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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, 2022

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 2, 2022, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 43,216,126.

Our independent registered public accounting firm is KPMG LLP, San Francisco, CA, Auditor ID: 185

 

 

 


 

 

EIGER BIOPHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

Item 1. Financial Statements:

  

3

Condensed Consolidated Balance Sheets

  

3

Condensed Consolidated Statements of Operations (unaudited)

  

4

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

  

5

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

 

6

Condensed Consolidated Statements of Cash Flows (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

  

27

Item 4. Controls and Procedures

  

27

 

 

 

PART II. OTHER INFORMATION

  

 

Item 1. Legal Proceedings

  

28

Item 1A. Risk Factors

  

28

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

  

66

Item 3. Defaults Upon Senior Securities

  

66

Item 4. Mine Safety Disclosures

  

66

Item 5. Other Information

  

66

Item 6. Exhibits

  

67

Signatures

  

68

 

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,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,562

 

 

$

22,221

 

Short-term debt securities

 

 

86,155

 

 

 

66,594

 

Accounts receivable, net

 

 

2,287

 

 

 

2,576

 

Inventories

 

 

1,910

 

 

 

2,612

 

Prepaid expenses and other current assets

 

 

10,442

 

 

 

9,361

 

Total current assets

 

 

147,356

 

 

 

103,364

 

Long-term debt securities

 

 

 

 

 

17,262

 

Property and equipment, net

 

 

545

 

 

 

613

 

Operating lease right-of-use assets

 

 

521

 

 

 

653

 

Other assets

 

 

4,907

 

 

 

4,510

 

Total assets

 

$

153,329

 

 

$

126,402

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,218

 

 

$

7,765

 

Accrued liabilities

 

 

14,255

 

 

 

13,699

 

Current portion of operating lease liabilities

 

 

590

 

 

 

628

 

Current portion of long-term debt, net

 

 

12,549

 

 

 

7,809

 

Total current liabilities

 

 

36,612

 

 

 

29,901

 

Long-term debt, net

 

 

19,446

 

 

 

23,986

 

Operating lease liabilities

 

 

4

 

 

 

116

 

Total liabilities

 

 

56,062

 

 

 

54,003

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

41

 

 

 

35

 

Additional paid-in capital

 

 

460,808

 

 

 

412,930

 

Accumulated other comprehensive loss

 

 

(522

)

 

 

(149

)

Accumulated deficit

 

 

(363,060

)

 

 

(340,417

)

Total stockholders’ equity

 

 

97,267

 

 

 

72,399

 

Total liabilities and stockholders’ equity

 

$

153,329

 

 

$

126,402

 

 

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,

 

 

 

2022

 

 

2021

 

Product revenue, net

 

$

2,673

 

 

$

3,646

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

110

 

 

 

53

 

Research and development

 

 

17,570

 

 

 

13,842

 

Selling, general and administrative

 

 

6,813

 

 

 

5,564

 

Total costs and operating expenses

 

 

24,493

 

 

 

19,459

 

Loss from operations

 

 

(21,820

)

 

 

(15,813

)

Interest expense

 

 

(886

)

 

 

(885

)

Interest income

 

 

45

 

 

 

51

 

Other income, net

 

 

27

 

 

 

45,914

 

(Loss) income before provision for income taxes

 

 

(22,634

)

 

 

29,267

 

Provision for income taxes

 

 

9

 

 

 

19

 

Net (loss) income

 

$

(22,643

)

 

$

29,248

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.64

)

 

$

0.86

 

Diluted

 

$

(0.64

)

 

$

0.85

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

35,253,147

 

 

 

33,886,896

 

Diluted

 

 

35,253,147

 

 

 

34,220,895

 

 

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

4


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Net (loss) income

 

$

(22,643

)

 

$

29,248

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

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

 

 

(373

)

 

 

3

 

Comprehensive (loss) income

 

$

(23,016

)

 

$

29,251

 

 

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

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

34,568,821

 

 

$

35

 

 

$

412,930

 

 

$

(149

)

 

$

(340,417

)

 

$

72,399

 

Issuance of common stock upon offering

   at-the-market, net of $1,288 of commissions

 

 

5,841,786

 

 

 

6

 

 

 

