x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 20-5300780 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
5858 Horton Street, #455 Emeryville, California | 94608 |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer | ¨ | Accelerated filer | x | ||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
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Item 6 |
September 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 109,866 | $ | 155,349 | |||
Restricted cash | — | 10,002 | |||||
Trade accounts receivable, net | 6,524 | 1,396 | |||||
Inventory | 9,412 | 12,030 | |||||
Prepaid expenses and other current assets | 9,467 | 5,518 | |||||
Current assets of discontinued operations | 6 | 208 | |||||
Total current assets | 135,275 | 184,503 | |||||
Property and equipment, net | 8,358 | 9,254 | |||||
Intangible assets | 102,500 | 102,500 | |||||
Goodwill | 6,234 | 6,234 | |||||
Other assets | 3,470 | 3,331 | |||||
Total assets | $ | 255,837 | $ | 305,822 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,107 | $ | 5,290 | |||
Accrued expenses | 4,883 | 4,617 | |||||
Accrued compensation | 2,690 | 3,711 | |||||
Common stock warrant liabilities | 1,048 | 6,196 | |||||
Long-term debt, current portion | — | 6,321 | |||||
Deferred revenue | 1,194 | 945 | |||||
Current liabilities of discontinued operations | 1,203 | 2,906 | |||||
Total current liabilities | 14,125 | 29,986 | |||||
Long term debt | 21,845 | 15,899 | |||||
Deferred revenue, less current portion | 4,986 | 6,139 | |||||
Contingent purchase consideration | 53,800 | 51,000 | |||||
Deferred income taxes | 17,425 | 18,450 | |||||
Other long-term liabilities | 1,739 | 1,588 | |||||
Stockholders’ equity: | |||||||
Common stock, $0.001 par value; 50,000 shares authorized at September 30, 2016 and December 31, 2015; 24,791 and 24,772 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | 25 | 25 | |||||
Additional paid-in capital | 563,623 | 558,251 | |||||
Accumulated deficit | (421,731 | ) | (375,516 | ) | |||
Total stockholders’ equity | 141,917 | 182,760 | |||||
Total liabilities and stockholders’ equity | $ | 255,837 | $ | 305,822 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenue: | |||||||||||||||
Contract manufacturing revenue | $ | 6,345 | $ | 8,860 | $ | 17,537 | $ | 19,044 | |||||||
Service and other product revenue | 225 | 260 | 327 | 2,057 | |||||||||||
Total revenue | 6,570 | 9,120 | 17,864 | 21,101 | |||||||||||
Operating expense: | |||||||||||||||
Cost of contract manufacturing | 6,391 | 7,780 | 16,256 | 17,506 | |||||||||||
Royalty expense | 78 | 106 | 224 | 249 | |||||||||||
Research and development | 10,076 | 7,919 | 28,447 | 19,310 | |||||||||||
Selling, general and administrative | 6,538 | 5,696 | 19,506 | 19,547 | |||||||||||
Change in fair value of contingent consideration | 200 | (300 | ) | 2,800 | (1,900 | ) | |||||||||
Total operating expense | 23,283 | 21,201 | 67,233 | 54,712 | |||||||||||
Loss from operations | (16,713 | ) | (12,081 | ) | (49,369 | ) | (33,611 | ) | |||||||
Other income (expense): | |||||||||||||||
Interest expense, net | (567 | ) | (718 | ) | (1,788 | ) | (2,259 | ) | |||||||
Loss on short-term investments | — | (5,485 | ) | — | (5,485 | ) | |||||||||
Change in fair value of warrant liabilities | (356 | ) | (296 | ) | 5,148 | (861 | ) | ||||||||
Other (income) expense | 25 | 103 | 2 | (55 | ) | ||||||||||
Total other income (expense) | (898 | ) | (6,396 | ) | 3,362 | (8,660 | ) | ||||||||
Net loss from continuing operations before income taxes | (17,611 | ) | (18,477 | ) | (46,007 | ) | (42,271 | ) | |||||||
Income tax benefit | 993 | 5,496 | 922 | 12,428 | |||||||||||
Net loss from continuing operations | (16,618 | ) | (12,981 | ) | (45,085 | ) | (29,843 | ) | |||||||
Discontinued operations: | |||||||||||||||
Net income (loss) from discontinued operations | (379 | ) | (1,635 | ) | (1,130 | ) | 64,829 | ||||||||
Net income (loss) | $ | (16,997 | ) | $ | (14,616 | ) | $ | (46,215 | ) | $ | 34,986 | ||||
Net income (loss) per share, basic and diluted: (1) | |||||||||||||||
Continuing operations | $ | (0.67 | ) | $ | (0.57 | ) | $ | (1.82 | ) | $ | (1.47 | ) | |||
Discontinued operations | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.05 | ) | $ | 3.19 | ||||
Total | $ | (0.69 | ) | $ | (0.65 | ) | $ | (1.87 | ) | $ | 1.72 | ||||
Weighted average shares outstanding, basic and diluted | 24,791 | 22,613 | 24,780 | 20,332 | |||||||||||
Statements of Comprehensive Income (Loss) | |||||||||||||||
Net income (loss) | $ | (16,997 | ) | $ | (14,616 | ) | $ | (46,215 | ) | $ | 34,986 | ||||
Other comprehensive income (loss): | |||||||||||||||
Unrealized loss on available-for-sale securities | — | (3,933 | ) | — | (5,485 | ) | |||||||||
Reclassification of other-than-temporary loss on available-for-sale securities included in net income (loss) | — | 5,485 | — | 5,485 | |||||||||||
Comprehensive income (loss) | $ | (16,997 | ) | $ | (13,064 | ) | $ | (46,215 | ) | $ | 34,986 |
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Operating activities: | |||||||
Net income (loss) | $ | (46,215 | ) | $ | 34,986 | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Stock-based compensation | 5,203 | 5,981 | |||||
Depreciation and amortization | 966 | 1,234 | |||||
Amortization of debt issuance costs and non-cash interest charges | 954 | 684 | |||||
Accrued income taxes | — | 3,535 | |||||
Impairment loss on investments | — | 5,485 | |||||
Gain on sale of business | — | (89,099 | ) | ||||
Change in fair value of warrant liabilities | (5,148 | ) | 861 | ||||
Change in fair value of contingent purchase consideration | 2,800 | (1,900 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Trade accounts receivable | (5,124 | ) | 4,918 | ||||
Inventory | 2,633 | 3,029 | |||||
Prepaid expenses and other current assets | (3,863 | ) | (2,299 | ) | |||
Other assets | (139 | ) | 999 | ||||
Accounts payable and accrued expenses | (4,339 | ) | (11,605 | ) | |||
Deferred income taxes | (1,025 | ) | — | ||||
Deferred rent | (74 | ) | (26 | ) | |||
Deferred revenue | (1,012 | ) | (7,635 | ) | |||
Net cash used by operating activities | (54,383 | ) | (50,852 | ) | |||
Investing activities: | |||||||
Purchases of property and equipment | (103 | ) | (214 | ) | |||
Proceeds from sale of business | — | 80,926 | |||||
Change in restricted cash from sale of business | 10,002 | (1,501 | ) | ||||
Net cash provided by investing activities | 9,899 | 79,211 | |||||
Financing activities: | |||||||
Proceeds of long-term debt | 2,167 | — | |||||
Repayment of revolving credit facility | — | (1,450 | ) | ||||
Principal payments on long-term debt | (3,334 | ) | — | ||||
Proceeds from exercise of common stock options and warrants | 6 | 1,435 | |||||
Proceeds from issuance of common stock, net | 162 | 92,134 | |||||
Net cash provided by (used in) financing activities | (999 | ) | 92,119 | ||||
Net increase (decrease) in cash and cash equivalents | (45,483 | ) | 120,478 | ||||
Cash and cash equivalents at beginning of period | 155,349 | 42,205 | |||||
Cash and cash equivalents at end of period | $ | 109,866 | $ | 162,683 | |||
1. | Organization and Basis of Presentation |
2. | Summary of Significant Accounting Policies |
Level 1: | Observable inputs such as quoted prices in active markets; |
Level 2: | Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Fair Value Measurements at Reporting Date Using | |||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||
September 30, 2016 | |||||||||||||
Assets | |||||||||||||
Cash equivalents(1) | $ | 108,191 | — | — | $ | 108,191 | |||||||
Liabilities | |||||||||||||
Common stock warrant liabilities(2) | $ | — | — | 1,048 | $ | 1,048 | |||||||
Contingent purchase consideration (3) | $ | — | — | 53,800 | $ | 53,800 | |||||||
December 31, 2015 | |||||||||||||
Assets | |||||||||||||
Cash equivalents(1) | $ | 148,588 | — | — | $ | 148,588 | |||||||
Liabilities | |||||||||||||
Common stock warrant liabilities(2) | $ | — | — | 6,196 | $ | 6,196 | |||||||
Contingent purchase consideration (3) | $ | — | — | 51,000 | $ | 51,000 |
