Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Operating Leases

The Company’s corporate headquarters is located in Newport Beach, California, in a facility that it subleased until January 2020 under a non-cancelable operating lease for a fixed amount each month. On May 15, 2019, the Company entered into a non-cancelable operating lease for the same office facility with the original lessor. This non-cancelable operating lease commenced on February 1, 2020 and expires on January 31, 2025. Lease payments increase based on an annual rent escalation clause that occurs each year on February 1. The Company may, under certain circumstances, terminate the lease on the 36-month anniversary of the lease commencement date by providing a written notice 12 months prior to such anniversary and paying a termination fee equal to six months basic rent plus certain other expenses. The Company has an option to extend the term of the lease for an additional 60 months, which is not recognized as part of its ROU assets and lease liabilities. The lease with the original lessor is a modification of the existing sublease that is not accounted for as a separate contract.

The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. The payments associated with the renewal will only be included in the measurement of the lease liability and ROU assets if the exercise of the renewal option is determined to be reasonably certain. The Company considers the timing of the renewal period and other economic factors such as the financial implications of a decision to extend or not to extend a lease in determining if the renewal option is reasonably certain to be exercised.

For the three and six months ended June 30, 2020, the components of operating lease expense:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Fixed operating lease expense	$	273	$	267	$	547	$	501
Variable operating lease expense	12		32		27		61
Short-term operating lease expense	—		28		168		49
	$	285	$	327	$	742	$	611

The weighted-average remaining lease term was 4.6 years and weighted-average discount rate was 9.4% as of June 30, 2020.

Operating lease expenses were included in the selling, general and administration expenses in the accompanying condensed statements of operations and comprehensive loss. Operating lease right-of-use assets and related current and noncurrent operating lease liabilities are presented in the accompanying condensed balance sheets.

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020, future minimum payments under the operating lease agreements with non-cancelable terms as follows:


Fiscal year
Remainder of 2020	$	583
2021	1,207
2022	1,259
2023	1,314
2024	1,371
Thereafter	115
Total operating lease payments	5,849
Less: imputed interest	(1,138)
Present value of operating lease liabilities	$	4,711

Purchase Commitments

As of June 30, 2020, the Company has entered into commitments to purchase services and products for an aggregate amount of approximately $6,382. Certain minimum purchase commitments related to the purchase of Jeuveau^® are described below.

License and Supply Agreement

In connection with the Daewoong Agreement, the Company was obligated to make future milestone payments to Daewoong for certain confidential development and commercial milestones associated with Jeuveau^®. As of June 30, 2020, Daewoong is eligible to receive remaining contingent milestone payments of up to $10,500.

The Daewoong Agreement also includes certain minimum annual purchases the Company is required to make in order to maintain the exclusivity of the license. The Company may, however, meet these minimum purchase obligations by achieving certain market share in its covered territories. These potential minimum purchase obligations were contingent upon the occurrence of future events, including receipt of governmental approvals and the Company’s future market share in various jurisdictions.

Legal Proceedings

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because they involve claims that may be made against the Company in the future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. No amounts were accrued as of June 30, 2020 and December 31, 2019.

Medytox Litigation

The Company, Daewoong and other individuals and entities are defendants to a lawsuit brought by Medytox, Inc. (“Medytox”) originally instituted in the Superior Court of the State of California in June 2017. With specific regard to the Company, Medytox alleges that (i) the Company has violated California Uniform Trade Secrets Act, Cal. Civ. Code § 3426 because Daewoong’s alleged knowledge of the misappropriation of certain trade secrets of Medytox is imputed to the Company as a result of the Company’s relationship with Daewoong, (ii) the Company has stolen the botulinum toxin bacterial strain of Medytox through our possession of and refusal to return the botulinum toxin bacterial strain, (iii) the Company has engaged in unlawful, unfair and fraudulent business acts and practices in violation of California Bus. & Prof. Code § 17200, including conversion of the botulinum toxin bacterial strain and misrepresentations to the public regarding the source of the botulinum toxin bacterial strain used to manufacture Jeuveau^®, and (iv) the Daewoong Agreement is invalid and in violation of Medytox’s rights (the “Medytox Litigation”). Medytox seeks, among other things, (i) actual, consequential and punitive damages, (ii) a reasonable royalty, as appropriate, (iii) a declaration that the Daewoong Agreement is void and unenforceable and that Medytox is entitled to disgorgement of all property wrongfully and unjustly retained or acquired by the defendants, including unlawfully gained profits, (iv) injunctive relief prohibiting the Company from using the license under the Daewoong Agreement and distributing Jeuveau^®, and (v) attorneys’ fees and costs. The Company believes it has meritorious defenses and intends to vigorously defend Medytox’s claims. The Company is unable to determine the likelihood of success of Medytox’s claims against the Company, and an estimate of the possible loss or range of loss cannot be made. While the Company is entitled to indemnity under the Daewoong Agreement, the indemnity may not be sufficient. An adverse ruling by the Superior Court against either the Company or Daewoong could materially adversely affect the Company’s ability to carry out its business and continue operations as a going concern which would have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows and could also result in reputational harm.

