLOS. The Company agreed to purchase the API in batches at a price per gram in euros, subject to an annual increase by PPL. The Company also agreed to purchase a minimum number of batches annually. The agreement has an initial term of
six
years, after which, it automatically renews for
three
-year terms unless either party provides notice of non-renewal
24
months before the end of the then-current term.
12. Subsequent Events
On
April 28, 2017
, the Company's first commercial product, TYMLOS (abaloparatide) injection was approved by the FDA for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. In connection with the FDA's approval on TYMLOS in April 2017, the Company is obligated to pay Ipsen a milestone of
€8.0 million
(approximately
$8.7 million
) under the License Agreement, which the Company will record as an intangible asset and amortize over the remaining term of the License Agreement or the expected product life-cycle for TYMLOS, whichever is shorter.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains, in addition to historical information, forward-looking statements. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “continue,” “should,” “would,” “could,” “potentially,” “will,” “may” or similar words and expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may include, among other things, statements about:
|
|
|
|
•
|
our expectations regarding commercial launch of TYMLOS in the U.S. and our ability to successfully commercialize TYMLOS in the U.S.;
|
|
|
|
|
•
|
the therapeutic benefits and effectiveness of TYMLOS and our investigational product candidates;
|
|
|
|
|
•
|
our ability to obtain U.S. and foreign regulatory approval for our product candidates, and the timing thereof;
|
|
|
|
|
•
|
our ability to compete with other companies that are or may be developing or selling products that are competitive with TYMLOS or our investigational product candidates;
|
|
|
|
|
•
|
anticipated trends and challenges in the market in which TYMLOS will compete and in other potential markets in which we may compete;
|
|
|
|
|
•
|
our plans with respect to collaborations and licenses related to the development, manufacture or sale of TYMLOS and our investigational product candidates;
|
|
|
|
|
•
|
the progress of, timing of and amount of expenses associated with our research, development and commercialization activities;
|
|
|
|
|
•
|
the safety profile and related adverse events of TYMLOS and our investigational product candidates;
|
|
|
|
|
•
|
the ability of our investigational product candidates to meet existing or future regulatory standards;
|
|
|
|
|
•
|
our expectations regarding federal, state and foreign regulatory requirements;
|
|
|
|
|
•
|
the success of our clinical studies for our investigational product candidates;
|
|
|
|
|
•
|
our expectations as to future financial performance, expense levels and liquidity sources;
|
|
|
|
|
•
|
our ability to attract, motivate, and retain key personnel; and
|
|
|
|
|
•
|
other factors discussed elsewhere in this report.
|
The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include our financial performance, the uncertainties inherent in the launch of any new pharmaceutical product or the execution and completion of clinical trials, uncertainties surrounding the timing of availability of data from our clinical trials, ongoing discussions with and actions by regulatory authorities, our ability to attract and retain customers, our development activities and those other factors we discuss in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on February 24, 2017 under the caption “Risk Factors.” You should read these factors, those set forth under the caption “Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q, and the other cautionary statements made in this Quarterly Report on Form 10-Q as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10-Q. These important factors are not exhaustive and other sections of this Quarterly Report on Form 10-Q may include additional factors which could adversely impact our business and financial performance.
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes set forth in this report. Unless the context otherwise requires, “we,” “our,” “us” and similar expressions used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section refer to Radius Health, Inc. and our consolidated entities.
Executive Overview
We are a science-driven fully integrated biopharmaceutical company that is committed to developing innovative therapeutics in the areas of osteoporosis, oncology and endocrine diseases. On April 28, 2017, our first commercial product, TYMLOS
TM
(abaloparatide) injection, was approved by the U.S. Food and Drug Administration, or FDA, for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. We expect to commence U.S. commercial sales of TYMLOS in the second quarter of 2017. Our European Marketing Authorisation Application, or MAA, for abaloparatide for subcutaneous injection, or abaloparatide-SC, is under review by the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA.
Our clinical pipeline includes an abaloparatide transdermal patch, or abaloparatide-TD, for potential use in the treatment of women with postmenopausal osteoporosis. We are focused on completing the manufacturing scale-up, production, and other activities required for the initiation of a pivotal bioequivalence study for abaloparatide-TD. In addition, we are evaluating our investigational product candidate, elacestrant (RAD1901), a selective estrogen receptor down-regulator/degrader, for potential use in the treatment of hormone-driven and/or hormone-resistant breast cancer, as well as for potential use in the treatment of vasomotor symptoms in postmenopausal women. We recently completed enrollment in both of our ongoing Phase 1 studies of elacestrant in advanced metastatic breast cancer. In the first half of 2017, we plan to engage with regulatory agencies to gain alignment on defining the next steps for the elacestrant breast cancer program, which would include the design of a Phase 2 trial. We expect to complete and report results from our elacestrant Phase 2b vasomotor trial in mid-2017.