(1) | Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the condensed consolidated balance sheets. |
(2) | Common stock warrant liabilities were incurred in connection with the Company's July 2012 public offering of common stock and warrants and with the financing agreement (the Healthcare Royalty financing agreement) entered into with Healthcare Royalty Partners (Healthcare Royalty) (see Note 6), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) expected volatility based upon the Company's historical volatility. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management's projections regarding the probability of the occurrence of an extraordinary event and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, and (b) an expected volatility rate using the Company's historical volatility through the projected date of public announcement of an extraordinary transaction, blended with a rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement. The change in the fair value of the common stock |
(3) | Contingent purchase consideration was measured at fair value using the income approach based on significant unobservable inputs including management's estimates of the probabilities of achieving specific net sales levels and development milestones and appropriate risk adjusted discount rates. Significant changes of either unobservable input could have a significant effect on the calculation of fair value of the contingent purchase consideration liability. |
Contingent Purchase Consideration | Common Stock Warrant Liabilities | ||||||
Balance at December 31, 2015 | $ | 51,000 | $ | 6,196 | |||
Changes in fair value | 2,800 | (5,148 | ) | ||||
Balance at September 30, 2016 | $ | 53,800 | $ | 1,048 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Options to purchase common stock | 2 | 1,786 | 2 | 1,786 | |||||||
Restricted stock units not yet vested and released | 104 | — | 104 | — | |||||||
Total | 106 | 1,786 | 106 | 1,786 |
3. | Inventory |
September 30, 2016 | December 31, 2015 | ||||||
Raw materials | $ | 4,407 | $ | 3,775 | |||
Work in process | 5,005 | 8,255 | |||||
Total | $ | 9,412 | $ | 12,030 |
4. | Discontinued operations |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues: | |||||||||||||||
Net product revenue | $ | (53 | ) | $ | 1,280 | $ | 238 | $ | 10,459 | ||||||
Operating expense: | |||||||||||||||
Cost of product sold | — | 182 | 15 | 2,134 | |||||||||||
Royalty expense | — | 77 | 17 | 785 | |||||||||||
Research and development | — | (232 | ) | — | 5,596 | ||||||||||
Selling, general and administrative | 414 | 472 | 1,424 | 14,706 | |||||||||||
Restructuring expense | — | 20 | — | 588 | |||||||||||
(Gain) on sale of business | — | (46 | ) | — | (89,099 | ) | |||||||||
Total operating (income) expense | 414 | 473 | 1,456 | (65,290 | ) | ||||||||||
Other income | — | 78 | — | 5,078 | |||||||||||
Net income (loss) from discontinued operations before tax | (467 | ) | 885 | (1,218 | ) | 80,827 | |||||||||
Income tax benefit (expense) | 88 | (2,520 | ) | 88 | (15,998 | ) | |||||||||
Net income (loss) from discontinued operations | $ | (379 | ) | $ | (1,635 | ) | $ | (1,130 | ) | $ | 64,829 |
September 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current assets | |||||||
Prepaid expenses and other current assets | $ | 6 | $ | 208 | |||
Total current assets of discontinued operations | 6 | 208 | |||||
Total assets of discontinued operations | $ | 6 | $ | 208 | |||
Liabilities | |||||||
Current liabilities | |||||||
Accounts payable | $ | 334 | $ | — | |||
Accrued expenses | 869 | 2,796 | |||||
Deferred revenue and other current liabilities | — | 110 | |||||
Total current liabilities of discontinued operations | 1,203 | 2,906 | |||||
Total liabilities of discontinued operations | $ | 1,203 | $ | 2,906 |
5. | Amendment of Loan and Security Agreement |
• | providing the Company with additional term loans in net aggregate principal amount of $3,333,334; |
• | amending the original repayment schedule of the term loans such that the Company is required to make interest-only payments until February 1, 2018, then equal monthly payments of principal plus interest will be made through the maturity date of the term loans on July 1, 2020; |
• | amending the interest rate such that the term loans bear interest at an annual rate equal to either (i) 7.00% or (ii) the sum of (a) the “prime rate” rate reported in the Wall Street Journal on the date occurring on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.25%, whichever is greater; |
• | removing the revolving line of credit previously available under the original loan and security agreement; |
• | removing an affirmative covenant requiring the Company to maintain a liquidity ratio of 1.25 to 1 through the Company’s receipt of positive data from placebo-controlled trials in the United States and European Union of ZX008; and |
• | amending a covenant to now permit the Company to maintain collateral account balances exceeding the greater of (i) $50,000,000, or (ii) 50% of the Company’s total collateral account balances (other than specifically excluded accounts), with financial institutions other than the lenders; provided that, if the Company’s total collateral account balances are below $50,000,000, all such balances will be maintained with the lenders. |
6. | Common Stock Warrant Liability |
7. | Stock-Based Compensation |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2016 | 2015 | 2016 | 2015 | ||||
Risk free interest rate | 1.1% to 1.3% | 1.6% | 1.1% to 1.4% | 1.5% to 1.8% | |||
Expected term | 5.1 to 6.1 years | 6.1 years | 5.1 to 6.1 years | 5.1 to 6.1 years | |||
Expected volatility | 77.0% to 78.1% | 77.6% | 77.0% to 78.1% | 76.7% to 79.2% | |||
Expected dividend yield | —% | —% | —% | —% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Cost of contract manufacturing | $ | 98 | $ | 87 | $ | 294 | $ | 283 | |||||||
Research and development | 532 | 364 | 1,449 | 774 | |||||||||||
Selling, general and administrative | 1,311 | 905 | 3,460 | 4,019 | |||||||||||
Total | $ | 1,941 | $ | 1,356 | $ | 5,203 | $ | 5,076 |
8. | Income taxes |
9. | Subsequent events |
• | the progress and timing of clinical trials for ZX008; |
• | the safety and efficacy of our product candidates; |
• | the timing of submissions to, and decisions made by, the U.S. Food and Drug Administration, or FDA , and other regulatory agencies, including foreign regulatory agencies,, with respect to our product candidates and our ability to demonstrate the safety and efficacy of our product candidates to the satisfaction of the FDA and such other regulatory agencies; |
• | the goals of our development activities and estimates of the potential markets for our product candidates, and our ability to compete within those markets; |
• | our ability to receive contingent milestone payments from the sale of the Zohydro ER and Sumavel DosePro businesses; |
• | adverse side effects or inadequate therapeutic efficacy of Zohydro ER that could result in product liability claims; |
• | estimates of the capacity of manufacturing and other facilities to support our product candidates; |
• | our and our licensors ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of our product candidates and the ability to operate our business without infringing the intellectual property rights of others; |
• | our ability to obtain and maintain adequate levels of coverage and reimbursement from third-party payors for any of our product candidates that may be approved for sale, the extent of such coverage and reimbursement and the willingness of third-party payors to pay for our products versus less expensive therapies; |
• | the impact of healthcare reform laws; and |
• | projected cash needs and our expected future revenues, operations and expenditures. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Contract manufacturing revenue | $ | 6,345 | $ | 8,860 | $ | (2,515 | ) | (28.4 | )% | 17,537 | 19,044 | $ | (1,507 | ) | (7.9 | )% | |||||||||||||
Service and other product revenue | 225 | 260 | (35 | ) | (13.5 | )% | 327 | 2,057 | (1,730 | ) | (84.1 | )% | |||||||||||||||||
