SPECTRUM PHARMACEUTICALS, INC. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors including the risks we discuss in Item 1A. Risk Factors and elsewhere in this Annual Report. Company OverviewSpectrum Pharmaceuticals, Inc. ("Spectrum," the "Company," "we," "our," or "us") is a commercial-stage biopharmaceutical company, with a strategy of acquiring, developing, and commercializing novel and targeted oncology therapies. We have an in-house clinical development organization with regulatory and data management capabilities, in addition to commercial infrastructure and a field based sales force for our marketed product, ROLVEDON™ (formerly known as eflapegrastim).
We have one commercial asset and one drug candidate in late-stage development:
•ROLVEDON™ is a novel long-acting granulocyte colony-stimulating factor
("G-CSF") for the treatment of chemotherapy-induced neutropenia. On April 11,
2022 , we announced that we had received notice that the resubmission of our
Biologics License Application ("BLA") for ROLVEDON had been accepted and
received a Prescription Drug User Fee Act ("PDUFA") date of September 9, 2022 .
On September 9, 2022 , we received the U.S. Food and Drug Administration's
("FDA") marketing approval for ROLVEDON and began commercialization activities
in the fourth quarter of 2022; and
•Poziotinib is a novel irreversible TKI under investigation for NSCLC tumors
with various mutations. On December 6, 2021 , we announced we submitted our NDA
for poziotinib to the FDA for use in patients with previously treated locally
advanced or metastatic NSCLC with HER2 exon 20 insertion mutations. The NDA
submission is based on the positive results of Cohort 2 from the ZENITH20
clinical trial, which assessed the safety and efficacy of poziotinib. The
product candidate received fast track designation from the FDA and there is
currently no treatment specifically approved by the FDA for this indication. On
February 11, 2022 , we announced that we received notice from the FDA that the
NDA had been accepted for filing and received a PDUFA action date of November
24, 2022 . On September 22, 2022 , the Company met with the FDA's Oncologic Drugs
Advisory Committee ("ODAC"). The ODAC voted 9 (no) - 4 (yes) that the current
benefits of poziotinib did not outweigh its risks for the treatment of patients
with NSCLC with HER2 exon 20 insertion mutations. On November 25, 2022 , we
announced that we had received a Complete Response Letter ("CRL") from the FDA
regarding our NDA. The CRL stated that the FDA determined that it could not
approve the NDA in its present form and provided recommendations needed for
resubmission, including generating additional data from a randomized controlled
study prior to approval. We are continuing to evaluate these recommendations but
we have de-prioritized further poziotinib development activities.
Our business strategy is the development of our late-stage assets through commercialization and the sourcing of additional assets that are synergistic with our existing portfolio (through purchase acquisitions, in-licensing transactions, or co-development and marketing arrangements).
Recent Highlights of Our Business, Product Development Initiatives, and Regulatory Approvals
Our product and commercial product pipeline is summarized below:
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ROLVEDON, a novel long-acting G-CSF:
We submitted our BLA for ROLVEDON to the FDA onOctober 24, 2019 that is supported by data from two similarly designed Phase 3 clinical trials, ADVANCE and RECOVER, which evaluated the safety and efficacy of ROLVEDON in 643 early-stage breast cancer patients for the treatment of neutropenia due to myelosuppressive chemotherapy. Both studies met the pre-specified endpoint of non-inferiority in duration of severe neutropenia and met all of the secondary endpoints. In addition, the safety profile was similar to pegfilgrastim. OnAugust 6, 2021 , we announced the receipt of a Complete Response Letter ("CRL") based on manufacturing deficiencies identified at both the drug substance and drug product manufacturers. The Company believes these manufacturing deficiencies had been remediated and onMarch 11, 2022 , we resubmitted the BLA for ROLVEDON. OnApril 11, 2022 , the Company announced that it had received notice that the BLA had been accepted and received a PDUFA date ofSeptember 9, 2022 . OnSeptember 9, 2022 , the Company received FDA marketing approval for ROLVEDON injection to decrease the incidence of infection, as manifested by febrile neutropenia, in adult patients with non-myeloid malignancies receiving myelosuppressive anti-cancer drugs associated with clinically significant incidence of febrile neutropenia. We began commercialization activities of ROLVEDON in the fourth quarter of 2022 and ROLVEDON is currently being marketed for sale inthe United States . A company sponsored clinical trial that has been initiated to evaluate the administration of eflapegrastim on the same day as chemotherapy is currently ongoing. This Phase 1 clinical trial is a randomized, open label, actively controlled study to evaluate the same-day dosing of eflapegrastim on duration of neutropenia when administered at varying intervals following docetaxel and cyclophosphamide (TC) chemotherapy in patients with early-stage breast cancer. The study was completed with the enrollment of 16 patients dosed with eflapegrastim 30 minutes after chemotherapy on the same day in Cycle 1. The study added an Expansion Phase with a plan to dose approximately 45 patients with eflapegrastim 30 minutes after the chemotherapy on the same day in all 4 cycles. The overall safety profile to date for the 30-minute arm was similar to what has been seen previously in large, randomized studies with G-CSF given 24 hours after chemotherapy. The safety will be monitored continuously throughout the Expansion Phase of the study. An evaluation of safety and efficacy will be conducted once the data from 6 patients in the Expansion Phase is complete to determine the trend.
