The following discussion and analysis of our consolidated financial condition
and results of operations should be read in conjunction with our unaudited
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q.
Background
We are a biopharmaceutical company focused on developing therapies that restore
function and improve the lives of people with neurological disorders. We market
Inbrija (levodopa inhalation powder), which is approved in the U.S. for
intermittent treatment of OFF episodes, also known as OFF periods, in people
with Parkinson's disease treated with carbidopa/levodopa. Inbrija is for as
needed use and utilizes our ARCUS pulmonary delivery system, a technology
platform designed to deliver medication through inhalation that we believe has
potential to be used in the development of a variety of inhaled medicines. We
also market branded Ampyra (dalfampridine) Extended Release Tablets, 10 mg.
Inbrija
Our New Drug Application, or NDA, for Inbrija was approved by the U.S. Food and
Drug Administration, or FDA, on December 21, 2018. The approval is for a single
dose of 84 mg (administered as two capsules), which may be taken up to five
times per day. Inbrija became commercially available in the U.S. on February 28,
2019. Currently, Inbrija is available in the U.S. without the need for a medical
exception for approximately 96% of commercial health insurance plan and
approximately 25% of Medicare plan lives. Approximately one million people in
the U.S. and 1.2 million Europeans are diagnosed with Parkinson's; it is
estimated that approximately 40% of people with Parkinson's in the U.S.
experience OFF periods. Net revenue for Inbrija was $5.0 million for the quarter
ended March 31, 2021 and $4.4 million for the quarter ended March 31, 2020. We
project peak U.S. annual net revenue of Inbrija to be in the range of $300 to
$500 million.
In September 2019, we announced that the European Commission, or EC, approved
our Marketing Authorization Application, or MAA, for Inbrija. The approved dose
is 66 mg (administered as two capsules) up to five times per day (per European
Union, or EU, convention, this reflects emitted dose and is equivalent to the 84
mg labelled dose in the U.S.). Under the MAA, Inbrija is indicated in the EU for
the intermittent treatment of episodic motor fluctuations (OFF episodes) in
adult patients with Parkinson's disease treated with a
levodopa/dopa-decarboxylase inhibitor. Following the ratification of the
Withdrawal Agreement between the United Kingdom and the EU, the UK left the EU
on January 31, 2020. Effective January 1, 2021, Acorda was granted a
grandfathered Marketing Authorization (MA) by the Medicines and Healthcare
products Regulatory Agency (MHRA) in the UK which is subject to certain
administrative filings that are due by December 31, 2021. We are in discussions
with potential partners for commercialization of Inbrija outside of the U.S.,
including in Europe, Japan and other countries.
Ampyra
Ampyra became subject to competition from generic versions of Ampyra starting in
late 2018 as a result of an adverse U.S. federal district court ruling that
invalidated certain Ampyra Orange Book-listed patents. We have experienced a
significant decline in Ampyra sales due to competition from several generic
versions of Ampyra. Additional manufacturers may market generic versions of
Ampyra, and we expect our Ampyra sales will continue to decline over time. Net
revenue for Ampyra was $20.3 million for the quarter ended March 31, 2021 and
$20.1 million for the quarter ended March 31, 2020.
Convertible Notes
In December 2019, we announced the successful completion of a private exchange
of $276 million of our convertible senior notes due in 2021 in exchange for a
combination of approximately $207 million aggregate principal amount of
newly-issued convertible senior secured notes due 2024 and $55.2 million in
cash. The convertible senior secured notes due 2021 have an adjusted conversion
price of approximately $21.00 per share. As a result of the exchange,
approximately $69 million of convertible senior notes due in 2021, with an
adjusted conversion price of approximately $255.35, remain outstanding.
Addressing the remaining portion of the convertible notes due 2021 is a top
priority in addition to our focus on the Inbrija launch. More information about
the terms and conditions of the 2021 and 2024 convertible notes is set forth in
Note 10 to our Consolidated Financial Statements included in this report as well
as in Financing Arrangements in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of this report.
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Sale of Chelsea, Massachusetts Manufacturing Operations
In February 2021, we completed the sale of our Chelsea, Massachusetts
manufacturing operations to Catalent Pharma Solutions. Pursuant to the
transaction, Catalent paid us $80 million in cash, resulting in net proceeds to
us of approximately $74 million after transaction fees and expenses and
settlement of customary post-closing adjustments. In connection with the sale of
the manufacturing operations, we entered into a long-term, global manufacturing
services agreement with a Catalent affiliate for the supply of Inbrija. As part
of the transaction, Catalent hired substantially all of our prior employees at
the Chelsea facility as well as certain of our other employees at our Waltham,
Massachusetts facility. We intend to use the net proceeds received from the
transaction for general corporate purposes, subject to compliance with the terms
of the 2024 notes, which may include funding capital expenditures and the
repayment of indebtedness. Also, we expect to save approximately $10 million in
annual operating expenses related to the operation of the manufacturing
facility.
Financial Management
In January 2021, we announced a corporate restructuring to reduce costs and
focus our resources on Inbrija, which is a key strategic priority for 2021. As
part of the restructuring, we reduced headcount by approximately 16% through a
reduction in force (excluding the employees that transferred to Catalent at the
closing of the sale of our Chelsea manufacturing operations). All of the
reduction in personnel took place in the first quarter of 2021. As a result, we
expect to realize estimated annualized cost savings related to headcount
reduction of approximately $6 million beginning in the second quarter of 2021.
We incurred approximately $2.6 million of pre-tax charges, substantially all of
which were cash expenditures, for severance and other employee
separation-related costs in connection with the restructuring, approximately
$2.1 million of which were incurred in the first quarter of 2021.
In January 2021, we entered into an At The Market (ATM) Offering Agreement with
H.C. Wainwright & Co., LLC as sales agent. Pursuant to the ATM agreement, we may
offer and sell shares of our common stock having an aggregate value of up to
$15.25 million in an at-the-market offering, subject to a 3% sales commission
payable to H.C. Wainwright. If we elect to use the ATM agreement, H.C.
Wainwright would be obligated to use commercially reasonable efforts consistent
with its normal trading and sales practices and applicable law and regulations
to sell shares in accordance with our instructions (including as to price, time
or size limit or other parameters or conditions that we may impose).
As of March 31, 2021, we had cash, cash equivalents and restricted cash of
approximately $148.4 million. Restricted cash includes $31.1 million in escrow
related to the 6% semi-annual interest portion of the convertible senior secured
notes due 2024, payable in cash or stock. As further described in Note 10 to our
Consolidated Financial Statements included in this report as well as in
Financing Arrangements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of this report, if we are permitted
under the notes indenture and we elect to pay interest due in stock, the cash
equivalent will be released from escrow.
Nasdaq Listing Rules and Reverse Stock Split
On January 19, 2021, we received a letter from The Nasdaq Stock Market, LLC
notifying us that we had regained compliance with Listing Rule 5450(a)(1), which
requires that listed securities maintain a minimum closing bid price of at least
$1.00 per share (the "Minimum Bid Requirement"). We regained compliance with the
Minimum Bid Requirement based on the closing bid price of our common stock on
the Nasdaq Global Select Market between January 4, 2021 and January 15, 2021. We
had previously been notified, on July 23, 2020, of our non-compliance with the
Minimum Bid Requirement.