Total revenue | $ | 6,570 | $ | 9,120 | $ | (2,550 | ) | (28.0 | )% | $ | 17,864 | $ | 21,101 | $ | (3,237 | ) | (15.3 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Cost of contract manufacturing | $ | 6,391 | $ | 7,780 | $ | (1,389 | ) | (17.9 | )% | $ | 16,256 | $ | 17,506 | $ | (1,250 | ) | (7.1 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Royalty expense | $ | 78 | $ | 106 | $ | (28 | ) | (26.4 | )% | $ | 224 | $ | 249 | $ | (25 | ) | (10.0 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Research and development | $ | 10,076 | $ | 7,919 | $ | 2,157 | 27.2 | % | $ | 28,447 | $ | 19,310 | $ | 9,137 | 47.3 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
ZX008 | $ | 7,275 | $ | 1,947 | $ | 20,321 | $ | 5,754 | |||||||
Relday | 58 | 3,402 | 438 | 7,571 | |||||||||||
Other(1) | 2,743 | 2,570 | 7,688 | 5,985 | |||||||||||
Total | $ | 10,076 | $ | 7,919 | $ | 28,447 | $ | 19,310 |
(1) | Other research and development expenses include employee and infrastructure resources that are not tracked on a program-by-program basis as well as development costs incurred for other product candidates. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Selling expense | $ | 1,119 | $ | 968 | $ | 151 | 15.6 | % | $ | 3,938 | $ | 2,430 | $ | 1,508 | 62.1 | % | |||||||||||||
General and administrative expense | 5,419 | 4,728 | 691 | 14.6 | % | 15,568 | 17,117 | (1,549 | ) | (9.0 | )% | ||||||||||||||||||
Total selling, general and administrative | $ | 6,538 | $ | 5,696 | $ | 842 | 14.8 | % | $ | 19,506 | $ | 19,547 | $ | (41 | ) | (0.2 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Change in fair value of contingent consideration | $ | 200 | $ | (300 | ) | $ | 500 | (166.7 | )% | $ | 2,800 | $ | (1,900 | ) | $ | 4,700 | (247.4 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | $ change | % change | 2016 | 2015 | $ change | % change | |||||||||||||||||||||
Interest expense, net | $ | (567 | ) | $ | (718 | ) | $ | 151 | (21.0 | )% | $ | (1,788 | ) | $ | (2,259 | ) | $ | 471 | (20.8 | )% | |||||||||
Loss on short-term investments | $ | — | $ | (5,485 | ) | $ | 5,485 | (100.0 | )% | $ | — | $ | (5,485 | ) | $ | 5,485 | (100.0 | )% | |||||||||||
Change in fair value of warrant liabilities | $ | (356 | ) | $ | (296 | ) | $ | (60 | ) | 20.3 | % | $ | 5,148 | $ | (861 | ) | $ | 6,009 | (697.9 | )% | |||||||||
Other income expense | $ | 25 | $ | 103 | $ | (78 | ) | (75.7 | )% | $ | 2 | $ | (55 | ) | $ | 57 | (103.6 | )% | |||||||||||
Total other income (expense) | $ | (898 | ) | $ | (6,396 | ) | $ | 5,498 | (86.0 | )% | $ | 3,362 | $ | (8,660 | ) | $ | 12,022 | (138.8 | )% |
• | providing us with additional term loans in net aggregate principal amount of $3,333,334; |
• | amending the original repayment schedule of the term loans such that we are required to make interest-only payments until February 1, 2018, then equal monthly payments of principal plus interest will be made through the maturity date of the term loans on July 1, 2020; |
• | amending the interest rate such that the term loans bear interest at an annual rate equal to either (i) 7.00% or (ii) the sum of (a) the “prime rate” rate reported in the Wall Street Journal on the date occurring on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.25%, whichever is greater; |
• | removing the revolving line of credit previously available under the original Loan and Security Agreement; |
• | removing an affirmative covenant requiring us to maintain a liquidity ratio of 1.25 to 1 through our receipt of positive data from placebo-controlled trials in the United States and European Union of ZX008; and |
• | amending a covenant to now permit us to maintain collateral account balances exceeding the greater of (i) $50,000,000, or (ii) 50% of our total collateral account balances (other than specifically excluded accounts), with financial institutions other than the lenders; provided that, if our total collateral account balances are below $50,000,000, all such balances will be maintained with the lenders. |
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
(In Thousands) | |||||||
Statement of Cash Flows Data: | |||||||
Total cash provided by (used in): | |||||||
Operating activities | $ | (54,383 | ) | $ | (50,852 | ) | |
Investing activities | 9,899 | 79,211 | |||||
Financing activities | (999 | ) | 92,119 | ||||
Increase (decrease) in cash and cash equivalents | $ | (45,483 | ) | $ | 120,478 |
• | obtaining regulatory authorization to commence a clinical trial; |
• | reaching agreement on acceptable terms with clinical research organizations, or CROs, clinical investigators and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, clinical investigators and trial sites; |
• | manufacturing or obtaining sufficient quantities of a product candidate and placebo for use in clinical trials; |
• | obtaining institutional review board, or IRB, approval to initiate and conduct a clinical trial at a prospective site; |
• | identifying, recruiting and training suitable clinical investigators; |
• | identifying, recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the treatment of similar indications; |
• | retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues or for any other reason they choose, or who are lost to further follow-up; |
• | uncertainty regarding proper dosing; and |
• | scheduling conflicts with participating clinicians and clinical institutions. |
• | inability to design appropriate clinical trial protocols; |
• | inability by us, our employees, our CROs or their employees to conduct the clinical trial in accordance with all applicable FDA, drug enforcement administration, or DEA, or other regulatory requirements or our clinical protocols; |
• | inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold; |
• | discovery of serious or unexpected toxicities or side effects experienced by study participants or other unforeseen safety issues; |
• | lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties; |
• | lack of effectiveness of any product candidate during clinical trials; |
• | slower than expected rates of subject recruitment and enrollment rates in clinical trials; |
• | inability of our CROs or other third-party contractors to comply with all contractual requirements or to perform their services in a timely or acceptable manner; |
• | inability or unwillingness of medical investigators to follow our clinical protocols; and |
• | unfavorable results from on-going clinical trials and pre-clinical studies. |
• | exposure to unknown liabilities; |
• | disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies; |
• | incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions; |
• | higher than expected acquisition and integration costs; |
• | write-downs of assets or goodwill or impairment charges; |
• | increased amortization expenses; |
• | difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; |
• | impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and |
• | inability to retain key employees of any acquired businesses. |
• | the FDA may not deem a product candidate safe and effective; |
• | the FDA may not find the data from pre-clinical studies and clinical trials sufficient to support approval; |
• | the FDA may require additional pre-clinical studies or clinical trials; |
• | the FDA may not approve of our third-party manufacturers' processes and facilities; or |
• | the FDA may change its approval policies or adopt new regulations. |
Exhibit Number | Description | |
3.1(2) | Fifth Amended and Restated Certificate of Incorporation of the Registrant | |
3.2(5) | Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant | |
3.3(7) | Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant | |
3.4(2) | Amended and Restated Bylaws of the Registrant | |
4.1(3) | Form of the Registrant’s Common Stock Certificate | |
4.2(1) | Third Amended and Restated Investors’ Rights Agreement dated December 2, 2009 | |
4.3(1) | Amendment to Third Amended and Restated Investors’ Rights Agreement dated as of July 1, 2010 | |
