sbbp_Current Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2018

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the Transition Period from _____________ to _____________

Commission file number 001-37569

 

Strongbridge Biopharma plc

(Exact name of Registrant as specified in its charter)

 

 

 

 

Ireland

 

98-1275166

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

900 Northbrook Drive

Suite 200

Trevose, PA 19053

(Address of principal executive offices)

Registrant’s Telephone Number, Including Area Code: +1 6102549200

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large Accelerated Filer

[  ]

Accelerated Filer

[X]

 

 

 

 

Non-Accelerated Filer

[  ]

Smaller Reporting Company

[X]

 

 

 

 

 

 

Emerging Growth Company

[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of October 29, 2018, there were 47,185,048 ordinary shares of the registrant issued and outstanding.

 

 

 


 

Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. 

Financial Information

3

 

 

 

Item 1. 

Financial Statements

3

 

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

3

 

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)

4

 

Consolidated Statements of Stockholders’ Deficit (unaudited)

5

 

Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 2018 and 2017 (unaudited)

6

 

Notes to the Unaudited Consolidated Financial Statements

7

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4. 

Controls and Procedures

31

 

 

 

PART II. 

Other Information

32

 

 

 

Item 1. 

Legal Proceedings

32

Item 1A. 

Risk Factors

32

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3. 

Defaults Upon Senior Securities

32

Item 4. 

Mine Safety Disclosures

32

Item 5. 

Other Information

32

Item 6. 

Exhibits

33

 

 

 

SIGNATURES 

34

 

Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are referred to without the ® and symbols, but absence of such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. The trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners.

 

 

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STRONGBRIDGE BIOPHARMA plc

Consolidated Balance Sheets

(In thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

September 30, 

    

December 31, 

    

 

2018

 

2017

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

$

67,383

 

$

57,510

 

Accounts receivable

 

2,542

 

 

1,584

 

Inventory

 

6,261

 

 

511

 

Prepaid expenses and other current assets

 

2,342

 

 

1,208

 

Total current assets

 

78,528

 

 

60,813

 

Property and equipment, net

 

297

 

 

15

 

Intangible assets, net

 

54,463

 

 

35,155

 

Goodwill

 

7,256

 

 

7,256

 

Other assets

 

305

 

 

686

 

Total assets

$

140,849

 

$

103,925

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

$

3,227

 

$

1,247

 

Accrued liabilities

 

19,985

 

 

11,232

 

Total current liabilities

 

23,212

 

 

12,479

 

Long-term debt

 

79,061

 

 

37,794

 

Warrant liability

 

22,721

 

 

41,308

 

Supply agreement liability, noncurrent

 

22,111

 

 

24,258

 

Total liabilities

 

147,105

 

 

115,839

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Deferred shares, $1.098 par value, 40,000 shares authorized, issued and outstanding at September 30, 2018 and December 31, 2017

 

44

 

 

44

 

Ordinary shares, $0.01 par value, 600,000,000 shares authorized at September 30, 2018 and December 31, 2017; 47,185,048 and 40,149,812 shares issued and outstanding at September 30, 2018 and December 31, 2017

 

472

 

 

401

 

Additional paid-in capital

 

288,316

 

 

230,524

 

Accumulated deficit

 

(295,088)

 

 

(242,883)

 

Total stockholders’ deficit

 

(6,256)

 

 

(11,914)

 

Total liabilities and stockholders’ deficit

$

140,849

 

$

103,925

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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STRONGBRIDGE BIOPHARMA plc

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30

 

September 30

 

    

2018

    

2017

    

2018

    

2017

    

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

5,347

 

$

2,533

 

$

13,513

 

$

4,062

 

Total revenues

 

 

5,347

 

 

2,533

 

 

13,513

 

 

4,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales (excluding amortization of intangible assets)

 

$

1,441

 

$

591

 

$

2,861

 

$

968

 

Selling, general and administrative

 

 

19,564

 

 

8,484

 

 

47,137

 

 

26,068

 

Research and development

 

 

7,198

 

 

4,504

 

 

17,532

 

 

12,113

 

Amortization of intangible assets

 

 

1,876

 

 

1,256

 

 

5,517

 

 

3,767

 

Impairment of intangible asset

 

 

 —

 

 

20,723

 

 

 —

 

 

20,723

 

Total cost and expenses

 

 

30,079

 

 

35,558

 

 

73,047

 

 

63,639

 

Operating loss

 

 

(24,732)

 

 

(33,025)

 

 

(59,534)

 

 

(59,577)

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on fair value of warrants

 

 

7,131

 

 

1,953

 

 

16,448

 

 

(28,194)

 

Interest expense

 

 

(3,387)

 

 

(1,364)

 

 

(9,550)

 

 

(2,838)

 

Foreign exchange loss

 

 

(15)

 

 

(11)

 

 

(22)

 

 

(36)

 

Loss on extinguishment of debt

 

 

 —

 

 

(3,545)

 

 

(500)

