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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from                      to                     

Commission file number: 001-36183

 

Eiger BioPharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

33-0971591

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2155 Park Boulevard

Palo Alto, CA

 

94306

(Address of Principal Executive Offices)

 

(Zip Code)

 

(650) 272-6138

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock (par value $0.001 per share)

EIGR

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

 

  

 

 

 

 

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

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

As of May 3, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 33,951,314.

 

 

 


 

 

EIGER BIOPHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

Item 1. Financial Statements:

  

3

Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

  

3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited)

  

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020 (unaudited)

  

5

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)

 

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)

  

7

Notes to the Condensed Consolidated Financial Statements (unaudited)

  

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

28

Item 4. Controls and Procedures

  

28

 

 

 

PART II. OTHER INFORMATION

  

 

Item 1. Legal Proceedings

  

29

Item 1A. Risk Factors

  

29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

61

Item 3. Defaults Upon Senior Securities

  

61

Item 4. Mine Safety Disclosures

  

61

Item 5. Other Information

  

61

Item 6. Exhibits

  

62

Signatures

  

63

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Eiger,” and “the Company” refer to Eiger BioPharmaceuticals, Inc. Eiger, Eiger BioPharmaceuticals, the Eiger logo and other trade names, trademarks or service marks of Eiger are the property of Eiger BioPharmaceuticals, Inc. This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report on Form 10-Q are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 

 


 

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

108,410

 

 

$

28,864

 

Debt securities, available-for-sale

 

 

52,082

 

 

 

99,976

 

Accounts receivable

 

 

639

 

 

 

 

Inventories

 

 

1,397

 

 

 

93

 

Prepaid expenses and other current assets

 

 

7,358

 

 

 

8,873

 

Total current assets

 

 

169,886

 

 

 

137,806

 

Property and equipment, net

 

 

659

 

 

 

709

 

Operating lease right-of-use assets

 

 

1,049

 

 

 

1,176

 

Other assets

 

 

3,921

 

 

 

3,903

 

Total assets

 

$

175,515

 

 

$

143,594

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,747

 

 

$

4,640

 

Accrued liabilities

 

 

9,171

 

 

 

11,405

 

Current portion of operating lease liabilities

 

 

599

 

 

 

582

 

Total current liabilities

 

 

17,517

 

 

 

16,627

 

Long-term debt, net

 

 

31,218

 

 

 

31,194

 

Operating lease liabilities

 

 

590

 

 

 

738

 

Total liabilities

 

 

49,325

 

 

 

48,559

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

34

 

 

 

34

 

Additional paid-in capital

 

 

403,413

 

 

 

401,509

 

Accumulated other comprehensive loss

 

 

(5

)

 

 

(8

)

Accumulated deficit

 

 

(277,252

)

 

 

(306,500

)

Total stockholders’ equity

 

 

126,190

 

 

 

95,035

 

Total liabilities and stockholders’ equity

 

$

175,515

 

 

$

143,594

 

 

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

3


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Product revenue, net

 

$

3,646

 

 

$

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

53

 

 

 

 

Research and development

 

 

13,842

 

 

 

9,481

 

Selling, general and administrative

 

 

5,564

 

 

 

5,241

 

Total costs and operating expenses

 

 

19,459

 

 

 

14,722

 

Loss from operations

 

 

(15,813

)

 

 

(14,722

)

Interest expense

 

 

(885

)

 

 

(884

)

Interest income

 

 

51

 

 

 

367

 

Other income, net

 

 

45,914

 

 

 

 

Income (loss) before provision for income taxes

 

 

29,267

 

 

 

(15,239

)

Provision for income taxes

 

 

19

 

 

 

 

Net income (loss)

 

$

29,248

 

 

$

(15,239

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.86

 

 

$

(0.62

)

Diluted

 

$

0.85

 

 

$

(0.62

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

33,886,896

 

 

 

24,501,350

 

Diluted

 

 

34,220,895

 

 

 

24,501,350

 

 

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

4


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

29,248

 

 

$

(15,239

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale debt securities, net

 

 

3

 

 

 

(6

)

Comprehensive income (loss)

 

$

29,251

 

 

$

(15,245

)

 

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

5


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

33,878,486

 

 