4.4(4) | Second Amendment to Third Amended and Restated Investors’ Rights Agreement dated June 30, 2011 | |
4.5(1) | Warrant dated June 30, 2008 issued by the Registrant to Oxford Finance Corporation | |
4.6(1) | Transfer of Warrant dated March 24, 2009 from CIT Healthcare LLC to The CIT Group/Equity Investments, Inc. | |
4.7(4) | Warrant dated July 18, 2011 issued by the Registrant to Healthcare Royalty Partners (formerly Cowen Healthcare Royalty Partners II, L.P.) | |
4.8(6) | Warrant dated December 30, 2014 issued by the Registrant to Oxford Finance LLC | |
4.9(6) | Warrant dated December 30, 2014 issued by the Registrant to Silicon Valley Bank | |
10.1 | Amendment #3 to the Manufacturing Services Agreement dated as of August 23, 2016 by and between the Registrant and Patheon UK Limited | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted) | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted) | |
32.1* | Certification of Chief Executive Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted) | |
32.2* | Certification of Chief Financial Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted) | |
101 | The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements. |
(1) | Filed with the Registrant’s Registration Statement on Form S-1 on September 3, 2010. |
(2) | Filed with Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 on October 27, 2010. |
(3) | Filed with Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 on November 4, 2010. |
(4) | Filed with the Registrant’s Quarterly Report on Form 10-Q on August 11, 2011. |
(5) | Filed with the Registrant’s Quarterly Report on Form 10-Q on November 8, 2012. |
(6) | Filed with the Registrant’s Current Report on Form 8-K on December 31, 2014. |
(7) | Filed with the Registrant’s Quarterly Report on Form 10-Q on August 10, 2015. |
* | These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not subject to the liability of that section. These certifications are not to be incorporated by reference into any filing of Zogenix, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
ZOGENIX, INC. | |||
Date: | November 7, 2016 | By: | /s/ Stephen J. Farr |
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: | November 7, 2016 | By: | /s/ Ann D. Rhoads |
Executive Vice President, Chief Financial Officer, Treasurer and Secretary | |||
(Principal Financial and Accounting Officer) |
Zogenix, Inc. | Patheon UK Ltd. |
Signature: /s/Stephen J. Farr, Ph.D. | Signature: /s/A.M. Botterill |
Stephen J. Farr, Ph.D. | A.M. Botterill |
President and CEO | Executive Director & General Manager |
Date: 23 Aug 2016 | Date: 23 Aug 2016 |
1. | I have reviewed this Quarterly Report on Form 10-Q of Zogenix, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Stephen J. Farr |
Stephen J. Farr |
Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Zogenix, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Ann D. Rhoads |
Ann D. Rhoads |
Chief Financial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Stephen J. Farr |
Stephen J. Farr |
Chief Executive Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Ann D. Rhoads |
Ann D. Rhoads |
Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Nov. 03, 2016 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | ZGNX | |
Entity Registrant Name | ZOGENIX, INC. | |
Entity Central Index Key | 0001375151 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 24,790,989 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 50,000,000 | 50,000,000 |
Common Stock, Shares, Issued | 24,791,000 | 24,772,000 |
Common Stock, Shares, Outstanding | 24,791,000 | 24,772,000 |
Organization and Basis of Presentation |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation Zogenix, Inc. (the Company) is a pharmaceutical company committed to developing and commercializing central nervous system (CNS) therapies that address specific clinical needs for people living with orphan and other CNS disorders who need innovative treatment alternatives to help them improve their daily functioning. The Company's activities are focused on development of two product candidates, ZX008 and Relday, as well as performing contract manufacturing services in accordance with a supply agreement in conjunction with the sale of its Sumavel DosePro business in 2014. The Company divested its Zohydro ER® business on April 24, 2015 (see Note 4). Zohydro ER activity has been excluded from continuing operations for all periods herein and reported as discontinued operations as a result of the sale. On July 1, 2015, the Company effected a 1-for-8 reverse stock split of its common stock and changed its authorized shares of common stock to 50,000,000 shares. All historical per share information presented herein has been adjusted to reflect the effect of the reverse stock split and change to the authorized shares of common stock. |
Summary of Significant Accounting Policies |
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Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Financial Statement Preparation and Use of Estimates The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by the Company according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2015, each as filed with the SEC. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly owned subsidiary Zogenix Europe Limited (Zogenix Europe), which was incorporated under the laws of England and Wales in June 2010. All intercompany transactions and investments have been eliminated in consolidation. Zogenix Europe's functional currency is the U.S. dollar which is the reporting currency of the Company. Restricted Cash The Company had restricted cash in escrow as of December 31, 2015 to fund potential indemnification claims for 12 months from the closing date of its sale of the Zohydro ER business in April 2015. The Company received the full amount from escrow in April 2016. The Company classifies this cash flow as investing activities in the condensed consolidated statement of cash flows as the source of the restricted cash was related to the sale of the Zohydro ER business. Fair Value Measurements The carrying amount of financial instruments consisting of cash, restricted cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued compensation included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values its cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and contingent purchase consideration within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs. Assets and liabilities measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015 are as follows (in thousands):
The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2016 (in thousands):
The changes in fair value of the liabilities shown in the table above are recorded through change in fair value of contingent consideration in operating expense and change in fair value of warrant liabilities in other income (expense) in the condensed consolidated statements of operations and comprehensive income (loss). Net Income (Loss) per Share Basic and diluted net loss per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period without consideration for common stock equivalents. Common stock equivalents that could potentially reduce net earnings per common share in the future that were not included in the determination of diluted net income (loss) per common share as their effects were antidilutive are as follows (in thousands):