 

 

(3,545)

 

Other income, net

 

 

445

 

 

82

 

 

954

 

 

107

 

Total other income (expense), net

 

 

4,174

 

 

(2,885)

 

 

7,330

 

 

(34,506)

 

Loss before income taxes

 

 

(20,558)

 

 

(35,910)

 

 

(52,204)

 

 

(94,083)

 

Income tax benefit (expense)

 

 

 —

 

 

850

 

 

(1)

 

 

(652)

 

Net loss

 

$

(20,558)

 

$

(35,060)

 

 

(52,205)

 

 

(94,735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to ordinary shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(20,558)

 

$

(35,060)

 

$

(52,205)

 

$

(94,735)

 

Diluted

 

$

(27,690)

 

$

(35,060)

 

$

(68,653)

 

$

(94,735)

 

Net loss per share attributable to ordinary shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.44)

 

$

(0.98)

 

$

(1.14)

 

$

(2.67)

 

Diluted

 

$

(0.55)

 

$

(0.98)

 

$

(1.37)

 

$

(2.67)

 

Weighted-average shares used in computing net loss per share attributable to ordinary shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

46,978,472

 

 

35,716,247

 

 

45,916,177

 

 

35,463,496

 

Diluted

 

 

50,317,423

 

 

35,716,247

 

 

49,985,483

 

 

35,463,496

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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STRONGBRIDGE BIOPHARMA plc

Consolidated Statement of Stockholders’ Deficit (In thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

 

 

 

Additional

    

 

 

    

Total

 

 

 

Ordinary Shares

 

Deferred Shares

 

Paid-In

 

Accumulated

 

Shareholders’

 

 

 

Shares

    

Amount

    

Shares

    

Amount

    

Capital

 

Deficit

 

(Deficit) Equity

 

Balance—December 31, 2017

 

40,149,812

 

$

401

 

40,000

 

$

44

 

$

230,524

 

$

(242,883)

 

$

(11,914)

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(52,205)

 

 

(52,205)

 

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,789

 

 

 —

 

 

5,789

 

Issuance of shares, net of offering costs

 

5,255,683

 

 

53

 

 —

 

 

 —

 

 

33,455

 

 

 —

 

 

33,508

 

Issuance of shares in connection with at-the-market facility, net of costs

 

1,172,557

 

 

12

 

 —

 

 

 —

 

 

7,939

 

 

 —

 

 

7,951

 

Exercise of warrants

 

470,000

 

 

 5

 

 —

 

 

 —

 

 

3,309

 

 

 —

 

 

3,314

 

Issuance of warrants related to loan agreements

 

 —

 

 

 —

 

 —

 

 

 —

 

 

7,663

 

 

 —

 

 

7,663

 

Exercise of stock options

 

45,007

 

 

*

 

 —

 

 

 —

 

 

79

 

 

 —

 

 

79

 

Common stock issued, net of shares withheld for employee taxes

 

91,989

 

 

 1

 

 —

 

 

 —

 

 

(442)

 

 

 —

 

 

(441)

 

Balance—September 30, 2018

 

47,185,048

 

$

472

 

40,000

 

$

44

 

$

288,316

 

$

(295,088)

 

$

(6,256)

 

* Represents an amount less than $1.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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STRONGBRIDGE BIOPHARMA plc

Consolidated Statements of Cash Flow

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

 

2018

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(52,205)

 

$

(94,735)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

(16,448)

 

 

28,194

 

Impairment of intangible asset

 

 

 —

 

 

20,723

 

Stock-based compensation

 

 

5,789

 

 

3,864

 

Amortization of intangible assets

 

 

5,517

 

 

3,767

 

Interest and related guarantee fees paid in kind

 

 

2,890

 

 

408

 

Amortization of debt discounts and debt issuance costs

 

 

1,109

 

 

371

 

Loss on extinguishment of debt

 

 

500

 

 

3,545

 

Deferred income tax benefit

 

 

 —

 

 

804

 

Depreciation

 

 

28

 

 

 8

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(958)

 

 

(979)

 

Inventory

 

 

(5,750)

 

 

(1,003)

 

Prepaid expenses and other current assets

 

 

(1,134)

 

 

(923)

 

Other assets

 

 

381

 

 

(237)

 

Accounts payable

 

 

1,980

 

 

333

 

Accrued liabilities and other liabilities

 

 

6,437

 

 

1,410

 

Net cash used in operating activities

 

 

(51,864)

 

 

(34,450)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Payment for acquisitions

 

 

(24,655)

 

 

(7,500)

 

Purchases of property and equipment

 

 

(310)

 

 

 —

 

Net cash used in investing activities

 

 

(24,965)

 

 

(7,500)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from long-term debt, net

 

 

44,930

 

 

39,986

 

Payment for loss on extinguishment of debt

 

 

(500)

 

 

(1,300)

 

Payment of long-term debt

 

 

 —

 

 

(22,261)

 