On December 31, 2020, we filed an amendment to our Certificate of Incorporation
which effected, as of 4:01 p.m. Eastern Time on December 31, 2020, a 1-for-6
reverse stock split of the shares of our outstanding common stock and
proportionate reduction in the number of authorized shares of our common stock
from 370,000,000 to 61,666,666. Our Board of Directors approved the reverse
stock split as part of plan to regain compliance with the Minimum Bid
Requirement. The reverse stock split had previously been authorized by our
stockholders at a special meeting convened on July 31, 2020.
Our common stock began trading on a split-adjusted basis on The Nasdaq Global
Select Market commencing upon market open on January 4, 2021. The common stock
continued to trade under the symbol "ACOR" after the reverse stock split became
effective. The reverse stock split applied equally to all outstanding shares of
the common stock and did not modify the rights or preferences of the common
stock. The reverse stock split also resulted in a corresponding adjustment to
outstanding equity awards as well as shares reserved for future issuance under
our incentive compensation plans.
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All figures in this report relating to shares of our common stock (such as share
amounts, per share amounts, and conversion rates and prices), including in the
financial statements and accompanying notes to the financial statements, have
been retroactively restated to reflect the 1-for-6 reverse stock split of our
common stock.
COVID-19 Pandemic
Our business and financial condition have been impacted by, and are subject to
risks resulting from, the COVID-19 (novel coronavirus) pandemic. The COVID-19
pandemic has caused significant disruptions in the healthcare industry. The
duration of the pandemic is difficult to predict, and it is likely to have
ongoing impacts as it continues. The travel restrictions, "shelter in place"
orders, quarantine policies, and general concerns about the spread of COVID-19
have disrupted the delivery of healthcare to patients, for example making it
more difficult for some patients to visit with their physician and obtain
pharmaceutical prescriptions. Also, healthcare office staffing shortages may
delay the administrative work, and particularly insurance-related documentation,
needed to obtain reimbursement for prescriptions. We believe these factors
contributed to volatility in new Inbrija prescriptions during 2020 and are
continuing to impact prescriptions in 2021.
The COVID-related policies, restrictions and concerns may disrupt our operations
and those of our customers and suppliers. Also, our operations could be
interrupted if we or our customers or suppliers lose the services of key
employees or consultants who become ill from COVID-19. These types of
disruptions could potentially affect any of our critical business functions, and
thus harm our business, including for example our manufacturing, sales and
marketing operations as well compliance and certain general and administrative
functions. The ultimate impact of the COVID-19 pandemic, or any other health
epidemic, is highly uncertain and subject to change. We do not yet know the full
extent of potential delays or impacts on our business, healthcare systems or the
global economy as a whole. As the pandemic continues, it may result in a
sustained economic downturn that could affect demand for our products and our
ability to access capital on reasonable terms, or at all.
Inbrija (levodopa inhalation powder)/Parkinson's Disease
Inbrija (levodopa inhalation powder) is the first and only inhaled levodopa, or
L-dopa, for intermittent treatment of OFF episodes, also known as OFF periods,
in people with Parkinson's disease treated with carbidopa/levodopa regimen. Our
New Drug Application, or NDA, for Inbrija was approved by the U.S. Food and Drug
Administration, or FDA, on December 21, 2018. The approval is for a single dose
of 84 mg (administered as two capsules), which may be taken up to five times per
day. Inbrija became commercially available in the U.S. on February 28, 2019.
Currently, Inbrija is available in the U.S. without the need for a medical
exception for approximately 96% of commercial health insurance plan and
approximately 25% of Medicare plan lives. Net revenue for Inbrija was $5.0
million for the quarter ended March 31, 2021 and $4.4 million for the quarter
ended March 31, 2020. We project peak U.S. annual net revenue of Inbrija to be
in the range of $300 to $500 million.
In September 2019, we announced that the European Commission, or EC, approved
our Marketing Authorization Application, or MAA, for Inbrija. The approved dose
is 66 mg (administered as two capsules) up to five times per day (per European
Union, or EU, convention, this reflects emitted dose and is equivalent to the 84
mg labelled dose in the U.S.). Under the MAA, Inbrija is indicated in the EU for
the intermittent treatment of episodic motor fluctuations (OFF episodes) in
adult patients with Parkinson's disease treated with a
levodopa/dopa-decarboxylase inhibitor. The MAA approved Inbrija for use in what
were then the 27 countries of the EU, as well as Iceland, Norway and
Liechtenstein. Following the ratification of the Withdrawal Agreement between
the United Kingdom and the EU, the UK left the EU on January 31, 2020. Effective
January 1, 2021, Acorda was granted a grandfathered Marketing Authorization (MA)
by the Medicines and Healthcare products Regulatory Agency (MHRA) in the UK
which is subject to certain administrative filings that are due by December 31,
2021. We are in discussions with potential partners for commercialization of
Inbrija outside of the U.S., including in Europe, Japan and other countries.
Inbrija is marketed in the U.S. through our own specialty sales force and
commercial infrastructure, which we are supplementing with sales representatives
provided by a contract commercial organization. Inbrija is distributed in the
U.S. primarily through: AllianceRx Walgreens Prime, or Walgreens, a specialty
pharmacy that delivers the medication to patients by mail; and ASD Specialty
Healthcare, Inc. (an AmeriSource Bergen affiliate). Our neuro-specialty sales
and marketing team includes our own sales representatives as well as established
teams of Medical Science Liaisons, Regional Reimbursement Directors, and Market
Access Account Directors who provide information to payers and physicians on our
marketed products; and Market Development Managers who work collaboratively with
field teams and corporate personnel to assist in the execution of the Company's
strategic initiatives. Our sales representatives (with the contracted
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representatives) are targeting approximately 5,000 healthcare providers,
currently focusing on a priority list of approximately 2,000 physicians who are
high volume prescribers of levodopa/carbidopa. Our Inbrija launch activities are
focused on physician awareness and market access as well as patient awareness,
education and training.
We have established Prescription Support Services for Inbrija, which we
sometimes refer to as the Inbrija hub. Prescription Support Services is designed
to help patients navigate their insurance coverage and offer reimbursement
support services, when appropriate. Services fall into one of these categories:
insurance verification, to research patient insurance benefits and confirm
insurance coverage; prior authorization support, to identify prior authorization
requirements; and appeals support. For patients that may need assistance paying
for their medication, Prescription Support Services offers several support
options, including: a program that provides no cost medication to patients who
meet specific program eligibility requirements; co-pay support, which may help
commercially insured (non-government funded) patients lower their out-of-pocket
costs; and a bridge program, for federally-insured patients who experience a
delay in coverage determination. We have a no-cost sample program, available at
physician offices, to enable patients and their physicians to assess the value
of Inbrija before the patient incurs out-of-pocket co-pay or co-insurance costs.
In addition, we have a first dispense zero-dollar copay program for
commercially-insured patients (which has replaced our previous free trial
program) to enable those patients to assess the value of Inbrija before
incurring out-of-pocket co-pay or co-insurance costs.
Parkinson's disease is a progressive neurodegenerative disorder resulting from
the gradual loss of certain neurons in the brain. These neurons are responsible
for producing dopamine and that loss causes a range of symptoms including
impaired movement, muscle stiffness and tremors. The standard baseline treatment
of Parkinson's disease is oral carbidopa/levodopa, but oral medication can be
associated with wide variability in the timing and amount of absorption and
there are significant challenges in creating a regimen that consistently
maintains therapeutic effects. As Parkinson's progresses, people are likely to
experience OFF periods, which are characterized by the return of Parkinson's
symptoms that result from low levels of dopamine between doses of oral
carbidopa/levodopa. OFF periods are often highly disruptive to people with
Parkinson's. Approximately one million people in the U.S. and 1.2 million
Europeans are diagnosed with Parkinson's; it is estimated that approximately 40%
of people with Parkinson's in the U.S. experience OFF periods.