Other Comprehensive Income (Loss) The Company received shares of Pernix Therapeutics Holdings, Inc. common stock received as partial consideration for the sale of the Zohydro ER business in April 2015. The Company liquidated all of these investments during the fourth quarter of 2015. Management classifies short-term investments as available-for-sale when acquired and evaluated such classification as of each balance sheet date. Short-term investments are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income (loss), a component of stockholders’ equity. The Company evaluates its short-term investments to assess whether any unrealized loss position is other than temporarily impaired. Impairment is considered to be other than temporary if it is likely that the Company intended to sell the investments before the recovery of the cost basis. The Company recorded impairment charges of $5,485,000 for the three and nine months ended September 30, 2015. Realized gains, losses, and declines in value judged to be other than temporary were reported in other income (expense) in the condensed consolidated statements of operations and comprehensive income (loss). Goodwill and Intangible Assets Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead tested for impairment annually. Intangible assets consist of in-process research and development with an indefinite useful life that is not amortized, but instead tested for impairment until the successful completion and commercialization or abandonment of the associated research and development efforts, at which point the in-process research and development asset is either amortized over its estimated useful life or written-off immediately. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Revenue Recognition The Company recognizes revenue from contract manufacturing, service fees earned on collaborative arrangements and the sale of Sumavel DosePro prior to its sale in May 2014. The Company also recognizes revenue from the sale of Zohydro ER, which is included in net loss from discontinued operations in the condensed consolidated statements of operations and comprehensive income (loss). Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company deferred recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company was not able to reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s). Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. Contract Manufacturing Revenue The Company and Endo entered into a supply agreement in connection with the sale of the Sumavel DosePro business to Endo in May 2014. Under the terms of the supply agreement, the Company retains the sole and exclusive right and the obligation to manufacture or supply Sumavel DosePro to Endo. The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a low single-digit mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight-year term of the supply agreement ending in May 2022. The Company continually evaluates the performance period and adjusts the period of revenue recognition if circumstances change. The Company recognized $(200,000) and $600,000 of contract manufacturing revenue in continuing operations during the three and nine months ended September 30, 2016, respectively, based on changes in estimated product to be delivered during the remaining term of the supply agreement. The effect of the changes in estimated future product delivery increased both total net loss per share from continuing operations and net loss per share by $0.01 for the three months ended September 30, 2016, and decreased both total net loss per share from continuing operations and net loss per share by $0.02 for the nine months ended September 30, 2016. In addition, the Company reports revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services. Product Revenue, Net The Company sold Sumavel DosePro through May 2014, and sold Zohydro ER through April 2015, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transferred to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized. The Company is responsible for all returns of Sumavel DosePro product distributed by the Company prior to the sale of the Sumavel DosePro business up to a maximum per unit amount as specified in the sales agreement. Given the limited sales history of Zohydro ER, the Company was not able to reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company deferred recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company did not have a significant history estimating the number of patient prescriptions dispensed. If the Company underestimated or overestimated patient prescriptions dispensed for a given period, adjustments to revenue from discontinued operations may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company records sales deductions at the time the prescription unit was dispensed. In addition, the costs of Zohydro ER associated with the deferred revenue were recorded as deferred costs, which were included in inventory, until such time the related deferred revenue is recognized. The Company is responsible for returns for product sold prior to the sale of the business on April 24, 2015 and was responsible for rebates, chargebacks, and related fees for product sold until July 8, 2015 per terms of the asset purchase agreement (the Asset Purchase Agreement) the Company entered into with Pernix Ireland Limited and Pernix Therapeutics (collectively, Pernix). Revenue for Zohydro ER is included in discontinued operations in the condensed consolidated statements of operations and comprehensive income (loss). Segment Reporting Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to revenue recognition, and in April 2016 and May 2016 the FASB issued additional guidance related to revenue recognition. These new standards will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption of the guidance is permitted on the original effective date of fiscal years beginning after December 15, 2016. The Company is evaluating the transition method, timing and impact of adopting these new accounting standards on its financial statements and related disclosures. In August 2014, the FASB issued new accounting guidance which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosures. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued guidance by requiring lessees to recognize the lease assets and lease liabilities that arise from both capital and operating leases with lease terms of more than 12 months and to disclose qualitative and quantitative information about lease transactions. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In March 2016, the FASB issued guidance to revise accounting for share-based compensation arrangements, including the income tax impact and classification on the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In August 2016, the FASB issued guidance to clarify the classification of certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements. |
Inventory |
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Disclosure Inventory Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Inventory | Inventory Inventory consists of the following (in thousands):
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Discontinued operations |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued operations | Discontinued operations On March 10, 2015, the Company entered into the Asset Purchase Agreement whereby the Company agreed to sell its Zohydro ER business to Pernix, and on April 24, 2015, the Company completed the sale to Ferrimill Limited, a subsidiary of Pernix, as a substitute purchaser. As a result of the Company's strategic decision to sell the Zohydro ER business and focus on clinical development of ZX008 and Relday, the financial results from the Zohydro ER business and the related assets and liabilities have been presented as discontinued operations in the condensed consolidated financial statements. The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the Zohydro ER business. The allocations do not include amounts related to general corporate administrative expenses or interest expense, and therefore the results of operations from the Zohydro ER business do not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. The following table summarizes the results of discontinued operations for the periods presented in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 (in thousands):
The following table summarizes the assets and liabilities of discontinued operations as of September 30, 2016 and December 31, 2015 related to the Zohydro ER business (in thousands):
There was no stock-based compensation or amortization expense related to discontinued operations for the nine months ended September 30, 2016. Total stock-based compensation expense related to discontinued operations was $905,000 and total amortization expense related to discontinued operations was $166,000 for the nine months ended September 30, 2015. |