Proceeds from issuance of ordinary shares, net

 

 

33,508

 

 

2,981

 

Proceeds from issuance of ordinary shares in connection with at-the-market offering

 

 

7,951

 

 

73

 

Proceeds from exercise of warrants

 

 

1,175

 

 

 —

 

Proceeds from exercise of stock options

 

 

79

 

 

 —

 

Payments related to tax withholding for net-share settled equity awards

 

 

(441)

 

 

 —

 

Net cash provided by financing activities

 

 

86,702

 

 

19,479

 

Net increase (decrease) in cash and cash equivalents

 

 

9,873

 

 

(22,471)

 

Cash and cash equivalents—beginning of period

 

 

57,510

 

 

66,837

 

Cash and cash equivalents—end of period

 

$

67,383

 

$

44,366

 

Supplemental non-cash financing activities:

 

 

 

 

 

 

 

Issuance of shares from vested restricted share units

 

$

1,048

 

$

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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STRONGBRIDGE BIOPHARMA plc

Notes to Unaudited Consolidated Financial Statements

1. Organization

We are a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs.

Our first commercial product is Keveyis (dichlorphenamide), the first and only treatment approved by the U.S. Food and Drug Administration (the “FDA”) for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis (“PPP”), a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis.

Our second commercial product, Macrilen (macimorelin), is an oral growth hormone secretagogue receptor agonist, and is the first and only oral test approved by the FDA for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). We acquired the U.S. and Canadian rights to Macrilen in January 2018 and launched Macrilen in the United States in July 2018.

In addition to our two commercial products, we have two clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole) is a cortisol synthesis inhibitor currently being studied for the treatment of endogenous Cushing's syndrome. Veldoreotide is a next-generation somatostatin analog being investigated for the treatment of acromegaly and potential additional applications in other conditions amenable to somatostatin receptor activation. Both Recorlev and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).

Given the well-identified and concentrated prescriber base addressing our target markets, we intend to continue to use a small, focused sales force to market Keveyis, Macrilen and any future products, in the United States, the European Union and other key global markets. We believe that our ability to execute on our strategy is enhanced by the significant commercial and clinical development experience of key members of our management team. 

We are building a rare disease, franchise-based business model focused on expansion through a disciplined in-licensing and acquisition strategy. In pursuit of our growth strategy, we have raised over $283 million in equity and debt financings since December 2014. We will continue to identify and evaluate the acquisition of products and product candidates for licensing or acquisition that would be complementary to our existing rare neuromuscular and endocrine franchises or that would form the basis for new rare disease franchises. We believe this approach will enable us to maximize our commercial potential by further leveraging our existing resources and expertise.

Liquidity

We believe that our cash resources of $67.4 million at September 30, 2018 will be sufficient to allow us to fund planned operations for at least 12 months beyond the issuance date of the financial statements included in this Quarterly Report. We also expect our cash needs to increase to fund potential in‑licenses, acquisitions or similar transactions as we pursue our strategy.  These expenses may be offset only in part by sales of Keveyis and Macrilen.  In addition, beginning in March 2021, we may be required to make quarterly principal payments to repay amounts borrowed under our credit facility.

We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital.  We plan to continue to fund our operations and capital funding needs through equity or debt financing along with revenues from Keveyis and Macrilen. There can be no assurances, however, that additional funding will be available on terms acceptable to us.

Our loan and security agreement, under which outstanding borrowings were $88.3 million at September 30, 2018, contains financial and non-financial covenants including minimum annual amounts of net revenue in 2018 and beyond. Failure to comply with the covenants could result in the lenders declaring the loan immediately due and payable.

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Our liquidity requirements are predicated on maintaining compliance with the debt covenants and repaying outstanding borrowings in accordance with the loan term, see Note 7 “Long-term debt”.

2. Summary of significant accounting policies and basis of presentation

Basis of presentation

These unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). The unaudited consolidated financial statements reflect all adjustments, which include only normal recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the operating results and financial position for the periods presented.

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures in the consolidated financial statements.  Actual results could differ from those estimates. Results for the three months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

These unaudited consolidated financial statements should be read in conjunction with the accounting policies and notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission on March 12, 2018 (the “2017 Annual Report”). Our significant accounting policies are described in Note 2 of the notes to the audited consolidated financial statements included in our 2017 Annual Report. Since the date of those financial statements, there have been no changes to our significant accounting policies.

Revenue recognition

We follow Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, effective April 1, 2017.  Topic 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.  Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We apply the five-step model to contracts only when it is probable that we will collect the consideration we are entitled to receive in exchange for the goods or services we transfer to our customers. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for net product revenue, see Note 3, "Revenue recognition".

Foreign currency translation

The consolidated financial statements are reported in United States dollars, which is our functional currency, including each of our consolidated subsidiaries. Transactions in foreign currencies are remeasured into our functional currency at the rate of exchange prevailing at the date of the transaction. Any monetary assets and liabilities arising from these transactions are remeasured into our functional currency at exchange rates prevailing at the balance sheet date or on settlement. Resulting gains and losses are recorded in foreign exchange loss in our consolidated statements of operations.