45,604

 

 

 

 

 

 

 

 

 

45,610

 

Issuance of common stock upon exercise

   of stock options

 

 

15,995

 

 

 

 

 

 

144

 

 

 

 

 

 

 

 

 

144

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

19

 

Issuance of common stock upon ESPP purchase

 

 

18,130

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

64

 

Issuance of common stock upon release of restricted

   stock units

 

 

85,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,047

 

 

 

 

 

 

 

 

 

2,047

 

Unrealized loss on available-for-sale debt

   securities, net

 

 

 

 

 

 

 

 

 

 

 

(373

)

 

 

 

 

 

(373

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,643

)

 

 

(22,643

)

Balance at March 31, 2022

 

 

40,529,838

 

 

$

41

 

 

$

460,808

 

 

$

(522

)

 

$

(363,060

)

 

$

97,267

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

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

 

 

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,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(22,643

)

 

$

29,248

 

Adjustments to reconcile net (loss) income 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

 

 

73

 

 

 

67

 

Stock-based compensation

 

 

2,047

 

 

 

1,549

 

Amortization of debt securities premiums and discounts

 

 

330

 

 

 

191

 

Non-cash interest expense

 

 

200

 

 

 

199

 

Amortization of operating lease right-of-use assets

 

 

132

 

 

 

127

 

Common stock issued under Product Development Agreement

 

 

19

 

 

 

53

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

289

 

 

 

(639

)

Inventories

 

 

666

 

 

 

(1,304

)

Prepaid expenses and other current assets

 

 

(854

)

 

 

1,529

 

Other assets

 

 

(397

)

 

 

(18

)

Accounts payable

 

 

1,269

 

 

 

3,175

 

Accrued liabilities

 

 

560

 

 

 

(2,205

)

Operating lease liabilities

 

 

(150

)

 

 

(131

)

Net cash used in operating activities

 

 

(18,459

)

 

 

(14,933

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of debt securities available-for-sale

 

 

(10,902

)

 

 

(2,049

)

Proceeds from maturities of debt securities available-for-sale

 

 

7,900

 

 

 

49,755

 

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

)

Net cash (used in) provided by investing activities

 

 

(3,002

)

 

 

94,464

 

Financing activities

 

 

 

 

 

 

 

 

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

 

 

45,610

 

 

 

 

Proceeds from issuance of common stock upon stock option exercises

 

 

144

 

 

 

166

 

Proceeds from issuance of common stock upon ESPP purchase

 

 

64

 

 

 

146

 

Common stock offering costs

 

 

(16

)

 

 

(122

)

Payment of debt issuance costs

 

 

 

 

 

(175

)

Net cash provided by financing activities

 

 

45,802

 

 

 

15

 

Net increase in cash and cash equivalents

 

 

24,341

 

 

 

79,546

 

Cash and cash equivalents at beginning of period

 

 

22,221

 

 

 

28,864

 

Cash and cash equivalents at end of period

 

$

46,562

 

 

$

108,410

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

686

 

 

$

686

 

Income taxes paid

 

$

41

 

 

$

 

 

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 of innovative therapies to treat and cure Hepatitis Delta Virus (HDV), the most severe form of viral hepatitis, and other serious diseases. All five of the Company’s rare disease programs have FDA Breakthrough Therapy Designation.

The Eiger HDV platform includes two first-in-class therapies in Phase 3 that target critical host processes involved in viral replication. Lonafarnib is a first-in-class oral farnesylation inhibitor and peginterferon lambda (lambda) is a first-in-class, type III, well-tolerated interferon. Both lonafarnib and lambda are in global Phase 3 trials.

Eiger is also developing lambda for COVID-19 and is preparing to submit an emergency use authorization to FDA based on data from a Phase 3 investigator sponsored study.

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 CHMP opinion expected in the first half of 2022.

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

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

Liquidity

As of March 31, 2022, the Company had $132.7 million of cash, cash equivalents and short-term securities, comprised of $46.6 million of cash and cash equivalents and $86.1 million of short-term debt securities available-for-sale. The Company had an accumulated deficit of $363.1 million and negative cash flows from operating activities as of March 31, 2022. 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 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 condensed 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 follow the requirements of the Securities and Exchange Commission (the “SEC”) for annual reporting. All intercompany balances and transactions have been eliminated in consolidation.