Amendment of Loan and Security Agreement |
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Sep. 30, 2016 | |||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||
Amendment of Loan and Security Agreement | Amendment of Loan and Security Agreement On June 17, 2016, the Company entered into a second amendment to modify the loan and security agreement with Oxford Finance LLC and Silicon Valley Bank dated as of December 30, 2014. Significant terms of the modification included:
In connection with second amendment, the Company paid (i) a final payment of $1,000,000 with respect to the existing term loans, previously due on the earlier to occur of the maturity date of the original loan and security agreement or early repayment of the term loans; (ii) an amendment fee of $25,000 with respect to a previous loan amendment; and (iii) revolving line commitment fees of $64,000 due relative to the termination of the revolving line of credit. Furthermore, the Company agreed to make a final payment of $1,350,000 on the earlier of the maturity date of the amended loan and security agreement or early repayment of the term loans, and to pay a termination fee of $200,000 on the earlier to occur of a change in control or the early termination of the loan and security agreement. |
Common Stock Warrant Liability |
9 Months Ended |
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Sep. 30, 2016 | |
Disclosure Common Stock Warrants Additional Informational [Abstract] | |
Common Stock Warrant Liability | Common Stock Warrant Liability In July 2012, in connection with a public offering of common stock and warrants, the Company sold warrants to purchase 1,973,025 shares of common stock and at September 30, 2016, warrants to purchase 1,901,918 shares of common stock are outstanding. The warrants are exercisable at an exercise price of $20.00 per share and will expire on July 27, 2017. As the warrants contain a cash settlement feature upon the occurrence of certain events that may be outside of the Company’s control, the warrants are recorded as a current liability and are marked to market at each reporting period (see Note 2). None of these warrants were exercised during the three or nine months ended September 30, 2016 or the year ended December 31, 2015. The fair value of the warrants outstanding was approximately $968,000 and $6,069,000 as of September 30, 2016 and December 31, 2015, respectively. In July 2011, upon the closing of and in connection with the Healthcare Royalty financing agreement, the Company issued a warrant to Healthcare Royalty exercisable into 28,125 shares of common stock. The warrant is exercisable at $72.00 per share of common stock and has a term of ten years. As the warrant contains covenants where compliance with such covenants may be outside of the Company’s control, the warrant was recorded as a current liability and is marked to market at each reporting date (see Note 2). The fair value of the warrant was approximately $80,000 and $127,000 as of September 30, 2016 and December 31, 2015, respectively. |
Stock-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation The Company uses the Black-Scholes option-pricing model for determining the estimated fair value of stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the three and nine months ended September 30, 2016 and 2015 are as follows:
The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices are publicly available for a sufficient period of time. The Company recognized stock-based compensation expense in continuing operations as follows (in thousands):
As of September 30, 2016, there was approximately $10,915,000 of total unrecognized compensation costs related to outstanding employee and board of director stock options which is expected to be recognized over a weighted average period of 2.5 years, and $670,000 of total unrecognized compensation costs related to unvested employee performance stock units which is expected to be recognized over a weighted average period of 1.5 years. As of September 30, 2016, there were 35,771 unvested stock options and 7,500 unvested restricted stock units outstanding to consultants, with approximately $352,000 of related unrecognized compensation expense based on a September 30, 2016 measurement date. These unvested stock awards outstanding to consultants are expected to vest over a weighted average period of 2.7 years. In accordance with accounting guidance for stock-based compensation, the Company remeasures the fair value of stock option grants to non-employees at each reporting date and recognizes the related income or expense during their vesting period. The expense recognized from the revaluation of stock options and restricted stock units to consultants was immaterial for the three and nine months ended September 30, 2016 and 2015. The expense for awards issued to consultants is included in the condensed consolidated statements of operations and comprehensive income (loss) within selling, general and administrative expense. |
Income taxes |
9 Months Ended |
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Sep. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income taxes | Income taxes The Company recorded a tax benefit to continuing operations of $1,025,000 for the three and nine months ended September 30, 2016 related to tax rate reductions enacted in the United Kingdom in September 2016 which resulted in a decrease in the Company's deferred tax liability. Intraperiod tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as discontinued operations, the Company must allocate the tax provision to the other categories of earnings, and then record a related tax benefit in continuing operations. During the three and nine months ended September 30, 2016, the Company recognized net losses from both continuing and discontinued operations, and therefore no allocation of income tax was required. During the three and nine months ended September 30, 2015 the Company recognized net income from discontinued operations, and, as a result, recorded income tax expense of $2,520,000 and $15,998,000, respectively, which is included in net income (loss) from discontinued operations in the condensed consolidated statement of operations and comprehensive income (loss). Accordingly, the Company recognized a related income tax benefit of $5,496,000 and $12,428,000 from continuing operations in the condensed consolidated statement of operations and comprehensive income (loss) for the three and nine months ended September 30, 2015, respectively. The remaining $3,535,000 income tax benefit to continuing operations was recognized throughout the remainder of 2015. |
Subsequent events |
9 Months Ended |
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Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent events | Subsequent events In October 2016, the Company completed an asset purchase agreement to acquire the global rights to a preclinical development program for orphan CNS disorders for $1,500,000. Under the asset purchase agreement, the Company is also obligated to make future milestone payments based on the successful achievement of certain defined development and sales milestones. The accounting for this transaction and estimated financial effect of these development milestones are being evaluated. Due to the preclinical stage of development and the nature of this arrangement, the future potential payments related to the attainment of the specified milestones over a period of several years are inherently uncertain. In October 2016, the Company amended its manufacturing services agreement with Patheon UK Limited to extend the term of the existing agreement through April 2017. Other terms of the existing agreement remain unchanged. The agreement may be extended further by agreement of both parties for additional terms prior to the expiration of the current term. Future minimum purchase commitments total $4,600,000 at September 30, 2016 through the term of the extended agreement. |
Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2016 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
Financial Statement Preparation and Use of Estimates | Financial Statement Preparation and Use of Estimates The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by the Company according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2015, each as filed with the SEC. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates. |
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Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly owned subsidiary Zogenix Europe Limited (Zogenix Europe), which was incorporated under the laws of England and Wales in June 2010. All intercompany transactions and investments have been eliminated in consolidation. Zogenix Europe's functional currency is the U.S. dollar which is the reporting currency of the Company. |
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Restricted Cash | Restricted Cash The Company had restricted cash in escrow as of December 31, 2015 to fund potential indemnification claims for 12 months from the closing date of its sale of the Zohydro ER business in April 2015. The Company received the full amount from escrow in April 2016. The Company classifies this cash flow as investing activities in the condensed consolidated statement of cash flows as the source of the restricted cash was related to the sale of the Zohydro ER business. |
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Fair Value Measurements | Fair Value Measurements The carrying amount of financial instruments consisting of cash, restricted cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued compensation included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values its cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and contingent purchase consideration within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs. |
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Net Inome (Loss) per Share | Net Income (Loss) per Share Basic and diluted net loss per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period without consideration for common stock equivalents. |
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Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead tested for impairment annually. Intangible assets consist of in-process research and development with an indefinite useful life that is not amortized, but instead tested for impairment until the successful completion and commercialization or abandonment of the associated research and development efforts, at which point the in-process research and development asset is either amortized over its estimated useful life or written-off immediately. |
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Impairment of Long-Lived Assets | Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. |
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Revenue Recognition | Revenue Recognition The Company recognizes revenue from contract manufacturing, service fees earned on collaborative arrangements and the sale of Sumavel DosePro prior to its sale in May 2014. The Company also recognizes revenue from the sale of Zohydro ER, which is included in net loss from discontinued operations in the condensed consolidated statements of operations and comprehensive income (loss). Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company deferred recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company was not able to reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s). Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. Contract Manufacturing Revenue The Company and Endo entered into a supply agreement in connection with the sale of the Sumavel DosePro business to Endo in May 2014. Under the terms of the supply agreement, the Company retains the sole and exclusive right and the obligation to manufacture or supply Sumavel DosePro to Endo. The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a low single-digit mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight-year term of the supply agreement ending in May 2022. The Company continually evaluates the performance period and adjusts the period of revenue recognition if circumstances change. The Company recognized $(200,000) and $600,000 of contract manufacturing revenue in continuing operations during the three and nine months ended September 30, 2016, respectively, based on changes in estimated product to be delivered during the remaining term of the supply agreement. The effect of the changes in estimated future product delivery increased both total net loss per share from continuing operations and net loss per share by $0.01 for the three months ended September 30, 2016, and decreased both total net loss per share from continuing operations and net loss per share by $0.02 for the nine months ended September 30, 2016. In addition, the Company reports revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services. Product Revenue, Net The Company sold Sumavel DosePro through May 2014, and sold Zohydro ER through April 2015, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transferred to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized. The Company is responsible for all returns of Sumavel DosePro product distributed by the Company prior to the sale of the Sumavel DosePro business up to a maximum per unit amount as specified in the sales agreement. Given the limited sales history of Zohydro ER, the Company was not able to reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company deferred recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company did not have a significant history estimating the number of patient prescriptions dispensed. If the Company underestimated or overestimated patient prescriptions dispensed for a given period, adjustments to revenue from discontinued operations may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company records sales deductions at the time the prescription unit was dispensed. In addition, the costs of Zohydro ER associated with the deferred revenue were recorded as deferred costs, which were included in inventory, until such time the related deferred revenue is recognized. The Company is responsible for returns for product sold prior to the sale of the business on April 24, 2015 and was responsible for rebates, chargebacks, and related fees for product sold until July 8, 2015 per terms of the asset purchase agreement (the Asset Purchase Agreement) the Company entered into with Pernix Ireland Limited and Pernix Therapeutics (collectively, Pernix). Revenue for Zohydro ER is included in discontinued operations in the condensed consolidated statements of operations and comprehensive income (loss). |
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Segment Reporting | Segment Reporting Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to revenue recognition, and in April 2016 and May 2016 the FASB issued additional guidance related to revenue recognition. These new standards will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption of the guidance is permitted on the original effective date of fiscal years beginning after December 15, 2016. The Company is evaluating the transition method, timing and impact of adopting these new accounting standards on its financial statements and related disclosures. In August 2014, the FASB issued new accounting guidance which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosures. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued guidance by requiring lessees to recognize the lease assets and lease liabilities that arise from both capital and operating leases with lease terms of more than 12 months and to disclose qualitative and quantitative information about lease transactions. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In March 2016, the FASB issued guidance to revise accounting for share-based compensation arrangements, including the income tax impact and classification on the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In August 2016, the FASB issued guidance to clarify the classification of certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Measured at Fair Value on a Recurring Basis | Assets and liabilities measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015 are as follows (in thousands):