Inbrija is for as needed use and utilizes our ARCUS platform for inhaled
therapeutics. ARCUS is a dry-powder pulmonary drug delivery technology that we
believe has potential to be used in the development of a variety of inhaled
medicines. The ARCUS platform allows systemic delivery of medication through
inhalation, by transforming molecules into a light, porous dry powder. This
allows delivery of substantially higher doses of medication than can be
delivered via conventional dry powder technologies. We acquired the ARCUS
technology platform as part of our 2014 acquisition of Civitas Therapeutics. We
have worldwide rights to our ARCUS drug delivery technology, which is protected
by extensive know-how and trade secrets and various U.S. and foreign patents,
including patents that protect the Inbrija dry powder capsules beyond 2030. We
have several patents listed in the Orange Book for Inbrija, including patents
expiring between 2022 and 2032, and Inbrija is entitled to three years of new
product exclusivity, through December 2021, as posted in the Orange book. We
have patents in Europe for Inbrija expiring between 2022 and 2033. One of our
European patents, EP 3090773B, has been opposed by an unnamed party. Inbrija
also has 10 years of market exclusivity in Europe that is set to expire in 2029.
FDA and European Commission approvals of Inbrija were based on a clinical
program that included approximately 900 people with Parkinson's on a
carbidopa/levodopa regimen experiencing OFF periods. The Phase 3 pivotal trial
for Inbrija - SPAN-PD - was a 12-week, randomized, placebo controlled, double
blind study evaluating the effectiveness of Inbrija in patients with mild to
moderate Parkinson's experiencing OFF periods. In January 2019, we announced
that The Lancet Neurology published results from the SPAN-PD clinical trial.
The SPAN-PD trial met its primary endpoint, with patients showing a
statistically significant improvement in motor function at the week 12 visit, as
measured by a reduction in Unified Parkinson's Disease Rating Scale (UPDRS) Part
III score for Inbrija 84 mg (n=114) compared to placebo (n=112) at 30 minutes
post-dose (-9.83 points and -5.91 points respectively; p=0.009). Onset of action
was seen as early as 10 minutes. Maintenance of effect continued to 60 minutes
post-dose, which is the longest time point assessed in the trial. UPDRS III is a
validated scale, which measures Parkinson's disease motor impairment.
The most common adverse reactions with Inbrija (at least 5% and greater than
placebo) in the pivotal trial were cough (15% vs. 2%), upper respiratory tract
infection (6% vs. 3%), nausea (5% vs. 3%) and discolored sputum (5% vs. 0%).
Inbrija was also studied in a Phase 3 long-term, active-controlled, randomized,
open-label study (N=398) assessing safety and tolerability over one year. This
study showed the average reduction in FEV1 (forced expiratory volume in 1
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second) from baseline was the same (-0.1 L) for the Inbrija and observational
cohorts. Patients with chronic obstructive pulmonary disease (COPD), asthma, or
other chronic respiratory disease within the last five years were excluded from
this study.
Inbrija is not to be used by patients who take or have taken a nonselective
monoamine oxidase inhibitor such as phenelzine or tranylcypromine within the
last two weeks.
It is not known if Inbrija is safe or effective in children.
Ampyra
Ampyra was approved by the FDA in January 2010 to improve walking in adults with
multiple sclerosis. To our knowledge, Ampyra is the first drug approved for this
indication. Efficacy was shown in people with all four major types of MS
(relapsing remitting, secondary progressive, progressive relapsing and primary
progressive). Ampyra became subject to competition from generic versions of
Ampyra starting in late 2018 as a result of an adverse U.S. federal district
court ruling that invalidated certain Ampyra Orange Book-listed patents. We have
experienced a significant decline in Ampyra sales due to competition from
several generic versions of Ampyra. Additional manufacturers may market generic
versions of Ampyra, and we expect our Ampyra sales will continue to decline over
time. Net revenue for Ampyra was $20.3 million for the quarter ended March 31,
2021 and $20.1 million for the quarter ended March 31, 2020.
License and Collaboration Agreement with Biogen
Ampyra is marketed as Fampyra outside the U.S. by Biogen International GmbH, or
Biogen, under a license and collaboration agreement that we entered into in June
2009. Fampyra has been approved in a number of countries across Europe, Asia and
the Americas. Under our agreement with Biogen, we are entitled to receive
double-digit tiered royalties on net sales of Fampyra and we are also entitled
to receive additional payments based on achievement of certain regulatory and
sales milestones. In November 2017, we announced a $40 million Fampyra royalty
monetization transaction with HealthCare Royalty Partners, or HCRP. In return
for the payment to us, HCRP obtained the right to receive these Fampyra
royalties up to an agreed-upon threshold. Until this threshold is met, we will
not receive Fampyra royalties although we retained the right to receive any
potential future milestone payments. The HCRP transaction is accounted for as a
liability, as described in Note 9 to our Consolidated Financial Statements
included in this report.
Ampyra Patent Update
There are no patents listed in the Orange Book for Ampyra. Ampyra became subject
to competition from generic versions of Ampyra starting in late 2018 as a result
of an adverse U.S. federal district court ruling that invalidated certain Ampyra
Orange Book-listed patents.
There are two European patents, EP 1732548 and EP 2377536, with claims directed
to use of a sustained release dalfampridine composition (known under the trade
name Fampyra in the European Union) to increase walking speed in a patient with
multiple sclerosis. Both European patents are set to expire in 2025, absent any
additional exclusivity granted based on regulatory review timelines. Nullity
actions have been filed in Germany against both of the German national patents
derived from EP 1732548 and EP 2377536 by ratiopharm GmbH, a generic
manufacturer affiliated with Teva. Fampyra also has 10 years of market
exclusivity in the European Union that is set to expire in July 2021.
We will vigorously defend our intellectual property rights.
ARCUS Product Development
We have been exploring opportunities for other proprietary products in which
inhaled delivery of medicine using our ARCUS drug delivery technology can
provide a significant therapeutic benefit to patients. We believe there are
potential opportunities with central nervous system, or CNS, as well as non-CNS,
disorders.
Our ARCUS development has been focused on a program for acute treatment of
migraine. Existing oral therapies for migraine can be associated with slow onset
of action and gastrointestinal challenges. Patients cite the need for rapid
relief from migraine symptoms as their most desired medication attribute.
Additionally, individuals with migraine may suffer from
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nausea and delayed gastric emptying which further impact the consistency and
efficacy of the oral route of administration. We have been evaluating
therapeutic candidates for their suitability to move forward with this program.
Due to our three restructurings since 2017 and associated cost-cutting measures,
we have deferred consideration of further investment into potential new ARCUS
applications in migraine pending additional progress with the Inbrija commercial
launch in the U.S.