As part of the post-market requirement, Spectrum is expected to conduct a pediatric study in Rolvedon that includes the development of an appropriate formulation to dose certain pediatric patients of 1 month to 17 years of age based on weight-based dosing. The study as well as the development of a pediatric formulation is in progress.
Poziotinib, a Pan ErbB inhibitor targeting HER2 exon20 mutations:
Poziotinib is a novel, pan-HER inhibitor that irreversibly blocks signaling
through the Epidermal Growth Factor Receptor ("EGFR") family of tyrosine-kinase
receptors, including HER1 (erbB1; EGFR), HER2 (erbB2), HER4 (erbB4), and HER
receptor mutations. This, in turn, leads to the inhibition of the proliferation
of tumor cells that over-express these receptors. Mutations of
over-expression/amplification of EGFR family receptors have been associated with
a number of different cancers, including NSCLC, breast cancer, and gastric
cancer. In February 2015 , we entered into a co-development and commercialization
agreement with Hanmi for poziotinib worldwide rights, except in Korea and China .
Our clinical development program for poziotinib is focused on previously treated
NSCLC, first-line treatment of NSCLC and treatment of other solid tumors with
HER2 mutations. NSCLC tumors with HER2 exon 20 insertion mutations are rare and
have generally not been responsive to other TKIs. Patients with these mutations
have a poor prognosis, and available treatment options are limited. Poziotinib,
due to its unique chemical structure and characteristics, is believed to inhibit
cell growth of tumors with HER2 exon-20 insertion mutations.
In October 2017 , we announced the start of a pivotal Phase 2 global clinical
trial with active sites in the U.S. , Canada and Europe ("ZENITH20"). The
ZENITH20 trial consisted of seven cohorts of NSCLC patients. Cohorts 1, 2, 3 and
4 had completed enrollment while Cohorts 5, 6, and 7 ceased enrolling patients
upon the receipt of the CRL (discussed below). Cohorts 1 (EGFR) and 2 (HER2)
included previously treated NSCLC patients with exon 20 mutations. Cohort 3
(EGFR) and 4 (HER2) included first-line NSCLC patients with exon 20 mutations.
Cohorts 1- 4 were each independently powered for a pre-specified statistical
hypothesis and the primary endpoint was objective response rate ("ORR"). Cohort
5 included previously treated or treatment-naïve NSCLC patients with EGFR or
HER2 exon 20 insertion mutations and evaluated different dosing regimens. Cohort
6 included NSCLC patients with classical EGFR mutations who progressed while on
treatment with first-line osimertinib and developed an additional EGFR mutation.
Cohort 7 included NSCLC patients with a variety of less common mutations in EGFR
or HER2 exons 18-21 or the extracellular or transmembrane domains.
On December 26, 2019 , we announced that the pre-specified primary endpoint was
not met in Cohort 1 of the ZENITH20 trial evaluating poziotinib in previously
treated NSCLC patients with EGFR exon 20 insertion mutations. Cohort 1 enrolled
a total of 115 patients who received 16 mg/day of poziotinib. The
intent-to-treat analysis showed that 17 patients had a response (by RECIST) and
62 patients had stable disease for a 68.7% disease control rate ("DCR"). The
confirmed ORR was 14.8%
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(95% CI 8.9%-22.6%). The median duration of response was 7.4 months and the progression free survival was 4.2 months. The safety profile was in-line with other second-generation EGFR TKIs.