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Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. We must apply significant judgment in this process. Actual results could materially differ from those estimates.

Segment information

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. We view our operations and manage our business in one operating segment. Prior to March 31, 2018, our material long‑lived intangible assets resided in Ireland, Sweden and the Cayman Islands. Effective March 31, 2018, all of our material long-lived intangible assets reside in Ireland. As of September 30, 2018, $67.3 million of our cash and cash equivalents consisted primarily of bank deposits in the United States. For the nine months ended September 30, 2018, revenues from product sales were derived entirely from the United States.

Net loss per share

Basic net loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss attributable to shareholders by the weighted‑average number of ordinary shares outstanding for the period, including any dilutive effect from outstanding stock options or other equity-based awards. Shares used in the diluted net loss per share calculations exclude anti‑dilutive ordinary share equivalents, which currently consist of outstanding stock options, unvested restricted stock units (“RSUs”) and warrants.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as of September 30, 2018 and 2017, as they would be anti-dilutive:

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

 

2018

    

2017

Warrants

 

 

1,803,253

 

 

7,764,569

Stock options issued and outstanding

    

 

8,719,156

    

 

6,176,647

Unvested RSUs

 

 

173,400

 

 

274,250

 

Recent accounting pronouncements

In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU’) 2017-04, Intangibles - Goodwill and Other:  Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which will be effective for us beginning in the first quarter of fiscal year 2020, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact this new accounting guidance will have on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, that discusses how an entity should account for lease assets and lease liabilities. The guidance specifies that an entity who is a lessee under lease agreements should recognize lease assets and lease liabilities for those leases classified as operating leases under previous FASB guidance. Accounting for leases by lessors is largely unchanged under the new guidance. The guidance is effective for us beginning in the first quarter of fiscal year 2019. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective

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approach. We are currently evaluating the impact this new accounting guidance will have on our consolidated financial statements but do not expect it will have a material impact on us.

3. Revenue recognition

Product sales, net

We launched our second commercial product, Macrilen, in July 2018. Our product sales result from sales of Keveyis and Macrilen. We recognize net product sales at the time our products are received by our customers (primarily wholesalers and specialty pharmacies). The products are subsequently sold to patients, who are covered by payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of our products. 

Revenues from sales of our products are recognized when we satisfy a performance obligation by transferring control of the product to our customers. Transfer of control occurs upon receipt of the product by the customer.  We expense incremental costs related to the set-up of contracts with our customers when incurred, as these costs do not meet the criteria for capitalization.

Disaggregation of Revenue

The following table summarizes revenue by product for the three and nine months ended September 30, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

Nine Months

 

 

 

Ended

 

Ended

 

 

    

September 30,
2018

    

September 30,
2018

    

Products

 

 

 

 

 

 

 

Keveyis

 

$

4,207

 

$

12,373

 

Macrilen

 

 

1,140

 

 

1,140

 

Total

 

$

5,347

 

$

13,513

 

 

Reserves for variable consideration

Revenues from sales of our products are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and that result from rebates, co-pay assistance and other allowances that are offered by us and the patients’ payors.  These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a current liability (if the amount is payable to a party other than our customer). Where appropriate, these estimates may take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. We reassess our estimates on an ongoing basis. If actual results in the future vary from our estimates, we will adjust our estimates. Any such adjustments would affect net product revenue and earnings in the period such variances become known.

Trade Discount: Our contracts with our customers provide for a discount, that is recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, we receive sales order management, data and distribution services from our customers. To the extent the services received are distinct from our sale of products to

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our customers, these payments are classified in selling, general and administrative expenses in our consolidated statement of operations and comprehensive loss.

Prompt Pay Discount:  We offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. We estimate for cash discounts using the most likely amount method by reducing accounts receivable by the prompt pay discount amount. The discount is recognized as a reduction of revenue in the same period as the related revenue.

Funded Co-pay Assistance Program: We contract with a third-party to manage the co-pay assistance program intended to provide financial assistance to qualified insured patients. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with the product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. These payments are consideration payable to our customers and the related reserve is recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the consolidated balance sheet.

Government Rebates: We are subject to discount obligations under state Medicaid programs and Medicare. We estimate our Medicaid and Medicare rebates based upon a range of possible outcomes that are probability-weighted for the estimated patient mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses on the consolidated balance sheet. For Medicaid, accruals are based on estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. Effective January 1, 2011, manufacturers of pharmaceutical products are responsible for 50% of the patient’s cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this Medicare coverage gap responsibility, we estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made that have been recognized as revenue, but remain in the distribution channel inventories at the end of each reporting period.