$

34

 

 

$

401,509

 

 

$

(8

)

 

$

(306,500

)

 

$

95,035

 

Issuance of common stock upon exercise

   of stock options

 

 

19,150

 

 

 

 

 

 

166

 

 

 

 

 

 

 

 

 

166

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Issuance of common stock upon ESPP purchase

 

 

19,928

 

 

 

 

 

 

136

 

 

 

 

 

 

 

 

 

136

 

Issuance of common stock upon release of restricted

   stock units

 

 

33,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,549

 

 

 

 

 

 

 

 

 

1,549

 

Unrealized gain on available-for-sale debt

   securities, net

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,248

 

 

 

29,248

 

Balance at March 31, 2021

 

 

33,951,314

 

 

$

34

 

 

$

403,413

 

 

$

(5

)

 

$

(277,252

)

 

$

126,190

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

24,523,381

 

 

$

24

 

 

$

297,863

 

 

$

42

 

 

$

(241,449

)

 

$

56,480

 

Issuance of common stock upon exercise

   of stock options

 

 

2,895

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Issuance of common stock upon ESPP purchase

 

 

11,332

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

Issuance of common stock upon offering at-the

   -market, net of issuance costs of $221

 

 

32,751

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

191

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,629

 

 

 

 

 

 

 

 

 

1,629

 

Unrealized loss on available-for-sale debt securities,

   net

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,239

)

 

 

(15,239

)

Balance at March 31, 2020

 

 

24,570,359

 

 

$

24

 

 

$

299,849

 

 

$

36

 

 

$

(256,688

)

 

$

43,221

 

 

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

6


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

29,248

 

 

$

(15,239

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Gain from sale of priority review voucher

 

 

(46,493

)

 

 

 

Income related to asset purchase agreement

 

 

(281

)

 

 

 

Depreciation and amortization

 

 

67

 

 

 

36

 

Amortization of debt securities premiums and discounts

 

 

191

 

 

 

(38

)

Non-cash interest expense

 

 

199

 

 

 

191

 

Amortization of operating lease right-of-use assets

 

 

127

 

 

 

115

 

Common stock issued under Product Development Agreement

 

 

53

 

 

 

53

 

Stock-based compensation

 

 

1,549

 

 

 

1,629

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(639

)

 

 

 

Inventories

 

 

(1,304

)

 

 

 

Prepaid expenses and other current assets

 

 

1,529

 

 

 

332

 

Other assets

 

 

(18

)

 

 

(1,270

)

Accounts payable

 

 

3,175

 

 

 

2,459

 

Accrued liabilities

 

 

(2,205

)

 

 

(5,893

)

Operating lease liabilities

 

 

(131

)

 

 

(115

)

Net cash used in operating activities

 

 

(14,933

)

 

 

(17,740

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of debt securities available-for-sale

 

 

(2,049

)

 

 

(23,933

)

Proceeds from maturities of debt securities available-for-sale

 

 

49,755

 

 

 

24,608

 

Proceeds from sale of priority review voucher

 

 

95,000

 

 

 

 

Payments related to priority review voucher

 

 

(48,507

)

 

 

 

Proceeds related to asset purchase agreement

 

 

281

 

 

 

 

Purchase of property and equipment

 

 

(16

)

 

 

(23

)

Net cash provided by investing activities

 

 

94,464

 

 

 

652

 

Financing activities

 

 

 

 

 

 

 

 

Issuance of common stock upon offering at-the-market, net of issuance costs

 

 

 

 

 

231

 

Proceeds from issuance of common stock upon stock option exercises

 

 

166

 

 

 

30

 

Proceeds from issuance of common stock upon ESPP purchase

 

 

146

 

 

 

83

 

Payment of debt issuance costs

 

 

(175

)

 

 

 

Payment of deferred offering costs

 

 

(122

)

 

 

 

Net cash (used in) provided by financing activities

 

 

15

 

 

 

344

 

Net increase (decrease) in cash and cash equivalents

 

 

79,546

 

 

 

(16,744

)

Cash and cash equivalents at beginning of period

 

 

28,864

 

 

 

39,373

 

Cash and cash equivalents at end of period

 

$

108,410

 

 

$

22,629

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

686

 

 

$

694

 

 

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

7


 

Eiger BioPharmaceuticals, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Description of Business

Eiger BioPharmaceuticals, Inc. (the Company or Eiger) was incorporated in the State of Delaware on November 6, 2008. Eiger is a commercial-stage biopharmaceutical company focused on the development and commercialization of well-characterized drugs for serious rare and ultra-rare diseases with high unmet medical needs. Eiger has reported positive proof-of-concept clinical results across all of our programs and has received Breakthrough Therapy designation for three programs in clinical development.