Should we decide in the future to make investments in any ARCUS development
program, we would be reliant on Catalent or another third party supplier for the
manufacture of product for that program. Our global supply agreement with
Catalent does not provide for the terms and conditions under which Catalent
would supply any product or product candidate other than Inbrija. We would be
unable to advance the development of any ARCUS inhaled therapeutic candidate
unless Catalent is willing to manufacture the candidate for us on commercially
reasonable terms, or we could identify another third party manufacturer that
would be capable and willing to manufacture the candidate for us on commercially
reasonable terms. Also, due to reductions in force, employee attrition and the
2021 sale of our Chelsea manufacturing operations, we believe we lack certain
personnel needed for, and would need to hire replacements before continuing
with, this research and development work.
In July 2015, the Bill & Melinda Gates Foundation awarded us a grant to support
the development of a formulation and delivery system for a dry powder version of
lung surfactant, a treatment for neonatal respiratory distress syndrome, or
nRDS. In collaboration with the Massachusetts Institute of Technology, we
developed a formulation and delivery device based on our proprietary ARCUS drug
delivery technology. nRDS is a condition affecting prematurely born infants in
which their lungs are underdeveloped and thus lack a sufficient amount of lung
surfactant. It can be fatal, or lead to severe, chronic health issues caused by
a lack of oxygen getting to the baby's brain and other organs. Delivering liquid
surfactant to the lungs via intubation is the standard of care. We believe that
our formulation and delivery system may present a more practical alternative for
use in developing areas of the world, where intubation poses numerous problems.
Based on achievement of pre-clinical proof of concept, the foundation expanded
the funding to include pre-IND development, including an additional grant of
approximately $2.08 million in 2020 to continue this work. This program is not
aimed at developing a commercial product, but our work on this program could
potentially generate information that is useful for adapting the ARCUS drug
delivery technology to commercial pediatric uses. We expect all current
grant-funded work to be completed in the first half of 2021. We are evaluating
next steps for our continuing involvement in this program as it transitions past
the grant-funding stage and in light of the sale of our Chelsea manufacturing
operations and other factors.
Other Research and Development Programs
Our other research and development programs include rHIgM22 and cimaglermin
alfa. rHIgM22 is a remyelinating antibody that is a potential therapeutic for
multiple sclerosis. Data from a Phase 1 safety and tolerability trial showed
that a single dose of rHIgM22 was not associated with any safety signals. The
study was not powered to show efficacy and exploratory measures showed no
difference between the treatment groups. Cimaglermin alfa is a member of the
neuregulin growth factor family, and has been shown to promote recovery after
neurological injury, as well as enhance heart function in animal models of heart
failure. We initiated a Phase 1b clinical trial assessing three doses of
cimaglermin alfa in people with heart failure, but discontinued enrollment and
then received an FDA clinical hold based on the occurrence of a case of
hepatotoxicity (liver injury). The FDA clinical hold was lifted after we
presented additional data on the hepatotoxicity, but we have not since restarted
any clinical study of cimaglermin alfa. We are considering next steps for these
programs, which could include potential partnering or out-licensing, but due to
our three restructurings since 2017 and associated cost-cutting measures, we
have deferred consideration of any further investment pending additional
progress with the Inbrija commercial launch in the U.S.
Financial Guidance for 2021
We are providing the following guidance with respect to our 2021 financial
performance:
• Net revenue from the sale of Ampyra in 2021 is expected to range from $75
million to $85 million.
• Operating expenses in 2021 are expected to range from $130 million to
$140 million. This is a non-GAAP projection that excludes restructuring
costs and share-based compensation charges, as more fully described
below.
The projected range of operating expenses in 2021 specified above was not
prepared in accordance with accounting principles generally accepted in the
United States (GAAP) because this guidance excludes restructuring costs and
share-based compensation charges. Due to the forward looking nature of this
information, the amount of compensation charges needed to
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reconcile this measure to the most directly comparable GAAP financial measure is
dependent on future changes in the market price of our common stock and is not
available at this time. Non-GAAP financial measures are not an alternative for
financial measures prepared in accordance with GAAP. However, we believe that
the presentation of this non-GAAP financial measure, when viewed in conjunction
with actual GAAP results, provides investors with a more meaningful
understanding of our ongoing and projected operating performance because it
excludes (i) expenses that pertain to a non-routine corporate restructuring, and
(ii) non-cash charges that are substantially dependent on changes in the market
price of our common stock. We believe this non-GAAP financial measure helps
indicate underlying trends in our business and is important in comparing current
results with prior period results and understanding expected operating
performance. Also, our management uses this non-GAAP financial measure to
establish budgets and operational goals, and to manage our business and to
evaluate its performance.
Results of Operations
Three-Month Period Ended March 31, 2021 Compared to March 31, 2020
Net Product Revenues
Inbrija
For the three-month period ended March 31, 2020 we recognized product sales of
Inbrija following receipt of product by companies in our distribution network,
which primarily includes specialty pharmacy providers and ASD Specialty
Healthcare, Inc. During the three-month period ended December 31, 2020, we
completed the transition from a network of several specialty pharmacies to
AllianceRx Walgreens Prime, or Walgreens, as the sole specialty pharmacy for
U.S. sales of Inbrija, which we believe has potential benefits to patients and
our business. We recognized net revenue from the sale of Inbrija of $5.0 million
and $4.4 million for the three-month periods ended March 31, 2021 and 2020,
respectively, an increase of $0.6 million or 13.6%. The increase in Inbrija net
revenue was due to an increase in net volume of $0.1 million and a net increase
in price and discount and allowance adjustments of $0.5 million for the
three-month period ended March 31, 2021.
Discounts and allowances which are included as an offset in net revenue consist
of allowances for customer credits, including estimated chargebacks, rebates,
returns and discounts. Discounts and allowances are recorded following shipment
of our products to our customers. Adjustments are recorded for estimated
chargebacks, rebates, and discounts. Discounts and allowances also consist of
discounts provided to Medicare beneficiaries whose prescription drug costs cause
them to be subject to the Medicare Part D coverage gap (i.e., the "donut hole").
Payment of coverage gap discounts is required under the Affordable Care Act, the
health care reform legislation enacted in 2010. Discounts and allowances may
increase as a percentage of sales as we enter into new managed care contracts in
the future.
We believe that first and fourth quarter revenue for our products is subject to
certain recurring seasonal factors relating to the commencement of a new
calendar year. For example, some patients refill their prescriptions earlier
ahead of the new year, in the fourth quarter, in anticipation of the year-end
reset of health plan deductibles and the Medicare donut hole, or a year-end
switch of their insurance plans or pharmacy benefit providers. Also, we believe
that AllianceRx Walgreens Prime, the specialty pharmacy that we use for Inbrija
distribution, may increase their stock, within contractual limits, in
anticipation of the holidays and new year. These factors may seasonally have a
positive impact on fourth quarter revenues and a negative impact on first
quarter revenues. Also, discounts and allowances typically are highest in the
first quarter, and lowest in the fourth quarter, and when this occurs this
increases fourth quarter revenues, and decreases first quarter revenues, on a
relative basis.
Ampyra
We recognize product sales of Ampyra following receipt of product by companies
in our distribution network, which primarily includes specialty pharmacy
providers. We recognized net revenue from the sale of Ampyra of $20.3 million
and $20.1 million for the three-month periods ended March 31, 2021 and 2020,
respectively, an increase of $0.2 million, or 1.0%. The increase in Ampyra net
revenue was due to an increase in price of $0.4 million and a decrease in other
gross to net changes of $1.3 million, partially offset by a decrease in net
volume of $1.3 million and a decrease in authorized generic sales of $0.2
million for the three-month period ended March 31, 2021.