Temporary Supply and Patient Assistance Programs: We provide free product to uninsured patients who satisfy pre-established criteria for either the Temporary Supply Program for Keveyis or the Patient Assistance Program for Keveyis and Macrilen.  Patients who meet the Temporary Supply Program eligibility criteria may receive a temporary supply of free Keveyis for no more than sixty days while we determine the patient’s third-party insurance, prescription drug benefit or other third-party coverage for Keveyis.  The Patient Assistance Program provides free Keveyis for up to twelve months to patients who satisfy pre-established criteria for financial need.  We do not recognize any revenue related to these free products and the associated costs are classified in selling, general and administrative expenses in our consolidated statements of operations and comprehensive loss.

 

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4. Fair value measurement

We follow FASB accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Because of their short-term nature, the amounts reported in the balance sheet for cash and accounts payable approximate fair value.

The guidance requires fair value measurements to maximize the use of “observable inputs.” The three-level hierarchy of inputs to measure fair value are as follows: 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Because of their short-term nature, the amounts reported in the balance sheet for cash and accounts payable approximate fair value.

Level 2: Significant observable inputs other than Level 1 prices such as quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The fair values of the outstanding warrants were measured using the Black-Scholes option-pricing model. Inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the volatility rate and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.

We did not have any transfers between the different levels.

The following table presents our assets and liabilities that are measured at fair value on a recurring basis for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

 

 

Level I

 

Level II

 

Level III

 

Total

 

Cash equivalents

 

 

66,996

 

 

 —

 

 

 —

 

 

66,996

 

Total assets

 

$

66,996

 

$

 —

 

$

 —

 

$

66,996

 

Warrant liability

 

 

 

 

 —

 

 

22,721

 

 

22,721

 

Total liabilities

 

$

 —

 

$

 —

 

$

22,721

 

$

22,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

 

Level I

 

Level II

 

Level III

 

Total

 

Cash equivalents

 

 

57,024

 

 

 —

 

 

 —

 

 

57,024

 

Total assets

 

$

57,024

 

$

 —

 

$

 —

 

$

57,024

 

Warrant liability

 

 

 

 

 —

 

 

41,308

 

 

41,308

 

Total liabilities

 

$

 —

 

$

 —

 

$

41,308

 

$

41,308

 

 

 

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5. Intangible assets and goodwill

The following represents the balance of our intangible assets as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

 

 

Beginning of Period

 

Additions

 

Impairment

 

Amortization

 

End of Period

 

Keveyis

 

 

35,155

 

 

 —

 

 

 —

 

 

(3,767)

 

 

31,388

 

Macrilen

 

 

 —

 

 

24,825

 

 

 —

 

 

(1,750)

 

 

23,075

 

Goodwill

 

 

7,256

 

 

 —

 

 

 —

 

 

 —

 

 

7,256

 

Total

 

$

42,411

 

$

24,825

 

$

 —

 

$

(5,517)

 

$

61,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

 

Beginning of Period

 

Additions

 

Impairment

 

Amortization

 

End of Period

 

IPR&D

    

$

20,723

    

$

 —

    

$

(20,723)

    

$

 —

    

$

 —

 

Keveyis

 

 

40,177

 

 

 —

 

 

 —

 

 

(5,022)

 

 

35,155

 

Goodwill

 

 

7,256

 

 

 —

 

 

 —

 

 

 —

 

 

7,256

 

Total

 

$

68,156

 

$

 —

 

$

(20,723)

 

$

(5,022)

 

$

42,411

 

 

Our finite lived intangible assets consist of acquired developed product rights obtained from our acquisitions of Keveyis (dichlorphenamide) from a subsidiary of Taro Pharmaceutical Industries Ltd. (“Taro”) and Macrilen from Aeterna Zentaris GmbH.  

Pursuant to the terms of the Asset Purchase Agreement and Supply Agreement that we entered into with Taro, we paid Taro an upfront payment in two installments of $1 million in December 2016 and $7.5 million in March 2017.  We concluded that the supply price payable by us exceeds fair value and, therefore, used a discounted cash flow method with a probability assumption to value the payments in excess of fair value at $29.3 million, for which we have recorded an intangible asset and corresponding liability. This liability will be reduced as we purchase inventory over the term of the Supply Agreement.  In addition, we incurred transaction costs of $2.4 million. The overall recording of the transaction resulted in the recording of an intangible asset of $40.2 million. This asset is being amortized over an eight-year period using the straight-line method. 

We entered into a License and Assignment Agreement in 2018 with Aeterna Zentaris GmbH, pursuant to which we acquired the U.S. and Canadian rights to manufacture and commercialize Macrilen (macimorelin) for $24 million and incurred transaction costs of $0.7 million, resulting in an initial intangible of $24.7 million. We record any royalty liability as an increase to the intangible asset. This asset is being amortized over a ten-year period using the straight-line method.

We recorded amortization expense of $1.9 million and $5.5 for the three and nine months ended September 30, 2018, respectively, compared to $1.3 million and $3.8 million for the three and nine months ended September 30, 2017, respectively.