Eiger’s lead clinical programs are focused on the development of complementary, foundational treatments for Hepatitis Delta Virus (HDV), the most severe form of viral hepatitis, for which there is currently no FDA-approved therapy. Lonafarnib is a first-in-class oral farnesylation inhibitor in a global Phase 3 trial, and the only oral therapy in development for HDV. Peginterferon lambda is a first-in-class, well-characterized, well-tolerated type III interferon entering Phase 3.

The FDA approved the Company’s first commercial product, Zokinvy® (lonafarnib) for treatment of Progeria and processing-deficient progeroid laminopathies, ultra-rare and rapidly fatal genetic conditions of accelerated aging in children, on November 20, 2020.  Eiger’s Marketing Authorization Application (MAA) is under review with the European Medicines Agency (EMA), with a decision expected in 2021.

The Company is also developing avexitide, a well-characterized peptide, as a treatment for post-bariatric hypoglycemia (PBH), a debilitating and potentially life-threatening condition for which there is currently no approved therapy, and as a treatment for congenital hyperinsulinism (CHI), an ultra-rare pediatric metabolic disorder.

The Company’s principal operations are based in Palo Alto, California and it operates in one segment.

Liquidity

As of March 31, 2021, the Company had $160.5 million of cash, cash equivalents and investments, comprised of $108.4 million of cash and cash equivalents and $52.1 million of debt securities available-for-sale. The Company had an accumulated deficit of $277.3 million and negative cash flows from operating activities as of March 31, 2021. The Company had net income of $29.2 million during the three months ended March 31, 2021 due to the one-time gain from the sale of a priority review voucher received upon the FDA approval of Zokinvy. However, the Company expects to incur losses for the foreseeable future. As the Company continues to incur losses, its transition to profitability will depend on the successful development, approval, and commercialization of product candidates and on the achievement of sufficient revenues to support its cost structure. The Company may never achieve profitability, and until it does, the Company will need to continue to raise additional capital.

Management believes that the currently available resources will be sufficient to fund its planned operations for at least the next 12 months following the issuance date of these condensed consolidated financial statements. However, if the Company’s anticipated operating results are not achieved in future periods, the Company believes that planned expenditures may need to be reduced or it would be required to raise funding in order to fund the operations. Additionally, the Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The unaudited consolidated financial statements include the accounts of Eiger BioPharmaceuticals, Inc. and its wholly owned subsidiaries, EBPI Merger Inc., EB Pharma LLC, Eiger BioPharmaceuticals Europe Limited, and EigerBio Europe Limited, have been prepared in accordance with accounting principles generally accepted in the United States of America, (U.S. GAAP) and following the requirements of the Securities and Exchange Commission (the SEC) for annual reporting. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain items on the unaudited condensed consolidated balance sheet have been reclassified to conform to current year presentation. Such items were not material.

8


 

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Debt Securities

Short-term securities consist of debt securities classified as available-for-sale and have maturities greater than 90 days, but less than 365 days from the date of acquisition. All short-term securities are carried at fair value based upon quoted market prices. Unrealized gains and losses on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss). The cost of available-for-sale securities sold is based on the specific-identification method. Realized gains and losses on the sale of debt securities are determined using the specific-identification method and recorded in other income, net on the accompanying unaudited condensed consolidated statements of operations.

Inventories

Inventories are stated at the lower of cost, determined based on actual costs, or estimated net realizable value, on a first-in, first-out basis. Inventories consist of raw materials, work-in-process and finished goods.

Prior to regulatory approval of the Company’s product candidates, expenses incurred to manufacture drug products are recorded as research and development expense. The Company begins capitalizing these expenses as inventory upon regulatory approval.