We are also developing our internally developed investigational product candidate, RAD140, a non-steroidal selective androgen receptor modulator, or SARM, for potential use in the treatment of breast cancer. In December 2016, we submitted an investigational new drug application, or IND, to the FDA and expect to initiate a first-in-human Phase 1 study of RAD140 in women with hormone receptor positive breast cancer in 2017.
TYMLOS (abaloparatide)
On April 28, 2017, the FDA approved TYMLOS for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. We are developing two formulations of abaloparatide.
Abaloparatide-SC
—TYMLOS injection was approved in the United States in April 2017 for the treatment of postmenopausal women with osteoporosis at high risk for fracture. We anticipate the first commercial sales of TYMLOS in the United States will take place in the second quarter of 2017. We intend to commercialize TYMLOS in the United States ourselves and our experienced commercial leaders have recently expanded the breadth of our capabilities and sales organization with highly skilled and seasoned individuals. We hold worldwide commercialization rights to abaloparatide, except for Japan. In December 2014, we announced positive 18-month top-line data from our Phase 3 ACTIVE clinical trial. These results were published in the Journal of the American Medical Association, or JAMA, in August 2016. In June 2015, we announced the positive top-line data from the first six months of the ACTIVExtend clinical trial of TYMLOS and the 25-month combined fracture data from the ACTIVE and ACTIVExtend clinical trials. These data were published in the Mayo Clinic Proceedings in February 2017. We expect to report the top-line results from our recently completed 24-month ACTIVExtend trial in the second quarter of 2017. The combined 25-month fracture data from our Phase 3 clinical trial program for TYMLOS
formed the basis of our regulatory submissions in the United States and Europe. In November 2015, we submitted an MAA for abaloparatide-SC to the European Medicines Agency, or EMA, which was validated and is currently undergoing active regulatory assessment by the Committee for Medicinal Products for Human Use of the EMA, or CHMP. We anticipate that the CHMP may adopt an opinion regarding the MAA in July 2017. We intend to enter into one or more collaborations for the potential commercialization of abaloparatide-SC outside of the United States prior to commercial launch in the European Union.
Abaloparatide-TD
—We are also developing abaloparatide-transdermal, which we refer to as abaloparatide-TD, based on 3M’s patented Microstructured Transdermal System technology for potential use as a short wear-time transdermal patch. We hold worldwide commercialization rights to the abaloparatide-TD technology. We are developing abaloparatide-TD toward future global regulatory submissions to build upon the potential success of TYMLOS. We commenced a human replicative clinical evaluation of the optimized abaloparatide-TD patch in December 2015, with the goal of achieving comparability to TYMLOS. In September 2016, we presented results from this evaluation, which showed that the pharmacokinetic profile of an optimized abaloparatide-TD patch with respect to Tmax, T1/2, and AUC was successfully modified so as to improve comparability to TYMLOS. The results of this clinical evaluation will inform the design of a pivotal bioequivalence study that will be initiated following completion of activities related to manufacturing scale-up, production, and other activities required for the initiation of that study.
Our Capabilities-Organization and Experience
As part of our transition to a fully integrated biopharmaceutical company, we recently completed the build out of our sales and medical organizations. We are also continuing to strengthen our compliance program as part of our commitment to a strong culture of compliance and good corporate governance.
Our accomplished senior commercial leadership established an experienced commercial organization, with capabilities and core teams organized across sales, marketing, reimbursement, and distribution, to support the commercialization of TYMLOS in the United States.
Our market access and sales teams are prepared to engage and support external customers of TYMLOS. Our market access organization has hired an account team comprised of individuals with significant account experience with the large third-party payers and trade accounts that represent a substantial majority of all potential target patients. We also assembled a marketing
team of seasoned professionals with substantial specialty pharmaceutical marketing, communications, professional education, patient education and advocacy expertise. Our sales organization has hired capable sales leaders with prior osteoporosis, managerial, specialty launch and injectable therapy experience. These sales leaders will manage a sales organization comprised of more than 200 clinical sales and integrated delivery network specialists. We completed the hiring of our U.S. sales force in the first quarter of 2017. Finally, we forged a comprehensive commercial operations team to support launch requirements. Our commercial operations leaders have substantial specialty launch experience in establishing hub and specialty pharmacy distribution networks, analytics and forecasting, market research, sales and market operations, and sales training.
We intend to distribute TYMLOS in the United States through a network of distributors and specialty pharmacies. Under this distribution model, both the distributors and specialty pharmacies would take physical delivery of product and the specialty pharmacies would dispense the product directly to patients.
Our experienced senior medical leadership has built our medical organization to provide cross-functional support to both internal partners and external stakeholders by providing expert scientific knowledge, educational material and scientific training programs. This dedicated and skilled organization is comprised of 40 professionals with extensive clinical and scientific experience within academic medical centers, clinical medical practice, research institutions, and other pharmaceutical organizations.