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Discounts and allowances which are included as an offset in net revenue consist
of allowances for customer credits, including estimated chargebacks, rebates,
returns and discounts. Discounts and allowances are recorded following shipment
of our products to our customers. Adjustments are recorded for estimated
chargebacks, rebates, and discounts. Discounts and allowances also consist of
discounts provided to Medicare beneficiaries whose prescription drug costs cause
them to be subject to the Medicare Part D coverage gap (i.e., the "donut hole").
Payment of coverage gap discounts is required under the Affordable Care Act, the
health care reform legislation enacted in 2010. Discounts and allowances may
increase as a percentage of sales as we enter into managed care contracts in the
future.
We believe that first and fourth quarter revenue for our products is subject to
certain recurring seasonal factors relating to the commencement of a new
calendar year. For example, some patients refill their prescriptions earlier
ahead of the new year, in the fourth quarter, in anticipation of the year-end
reset of health plan deductibles and the Medicare donut hole, or a year-end
switch of their insurance plans or pharmacy benefit providers. Also, we believe
specialty pharmacies may increase their stock, within contractual limits where
applicable, in anticipation of the holidays and new year. These factors may
seasonally have a positive impact on fourth quarter revenues and a negative
impact on first quarter revenues. Also, discounts and allowances typically are
highest in the first quarter, and lowest in the fourth quarter, and when this
occurs this increases fourth quarter revenues, and decreases first quarter
revenues, on a relative basis.
Other Product Revenues
We recognized negligible revenue from the sale of other products for the
three-month period ended March 31, 2021 as compared to $0.2 million for the
three-month period ended March 31, 2020.
Royalty Revenue
We recognized $3.6 million and $3.4 million in royalty revenue for the
three-month periods ended March 31, 2021 and 2020, respectively, an increase of
$0.2 million, or 5.9%.
Cost of Sales
We recorded cost of sales of $12.0 million for the three-month period ended
March 31, 2021 as compared to $3.8 million for the three-month period ended
March 31, 2020. Cost of sales for the three-month period ended March 31, 2021
consisted primarily of $10.3 million in inventory costs related to recognized
revenues, $0.3 million in royalty fees based on net product shipments, idle
capacity costs of $0.1 million and $1.3 million in period costs related to
expired inventory, freight, stability testing, and packaging. Production costs
related to idle capacity are not included in the cost of inventory but are
charged directly to cost of sales in the period incurred. Cost of sales for the
three-month period ended March 31, 2020 consisted primarily of $2.9 million in
inventory costs related to recognized revenues, idle capacity costs of $0.4
million, $0.3 million in royalty fees based on net product shipments and $0.2
million for costs related to sales of the authorized generic version of Ampyra.
Amortization of intangibles
We recorded amortization of intangible asset related to Inbrija of $7.7 million
for the three-month periods ended March 31, 2021 and 2020.
Research and Development
Research and development expenses for the three-month period ended March 31,
2021 were $4.7 million as compared to $7.7 million for the three-month period
ended March 31, 2020, a decrease of approximately $3.0 million, or 39%. The
decrease was primarily due to reductions in Civitas spending of $1.7 million due
to the commercialization of Inbrija, reductions of $1.2 million due to
restructuring and decrease in several programs to shift focus on Inbrija launch,
and reductions of $0.1 million in research and development expenses related to
Biotie.
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Selling, General and Administrative
Sales and marketing expenses for the three-month period ended March 31, 2021
were $15.2 million compared to $23.2 million for the three-month period ended
March 31, 2020, a decrease of approximately $8.0 million, or 34.5%. The decrease
was primarily due to a decrease in marketing related spending of $5.2 million
due to launch activities for Inbrija, a decrease in overall salaries and
benefits of $1.8 million and a decrease in spending related to marketing for
Ampyra of $0.9 million.
General and administrative expenses for the three-month period ended March 31,
2021 were $18.8 million compared to $17.9 million for the three-month period
ended March 31, 2020, an increase of approximately $0.9 million, or 5.0%. The
increase was primarily due to an increase in restructuring expenses of $1.8
million and an increase of $1.9 million in business development costs and human
resources costs, partially offset by a decrease in overall salaries and benefit
costs of $1.3 million and a decrease in Civitas spending of $1.6 million due to
the sale of the Chelsea facility manufacturing operations.
Intangible Asset Impairment
We recognized an intangible asset impairment charge of $4.1 million in the
three-month period ended March 31, 2020. During the first quarter of 2020, the
Company determined that there were relevant changes to the key assumptions that
would negatively affect the value of the IPR&D asset for BTT-1023. Management
determined that the results of the clinical trial did not meet the primary or
secondary end-points, and the clinical trial was not large enough or expansive
enough to be persuasive to generate interest by third-parties for a possible
licensing arrangement. Management determined that this assessment was the
triggering event that indicated that the asset was fully impaired as there was
no potential value with an out-licensing arrangement. Based on the qualitative
assessment, management determined that the carrying value of the asset exceeded
its estimated fair value and therefore, the asset was fully impaired. Management
determined that additional qualitative procedures were not relevant in this
circumstance given the overwhelming qualitative evidence that indicated the
asset was fully impaired.
Change in Fair Value of Derivative Liability
A derivative liability was recorded in December 2019 as a result of the issuance
of the 6.00% Convertible Senior Secured Notes due 2024. The derivative liability
is measured at fair value on a quarterly basis and changes in the fair value are
recorded in the consolidated statement of operations. We recorded a loss of $0.2
million due to the change in the fair value of the derivative liability for the
three-month period ended March 31, 2021.
Changes in Fair Value of Acquired Contingent Consideration
As a result of the original spin out of Civitas from Alkermes, part of the
consideration to Alkermes was a future royalty to be paid to Alkermes on
Inbrija. Acorda acquired this contingent consideration as part of the Civitas
acquisition. The fair value of that future royalty is assessed quarterly. We
recorded income pertaining to changes in the fair value of our acquired
contingent consideration of $1.0 million for the three-month period ended March
31, 2021 as compared to $3.7 million for the three-month period ended March 31,
2020. The changes in the fair-value of the acquired contingent consideration
were primarily due to updates to certain revenue and expense forecast
assumptions, as well as an increase in the discount rate.
Other Expense, Net
Other expense, net was $7.8 million and $7.3 million for the three-month periods
ended March, 2021 and 2020, respectively.
Benefit from Income Taxes
For the three-month periods ended March 31, 2021 and 2020, the Company recorded
a benefit from income taxes of $3.2 million and a benefit of $7.0 million,
respectively. The effective income tax rates for the Company for the three-month
periods ended March 31, 2021 and 2020 were 8.6% and 52.0%, respectively.
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The variance in the effective tax rates for the three-month period ended March
31, 2021 as compared to the three-month period ended March 31, 2020 was due
primarily to an increase in the valuation allowance offset by the benefit of net
operating loss carryback under the CARES act recorded at 21% to recover taxes
paid at the previous statutory rate of 35%.
The Company continues to evaluate the realizability of its deferred tax assets
on a quarterly basis and will adjust such amounts in light of changing facts and
circumstances including, but not limited to, future projections of taxable
income, tax legislation, rulings by relevant tax authorities, the progress of
ongoing tax audits and the regulatory approval of products currently under
development. Any changes to the valuation allowance or deferred tax assets and
liabilities in the future would impact the Company's income taxes.