OnJuly 27, 2020 , we announced that we met the pre-specified primary endpoint for Cohort 2 in the ZENITH20 trial evaluating previously treated NSCLC patients with HER2 exon 20 insertion mutations. Cohort 2 enrolled a total of 90 patients who received an oral, once daily dose of 16 mg of poziotinib. All the patients had failed at least one line of prior systemic therapy with 60 patients (67%) having failed two or more prior therapies, including chemotherapy and immunotherapy. All responses were read independently and confirmed by a central imaging laboratory using RECIST criteria. The intent-to-treat analysis demonstrated a confirmed ORR of 27.8% (95% CI of 18.9%-38.2%). Based on the pre-specified statistical hypothesis for the primary endpoint, the observed lower bound of 18.9% exceeded the pre-specified lower bound of 17% in this heavily pre-treated population. The safety profile was in-line with the type of adverse events seen with other second-generation EGFR TKIs. These results were presented at theEuropean Society for Medical Oncology ("ESMO")Virtual Congress 2020 Science Weekend held inSeptember 2020 . InDecember 2020 , we reported that its pre-specified primary endpoint in Cohort 3 evaluating poziotinib in first-line NSCLC patients with EGFR exon 20 insertion mutations was not met. Cohort 3 of the ZENITH20 clinical trial enrolled a total of 79 patients who received an oral once daily dose of 16 mg of poziotinib. The median time of follow up of all patients was 9.2 months. The intent-to-treat analysis showed that 22 patients had a partial response (by RECIST) and 68 patients had stable disease for an 86.1% DCR. 91% of patients experienced tumor reduction with a median reduction of 25.5%. The confirmed ORR was 27.8% (95% CI 18.4-39.1%). Based on the pre-specified statistical hypothesis for the primary endpoint, the observed lower bound of 18.4% did not meet the pre-specified lower bound of >20%. The median duration of response was 6.5 months and the median progression free survival was 7.2 months. The safety profile was similar with the type of adverse events observed with other second-generation EGFR TKIs. Grade 3 treatment related rash was 33% and diarrhea was 23%. 94% of patients had drug interruptions with 6 patients (8%) permanently discontinuing due to adverse events. InMarch 2021 , we announced that the FDA granted fast track designation for poziotinib based on data from Cohort 2 of ZENITH20, which evaluated previously treated patients with NSCLC with HER2 exon 20 insertion mutations. OnDecember 6, 2021 , the Company announced the submission of its NDA for poziotinib to the FDA for use in patients with previously treated locally advanced or metastatic NSCLC with HER2 exon 20 insertion mutations. The NDA submission is based on the positive results of Cohort 2 from the ZENITH20 clinical trial, which assessed the safety and efficacy of poziotinib. OnFebruary 11, 2022 , the Company announced that the file had been accepted and an action date ofNovember 24, 2022 had been set. InMarch 2022 , the Company presented the results of Cohort 4 at theEuropean Society for Medical Oncology Targeted Anticancer Therapies ("ESMO TAT") meeting. Cohort 4 of the ZENITH20 clinical trial enrolled a total of 70 patients, 48 of whom received an oral once daily dose of 16 mg of poziotinib and 22 of who received an oral twice daily dose of 8 mg of poziotinib. The intent-to-treat analysis demonstrated a confirmed ORR of 41% (95% CI of 30%-54%). Based on the pre-specified statistical hypothesis for the primary endpoint, the observed lower bound of 30% exceeded the pre-specified lower bound of 20%. The median duration of response was 5.7 months and median progression free survival was 5.6 months. The most common treatment related Grade ? 3 adverse events were rash (30%), stomatitis (19%), diarrhea (14%), and paronychia (7%). In addition, the incidence of Grade ? 3 pneumonitis was low at 3%. The safety profile was consistent with the TKI class. OnSeptember 22, 2022 , the Company met with ODAC to review poziotinib for the treatment of patients with previously treated locally advanced or metastatic non-small cell lung cancer harboring HER2 exon 20 insertion mutations. The committee voted 9 (no) - 4 (yes) that the current benefits of poziotinib did not outweigh its risks. ODAC is an independent panel of experts that reviews and evaluates data concerning the efficacy and safety of marketed and investigational products for use in the treatment of cancer. ODAC makes appropriate recommendations to the FDA, but these recommendations are not binding and the final decision regarding product approval will be made solely by the FDA. OnNovember 25, 2022 , the Company announced that it had received a CRL from the FDA regarding our NDA, indicating that the NDA could not be approved in its present form and that based on the CRL, the Company would have to generate additional data including a randomized controlled study prior to approval. The Company also announced that we are de-prioritizing poziotinib program activities.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has adversely impacted economic activity and conditions
worldwide, including workforces, liquidity, capital markets, consumer behavior,
supply chains, and macroeconomic conditions. Despite progress in vaccination
efforts, global economic activity remains uncertain and cannot be predicted with
confidence.