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 revenue and 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. Long-term securities consist of debt securities classified as available-for-sale and have maturities greater than 365 days from the date of acquisition. All short-term and long-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 (loss) income. 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.

Accounts Receivable

Accounts receivable represent amounts billed to the Company’s customers, net of an allowance for doubtful accounts. Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The expectation of collectability is based on a review of credit profiles of customers, contractual terms and conditions, current economic trends, and historical payment experience. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine the appropriate amount of allowance for doubtful accounts.

The Company had no allowance as of March 31, 2022 and 2021. The Company had no bad debt expense for the three months ended March 31, 2022 and 2021.

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 a customer.

Product Revenue

The Company’s product revenue consists 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. In the United States, the Company sells Zokinvy to a single specialty pharmacy provider that subsequently dispenses the product directly to patients. 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.

9


 

In June 2021, the French National Agency for Medicines and Health Products Safety (ANSM) granted Zokinvy (lonafarnib) a Temporary Authorizations for Use (Autorisation Temporaire d'Utilisation or ATU) for an early access program for a term of one year. In the context of this program, the Company sells product to a distributor who in turn ships product to pharmacies after receiving requests from physicians for patients in France. In November 2021, the Company began distributing and recognizing revenue from sales of Zokinvy (lonafarnib) through a reimbursed early access program in France. There was no revenue from sale of product under the ATU program for the three months ended March 31, 2022.

The Company recognizes product revenue when a customer obtains control of its product, which occurs at a point in time, typically upon delivery to a 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 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 product is 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 a customer.

Prompt payment discounts: The Company provides a discount to a customer if it pays for purchases within 30 days. The Company expects that its customers 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 records 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 a 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. 

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 accompanying unaudited condensed consolidated balance sheets and within research and development expenses in the accompanying unaudited condensed 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.

10


 

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 unaudited condensed 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. In October 2021, the Company amended its Oxford Loan to replace its floating interest rate with the LIBOR replacement rate (see Note 7). The Company will adopt this standard when LIBOR is discontinued and does not expect the adoption to have a material impact on its unaudited condensed consolidated financial statements.

 

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, 2022 and December 31, 2021, the carrying amount of accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximated their estimated 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 significant inputs derived from or corroborated by observable market data. There were no assets or liabilities classified as Level 3 as of March 31, 2022 and December 31, 2021.

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

11


 

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

 

 

 

March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

40,483

 

 

$

 

 

$

 

 

$

40,483

 

Corporate debt securities

 

 

 

 

 

33,264

 

 

 

 

 

 

33,264

 

Commercial paper

 

 

 

 

 

10,904

 

 

 

 

 

 

10,904

 

U.S. government bonds

 

 

 

 

 

41,987

 

 

 

 

 

 

41,987

 

Total

 

$

40,483

 

 

$

86,155

 

 

$

 

 

$

126,638

 

 

 

 

December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

13,520

 

 

$

 

 

$

 

 

$

13,520

 

Corporate debt securities

 

 

 

 

 

41,511

 

 

 

 

 

 

41,511

 

U.S. government bonds

 

 

 

 

 

42,345

 

 

 

 

 

 

42,345

 

Total

 

$

13,520

 

 

$

83,856

 

 

$

 

 

$

97,376

 

 

There were no financial liabilities as of March 31, 2022 and December 31, 2021.

 

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, 2022

 

 

 

Amortized cost

 

 

Unrealized gain

 

 

Unrealized loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

40,483

 

 

$

 

 

$

 

 

$

40,483

 

Total cash equivalents

 

$

40,483

 

 

$

 

 

$

 

 

$

40,483

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

33,461

 

 

$

 

 

$

(197

)

 

$

33,264

 

Commercial paper

 

 

10,904

 

 

 

 

 

 

 

 

 

10,904

 

U.S. government bonds

 

 

42,312

 

 

 

 

 

 

(325

)

 

 

41,987

 

Total debt securities

 

$

86,677

 

 

$

 

 

$

(522

)

 

$

86,155

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

40,483

 

Short-term debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

126,638

 

 

 

 

December 31, 2021