The Company was notified during the three-month period ended March 31, 2021,
they are being audited by the state of Massachusetts for tax years 2018 and
2019. There have been no proposed adjustments at this stage of the examination.
The Company has ongoing state examinations in New Jersey and Minnesota which
cover multiple years. There have been no proposed adjustments at this stage of
the examination.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily from: private
placements and public offerings of our capital stock; borrowing money through
loans and the issuance of debt instruments; payments received under our
collaboration and licensing agreements; revenue from sales of Ampyra, Fampyra,
and Inbrija, as well as our former products, Zanaflex and Qutenza; royalty
monetizations and our revenue interest financing arrangement; and, to a lesser
extent, funding from government grants. Also, in February 2021, we obtained
additional capital from the sale of our Chelsea manufacturing operations.
At March 31, 2021, we had $116.8 million of cash and cash equivalents, compared
to $71.4 million at December 31, 2020. Our March 31, 2021 cash and cash
equivalents balance does not include restricted cash, currently held in escrow
under the terms of our convertible senior secured notes due 2024, further
described below under Financing Arrangements, which may potentially be released
from escrow if we pay interest on those notes using shares of our common stock.
We incurred a net loss of $33.5 million for the three-month period ended March
31, 2021.
Our future capital requirements will depend on a number of factors, including:
• the amount of revenue generated from sales of Inbrija and Ampyra;
• our ability to manage operating expenses;
• the amount and timing of purchase price, milestone or other payments
that we may owe or have a right to receive under collaboration, license,
asset sale, acquisition, or other agreements or transactions; and the
extent to which the terms and conditions of our convertible senior
secured notes due 2024 restrict or direct our use of proceeds from such
transactions;
• our ability to make required payments relating to our convertible senior
secured notes due 2024 (the "2024 Notes"), as described below under
Financing Arrangements, using shares of our common stock rather than
cash;
• the extent to which we use cash to repay our remaining convertible
senior notes due 2021, as described below under Financing Arrangements;
• the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property
rights; and
• capital required or used for future acquisitions, to in-license new
products, programs or compounds, or for research and development
relating to existing or future acquired or in-licensed programs or
compounds.
Our ability to meet our future operating requirements, repay our liabilities,
and meet our other obligations are dependent upon a number of factors, including
our ability to generate cash from product sales, reduce planned expenditures,
and obtain additional financing. If we are unable to generate sufficient cash
flow from the sale of our products, we may be required to adopt one or more
alternatives, subject to the restrictions contained in the indenture governing
our 2024 Notes, such as further reducing expenses, selling assets, restructuring
debt, or obtaining additional equity capital on terms that may
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be onerous and which are likely to be highly dilutive. Also, our ability to
raise additional capital and repay or restructure our indebtedness will depend
on the capital markets and our financial condition at such time, among other
factors. In addition, financing may not be available when needed, at all, on
terms acceptable to us or in accordance with the restrictions described above.
Financing Arrangements
Convertible Senior Secured Notes Due 2024
On December 24, 2019, the Company completed the private exchange of $276.0
million aggregate principal amount of its outstanding 1.75% Convertible Senior
Notes due 2021 (the "2021 Notes") for a combination of newly-issued 6.00%
Convertible Senior Secured Notes due 2024 (the "2024 Notes") and cash. For each
$1,000 principal amount of exchanged 2021 Notes, the Company issued $750
principal amount of the 2024 Notes and made a cash payment of $200 (the
"Exchange"). In the aggregate, the Company issued approximately $207.0 million
aggregate principal amount of the 2024 Notes and paid approximate $55.2 million
in cash to participating holders. The Exchange was conducted with a limited
number of institutional holders of the 2021 Notes pursuant to Exchange
Agreements dated as of December 20, 2019 (each, an "Exchange Agreement").
The 2024 Notes were issued pursuant to an Indenture, dated as of December 23,
2019, among the Company, its wholly owned subsidiary, Civitas Therapeutics, Inc.
(along with any domestic subsidiaries acquired or formed after the date of
issuance, the "Guarantors"), and Wilmington Trust, National Association, as
trustee and collateral agent (the "2024 Indenture"). The 2024 Notes are senior
obligations of the Company and the Guarantors, secured by a first priority
security interest in substantially all of the assets of the Company and the
Guarantors, subject to certain exceptions described in the Security Agreement,
dated as of December 23, 2019, between the grantors party thereto and Wilmington
Trust, National Association, as collateral agent (the "Security Agreement").
The 2024 Notes will mature on December 1, 2024 unless earlier converted in
accordance with their terms prior to such date. Interest on the 2024 Notes is
payable semi-annually in arrears at a rate of 6.00% per annum on each June 1 and
December 1, beginning on June 1, 2020. The Company may elect to pay interest in
cash or shares of the Company's common stock, subject to the satisfaction of
certain conditions. If the Company elects to pay interest in shares of common
stock, such common stock will have a per share value equal to 95% of the daily
volume-weighted average price for the 10 trading days ending on and including
the trading day immediately preceding the relevant interest payment date. In
December 2020, the Company issued 1,484,871 shares of common stock in
satisfaction of the interest payable to holders of the 2024 Notes on December 1,
2020. In connection with this stock-based interest payment approximately $6.2
million of accrued interest was released from restricted case and became
available to the Company for other purposes.
The 2024 Notes are convertible at the option of the holder into shares of common
stock of the Company at any time prior to the close of business on the second
scheduled trading day immediately preceding the maturity date. The adjusted
conversion rate for the 2024 Notes is 47.6190 shares of the Company's common
stock per $1,000 principal amount of 2024 Notes, representing an adjusted
conversion price of approximately $21.00 per share of common stock. The
conversion rate was adjusted to reflect the 1-for-6 reverse stock split effected
on December 31, 2020 and is subject to additional adjustments in certain
circumstances as described in the 2024 Indenture.
The Company may elect to settle conversions of the 2024 Notes in cash, shares of
the Company's common stock or a combination of cash and shares of the Company's
common stock. Holders who convert their 2024 Notes prior to June 1, 2023 (other
than in connection with a make-whole fundamental change) will also be entitled
to an interest make-whole payment equal to the sum of all regularly scheduled
stated interest payments, if any, due on such 2024 Notes on each interest
payment date occurring after the conversion date for such conversion and on or
before June 1, 2023. In addition, the Company will have the right to cause all
2024 Notes then outstanding to be converted automatically if the volume-weighted
average price per share of the Company's common stock equals or exceeds 130% of
the adjusted conversion price for a specified period of time and certain other
conditions are satisfied.
Holders of the 2024 Notes will have the right, at their option, to require the
Company to purchase their 2024 Notes if a fundamental change (as defined in the
2024 Indenture) occurs, in each case, at a repurchase price equal to 100% of the
principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid
interest, if any, to, but excluding, the applicable repurchase date. If a
make-whole fundamental change occurs, as described in the 2024 Indenture, and a
holder
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elects to convert its 2024 Notes in connection with such make-whole fundamental
change, such holder may be entitled to an increase in the adjusted conversion
rate as described in the 2024 Indenture.
Subject to a number of exceptions and qualifications, the 2024 Indenture
restricts the ability of the Company and certain of its subsidiaries to, among
other things, (i) pay dividends or make other payments or distributions on their
capital stock, or purchase, redeem, defease or otherwise acquire or retire for
value any capital stock, (ii) make certain investments, (iii) incur indebtedness
or issue preferred stock, other than certain forms of permitted debt, which
includes, among other items, indebtedness incurred to refinance the 2021 Notes,
(iv) create liens on their assets, (v) sell their assets, (vi) enter into
certain transactions with affiliates or (vii) merge, consolidate or sell of all
or substantially all of their assets. The 2024 Indenture also requires the
Company to make an offer to repurchase the 2024 Notes upon the occurrence of
certain asset sales.