Our medical team is organized by key functions, including medical affairs, pharmacovigilance, medical information, publications, and health economics outcomes research. Our medical affairs team includes physicians with relevant clinical and pharmaceutical experience in endocrinology and women’s health. The medical affairs team also includes scientists with extensive research experience in bone health who will provide clinical development support for current and future scientific research. Our team of medical sciences liaisons, or MSLs, will provide medical educational support to external stakeholders. The director and regional managers of our MSL team have comprehensive experience in the field of osteoporosis.
Under the leadership of our Chief Compliance Officer, we have continued to strengthen our compliance program as part of our commitment to a strong culture of compliance and good corporate governance. We recently revised our Code of Conduct and Business Ethics, or Code of Conduct, which applies to all of our directors, officers and employees and have incorporated elements of the updated Code of Conduct into formal compliance trainings which are required to be completed by all employees. In addition, our management and other personnel have devoted a substantial amount of time to compliance initiatives, including establishing and maintaining effective disclosure and financial controls and corporate governance practices, as required by the Sarbanes-Oxley Act of 2002, as amended, and rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and NASDAQ.
Elacestrant (RAD1901
)
Elacestrant (RAD1901) is a selective estrogen receptor down-regulator/degrader, or SERD, that at high doses has potential for use as a daily oral non-steroidal treatment for hormone-driven and/or hormone-resistant, breast cancer. We hold worldwide commercialization rights to elacestrant. Elacestrant is currently being investigated in postmenopausal women with advanced estrogen receptor positive, or ER-positive, HER2-negative breast cancer, the most common form of the disease. Studies completed to date indicate that the compound has the potential for use as a single agent or in combination with other therapies for the treatment of breast cancer. In April 2017, we presented new preclinical data on the impact of elacestrant in preclinical models of endocrine sensitive/resistant breast cancer.
Phase 1 - Dose-Escalation Study
In December 2014, we commenced a Phase 1, multicenter, open-label, multiple-part, dose-escalation study of elacestrant in postmenopausal women with ER-positive and HER2-negative advanced breast cancer in the United States to determine the recommended dose for a Phase 2 clinical trial and to make a preliminary evaluation of the potential anti-tumor effect of elacestrant. Part A of this Phase 1 study was designed to evaluate escalating doses of elacestrant. The Part B expansion cohort was initiated at 400-mg daily dosing in March 2016 to allow for an evaluation of additional safety, tolerability and preliminary efficacy. The patients enrolled in this study are heavily pretreated ER-positive, HER2-negative advanced breast cancer patients who have received a median of 3 prior lines of therapy including fulvestrant and CDK4/6 inhibitors, and more than 50% of the patients had ESR1 mutations. We recently completed patient enrollment in our Phase 1 dose-escalation and expansion study.
In December 2016, we reported positive results from this ongoing Phase 1 dose-escalation and expansion study. These results showed that elacestrant was well-tolerated with the most commonly reported adverse events being low grade nausea and dyspepsia. Enrollment in the Part C tablet dosage form cohort was completed in November 2016.
Phase 1 - FES-PET Study
In December 2015, we commenced a Phase 1 18-F fluoroestradiol positron emission tomography, or FES-PET, study in patients with metastatic breast cancer in the European Union which includes the use of FES-PET imaging to assess estrogen receptor occupancy in tumor lesions following elacestrant treatment. We recently completed patient enrollment in the European Phase I FES-PET study.
In December 2016, we reported positive results from the ongoing Phase 1 FES-PET study. The first three enrolled patients dosed at the 400-mg cohort had a tumor FES-PET signal intensity reduction ranging from 79% to 91% at day 14 compared to baseline. The most commonly reported adverse events reported to date in this study have been grade 1 and 2 nausea and dyspepsia. We enrolled 5 additional patients in the 400-mg daily oral cohort, followed by 8 patients in the 200-mg daily oral cohort.
Phase 1 - Recent Progress
To date, no dose limiting toxicities have been reported in the elacestrant program. We recently completed patient enrollment in both of our ongoing elacestrant Phase 1 breast cancer trials and plan to engage with regulatory agencies in the first half of 2017 to gain alignment on defining the next steps for the program, which would include the design of a Phase 2 trial.
Potential for use in Combination Therapy
In July 2015, we announced that early but promising preclinical data showed that our investigational drug elacestrant, in combination with Pfizer’s palbociclib, a cyclin-dependent kinase, or CDK 4/6 inhibitor, or Novartis’ everolimus, an mTOR inhibitor, was effective in shrinking tumors. In preclinical patient-derived xenograft breast cancer models with either wild type or mutant ESR1, treatment with elacestrant resulted in marked tumor growth inhibition, and the combination of elacestrant with either agent, palbociclib or everolimus, showed anti-tumor activity that was significantly greater than either agent alone. We believe that this preclinical data suggest that elacestrant has the potential to overcome endocrine resistance, is well-tolerated, and has a profile that is well suited for use in combination therapy.