The Company periodically assesses the recoverability of its inventory and reduces the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements. Inventory write-downs for excess, defective and obsolete inventory are recorded as a cost of sales. There have been no write-downs of inventories for the periods presented.

Revenue Recognition

The Company recognizes revenue upon transfer of control of promised products to customers in an amount that reflects the consideration it expects to receive in exchange for those products. To determine revenue recognition for contracts with customers, the Company performs the following five-step approach: (i) identify the contract, or contracts, with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the performance obligation is satisfied. The five-step model is only applied to contracts when it is probable that the Company will collect substantially all of the consideration it is entitled to in exchange for the goods transferred to the customer.

Product Revenue

The Company’s product revenues consist of sales of Zokinvy, which received FDA approval in November 2020 and was launched commercially in the United States in January 2021. Prior to 2021, the Company had no product revenue. The Company sells Zokinvy to a specialty pharmacy provider (the Customer) that subsequently dispenses the product directly to patients. As all sales of Zokinvy are currently in the United States, and the Company only has one Customer, the Company discloses revenue on a total basis without further disaggregation. Additionally, the Company does not have any contract assets or liabilities, other than accounts receivable, related to its product revenue.

The Company recognizes product revenue when the Customer obtains control of its product, which occurs at a point in time, typically upon delivery to the Customer as the delivery of the product is the Company’s only performance obligation. Shipping and handling activities are fulfillment activities rather than a separate performance obligation and are recorded in cost of sales.

Product revenue is recorded at the net sales price (transaction price), which includes estimates of variable consideration resulting from rebates, prompt payment discounts, co-payment assistance, and returns. Amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. The amount of variable consideration may be constrained and is included in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Product

9


 

revenue is recorded after considering the impact of the following variable consideration amounts along with the constraint at the time of revenue recognition:

Rebates: The Company’s products are subject to government mandated rebates for Medicaid Drug Rebate Program, Medicare Part D Prescription Drug Benefit Program, and other government health care programs in the United States. Rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers. The Company uses the expected-value method for estimating these rebates based on statutory discount rates and expected utilization. The expected utilization of rebates is estimated based on expected coverage of identified patients. Estimates for these rebates are adjusted quarterly to reflect the most recent information. The Company records an accrued liability for unpaid rebates related to products for which control has been transferred to the Customer.

Prompt payment discounts: The Company provides a discount to the Customer if they pay for purchases within 30 days. The Company expects that its Customer will earn prompt payment discounts and uses the most likely amount method for estimating such discounts. As a result, when revenues are recognized, the Company deducts the full amount of the prompt payment discounts from total product revenues and record these discounts as a reduction of accounts receivable.

Co-payment assistance: The Company provides co-payment assistance to patients who have commercial insurance and meet certain eligibility requirements. The Company uses the expected-value method for estimating co-payment assistance based on estimates of program redemption using data provided by third-party administrators. Estimates for the co-payment assistance are adjusted quarterly to reflect actual experience. The Company records an accrued liability for unredeemed co-payment assistance related to products for which control has been transferred to the Customer.

Product returns: The Company offers limited product return rights and generally allows for the return of product that is damaged or defective, or within a few months prior to and up to a few months after the product expiration date. The Company considers several factors in the estimation of potential product returns, including expiration dates of the product shipped, the limited product return rights, third-party data in monitoring channel inventory levels, shelf life of the product, and other relevant factors.

Cost of Sales

Cost of sales consists primarily of direct and indirect costs related to the manufacturing of Zokinvy for commercial sale, including third-party manufacturing costs, packaging services, freight, storage costs, and write down of inventories. Costs incurred prior to FDA approval in November 2020 were previously recorded as research and development expense in the condensed consolidated statements of operations. 

Accrued Research and Development Costs

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued liabilities in the consolidated balance sheets and within research and development expenses in the consolidated statements of operations. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. The Company makes judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities.

Leases

The Company has a real estate lease for its office space in Palo Alto, California. The Company determines the initial classification and measurement of its right-of-use assets (ROU assets) and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.

10


 

Rent expense for operating leases is recognized on a straight-line basis, unless the operating lease ROU assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the condensed consolidated statements of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease ROU assets on a straight-line basis over the remaining lease term with rent expense still included in selling, general and administrative expenses in the condensed consolidated statements of operations.