The 2024 Indenture provides that a number of events will constitute an event of
default, including, among other things, (i) a failure to pay interest for 30
days, (ii) failure to pay the 2024 Notes when due at maturity, upon any required
repurchase, upon declaration of acceleration or otherwise, (iii) failure to
convert the 2024 Notes in accordance with the 2024 Indenture and the failure
continues for five business days, (iv) not issuing certain notices required by
the 2024 Indenture within a timely manner, (v) failure to comply with the other
covenants or agreements in the 2024 Indenture for 60 days following the receipt
of a notice of non-compliance, (vi) a default or other failure by the Company to
make required payments under other indebtedness of the Company or certain
subsidiaries having an outstanding principal amount of $30.0 million or more,
(vii) failure by the Company or certain subsidiaries to pay final judgments
aggregating in excess of $30.0 million, (viii) certain events of bankruptcy or
insolvency and (ix) the commercial launch in the United States of a product
determined by the U.S. FDA to be bioequivalent to Inbrija. In the case of an
event of default arising from certain events of bankruptcy or insolvency with
respect to the Company, all outstanding 2024 Notes will become due and payable
immediately without further action or notice. If any other event of default
occurs and is continuing, the trustee or the holders of at least 25% in
aggregate principal amount of the then outstanding 2024 Notes may declare all
the notes to be due and payable immediately.
The 2021 Notes received by the Company in the Exchange were cancelled in
accordance with their terms. Accordingly, upon completion of the Exchange, $69.0
million of the 2021 Notes remained outstanding.
The Company assessed all terms and features of the 2024 Notes in order to
identify any potential embedded features that would require bifurcation. As part
of this analysis, the Company assessed the economic characteristics and risks of
the 2024 Notes, including the conversion, put and call features. The Company
concluded the conversion features required bifurcation as a derivative. The fair
value of the conversion feature derivative was determined based on the
difference between the fair value of the 2024 Notes with the conversion options
and the fair value of the 2024 Notes without the conversion options using a
binomial model. The Company determined that the fair value of the derivative
upon issuance of the 2024 Notes was $59.4 million and recorded this amount as a
derivative liability with an offsetting amount as a debt discount as a reduction
to the carrying value of the 2024 Notes on the closing date, or December 24,
2019. There are several embedded features within the 2024 Notes which, upon
issuance, did not meet the conditions for equity classification. As a result,
these features were aggregated together and recorded as the derivative liability
conversion option. The conversion feature is measured at fair value on a
quarterly basis and the changes in the fair value of the conversion feature for
the period will be recognized in the consolidated statements of operations.
The Company received stockholder approval on August 28, 2020 to increase the
number of authorized shares of the Company's common stock from 13,333,333 shares
to 61,666,666 shares. As a result of the share approval, the Company determined
that multiple embedded conversion options met the conditions for equity
classification. The Company performed a valuation of these conversion options as
of September 17, 2020, which was the date the Company completed certain
securities registration obligations. The resulting fair value of these
conversion options was $18.3 million, which was reclassified to equity and
presented in the statement of stockholder's equity as of September 30, 2020, net
of the $4.4 million tax impact. The equity component is not re-measured as long
as it continues to meet the conditions for equity classification. The Company
performed a valuation of the derivative liability related to certain embedded
conversion features that are precluded from equity classification. The fair
value of these conversion features was calculated to be $1.4 million,
representing a change of $0.2 million that is recognized in the consolidated
statement of operations for the three-month period ended of March 31, 2021.
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The outstanding 2024 Note balance as of March 31, 2021 consisted of the
following:
(In thousands) March 31, 2021
Liability component:
Principal $ 207,000
Less: debt discount and debt issuance costs, net (66,249 )
Net carrying amount $ 140,751
Equity component $ 18,257
Derivative liability-conversion Option $ 1,418
Convertible Senior Notes Due 2021
In June 2014, the Company entered into an underwriting agreement (the
"Underwriting Agreement") with J.P. Morgan Securities LLC (the "Underwriter")
relating to the issuance by the Company of $345 million aggregate principal
amount of 1.75% Convertible Senior Notes due 2021 (the "2021 Notes") in an
underwritten public offering. The net proceeds from the offering were $337.5
million after deducting the Underwriter's discount and offering expenses paid by
the Company. On December 24, 2019, the Company completed the private exchange of
$276.0 million aggregate principal amount of its outstanding 2021 Notes for a
combination of newly-issued 6.00% Convertible Senior Secured Notes due 2024 (the
"2024 Notes") and cash. The 2021 Notes received by the Company in the exchange
were cancelled in accordance with their terms. Accordingly, upon completion of
the exchange, $69.0 million of the 2021 Notes remained outstanding.
The 2021 Notes are governed by the terms of an indenture, dated as of June 23,
2014 (the "Base Indenture") and the first supplemental indenture, dated as of
June 23, 2014 (the "Supplemental Indenture," and together with the Base
Indenture, the "2021 Indenture"), each between the Company and Wilmington Trust,
National Association, as trustee (the "Trustee"). The 2021 Notes are convertible
into cash, shares of the Company's common stock or a combination of cash and
shares of the Company's common stock, at the Company's election, based on an
adjusted conversion rate of 3.9161 shares per $1,000 principal amount of 2021
Notes (representing an adjusted conversion price of approximately $255.35 per
share), only in the following circumstances and to the following extent: (1)
during the five business day period after any five consecutive trading day
period (the "measurement period") in which the trading price per $1,000
principal amount of 2021 Notes for each trading day of the measurement period
was less than 98% of the product of the last reported sale price of the
Company's common stock and the conversion rate on each such trading day; (2)
during any calendar quarter commencing after the calendar quarter ending on
September 30, 2014 (and only during such calendar quarter), if the last reported
sale price of the common stock for at least 20 trading days (whether or not
consecutive) during a period of 30 consecutive trading days ending on, and
including, the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the adjusted conversion price on each
applicable trading day; (3) if the Company calls any or all of the 2021 Notes
for redemption, at any time prior to the close of business on the scheduled
trading day immediately preceding the redemption date; (4) upon the occurrence
of specified events described in the 2021 Indenture; and (5) at any time on or
after December 15, 2020 through the second scheduled trading day immediately
preceding the maturity date. The conversion rate described above was adjusted to
reflect the 1-for-6 reverse stock split effected on December 31, 2020 and is
subject to additional adjustments in certain circumstances as described in the
2021 Indenture.
The Company may redeem for cash all or part of the 2021 Notes, at the Company's
option, after June 20, 2017 if the last reported sale price of the Company's
common stock has been at least 130% of the adjusted conversion price then in
effect for at least 20 trading days (whether or not consecutive) during any 30
consecutive trading day period (including the last trading day of such period)
ending within five trading days prior to the date on which the Company provides
notice of redemption at a redemption price equal to 100% of the principal amount
of the 2021 Notes to be redeemed, plus accrued and unpaid interest to, but
excluding, the redemption date.
The Company pays 1.75% interest per annum on the principal amount of the 2021
Notes, payable semiannually in arrears in cash on June 15 and December 15 of
each year. The 2021 Notes will mature on June 15, 2021.