Collaborations
In July 2016, we entered into a preclinical collaboration with Takeda Pharmaceutical Company Limited to evaluate the combination of our investigational drug elacestrant with Takeda's investigational drug TAK-228, an oral mTORC 1/2 inhibitor in Phase 2b development for the treatment of breast, endometrial and renal cancer, with the goal of potentially exploring such combination in a clinical study.
In January 2016, we entered into a worldwide clinical collaboration with Novartis Pharmaceuticals to evaluate the safety and efficacy of combining our investigational drug elacestrant, with Novartis’ investigational agent LEE011 (ribociclib), a CDK 4/6 inhibitor, and BYL719 (alpelisib), an investigational phosphoinositide 3-kinase inhibitor.
Phase 2b - Vasomotor Symptoms Study
Elacestrant is also being evaluated at low doses as an estrogen receptor ligand for the potential relief of the frequency and severity of moderate to severe hot flashes in postmenopausal women with vasomotor symptoms. We expect to report results from our Phase 2b clinical study of elacestrant for the potential treatment of postmenopausal vasomotor symptoms in mid-2017.
RAD140
RAD140 is a nonsteroidal selective androgen receptor modulator, or SARM. The androgen receptor, or AR, is highly expressed in many ER-positive, ER-negative, and triple-negative receptor breast cancers. Due to its receptor and tissue selectivity, potent activity, oral bioavailability, and long half-life, we believe RAD140 could have clinical potential in the treatment of breast cancer. We hold worldwide commercialization rights to RAD140, which resulted from an internal discovery program.
In July 2016, we reported that RAD140 in preclinical xenograft models of breast cancer demonstrated potent tumor growth inhibition when administered alone or in combinations with CDK4/6 inhibitors. It is estimated that 77% of breast cancers show expression of the androgen receptor. Our data suggest that RAD140 activity at the androgen receptor leads to activation of AR signaling pathways including an AR-specific tumor suppressor. In April 2017, we presented these RAD140 preclinical results at a major scientific congress.
We submitted an IND to the FDA for RAD140 in December 2016 and plan to initiate a first-in-human Phase 1 study of RAD140 in women with hormone receptor positive breast cancer in 2017.
Financial Overview
Research and Development Expenses
Research and development expenses consist primarily of clinical testing costs made to contract research organizations, or CROs, salaries and related personnel costs, fees paid to consultants and outside service providers for regulatory and quality assurance support, licensing of drug compounds and other expenses relating to the manufacture, development, testing and enhancement of our product candidates. We expense our research and development costs as they are incurred.
None of the research and development expenses, in relation to our investigational product candidates, are currently borne by third parties. TYMLOS (abaloparatide) historically has represented the largest portion of our research and development expenses for our development programs. We began tracking program expenses for TYMLOS (abaloparatide) in 2005, and program expenses from inception to
March 31, 2017
were approximately $
211.9 million
. We began tracking program expenses for abaloparatide-TD in 2007, and program expenses from inception to
March 31, 2017
were approximately $
39.8 million
. We began tracking program expenses for elacestrant (RAD1901) in 2006, and program expenses from inception to
March 31, 2017
were approximately $
58.4 million
. We began tracking program expenses for RAD140 in 2008, and program expenses from inception to
March 31, 2017
were approximately $
10.3 million
. These expenses relate primarily to external costs associated with manufacturing, preclinical studies and clinical trial costs.
Costs related to facilities, depreciation, stock-based compensation and research and development support services are not directly charged to programs as they benefit multiple research programs that share resources.
The following table sets forth our research and development expenses that are directly attributable to the programs listed below for the
three
months ended
March 31, 2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
Abaloparatide-SC*
|
$
|
(999
|
)
|
|
$
|
5,778
|
|
|
Abaloparatide-TD
|
705
|
|
|
2,145
|
|
|
Elacestrant (RAD1901)
|
2,878
|
|
|
8,117
|
|
|
RAD140
|
1,358
|
|
|
357
|
|
*2017 expenses were net of the FDA's refund of NDA fees of $2.4 million previously paid and expensed in the first quarter of 2016.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses for pre-launch commercial operations, executive, finance and other administrative personnel, professional fees, business insurance, rent, general legal activities, including the cost of maintaining our intellectual property portfolio, and other corporate expenses.
Our results also include stock-based compensation expense as a result of the issuance of stock option grants to our employees, directors and consultants. The stock-based compensation expense is included in the respective categories of expense in the statement of operations (i.e., research and development or general and administrative expenses).