The extent to which the COVID-19 pandemic may continue to impact our results of
operations depends on numerous evolving factors, which are highly uncertain and
difficult to predict, including new information that may emerge concerning the
continued severity of COVID-19 and variants of COVID-19 and the actions to
contain COVID-19 or treat its impact, among
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others. For more information related to the impact of COVID-19 on our business, refer to the risk factors within Item 1A. Risk Factors - Risks Related to Our Business -- COVID-19 and other pandemics, epidemics, or outbreaks of a contagious illness could materially and adversely impact or disrupt our business and our financial condition, results of operations, cash flows and performance.
Components of Operating Results
The below summarizes the nature of our revenue and operating expense line items within our Consolidated Statements of Operations:
ROLVEDON became available for commercial sale to patients with prescriptions in the fourth quarter of 2022. We sell ROLVEDON to large pharmaceutical wholesalers and distributors, which we recognize revenue upon title transfer (which is typically at time of delivery), provided our other revenue recognition criteria have been met. The transaction price that we recognize for ROLVEDON revenue includes an estimate of variable consideration. Shipping and handling costs to our customers are recorded as cost of sales. The components of variable consideration include: Product Returns Allowances: Our customers are contractually permitted to return purchased products in certain circumstances. We estimate expected product returns for our allowance based on our expected return rates of similar products as well as assumptions regarding projected demand. Returned product is typically destroyed, since substantially all returns are due to expiry and cannot be resold. Government Chargebacks: Our product is subject to pricing limits under certain federal government programs (e.g., Medicare, Medicaid, and 340B Drug Pricing Program). Qualifying entities (i.e., end-users) purchase products from our customers at their qualifying discounted price. The chargeback amount we incur represents the difference between our contractual sales price to our customer, and the end-user's applicable discounted purchase price under the government program. There may be significant lag time between our reported net product sales and our receipt of the corresponding government chargeback claims from our customers.
Prompt Pay Discounts: Discounts for prompt payment are estimated at the time of sale, based on our eligible customers' prompt payment history and the contractual discount percentage.
Commercial Rebates: Commercial rebates are based on (i) our estimates of
end-user purchases through a group purchasing organization ("GPO"), (ii) the
corresponding contractual rebate percentage tier we expect each GPO to achieve,
and (iii) our estimates of the impact of any prospective rebate program changes
made by us.
Medicaid Rebates: Our product is subject to state government-managed Medicaid
programs, whereby rebates are issued to participating state governments. These
rebates arise when a patient treated with our product is covered under Medicaid,
resulting in a discounted price for our product under the applicable Medicaid
program. Our Medicaid rebate accrual calculations require us to project the
magnitude of our sales, by state, that will be subject to these rebates. There
is a significant time lag in us receiving rebate notices from each state
(generally several months or longer after our sale is recognized). Our estimates
are based on our historical claim levels of similar products by state, as
supplemented by management's judgment.
Distribution, Data, and GPO Administrative Fees: Distribution, data, and GPO
administrative fees are paid to authorized wholesalers/distributors of our
products for various commercial services including contract administration,
inventory management, delivery of end-user sales data, and product returns
processing. These fees are based on a contractually-determined percentage of our
applicable sales.
Our revenue recognition criteria are described in greater detail below and in Note 2(i) to the accompanying Consolidated Financial Statements.
Cost of Sales
Cost of sales includes the cost of the inventory sold, which includes direct manufacturing, production and packaging materials, shipping expenses, and royalty fees.
Operating Expenses
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Selling, General and Administrative
Selling, general and administrative expenses primarily consist of compensation (including stock-based compensation) and benefits for our sales force and personnel that support our sales and marketing operations, and our general operations such as information technology, executive management, financial accounting, and human resources. It also includes costs attributable to marketing our products to our customers and prospective customers, patent and legal fees, financial statement audit fees, insurance coverage fees, personnel recruiting fees, and other professional services.
Research and Development
Our research and development activities primarily relate to the clinical development of our drug pipeline and costs associated with at-risk manufacture of drug products prior to FDA approval.