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Reconciliation of Liabilities Measured at Fair Value Using Significant Observable Inputs (Level 3) | The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2016 (in thousands):
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Basic and Diluted Net Loss Per Share | Common stock equivalents that could potentially reduce net earnings per common share in the future that were not included in the determination of diluted net income (loss) per common share as their effects were antidilutive are as follows (in thousands):
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Inventory (Tables) |
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Disclosure Inventory Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Inventory, Net | Inventory consists of the following (in thousands):
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Discontinued operations (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Results of Discontinued Operations | The following table summarizes the results of discontinued operations for the periods presented in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015 (in thousands):
The following table summarizes the assets and liabilities of discontinued operations as of September 30, 2016 and December 31, 2015 related to the Zohydro ER business (in thousands):
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Stock-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assumptions used in the Black-Scholes Option-Pricing Model | The assumptions used in the Black-Scholes option-pricing model for the three and nine months ended September 30, 2016 and 2015 are as follows:
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Stock-Based Compensation Expense | The Company recognized stock-based compensation expense in continuing operations as follows (in thousands):
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Organization and Basis of Presentation - Narrative (Details) |
Jul. 01, 2015
shares
|
Sep. 30, 2016
product
shares
|
Dec. 31, 2015
shares
|
---|---|---|---|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Number of product candidates | product | 2 | ||
Common stock conversion ratio | 0.125 | ||
Common stock shares authorized | shares | 50,000,000 | 50,000,000 | 50,000,000 |
Summary of Significant Accounting Policies - Reconciliation of Assets and Liabilities Measured at Fair Value Using Significant Observable Inputs Level 3 (Detail) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Contingent Purchase Consideration | |
Liabilities | |
Beginning Balance | $ 51,000 |
Changes in fair value | 2,800 |
Ending Balance | 53,800 |
Common Stock Warrant Liabilities | |
Liabilities | |
Beginning Balance | 6,196 |
Changes in fair value | (5,148) |
Ending Balance | $ 1,048 |
Summary of Significant Accounting Policies - Basic and Diluted Net Loss Per Share (Detail) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||||
Anti-dilutive securities excluded from computation of earnings per share amount | 106 | 1,786 | 106 | 1,786 |
Options to purchase common stock | ||||
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||||
Anti-dilutive securities excluded from computation of earnings per share amount | 2 | 1,786 | 2 | 1,786 |
Restricted stock units not yet vested and released | ||||
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||||
Anti-dilutive securities excluded from computation of earnings per share amount | 104 | 0 | 104 | 0 |
Inventory (Detail) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Disclosure Inventory Net [Abstract] | ||
Raw materials | $ 4,407 | $ 3,775 |
Work in process | 5,005 | 8,255 |
Inventory, net | $ 9,412 | $ 12,030 |
Discontinued operations - Narrative (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Stock-based compensation | $ 5,203,000 | $ 5,981,000 | |
Zohydro ER | Discontinued Operations | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Stock-based compensation | $ 0 | 0 | 905,000 |
Amortization | $ 0 | $ 0 | $ 166,000 |
Amendment of Loan and Security Agreement (Details) - Loan And Security Agreement |
Jun. 17, 2016
USD ($)
|
---|---|
Revolving Credit Facility | |
Debt Instrument [Line Items] | |
Commitment fees | $ 64,000 |
Term Loan | |
Debt Instrument [Line Items] | |
Increase in term loans, principal amount | $ 3,333,334 |
Interest rate | 7.00% |
Ratio of indebtedness to net capital | 1.25 |
Collateral account balance, covenant compliance amount | $ 50,000,000 |
Covenant compliance, deposit account, percent of account balances | 50.00% |
Final payment of existing term loans | $ 1,000,000 |
Amendment fee paid | 25,000 |
Final payment on existing term loans, future | 1,350,000 |
Termination fee | $ 200,000 |
Term Loan | Prime Rate | |
Debt Instrument [Line Items] | |
Basis spread on variable rate | 3.25% |
Common Stock Warrant Liability - Additional Informational (Detail) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Jul. 31, 2012 |
Jul. 31, 2011 |
Sep. 30, 2016 |
Dec. 31, 2015 |
Jul. 27, 2012 |
|
Schedule Of Common Stock [Line Items] | |||||
Shares of common stock exercisable through warrants | 1,901,918 | ||||
Warrants exercise price per share (usd per share) | $ 20.00 | ||||
Fair value of warrant liabilities | $ 968 | $ 6,069 | |||
Warrant exercisable to Healthcare Royalty, shares | 28,125 | ||||
Term of common stock warrant exercisable | 10 years | ||||
Warrant exercisable to Healthcare Royalty, price per share (usd per share) | $ 72.00 | ||||
Healthcare Royalty | |||||
Schedule Of Common Stock [Line Items] | |||||
Fair value of warrant liabilities | $ 80 | $ 127 | |||
IPO | |||||
Schedule Of Common Stock [Line Items] | |||||
Number of shares issued in public offering | 1,973,025 |
Stock-Based Compensation - Assumptions used in Black-Scholes Option-Pricing Model (Detail) - Stock Options |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Risk free interest rate, minimum | 1.10% | 1.60% | 1.10% | 1.50% |
Risk free interest rate, maximum | 1.30% | 1.60% | 1.40% | 1.80% |
Expected volatility rate | 77.00% | |||
Expected volatility, minimum | 77.60% | 77.00% | 76.70% | |
Expected volatility, maximum | 78.10% | 77.60% | 78.10% | 79.20% |
Expected dividend yield | 0.00% | 0.00% | 0.00% | 0.00% |
Minimum | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Expected term | 5 years 1 month | 6 years 1 month | 5 years 1 month | 5 years 1 month |
Maximum | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Expected term | 6 years 1 month | 6 years 1 month 6 days | 6 years 1 month | 6 years 1 month |
Stock-Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | $ 1,941 | $ 1,356 | $ 5,203 | $ 5,076 |
Cost of contract manufacturing | ||||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | 98 | 87 | 294 | 283 |
Research and development | ||||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | 532 | 364 | 1,449 | 774 |
Selling, general and administrative | ||||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | $ 1,311 | $ 905 | $ 3,460 | $ 4,019 |
Income taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Income Tax Disclosure [Abstract] | ||||
Income tax expense from discontinued operations | $ 2,520 | $ 15,998 | ||
Current income tax benefit | $ 1,025 | 5,496 | $ 1,025 | 12,428 |
Deferred income tax benefit | $ 3,535 | $ 1,025 | $ 0 |
Subsequent events (Details) - USD ($) $ in Thousands |
1 Months Ended | |
---|---|---|
Oct. 31, 2016 |
Sep. 30, 2016 |
|
Subsequent Event [Line Items] | ||
Manufacturing services agreement with Patheon UK Limited | $ 4,600 | |
Subsequent Event | ||
Subsequent Event [Line Items] | ||
Payments to acquire global rights to a preclinical development program | $ 1,500 |
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