Interest Income and Other Income
Interest income reflects interest earned on our cash, cash equivalents and marketable securities. Other income for the first quarter of 2017 reflects a portion of the Massachusetts Life Science Center awards recognized as income for certain taxes paid.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We evaluate our policies and estimates on an ongoing basis, including those related to accrued clinical expenses, research and development expenses, stock-based compensation and fair value measures, which we discussed in our Annual Report on Form 10-K for the year ended
December 31, 2016
. We base our estimates on historical experience and other various assumptions that we believe are reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions.
We have reviewed our policies and estimates to determine our critical accounting policies for the
three
months ended
March 31, 2017
. We have made no material changes to the critical accounting policies described in our Annual Report on Form 10-K for
the year ended
December 31, 2016
, except for the adoption of ASU No. 2016-09
Improvements to Employee Share-Based Payment Accounting.
Adoption of the ASU effective January 1, 2017 did not have a material impact on the Company’s results of operations, financial position or cash flows. See Note 2 -
Basis of Presentation and Significant Accounting Policies
in the accompanying unaudited condensed consolidated financial statements for more information regarding the adoption of new accounting standards during the first quarter of 2017.
Results of Operations
Three Months Ended
March 31, 2017
and
2016
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
Change
|
|
|
2017
|
|
2016
|
|
$
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
19,527
|
|
|
$
|
27,483
|
|
|
$
|
(7,956
|
)
|
|
(29
|
)%
|
|
General and administrative
|
38,099
|
|
|
13,646
|
|
|
24,453
|
|
|
179
|
%
|
|
Loss from operations
|
(57,626
|
)
|
|
(41,129
|
)
|
|
16,497
|
|
|
40
|
%
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
80
|
|
|
(1
|
)
|
|
(81
|
)
|
|
8,100
|
%
|
|
Interest income
|
607
|
|
|
667
|
|
|
(60
|
)
|
|
9
|
%
|
|
Net loss
|
$
|
(56,939
|
)
|
|
$
|
(40,463
|
)
|
|
16,476
|
|
|
41
|
%
|
Research and development expenses
— For the three months ended
March 31, 2017
, research and development expense was $
19.5 million
compared to $
27.5 million
for the three months ended
March 31, 2016
,
a decrease
of $
8.0 million
, or
29%
. This
decrease
was primarily driven by a $4.8 million decrease in regulatory and professional fees associated with abaloparatide-SC regulatory applications and a $6.7 million decrease in clinical development costs associated with abaloparatide-TD and elacestrant programs. This decrease was partially offset by a $1.0 million increase in RAD140 program development costs and a $4.6 million increase in compensation expense, including stock-based compensation, due to an increase in headcount from 78 research and development employees as of
March 31, 2016
to 111 research and development employees as of
March 31, 2017
.
General and administrative expenses
— For the three months ended
March 31, 2017
, general and administrative expense was $
38.1 million
compared to $
13.6 million
for the three months ended
March 31, 2016
,
an increase
of $
24.5 million
, or
179%
. This
increase
was primarily the result of an increase of approximately $8.3 million in professional fees and support costs during the three months ended
March 31, 2017
, including the costs associated with increasing headcount and preparing for the commercialization of TYMLOS in the United States. This increase was also driven by a $14.6 million increase in compensation expense, including stock-based compensation, due to an increase in headcount from 44 general and administrative employees as of
March 31, 2016
to 116 general and administrative employees and 247 clinical sales specialists as of
March 31, 2017
.
Interest income
—For the three months ended
March 31, 2017
, interest income was approximately $
0.6 million
for both the three months ended
March 31, 2017
and
2016
, a decrease of $
60.0 thousand
, or
9%
. This decrease was primarily due to the combined effects of a decrease in the balance of our investments coupled with an increase in the rate of return on investments in the three months ended
March 31, 2017
as compared to those of the three months ended
March 31, 2016
.
Liquidity and Capital Resources
From inception to
March 31, 2017
, we have incurred an accumulated deficit of $
685.0 million
, primarily as a result of expenses incurred through a combination of research and development activities related to our various product candidates and expenses supporting those activities. Our total cash, cash equivalents and short-term marketable securities balance as of
March 31, 2017
was $
282.1 million
. We have financed our operations since inception primarily through the public offerings of our common stock, private sales of preferred stock, and borrowings under credit facilities.
Based upon our cash, cash equivalents and marketable securities balance, we believe that, prior to the consideration of proceeds from partnering and/or collaboration activities, we have sufficient capital to fund our development plans, U.S. commercial and other operational activities for not less than twelve months from the date of this filing and into 2018. We expect to finance the future U.S. commercial activities and development costs of our clinical product portfolio with our existing cash, cash equivalents and marketable securities, or through strategic financing opportunities, that could include, but are not limited to partnering or other collaboration agreements, future offerings of equity, royalty-based financing arrangements, or the incurrence of debt or other alternative financing arrangements. However, there is no guarantee that any of these financing
opportunities will be available to us on favorable terms, and some could be dilutive to existing stockholders. Our future capital requirements will depend on many factors, including the scope and progress made in our research and development and commercialization activities, the results of our clinical trials, and the review and potential approval of our products by the FDA and the EMA. The successful development of our investigational product candidates is subject to numerous risks and uncertainties associated with developing drugs, which could have a significant impact on the cost and timing associated with the development of our product candidates. If we fail to obtain additional future capital, we may be unable to complete our planned preclinical and clinical trials and obtain approval of any investigational product candidates from the FDA and foreign regulatory authorities.