If the Company undergoes a "fundamental change" (as defined in the 2021
Indenture), subject to certain conditions, holders may require the Company to
repurchase for cash all or part of their 2021 Notes in principal amounts of
$1,000 or an integral multiple thereof. The fundamental change repurchase price
will be equal to 100% of the principal amount of the 2021 Notes to be
repurchased, plus accrued and unpaid interest to, but excluding, the fundamental
change repurchase date. If a make-whole fundamental change occurs, as described
in the 2021 Indenture, and a holder elects to convert its 2021 Notes in
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connection with such make-whole fundamental change, such holder may be entitled
to an increase in the adjusted conversion rate as described in the 2021
Indenture.
The 2021 Indenture contains customary terms and covenants and events of default.
If an event of default (other than certain events of bankruptcy, insolvency or
reorganization involving the Company) occurs and is continuing, the Trustee by
notice to the Company, or the holders of at least 25% in principal amount of the
outstanding 2021 Notes by notice to the Company and the Trustee, may declare
100% of the principal of and accrued and unpaid interest, if any, on all the
2021 Notes to be due and payable. Upon such a declaration of acceleration, such
principal and accrued and unpaid interest, if any, will be due and payable
immediately. Upon the occurrence of certain events of bankruptcy, insolvency or
reorganization involving the Company, 100% of the principal and accrued and
unpaid interest, if any, on all of the 2021 Notes will become due and payable
automatically. Notwithstanding the foregoing, the 2021 Indenture provides that,
to the extent the Company elects and for up to 270 days, the sole remedy for an
event of default relating to certain failures by the Company to comply with
certain reporting covenants in the 2021 Indenture consists exclusively of the
right to receive additional interest on the 2021 Notes.
The 2021 Notes are senior unsecured obligations and rank equally with all of the
Company's existing and future senior debt and senior to any of the Company's
subordinated debt. The 2021 Notes are structurally subordinated to all existing
or future indebtedness and other liabilities (including trade payables) of the
Company's subsidiaries and are effectively subordinated to the Company's
existing or future secured indebtedness to the extent of the value of the
collateral. The 2021 Indenture does not limit the amount of debt that the
Company or its subsidiaries may incur.
In accounting for the issuance of the 2021 Notes, the Company separated the 2021
Notes into liability and equity components. The carrying amount of the liability
component was calculated by measuring the fair value of a similar liability that
does not have an associated convertible feature. The carrying amount of the
equity component representing the conversion option was determined by deducting
the fair value of the liability component from the par value of the 2021 Notes
as a whole. The excess of the principal amount of the liability component over
its carrying amount, referred to as the debt discount, is amortized to interest
expense over the seven-year term of the 2021 Notes using the effective interest
method. The equity component is not re-measured as long as it continues to meet
the conditions for equity classification.
Our outstanding 2021 Note balances as of March 31, 2021 consisted of the
following:
(In thousands) March 31, 2021
Liability component:
Principal $ 69,000
Less: debt discount and debt issuance costs, net (471 )
Net carrying amount $ 68,529
Equity component $ 22,791
Non-Convertible Capital Loans
Non-convertible capital loans were granted by Business Finland (formerly Tekes),
with an adjusted acquisition-date fair value of $20.5 million (€18.2 million)
and a carrying value of $25.7 million as of March 31, 2021. The loans are
composed of fourteen non-convertible loans. The loans bear interest based on the
greater of 3% or the base rate set by Finland's Ministry of Finance minus one
(1) percentage point. The maturity dates for these loans range from eight to ten
years from the date of issuance, however, according to certain terms and
conditions of the loans, the Company may repay the principal and accrued and
unpaid interest of the loans only when the consolidated retained earnings of
Biotie is sufficient to fully repay the loans.
Research and Development Loans
Research and Development Loans ("R&D Loans") were granted by Business Finland
with an acquisition-date fair value of $2.9 million (€2.6 million) and a
carrying value of $0.0 million as of March 31, 2021. The R&D Loans bear interest
based on the greater of 1% or the base rate set by Finland's Ministry of Finance
minus three (3) percentage points. The repayment of these loans began in January
2017. The loan principal is paid in equal annual installments over a 5 year
period, which ended January 2021.
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Cash, Cash Equivalents and Investments
At March 31, 2021, cash and cash equivalents were approximately $116.8 million,
as compared to $71.4 million at December 31, 2020. Our cash equivalents consist
of highly liquid investments with original maturities of three months or less at
date of purchase and consist of investments in a Treasury money market fund.
Also, we maintain cash balances with financial institutions in excess of insured
limits. We do not anticipate any losses with respect to such cash balances. Our
March 31, 2021 cash and cash equivalents balance does not include restricted
cash, currently held in escrow under the terms of our convertible senior secured
notes due 2024, further described above under Financing Arrangements, which may
potentially be released from escrow if we pay interest on those notes using
shares of our common stock.
Net Cash Used in Operations
Net cash used in operations was $26.9 million for the three-month period ending
March 31, 2021. Cash used by operations for the three-month period ended March
31, 2021 was primarily due to net loss of $33.5 million, a change in acquired
contingent consideration liability of $1.0 million, non-cash royalty revenue of
$3.0 million, deferred tax benefit of $3.2 million, an increase in inventory of
$1.0 million, a decrease in accounts payable, accrued expenses and other current
liabilities of $2.6 million, and a decrease in other non-current liabilities of
$0.2 million. This was partially offset by share based compensation expense of
$0.7 million, amortization of debt discount and debt issuance costs of $4.3
million, depreciation and amortization of $8.5 million, a change in the
derivative liability of $0.2 million, a decrease in accounts receivable of $2.9
million, and a decrease in prepaid expenses and other assets of $0.8 million.
Net Cash Used in Investing
Net cash used in investing activities for the three-month period ended March 31,
2021 was $0.1 million, which was due primarily to purchases of property and
equipment and intangible assets of $0.1 million.
Net Cash Provided by Financing
Net cash provided by financing activities for the three-month period ended March
31, 2021 was $73.3 million, which was primarily due to net proceeds from the
sale of the Chelsea facility of $74.0 million, partially offset by the repayment
of loans payable of $0.7 million.
Contractual Obligations and Commitments
A summary of our minimum contractual obligations related to our material
outstanding contractual commitments is included in Note 13 of our Annual Report
on Form 10-K for the year ended December 31, 2020. Our long-term contractual
obligations include commitments and estimated purchase obligations entered into
in the normal course of business.
Under certain agreements, we are required to pay royalties or license fees and
milestones for the use of technologies and products in our research and
development activities and in the commercialization of products. The amount and
timing of any of the foregoing payments are not known due to the uncertainty
surrounding the successful research, development and commercialization of the
products. As of March 31, 2021, we have inventory-related purchase commitments
of approximately $2.7 million, as compared to $2.8 million as of December 31,
2020. Under our agreement with Catalent, we are obligated to make minimum
purchase commitments for Inbrija through the expiration of the agreement on
December 31, 2030. As of March 31, 2021, the minimum remaining purchase
commitment to Catalent was $12 million through December 31, 2021, and $18
million annually each year thereafter.
Critical Accounting Policies and Estimates
Our critical accounting policies are detailed in our Annual Report on Form 10-K
for the year ended December 31, 2020. Effective January 1, 2021, the Company
adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes" (Topic 740).
Other than the adoption of the new accounting guidance, our significant
accounting policies have not changed materially from December 31, 2020.
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