The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance and insurance, which varies based on future outcomes, and thus is recognized in selling, general and administrative expenses when incurred.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which defers the effective date for ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The standard provides optional expedients for facilitating the effects of the reference rate reform on financial reporting. For the Company, there are two applicable optional expedients for contract modifications permitted for contracts that are modified because of the reference rate reform and meet the scope guidance. The modifications of contracts within the scope of ASC Topic 470 should be accounted for prospectively adjusting the effective interest rate. The modifications of contracts within the scope of ASC Topic 842 should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under ASC Topic 842 for modifications not accounted for as separate contracts. The pronouncement is effective for all entities as of March 12, 2020 through December 31, 2022. The Company plans to adopt upon the occurrence of such contract modification, but not later than December 31, 2022. The Company engaged in early-stage discussions with its lender and will assess the impact of the adoption once the contract is modified.

 

 

3.

Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). As of March 31, 2021 and December 31, 2020, the carrying amount of prepaid expenses and other current assets, accounts payable and accrued liabilities approximated their estimate fair value due to their relatively short maturities. Management believes the terms of its long-term debt reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company’s debt approximated its fair value.

Assets and liabilities recorded at fair value on a recurring basis in the unaudited condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s money market funds are classified as Level 1 because they are valued using quoted market prices. The Company’s debt securities consist of available-for-sale securities and are classified as Level 2 because their value is based on valuations using

11


 

significant inputs derived from or corroborated by observable market data. There were no assets or liabilities classified as Level 3 as of March 31, 2021 and December 31, 2020.

There were no transfers into or out of Level 3 of the fair value hierarchy during the periods presented.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

96,508

 

 

$

 

 

$

 

 

$

96,508

 

Corporate debt securities

 

 

 

 

 

26,049

 

 

 

 

 

 

26,049

 

Commercial paper

 

 

 

 

 

21,991

 

 

 

 

 

 

21,991

 

U.S. government bonds

 

 

 

 

 

4,042

 

 

 

 

 

 

4,042

 

Total

 

$

96,508

 

 

$

52,082

 

 

$

 

 

$

148,590

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

20,846

 

 

$

 

 

$

 

 

$

20,846

 

Corporate debt securities

 

 

 

 

 

33,941

 

 

 

 

 

 

33,941

 

Commercial paper

 

 

 

 

 

21,980

 

 

 

 

 

 

21,980

 

U.S. treasury bills

 

 

 

 

 

39,995

 

 

 

 

 

 

39,995

 

U.S. government bonds

 

 

 

 

 

4,060

 

 

 

 

 

 

4,060

 

Total

 

$

20,846

 

 

$

99,976

 

 

$

 

 

$

120,822

 

 

There were no financial liabilities as of March 31, 2021 and December 31, 2020.

 

The following tables summarize the estimated value of the Company’s cash equivalents and debt securities and the gross unrealized holding gains and losses (in thousands):

 

 

 

March 31, 2021

 

 

 

Amortized cost

 

 

Unrealized gain

 

 

Unrealized loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

96,508

 

 

$

 

 

$

 

 

$

96,508

 

Total cash equivalents

 

$

96,508

 

 

$

 

 

$

 

 

$

96,508

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

26,056

 

 

$

 

 

$

(7

)

 

$

26,049

 

Commercial paper

 

 

21,991

 

 

 

 

 

 

 

 

 

21,991

 

U.S. government bonds

 

 

4,040

 

 

 

2

 

 

 

 

 

 

4,042

 

Total debt securities

 

$

52,087

 

 

$

2

 

 

$

(7

)

 

$

52,082

 

 

 

 

December 31, 2020

 

 

 

Amortized cost

 

 

Unrealized gain

 

 

Unrealized loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

20,846

 

 

$

 

 

$

 

 

$

20,846

 

Total cash equivalents

 

$

20,846

 

 

$

 

 

$

 

 

$

20,846

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

33,952

 

 

$

1

 

 

$

(12

)

 

$

33,941

 

Commercial paper

 

 

21,980

 

 

 

 

 

 

 

 

 

21,980

 

U.S. treasury bills

 

 

39,992

 

 

 

3