TYMLOS is our only approved product and our business currently depends heavily on its successful commercialization. Successful commercialization of an approved product is an expensive and uncertain process. See “Risk Factors — Risks Related to the Discovery, Development and Commercialization of Our Product Candidates” set forth under Item 1A. in our Annual Report on Form 10-K for the year ended
December 31, 2016
, filed with the SEC on February 24, 2017, and those additional risk factors under Item 1A in this report.
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
Change
|
|
|
2017
|
|
2016
|
|
$
|
|
%
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
$
|
(52,764
|
)
|
|
$
|
(33,738
|
)
|
|
$
|
19,026
|
|
|
56
|
%
|
|
Investing activities
|
(34,004
|
)
|
|
(22,455
|
)
|
|
11,549
|
|
|
51
|
%
|
|
Financing activities
|
2,822
|
|
|
929
|
|
|
1,893
|
|
|
204
|
%
|
|
Net decrease in cash and cash equivalents
|
$
|
(83,946
|
)
|
|
$
|
(55,264
|
)
|
|
$
|
(28,682
|
)
|
|
(52
|
)%
|
Cash Flows from Operating Activities
Net cash
used in
operating activities during the
three
months ended
March 31, 2017
was $
52.8 million
, which was primarily the result of a net loss of $
56.9 million
, partially offset by $
9.3 million
of net non-cash adjustments to reconcile net loss to net cash used in operations and net changes in working capital of $
5.0 million
. The $
56.9 million
net loss was primarily due to abaloparatide-SC and elacestrant program development expenses along with employee compensation and consulting costs incurred to support regulatory submissions and preparation for the commercial launch of TYMLOS in the United States. The $
9.3 million
net non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $
9.1 million
and depreciation of $
0.3 million
.
Net cash
used in
operating activities during the
three
months ended
March 31, 2016
was $
33.7 million
, which was primarily the result of a net loss of $
40.5 million
, partially offset by $
4.9 million
of net non-cash adjustments to reconcile net loss to net cash used in operations and net changes in working capital of $
1.9 million
. The $
40.5 million
net loss was primarily due to abaloparatide-SC program development expenses, including clinical and manufacturing costs, along with employee compensation and consulting costs incurred to support regulatory submissions and preparation for the commercial launch of TYMLOS in the United States. The $
4.9 million
net non-cash adjustments to reconcile net loss to net cash used in operations included stock-based compensation expense of $
4.2 million
, amortization of premiums on marketable securities of $
0.6 million
and depreciation of $
0.1 million
.
Cash Flows from Investing Activities
Net cash
used in
investing activities during the
three
months ended
March 31, 2017
was $
34.0 million
, which was primarily the result of $
72.0 million
of purchases of marketable securities partially offset by $
38.4 million
of net proceeds received from the sale or maturity of marketable securities.
Net cash
used in
investing activities during the
three
months ended
March 31, 2016
was $
22.5 million
, which was primarily the result of $
157.9 million
of purchases of marketable securities, partially offset by $
135.8 million
of net proceeds received from the sale or maturity of marketable securities.
Our investing cash flows will be impacted by the timing of purchases and sales of marketable securities. Because our marketable securities are primarily short-term in duration, we would not expect our operational results or cash flows to be significantly affected by a change in market interest rates.
Cash Flows from Financing Activities
Net cash
provided by
financing activities during the
three
months ended
March 31, 2017
was $
2.8 million
, as compared to $
0.9 million
during the
three
months ended
March 31, 2016
. Net cash provided by financing activities during the
three
months ended
March 31, 2017
consisted of $
1.8 million
of proceeds received from exercises of stock options and $1.0 million received upon issuance of common stock under the Radius Health, Inc. 2016 Employee Stock Purchase Plan.
Net cash
provided by
financing activities during the
three
months ended
March 31, 2016
consisted of
$0.9 million
of proceeds received from the exercise of stock options.
Contractual Obligations
Supply and Manufacturing Agreements
In June 2016, we entered into a supply agreement with Ypsomed AG, or Ypsomed, pursuant to which Ypsomed agreed to supply commercial and clinical supplies of a disposable pen injection device, or the "Device," customized for subcutaneous injection of TYMLOS. We agreed to purchase a minimum number of Devices at prices per Device that decrease with an increase in quantity supplied. In addition, we agreed to make milestone payments for Ypsomed’s capital developments in connection with the initiation of the commercial supply of the Device and to pay a one-time capacity fee. All costs and payments under the agreement are delineated in Swiss Francs. The agreement has an initial term of three years from the earlier of the date of delivery of the first commercial Devices for regulatory approval and June 1, 2017, after which, it automatically renews for two-year terms until terminated. During the initial term of the agreement, we estimate that we will be obligated to make total minimum payments to Ypsomed of approximately CHF
3.9 million
($
4.0 million
) in the aggregate, including the milestone payments and one-time capacity fee.