ITC action

On January 30, 2019, Allergan, plc and Allergan, Inc. (collectively, “Allergan”) and Medytox filed a complaint (the “ITC Complaint”) against us and Daewoong in the ITC, containing substantially similar allegations to the Medytox Litigation, specifically that Jeuveau^® is manufactured based on misappropriated trade secrets of Medytox and therefore the importation of Jeuveau^® is an unfair act. The ITC matter is entitled In the Matter of Certain Botulinum Toxin Products, ITC Inv. No. 337-TA-1145.ITC action The ITC Complaint seeks (i) an investigation by the ITC pursuant to Section 337 of the Tariff Act of 1930, (ii) a hearing with the ITC on permanent relief, (iii) issuance of a limited exclusion order forbidding entry of Jeuveau^® into the United States, (iv) a cease and desist order prohibiting Daewoong and us from engaging in the importations, sale for importation, marketing, distribution, offering for sale, the sale after the importation of, or otherwise transferring Jeuveau^® within the United States, (v) a bond issued during the presidential review period, (vi) the return of Medytox’s trade secrets and other confidential information including the alleged stolen botulinum toxin bacterial strain, and (vii) exclusion and cease and desist orders. The Company intends to defend itself vigorously in the proceedings. In January 2020, the three sets of parties to the ITC action, (i) the Complainants - Allergan and Medytox, (ii) the Respondents - the Company and Daewoong and (iii) the OUII, each submitted pre-hearing briefs to the Administrative Law Judge assigned to the ITC action setting forth each party’s positions on the substantive issues prior to the evidentiary hearing. From February 4 to 7, 2020, the Administrative Law Judge held an evidentiary hearing on the ITC action. In July 2020, the Administrative Law Judge issued an initial determination in which the judge found a violation of Section 337 of the Tariff Act of 1930 had occurred by reason of a misappropriation of trade secrets and recommended the entry of a limited exclusion order that would prevent the Company from importing Jeuveau^® into the United States and a cease and desist order that would prevent the Company from selling Jeuveau^®for a period of ten years. A final determination by the ITC is expected to be issued in November 2020, with such final determination subject to a 60-day presidential review period before taking effect. During the presidential review period the Company would be required to pay a bond at a rate set by the ITC for any sales during the period. The amount of

the bond may make any sales unattractive during the period. The Company strongly disagrees with the initial determination by the Administrative Law Judge and intends to continue to vigorously defend itself in this matter. In July 2020, the Company submitted a petition for review of the initial determination to the ITC.

In the event that the ITC affirms the Administrative Law Judge’s initial determination in its final determination without any modification, we would be prevented from importing Jeuveau^® into the United States and from selling Jeuveau^® in the United States for a period of ten years, which would materially and adversely affect the Company’s ability to generate revenue from the Company’s sole product, Jeuveau^®, to carry out its business, and to continue as a going concern. Even if the Company is successful in having the decision modified or reversed during the presidential review or in appealing any such final determination, the Company may find it difficult or be prevented from importing, marketing or selling Jeuveau® in the United States during the pendency of those events. Further, any modification of the Administrative Law Judge’s initial determination in the ITC’s final determination or any final decision following any such presidential review or other appeal may nonetheless still result in restrictions on the Company’s ability to import and market and sell Jeuveau^® in the United States, which could also materially and adversely affect the Company’s ability to generate revenue from Jeuveau^®, to carry out its business, and to continue as a going concern. In any of these scenarios, the Company may be required to seek protection under the bankruptcy laws or may be forced to reduce, significantly restructure or discontinue its operations entirely, any of which would have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows, would cause its stock price to decline and would also result in reputational harm. Even if the Company is successful, the ITC action may result in reputational damage or other collateral consequences. While the Company is entitled to indemnity under the Daewoong Agreement, including indemnity related to intellectual property matters, any indemnity may not be sufficient. Further, any such indemnity claim by the Company is subject to offset by the then-outstanding principal amount and accrued interest of the $40,000 principal amount Convertible Promissory Note issued by the Company to Daewoong. See Note 10. Subsequent Events for further information.

Additionally, in the event the ITC affirms the Administrative Law Judge’s initial determination in its final determination without modification, it is expected that an event of default would occur after the imposition of an exclusion order and cease and desist order either after the exhaustion of all appeals that the Company may have or earlier. Such an event of default may also occur if the Administrative Law Judge’s initial determination in the ITC’s final determination is modified in a manner that results in restrictions on the Company’s ability to import and market and sell Jeuveau^® in the United States. Additionally. under the credit facility, in the event of default, a default interest rate equal to the applicable rate plus 5.0% would apply and Oxford, as collateral agent, could exercise remedies against the Company and the collateral securing the credit facility, including foreclosure against the property securing the credit facility, including cash. If Oxford were to declare an event of default under the credit facility and exercise its remedies, it would materially and negatively affect the Company’s business, results of operation, financial condition and could result in the Company declaring bankruptcy.

The Company is unable to determine the likelihood of any outcome, including the ITC affirming the initial determination or whether the ITC would significantly modify or reverse such initial determination, and an estimate of the possible loss or range of loss cannot be made.

Other Legal Matters

The Company, from time to time, is involved in various litigation matters or regulatory encounters arising in the ordinary course of business that could result in unasserted or asserted claims or litigation. These other matters may raise difficult and complex legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit or regulatory encounter is brought, and differences in applicable laws and regulations. Except as set forth above, the Company does not believe that these other matters would have a material adverse effect on its accompanying financial position, results of operations or cash flows. However, the resolution of one or more of the other matters in any reporting period could have a material adverse impact on the Company’s financial results for that period.