These clinical development expenses specifically consist of (i) compensation (including stock-based compensation) and benefits for research and development and clinical and regulatory personnel, (ii) materials and supplies for each project, (iii) consultants, and (iv) associated regulatory and clinical site expenses. Our research and development manufacturing expenses are recognized in the period which the activity occurs and includes (i) our technology transfer costs for production, (ii) FDA qualification costs of our contract manufacturers' sites, and (iii) material and service costs associated with our inventory build prior to FDA approval. Results of Operations
Comparison of the Years Ended
Year Ended December 31,
2022 2021 $ Change
($ in thousands)
Net sales $ 10,114 $ - $ 10,114
Expenses:
Cost of sales 1,792 - 1,792
Selling, general and administrative 38,816 60,406 (21,590)
Research and development 42,203 87,297 (45,094)
Total expenses 82,811 147,703 (64,892)
Loss from continuing operations before other income
(expense) and income taxes (72,697) (147,703) 75,006
Other income (expense): -
Interest income 968 215 753
Interest expense (998) (52) (946)
Other expense, net (5,331) (10,892) 5,561
Total other expense (5,361) (10,729) 5,368
Loss from continuing operations before income taxes (78,058) (158,432) 80,374
Provision for income taxes from continuing operations (46) (4) (42)
Loss from continuing operations (78,104) (158,436) 80,332
Income (loss) from discontinued operations, net of income
taxes 2,703 (192) 2,895
Net loss $ (75,401) $ (158,628) $ 83,227
Net Sales . During the fourth quarter of 2022, net sales were $10.1 million as we
began to sell our sole commercial product, ROLVEDON, which was approved by the
FDA on September 9, 2022 . We had no sales during the year ended December 31,
2021 .
Cost of Sales. During the year ended December 31, 2022 , the cost of sales was
$1.8 million , which consisted primarily of packaging costs, freight and
royalties associated with the net sales of ROLVEDON owed to our licensing
partner and $1.1 million of start-up expenses associated with stability and
bio-burden testing. The amount did not include any direct costs associated with
the manufacture of ROLVEDON. Prior to FDA approval in September 2022 , we
expensed approximately $5.7 million in costs associated with the manufacturing
of ROLVEDON as a component of research and development expense. If we were to
have included those costs previously expensed as a component of cost of sales,
our cost of sales for the year ended
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December 31, 2022 would have been$3.0 million . We expect to sell the remaining$4.5 million of previously expensed inventory over the next nine months. We expect the cost of sales to remain low through the first nine months of 2023 as we sell through certain inventory that was expensed prior to FDA approval of ROLVEDON inSeptember 2022 , and we expect our cost of sales to increase thereafter. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased for the year endedDecember 31, 2022 by approximately$21.6 million to$38.8 million as compared to the comparable period endedDecember 31, 2021 . This decrease primarily related to (i) a$7.7 million decrease in personnel expenses, primarily associated with the reduction in workforce during the strategic restructuring that began inJanuary 2022 , (ii) a decrease in stock-based compensation expense of$8.6 million , (iii) a decrease in deferred compensation expense of$3.7 million given decreases in the overall market compared to the prior year period, (iv) a decrease of$1.4 million in professional services, (v) and a decrease of$0.1 million in other general expenses. We expect our selling, general and administrative expenses to increase as our sales and marketing expenses increase due to the commercialization of ROLVEDON. Research and Development Expenses. Research and development expenses decreased for the year endedDecember 31, 2022 by approximately$45.1 million to$42.2 million as compared to the comparable period endedDecember 31, 2021 . This decrease related to the reversal of an$11.2 million ROLVEDON drug substance accrual during the period. A concession was provided by Hanmi for drug substance which had been accrued during 2021 and is no longer payable. Expenses also decreased in the current period due to decreased program activities of$12.6 million for ROLVEDON,$8.1 million for poziotinib, and$2.5 million related to our early-stage compounds. Personnel expenses decreased by$10.7 million related to the reduction in workforce during the strategic restructuring that began inJanuary 2022 . Total Other Expense. Total other expense decreased for the year endedDecember 31, 2022 by$5.4 million as compared to the comparable period endedDecember 31, 2021 , primarily due to a$14.4 million reduction of unrealized losses in our equity holdings compared to the prior year period. This decrease was partially offset by a$7.7 million increase in realized losses recorded during the year endedDecember 31, 2022 for the sale of our equity holdings in addition to a$1.4 million increased loss on our deferred compensation plan assets. Income (loss) from discontinued operations, net of income taxes. Income (loss) from discontinued operations, net of income taxes, increased by$2.9 million of income as we reversed accruals in the current period that contractually expired and for which we are no longer liable.