In June 2016, we entered into a commercial supply agreement with Vetter Pharma International, GmbH, or Vetter, pursuant to which Vetter agreed to formulate the finished TYMLOS drug product containing the active pharmaceutical ingredient, or API, of TYMLOS, to fill cartridges with the drug product, to assemble the pen delivery device, and to package and label the pen for commercial distribution. We agreed to purchase the cartridges and pens in specified batch sizes at a price per unit. For labeling and packaging services, we agreed to pay a per unit price dependent upon the number of pens loaded with cartridges that are labeled and packaged. These prices are subject to an annual price adjustment. The agreement has an initial term of five years, which began on January 1, 2016, after which, it automatically renews for two-year terms unless either party provides notice of non-renewal two years before the end of the then-current term.
In July 2016, we entered into a manufacturing services agreement with Polypeptide Laboratories Holding AB, or PPL, as successor-in-interest to Lonza Group Ltd., pursuant to which PPL agreed to manufacture the commercial and clinical supplies of the API for TYMLOS. We agreed to purchase the API in batches at a price per gram in euros, subject to an annual increase by PPL. We also agreed to purchase a minimum number of batches annually. The agreement has an initial term of a six years, after which, it automatically renews for three-year terms unless either party provides notice of non-renewal 24 months before the end of the then-current term.
Research and Development Agreements
Abaloparatide-SC Phase 3 Clinical Trial
In February 2013, we contracted with Nordic Bioscience Clinical Development VII A/S, or Nordic, to conduct our Phase 3 clinical trial of abaloparatide-SC, or the Phase 3 Clinical Trial. Nordic also agreed to perform an extension study to evaluate six months of standard-of-care osteoporosis management following the completion of the Phase 3 Clinical Trial, or the "Extension Study," and, upon completion of this initial six months, an additional period of 18 months of standard-of-care osteoporosis management, or the "Second Extension."
In April 2015, we contracted with Nordic to perform additional services, including monitoring of patients enrolled in the Second Extension. Payments in cash to be made to Nordic for these additional services are denominated in euro and total up to approximately €
4.1 million
($
4.3 million
).
Payments in cash to be made to Nordic for the services related to the Extension Study and the Second Extension are denominated in both euros and U.S. dollars and total up to €
11.9 million
($
12.5 million
) and $
1.1 million
, respectively. As of
December 31, 2016
, the last patient's final visit in the Second Extension had occurred and all obligations due to Nordic in relation to the Extension Study have been paid.
License Agreement Obligations
TYMLOS (abaloparatide)
In September 2005, we entered into a license agreement with Ipsen, as amended, or the License Agreement, under which we exclusively licensed certain Ipsen compound technology and related patents covering abaloparatide to research, develop, manufacture and commercialize certain compounds and related products in all countries, except Japan (where we do not hold development and commercialization rights) and France (where our commercialization rights were subject to certain co-marketing and co-promotion rights exercisable by Ipsen, provided that certain conditions included in the License Agreement were met). We believe that Ipsen's co-marketing and co-promotion rights in France have permanently expired. Ipsen also granted us an exclusive right and license under the Ipsen compound technology and related patents to make and have made compounds or product in Japan. Ipsen further granted us an exclusive right and license under certain Ipsen formulation technology and related patents solely for purposes of enabling us to develop, manufacture and commercialize compounds and products covered by the compound technology license in all countries, except Japan and France (as discussed above).
In consideration for the rights to abaloparatide and in recognition of certain milestones having been met to date, we have paid to Ipsen an aggregate amount of $
4.3 million
. The License Agreement further requires us to make payments upon the achievement of certain future regulatory and commercial milestones. Total additional milestone payments that could be payable under the agreement are €
32.0 million
(approximately $
33.6 million
). In connection with the FDA's approval of TYMLOS in April 2017, we are obligated to pay Ipsen a milestone of
€8.0 million
(approximately
$8.7 million
) under the License Agreement, which we will record as an intangible asset and amortize over the remaining term of the License Agreement or the expected product life-cycle of TYMLOS, whichever is shorter. The agreement also provides that we will pay to Ipsen a fixed five percent royalty based on net sales of the product by us or our sublicensees on a country-by-country basis until the later of the last to expire of the licensed patents or for a period of 10 years after the first commercial sale in such country. The date of the last to expire of the abaloparatide patents licensed from or co-owned with Ipsen, barring any extension thereof, is expected to be March 26, 2028.