6. Accrued liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2018

 

2017

 

Consulting and professional fees

    

$

5,550

    

$

2,465

 

Supply agreement - current portion

 

 

4,783

 

 

4,237

 

Employee compensation

 

 

3,813

 

 

3,668

 

Accrued sales allowances

 

 

2,204

 

 

742

 

Accrued inventory

 

 

1,734

 

 

 —

 

Accrued royalties

 

 

1,210

 

 

 —

 

Other

 

 

691

 

 

120

 

Total accrued liabilities

 

$

19,985

 

$

11,232

 

 

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7. Long-term debt

On January 16, 2018 (the “First Loan Amendment Effective Date”), we and our subsidiaries, Strongbridge U.S. Inc., Strongbridge Ireland Limited, Cortendo AB (publ) and Cortendo Cayman Ltd., entered into an amendment (the “First Loan Amendment”), to the Term Loan Agreement (the “Loan Agreement”), dated July 14, 2017, with CRG Servicing LLC (“CRG”), as administrative agent and collateral agent, and the lenders named therein (the “Lenders”).

The primary purpose of the First Loan Amendment was to increase the total potential borrowing under the Loan Agreement from $50 million to $100 million. The First Loan Amendment provided for (i) an additional disbursement of $45.0 million (the “Second Tranche”) to the Company on the First Loan Amendment Effective Date, and (ii) an additional disbursement of $5.0 million (the “Fourth Tranche”) to us at our election, contingent upon our achievement of certain revenue milestones and a market capitalization condition on or before December 31, 2018, as described in the First Loan Amendment. Under the First Loan Amendment, we continued to be eligible to borrow up to an additional $10.0 million (the “Third Tranche”), contingent upon our achievement of certain revenue milestones on or before June 30, 2018, as previously provided in the Loan Agreement; provided, however, that under the Loan Agreement, as amended, the Third Tranche would be subject to a market capitalization condition, as described in the First Loan Amendment. As a condition to the addition of the Second Tranche under the First Loan Amendment, we issued to the Lenders on the First Loan Amendment Effective Date warrants to purchase an aggregate of 1,248,250 of our ordinary shares, at an exercise price of $10.00 per share.

On June 6, 2018, we and our subsidiaries, Strongbridge U.S. Inc., Cortendo Cayman Ltd., Strongbridge Ireland Limited and Cortendo AB (publ), entered into a second amendment (the “Second Loan Amendment”), to the Loan Agreement. The primary purposes of the Second Loan Amendment (as requested by the Company) was to reduce the aggregate commitments under the Loan Agreement from $100 million to $95 million and to combine the Third Tranche and the Fourth Tranche under the Loan Agreement into one final borrowing tranche for up to $10 million (the “Final Tranche”).  Under the terms of the Second Loan Amendment, the Final Tranche borrowing must occur on or before March 19, 2019.  The Final Tranche is subject to the Company’s achievement of a certain revenue milestone, which under the Second Loan Amendment must be satisfied on or prior to December 31, 2018, and satisfaction of a market capitalization condition for the 20 consecutive trading days ending on the trading day immediately prior to the Final Tranche borrowing date (as described in the Loan Agreement, as amended).

Pursuant to the terms of the Second Loan Amendment, if we borrow the Final Tranche, we must issue to the Lenders, or their designees, one or more warrants to purchase a number of our ordinary shares equal to an aggregate of (i) 0.10% of our ordinary shares outstanding following such issuance on a fully diluted basis (inclusive of the ordinary shares underlying all such warrants issued), at an exercise price equal to 110% of the closing price of our ordinary shares on the date immediately preceding the Final Tranche borrowing date and (ii) 0.25% of our ordinary shares outstanding following such issuance on a fully diluted basis (inclusive of the ordinary shares underlying all such warrants issued), at an exercise price equal to 140% of the 10-day volume weighted-average price (VWAP) per share of our ordinary shares for the consecutive 10-trading-day period ending on the trading day prior to the Final Tranche borrowing date.

The term of the Loan Agreement, as amended, is six years, with interest-only payments until December 31, 2020, after which quarterly principal and interest payments will be due through the June 30, 2023 maturity date. We have the option to extend the interest-only period to six years based upon the achievement of certain milestones during the interest-only period. The Loan Agreement provides for interest payable at an annual rate of 12.5% and a final payment fee of 5% of the principal balance.

The Loan Agreement includes a payment-in-kind (“PIK”) provision, which allows us to defer 4.0% of the 12.5% annual interest payable under the loan during the first three years of the term of the loan (which may be extended for the entire term of the loan, subject to the satisfaction of certain conditions) by adding such amount to the principal loan amount. We have elected to PIK each period so far, resulting in an additional $3.3 million added to our outstanding principal balance as of  September 30, 2018. We have granted a security interest in substantially all of our existing assets and assets acquired by us in the future, including intellectual property. The Loan Agreement contains facility and prepayment fees, and customary affirmative and negative covenants, including a financial covenant regarding minimum

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amounts of net revenue and restrictions on our ability to pay cash dividends, and a list of events that will constitute “events of default” under the loan agreement, and permit the lenders to declare all amounts under the Loan Agreement immediately due and payable, including a material adverse change in our business, operations or financial condition. We recorded $10.6 million in debt discounts and $0.2 million of debt issuance costs relating to the Loan Agreement which have been recorded as a reduction to the long-term debt. These amounts will be amortized over the outstanding period of the debt to interest expense using the effective interest rate method.  