Liquidity and Capital Resources
We expect to incur future net losses as we continue to fund the advancement and commercialization of our product and product candidates. Based upon our current projections, including our intention to continue to place a disciplined focus on streamlining our business operations, we believe that our$75.1 million in aggregate cash, cash equivalents, and marketable securities as ofDecember 31, 2022 , will be sufficient to fund our current and planned operations for at least the next twelve months from the date this Annual Report is filed with theSEC . However, should our net sales prove to be less than we currently anticipate, or our cost of sales and expenses prove to be greater than we currently anticipate, or should we change our current business plan in a manner that increases or accelerates our anticipated costs and expenses, we may require additional liquidity earlier than expected. Until and unless we can generate substantial product revenue, we expect to finance our cash needs through the public or private sale of debt or equity securities, out-licensing arrangements, funding from joint-venture or strategic partners, debt financing or short-term loans, or through a combination of the foregoing. We cannot provide any assurance that we will be able to obtain additional liquidity on terms favorable to us or our current stockholders, or at all. Our liquidity and our ability to fund our capital requirements going forward are dependent, in part, on market and economic factors that are beyond our control. The Company may never achieve profitability or generate positive cash flows, and unless and until it does, the Company will continue to need to raise additional capital. As ofDecember 31, 2022 , we have approximately$128.8 million remaining to be sold pursuant to theApril 2019 ATM Agreement, subject to the availability of authorized shares. OnSeptember 21, 2022 , we entered into a Loan and Security Agreement ("Loan Agreement"), by and among the Company and its subsidiaries,Allos Therapeutics, Inc. ,Talon Therapeutics, Inc. , andSpectrum Pharmaceuticals International Holdings, LLC , as borrowers, SLR Investment Corp. as administrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in an aggregate principal amount of up to$65.0 million available to us in four tranches (collectively, the "Term Loans"). As ofDecember 31, 2022 , we had drawn a total of$30.0 million of the Term Loans pursuant to the Loan Agreement, with a remaining undrawn principal balance of$25.0 million , which is available throughNovember 15, 2023 and is subject to the achievement of certain milestone events. As we did not satisfy the Term B Loan Funding Condition, we will be unable to draw the Term B Loan of$10 million (as those terms are defined in the Loan Agreement). Refer to Note 5 of our accompanying Consolidated Financial Statements for additional information. 64
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We have no off-balance sheet arrangements that provide financing, liquidity, market or credit risk support, or involve derivatives. In addition, we have no arrangements that may expose us to liability that are not expressly reflected in the accompanying Consolidated Financial Statements and/or notes thereto.
Cash Flows
The following is a discussion of cash flow activities:
Year Ended December 31 ,
(in thousands) 2022 2021
Net cash used in operating activities$ (96,989) $ (119,486) Net cash (used in) provided by investing activities$ (26,718) $ 108,711 Net cash provided by financing activities$ 75,591 $ 53,310 Operating Activities Cash flow from operating activities is derived by adjusting net earnings for interest and amortization, non-cash operating items, gains and losses attributed to investing and working capital in the ordinary course of business. Net cash used in operating activities was$97.0 million for the year endedDecember 31, 2022 , as compared to$119.5 million for the year endedDecember 31, 2021 . The decrease in net cash used in operating activities of$22.5 million was primarily due to a decrease in our net loss of$83.2 million , offset by the decreases in changes in operating assets and liabilities of$37.8 million and non-cash charges of$22.9 million .
Investing Activities
Cash flow from investing activities includes cash used for the purchases of marketable securities and proceeds from the maturity of investments and sale of equity holdings.
Net cash used in investing activities was$26.7 million for the year endedDecember 31, 2022 , as compared to$108.7 million provided by investing activities for the year endedDecember 31, 2021 . The change of$135.4 million is primarily attributed to a decrease in the proceeds from maturities and sales of investments of$117.7 million and an increase in the purchase of investments of$17.7 million . Financing Activities
Cash flow from financing activities includes proceeds from the issuance of common shares, the proceeds from the issuance of debt, net of debt acquisitions costs and from the sale of stock under our employee stock purchase plan.
Net cash provided by financing activities was$75.6 million for the year endedDecember 31, 2022 , as compared to$53.3 million for the year endedDecember 31, 2021 . The increase of$22.3 million primarily relates to$28.7 million of proceeds from the issuance of debt, net of acquisition costs,$20 million in proceeds from the sale of shares of common stock to Hanmi, offset by a decrease in the sale of common stock under an at-the-market sales agreement of$26.1 million .