If we sublicense abaloparatide to a third party, the agreement provides that we would pay a percentage of certain payments received from such sublicensee (in lieu of milestone payments not achieved at the time of such sublicense). The applicable percentage is in the low double digit range. In addition, if we or our sublicensees commercialize a product that includes a compound discovered by us based on or derived from confidential Ipsen know-how, the agreement provides that we would pay to Ipsen a fixed low single digit royalty on net sales of such product on a country-by-country basis until the later of the last to expire of our patents that cover such product or for a period of 10 years after the first commercial sale of such product in such country.
The License Agreement expires on a country-by-country basis on the later of (1) the date the last remaining valid claim in the licensed patents expires in that country, or (2) a period of 10 years after the first commercial sale of the licensed products in such country, unless it is sooner terminated in accordance with its terms.
Prior to executing the License Agreement for abaloparatide with us, Ipsen licensed the Japanese rights for abaloparatide to Teijin Limited, or Teijin, a Japanese pharmaceutical company. Teijin has completed a Phase 2 clinical study of abaloparatide in Japan for the treatment of postmenopausal osteoporosis.
We are currently in arbitration proceedings with Ipsen in connection with the License Agreement. See “Legal Proceedings” for more information.
Elacestrant (RAD1901)
In June 2006, we entered into a license agreement, or the "Eisai Agreement," with Eisai Co. Ltd., or "Eisai". Under the Eisai Agreement, Eisai granted to us an exclusive right and license to research, develop, manufacture and commercialize elacestrant (RAD1901) and related products from Eisai in all countries, except Japan. In consideration for the rights to elacestrant, we paid Eisai an initial license fee of $0.5 million, which was expensed during 2006. In March 2015, we entered into an amendment to the Eisai Agreement, or the "Eisai Amendment," in which Eisai granted to us the exclusive right and license to research, develop, manufacture and commercialize elacestrant in Japan. In consideration for the rights to elacestrant in Japan, we paid Eisai an initial license fee of $
0.4 million
upon execution of the Eisai Amendment, which was recognized as research and development expense in 2015. The Eisai Amendment, as amended, also provides for additional payments of up to $
22.3 million
, payable upon the achievement of certain future clinical and regulatory milestones.
Under the Eisai Agreement, as amended, should a product covered by the licensed technology be commercialized, we will be obligated to pay to Eisai royalties in a variable mid-single digit range based on net sales of the product on a country-by-country basis. The royalty rate will be reduced, on a country-by-country basis, at such time as the last remaining valid claim in the licensed patents expires, lapses or is invalidated and the product is not covered by data protection clauses. In addition, the royalty rate will be reduced, on a country-by-country basis, if, in addition to the conditions specified in the previous sentence, sales of lawful generic versions of such product account for more than a specified minimum percentage of the total sales of all
products that contain the licensed compound during a calendar quarter. The latest licensed patent is expected to expire, barring any extension thereof, on August 18, 2026.
The Eisai Agreement, as amended, also grants us the right to grant sublicenses with prior written approval from Eisai. If we sublicense the licensed technology to a third party, we will be obligated to pay Eisai, in addition to the milestones referenced above, a fixed low double digit percentage of certain fees received from such sublicensee and royalties in the low single digit range based on net sales of the sublicensee. The Eisai Agreement expires on a country-by-country basis on the later of (1) the date the last remaining valid claim in the licensed patents expires, lapses or is invalidated in that country, the product is not covered by data protection clauses, and the sales of lawful generic versions of the product account for more than a specified percentage of the total sales of all pharmaceutical products containing the licensed compound in that country; or (2) a period of 10 years after the first commercial sale of the licensed products in such country, unless it is sooner terminated.
Net Operating Loss Carryforwards
As of
December 31, 2016
, we had federal and state net operating loss carryforwards of approximately $
526.7 million
and $
385.3 million
, respectively, subject to limitation, as described below. If not utilized, the net operating loss carryforwards will expire at various dates through 2036.
Under Section 382 of the Internal Revenue Code of 1986, or Section 382, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be used annually in the future to offset taxable income. We have completed studies through December 31, 2015, to determine whether any ownership change has occurred since our formation and have determined that transactions have resulted in two ownership changes, as defined under Section 382. There could be additional ownership changes in the future that could further limit the amount of net operating loss and tax credit carryforwards that we can utilize.
A full valuation allowance has been recorded against our net operating loss carryforwards and other deferred tax assets, as the realization of the deferred tax asset is uncertain. As a result, we have not recorded any federal or state income tax benefit in our statement of operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any relationships with unconsolidated entities of financial partnerships, such as entities often referred to as structured finance or special purpose entities.
New Accounting Standards
See Note 2 -
Basis of Presentation and Significant Accounting Policies - Accounting Standards Updates
in the accompanying unaudited condensed consolidated financial statements in this Quarterly Report for a discussion of new accounting standards.