Due to a greater than 10% change in cash flows as compared to the original debt instrument under the First Loan Amendment, the First Loan Amendment was accounted for as a debt extinguishment, which resulted in a $0.5 million loss during the nine months ended September 30, 2018.

Future principal payments due under the Loan Agreement are as follows (in thousands):

 

 

 

 

 

 

    

Principal

 

 

 

Payments

 

 

 

 

 

 

2018

 

$

 —

 

2019

 

 

 —

 

2020

 

 

 —

 

2021

 

 

35,320

 

2022

 

 

35,320

 

2023

 

 

17,660

 

Total future payments

 

$

88,300

 

 

 

8. Commitments and contingencies

Lease obligations

In March 2015, we entered into a 52‑month building sublease agreement for 14,743 square feet of office space in Trevose, Pennsylvania. The lease has annual rent escalations and is recognized on a straight‑line basis over the term of the lease.  In November 2017, the Company entered into a 60‑month building lease agreement for an additional 7,326 square feet of office space in the same building in Trevose, Pennsylvania. The lease has annual rent escalations. We obtained access to this newly leased space on November 27, 2017, and this was considered the lease commencement date for accounting purposes. Thus, rent expense began on this date and is recognized on a straight‑line basis over the term of the lease. The lease provides for us the ability to continue leasing its currently subleased office space upon expiration of the sublease described above.

As of September 30, 2018, future minimum commitments under facility operating leases were as follows (in thousands):

 

 

 

 

 

 

    

Operating

 

 

 

leases

 

 

 

 

 

 

2018

 

 

113

 

2019

 

 

439

 

2020

 

 

470

 

2021

 

 

481

 

2022

 

 

492

 

2023

 

 

207

 

Total minimum lease payments

 

$

2,202

 

 

Rent expense recognized under our operating lease was approximately $535,000 and $205,000 for the nine months ended September 30, 2018 and 2017, respectively.

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Commitments to Taro Pharmaceuticals Industries Ltd.

In December 2016, we acquired the U.S. marketing rights to Keveyis (dichlorphenamide) from a subsidiary of Taro.  Under the terms of the Asset Purchase Agreement, we paid Taro an upfront payment in two installments of $1 million in December 2016 and $7.5 million in March 2017, and will pay an aggregate of $7.5 million in potential milestones upon the achievement of certain product sales targets. Taro has agreed to continue to manufacture Keveyis for us under an exclusive supply agreement through the orphan exclusivity period. We are obligated to purchase certain annual minimum amounts of product totaling approximately $29 million over a six-year period. The Supply Agreement may extend beyond the orphan exclusivity period unless terminated by either party pursuant to the terms of the agreement. If terminated by Taro at the conclusion of the orphan exclusivity period, we have the right to manufacture the product on our own or have the product manufactured by a third party on our behalf. We are required to reimburse Taro for their royalty obligation resulting from their sale of Keveyis to us.

Commitments to Aeterna Zentaris GmbH

In January 2018, we acquired the U.S. and Canadian rights to Macrilen (macimorelin) from Aeterna Zentaris GmbH. Under the terms of the License and Assignment Agreement, we paid Aeterna Zentaris GmbH $24 million and will pay tiered royalties of 15%-18% on net sales as well as an aggregate of $174 million in potential milestones upon the achievement of certain product sales targets. Additionally, Aeterna Zentaris GmbH will remain responsible for a pediatric development program to support regulatory submission for approval with Strongbridge sharing oversight and paying for 70 percent of the cost of the program, or approximately $4 million over a three-year period as well as $5 million upon the receipt of regulatory approval for the use of Macrilen in pediatric patients in the United States and Canada.

9. Income taxes 

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized.

We assess our ability to realize deferred tax assets. Changes in future earnings projections, among other factors, may cause us to adjust our valuation allowance on deferred tax assets. Any such adjustments would impact our income tax expense in the period in which it is determined that these factors have changed.

For the nine months ended September 30, 2018, we recorded full valuation allowances against our deferred tax asset and deferred tax liability, resulting in no income tax expense.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the top U.S. federal corporate tax rate from 35 percent to 21 percent; requiring companies to pay a onetime transition tax on certain un-repatriated earnings of foreign subsidiaries; generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; creating the base erosion anti-abuse tax (BEAT), a new minimum tax; creating a new limitation on deductible interest expense; and changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The Tax Act reduces our U.S. corporate income tax rate from 34% to 21%, effective January 1, 2018. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 34% to 21% under the Tax Act, we revalued our ending net deferred tax assets and liabilities at December 31, 2017.