Sale of Common Stock Under ATM Agreements
OnApril 5, 2019 , we entered into a new collective at-market-issuance ("ATM") sales agreement withCantor Fitzgerald & Co. ,H.C. Wainwright & Co., LLC andB. Riley FBR, Inc. (the "April 2019 ATM Agreement"), pursuant to which we may offer and sell shares of our common stock by any method deemed to be an "at the market" offering (the "ATM Offering"). FromApril 5, 2019 toMarch 2, 2020 , the ATM Offering was conducted pursuant to a sales agreement prospectus filed with our automatic shelf registration statement on Form S-3ASR, filed with theSEC onApril 5, 2019 , which registered an aggregate offering price of$150 million under theApril 2019 ATM Agreement. FromMay 8, 2020 toJune 30, 2020 , the ATM Offering was conducted pursuant to a sales agreement prospectus (the "Initial Sales Agreement Prospectus") filed with our shelf registration statement on Form S-3, filed with theSEC onMarch 20, 2020 , as amended by Pre-Effective Amendment No. 1 thereto, and declared effective by theSEC onMay 8, 2020 (the "Registration Statement"), which registered an aggregate offering price of up to$75 million under theApril 2019 ATM Agreement. OnJuly 29, 2020 , we terminated the Initial Sales Agreement Prospectus, but left theApril 2019 ATM Agreement in full force and effect. OnNovember 6, 2020 , we filed a new sales agreement prospectus to the Registration Statement, which registered an aggregate offering price of up to$60 million under theApril 2019 ATM Agreement. 65
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OnJuly 13, 2021 , we filed a shelf registration statement with theSEC on Form S-3, which was declared effective by theSEC onJuly 21, 2021 (the "Registration Statement"). The Registration Statement registered an aggregate offering price of up to$300 million of securities that may be issued and sold by us from time to time, including up to an aggregate offering price of$150 million of common stock (which amount is included in the$300 million aggregate offering price set forth in the base prospectus) that may be issued and sold pursuant to theApril 2019 ATM Agreement. As ofDecember 31, 2022 , there was approximately$128.8 million remaining to be sold pursuant to theApril 2019 ATM Agreement. We sold and issued shares of our common stock under theApril 2019 ATM Agreement as follows: Proceeds Received (Net of Broker No. of Common Shares Commissions and Fees Description of Financing Transaction Issued )
Common shares issued pursuant to the
15,851,391 $ 52,621
Common shares issued pursuant to the
24,513,945 $ 26,561
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires our management to make informed estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses. These amounts may materially differ from the amounts ultimately realized and reported due to the inherent uncertainty of any estimate or assumption. On an on-going basis, our management evaluates (as applicable) its most critical estimates and assumptions, including those described below:
Revenue Recognition
We recognize ROLVEDON revenue in accordance with Accounting Standards
Codification ("ASC") 606 - Revenue from contracts with customers. Our revenue
recognition analysis consists of the following steps: (i) identification of the
promised goods in the contract; (ii) determination of whether the promised goods
are performance obligations, including whether they are capable of being
distinct; (iii) measurement of the transaction price, including the constraint
on variable consideration; (iv) allocation of the transaction price to the
performance obligations; and (v) recognition of revenue as we satisfy each
performance obligation.
ROLVEDON became available for commercial sale and shipment to patients with a
prescription in the U.S. in the fourth quarter of 2022. We sell our products to
pharmaceutical wholesalers/distributors (i.e., our customers) who in turn sell
our products directly to clinics, hospitals, and federal healthcare programs.
Revenue from our product sales is recognized as physical delivery of product
occurs (when our customer obtains control of the product), in return for
agreed-upon consideration.
The transaction price that we recognize for ROLVEDON revenue is our gross
product sales reduced by our corresponding gross-to-net ("GTN") estimates using
the expected value method, resulting in our reported "net sales" in the
accompanying Consolidated Statements of Operations. Net sales reflects the
amount we ultimately expect to realize in net cash proceeds, taking into account
our current period gross sales and related cash receipts, and the subsequent
cash disbursements on these sales that we estimate for the various GTN
categories discussed below. These estimates are based upon information received
from external sources (such as written or oral information obtained from our
customers with respect to their period-end inventory levels and sales to
end-users during the period), in combination with management's informed
judgments. Due to the inherent uncertainty of these estimates, the actual amount
incurred (of some, or all) of product returns, government chargebacks, prompt
pay discounts, commercial rebates, Medicaid rebates, and distribution, data, and
GPO administrative fees may be above or below the amount estimated, then
requiring prospective adjustments to our reported net sales.