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The Tax Act provided for a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”). We did not have to recognize any income tax expense related to the transition tax as we own no controlled foreign corporations.

The global intangible low-taxed income tax and base erosion provisions are effective for taxable years beginning after December 31, 2017. We do not currently expect these provisions to have a material impact on our tax rate as we do not own any controlled foreign corporations and they are currently below the gross receipts threshold for purposes of the base erosion provisions.

10. Ordinary shares

Equity transactions

On January 30, 2018, we sold 5,000,000 ordinary shares in a public offering at a price to the public of $6.75 per ordinary share for net proceeds of approximately $31.8 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

On February 27, 2018, we sold an additional 255,683 ordinary shares to the underwriters of our January 2018 public offering in connection with their partial exercise of their option to purchase additional shares to cover over-allotments at a price of $6.75 per ordinary share for net proceeds of approximately $1.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

We entered into an equity distribution agreement with JMP Securities LLC (“JMP”) on April 28, 2017, pursuant to which we may sell, at our option, from time to time, up to an aggregate of $40 million of our ordinary shares through JMP, as sales agent. We will pay JMP a commission equal to 3% of the gross proceeds from the sale of our ordinary shares under this at-the-market (“ATM”) facility. Pursuant to the terms of the equity distribution agreement, we reimbursed JMP for certain out-of-pocket expenses, including the fees and disbursements of counsel to JMP, incurred in connection with establishing the ATM facility and have provided JMP with customary indemnification rights. During the nine months ended September 30, 2018, we sold an aggregate of 1,172,557 ordinary shares under the ATM facility at an average selling price of $7.00 per share, resulting in net proceeds of approximately $8.0 million after payment of fees to JMP of $246,000. As of September 30, 2018, we have approximately $32 million available for sale under our ATM facility.

Warrants

During the three months ended September 30, 2018, a warrant previously issued in connection with a private equity placement was exercised in full, resulting in the issuance of 470,000 ordinary shares.

Our outstanding warrants as of September 30, 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

 

 

 

 

 

 

    

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

 

 

 

Exercise

    

Expiration

    

Warrants

    

Warrants

 

September 30, 

 

 

 

Classification

 

Price

 

Date

 

Issued

 

Exercised

 

2018

 

Warrants in connection with private equity placement

    

Liability

    

$

2.50

    

6/28/2022

    

7,000,000

 

(470,000)

 

6,530,000

 

Warrants in connection with Horizon and Oxford loan agreement

 

Equity

 

$

2.45

 

12/28/2026

 

428,571

 

(267,857)

 

160,714

 

Warrants in connection with CRG loan agreement

 

Equity

 

$

7.37

 

7/14/2024

 

394,289

 

 —

 

394,289

 

Warrants in connection with CRG loan amendment in January 2018

 

Equity

 

$

10.00

 

1/16/2025

 

1,248,250

 

 —

 

1,248,250

 

 

 

 

 

 

 

 

 

 

9,071,110

 

 

 

8,333,253

 

 

 

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11. Stock‑based compensation

Our board of directors has adopted the 2017 Inducement Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of equity-based awards to new employees. The purpose of the Inducement Plan is to attract valued employees by offering them a greater stake in our success and a closer identity with us, and to encourage ownership of our ordinary shares by such employees. The Inducement Plan became effective on February 23, 2017. As of September 30, 2018, 620,200 shares are available for issuance pursuant to the Inducement Plan.

Our board of directors has adopted, and our shareholders have approved, the 2015 Equity Compensation Plan (the “2015 Plan”). The 2015 Plan provides for the grant of incentive stock options to our employees and any parent or subsidiary corporation’s employees, and for the grant of nonstatutory stock options, stock awards, and RSUs to our employees, directors and consultants and our parent or subsidiary corporations’ employees and consultants. The 2015 Plan became effective on September 3, 2015.  As of September 30, 2018, 163,006 shares are available for issuance pursuant to the 2015 Plan.

Our board of directors has adopted, and our shareholders have approved, the Non‑Employee Director Equity Compensation Plan (the “Non‑Employee Director Plan”). The Non‑Employee Director Plan provides for the grant of nonstatutory stock options, stock awards, and RSUs to our non‑employee directors. The Non‑Employee Director Plan became effective on September 3, 2015.  As of September 30, 2018, 1,541 shares are available for issuance pursuant to the Non‑Employee Director Plan.

A summary of our outstanding stock options as of September 30, 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

 

    

 

    

 

 

    

Weighted-

    

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

 

 

 

 

 

 

 

Average

 

Contractual

 

 

 

 

 

 

Number of

 

Exercise

 

Term

 

Aggregate

 

 

 

Shares

 

Price

 

(Years)

 

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Outstanding—January 1, 2018

 

6,104,715

 

$

7.50

 

7.70

 

$

14,021

 

Granted

 

2,881,255