These GTN estimate categories (that comprise our GTN liabilities) are each discussed below:
Product Returns Allowances: Our customers are contractually permitted to return
certain purchased products within the contractual allowable time before/after
the applicable expiration date. Returns outside of this aforementioned criteria
are not customarily allowed. We estimate expected product returns using our
expected return rates. Returned product is typically destroyed since
substantially all are due to imminent expiry and cannot be resold.
Government Chargebacks: Our products are subject to pricing limits under certain
federal government programs (e.g., Medicare and 340B Drug Pricing Program).
Qualifying entities (i.e., end-users) purchase products from our customers at
their qualifying discounted price. The chargeback amount we incur represents the
difference between our contractual sales price to our customer, and the
end-user's applicable discounted purchase price under the government program.
There may be significant
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lag time between our reported net product sales and our receipt of the corresponding government chargeback claims from our customers.
Prompt Pay Discounts: Discounts for prompt payment are estimated at the time of sale, based on our eligible customers' prompt payment history and the contractual discount percentage.
Commercial Rebates: Commercial rebates are based on (i) our estimates of end-user purchases through a GPO, (ii) the corresponding contractual rebate percentage tier we expect each GPO to achieve, and (iii) our estimates of the impact of any prospective rebate program changes made by us.
Medicaid Rebates: Our products are subject to state government-managed Medicaid programs, whereby rebates are issued to participating state governments. These rebates arise when a patient treated with our product is covered under Medicaid, resulting in a discounted price for our product under the applicable Medicaid program. Our Medicaid rebate accrual calculations require us to project the magnitude of our sales, by state, that will be subject to these rebates. There is a significant time lag in our receiving rebate notices from each state (generally several months or longer after our sale is recognized). Our estimates are based on our historical claim levels by state, as supplemented by management's judgment. Distribution, Data, and GPO Administrative Fees: Distribution, data, and GPO administrative fees are paid to authorized wholesalers/distributors of our products for various commercial services including: contract administration, inventory management, delivery of end-user sales data, and product returns processing. These fees are based on a contractually-determined percentage of our applicable sales. Stock-Based Compensation Stock-based compensation expense for equity awards granted to our employees and members of our Board of Directors is recognized on a straight-line basis over each award's vesting period. Recognized compensation expense is net of an estimated forfeiture rate, representing the percentage of awards that are expected to be forfeited prior to vesting, and is ultimately adjusted for actual forfeitures. We use the Black-Scholes option pricing model to determine the fair value of stock options and stock appreciation rights (as of the date of grant) that have service conditions for vesting. The recognition of stock-based compensation expense and the initial calculation of stock option fair value requires certain assumptions, including (a) the pre-vesting forfeiture rate of the award, (b) the expected term that the stock option will remain outstanding, (c) our stock price volatility over the expected term (and that of our designated peer group with respect to certain market-based awards), (d) zero dividend yield, and (e) the prevailing risk-free interest rate for the period matching the expected term. With regard to (a)-(e) above: we estimate forfeiture rates based on our employees' overall forfeiture history, which we believe will be representative of future results. We estimate the expected term of stock options granted based on our employees' historical exercise patterns, which we believe will be representative of their future behavior. We estimate the volatility of our common stock on the date of grant based on the historical volatility of our common stock for a look-back period that corresponds with the expected term. We estimate the risk-free interest rate based upon theU.S. Department of the Treasury yields in effect at award grant, for a period equaling the expected term of the stock option and we estimate a zero dividend yield.
Due to the inherent uncertainty of these estimates, the actual amounts incurred may be above or below the amount estimated, then requiring prospective adjustments to our stock-based compensation expense.
Research and Development Costs
Our research and development costs are expensed as incurred. Research and development costs consist primarily of salaries, benefits, and other staff-related costs including associated stock-based compensation, laboratory supplies, clinical trial and related clinical manufacturing costs, costs related to manufacturing preparations, fees paid to other entities that conduct certain research and development activities on our behalf and payments made pursuant to license agreements. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of activities and the invoices received from its external service providers. We adjust our accruals as actual costs become known. Where contingent milestone payments are due to third parties under research and development or license agreements, the milestone payment obligations are expensed when the clinical or regulatory milestone results are achieved.
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