You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and the related notes and other financial information included
elsewhere in this Quarterly Report on Form 10-Q and our audited financial
statements and the related notes and other financial information included in our
Annual Report on Form 10-K for the year ended December 31, 2021 filed with the
U.S. Securities and Exchange Commission (the "SEC") on March 9, 2022 (the "Form
10-K").
Forward-looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the federal securities laws, and such statements may involve
substantial risks and uncertainties. All statements, other than statements of
historical facts included in this Quarterly Report on Form 10-Q, including
statements concerning our plans, objectives, goals, strategies, future events,
future revenues or performance, future expenses, financing needs, plans or
intentions relating to acquisitions, business trends and other information
referred to under this section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
Forward-looking statements generally relate to future events or our future
financial or operating performance. In some cases, you can identify
forward-looking statements by terms such as "may," "might," "will," "objective,"
"intend," "should," "could," "can," "would," "expect," "believe," "design,"
"estimate," "predict," "potential," "plan," "anticipate," "target," "forecast"
or the negative of these terms and similar expressions intended to identify
forward-looking statements. Forward-looking statements are not historical facts
and reflect our current views with respect to future events. Forward-looking
statements are also based on assumptions and are subject to risks and
uncertainties. Given these uncertainties, you should not place undue reliance on
these forward-looking statements.
There are a number of risks, uncertainties and other important factors that
could cause our actual results to differ materially from the forward-looking
statements contained in this Quarterly Report on Form 10-Q. Such risks,
uncertainties and other factors are described under "Risk Factors" in Item 1A of
our Form 10-K. We caution you that these risks, uncertainties and other factors
may not contain all of the risks, uncertainties and other factors that are
important to you. In addition, we cannot assure you that we will realize the
results, benefits or developments that we expect or anticipate or, even if
substantially realized, that they will affect us or our business in the way
expected. All forward-looking statements in this Quarterly Report on Form 10-Q
apply only as of the date made and are expressly qualified in their entirety by
the cautionary statements included in this Quarterly Report on Form 10-Q. We
undertake no obligation to publicly update or revise any forward-looking
statements to reflect subsequent events or circumstances.
Business Overview
La Jolla Pharmaceutical Company is dedicated to the commercialization of
innovative therapies that improve outcomes in patients suffering from
life-threatening diseases. GIAPREZA® (angiotensin II) injection is approved by
the U.S. Food and Drug Administration ("FDA") as a vasoconstrictor indicated to
increase blood pressure in adults with septic or other distributive shock.
XERAVA® (eravacycline) for injection is approved by the FDA as a tetracycline
class antibacterial indicated for the treatment of complicated intra-abdominal
infections ("cIAI") in patients 18 years of age and older.
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Product Portfolio
[[Image Removed]]
(1) For U.S. and
European approval
(2) U.S.: GIAPREZA is a
vasoconstrictor to
increase blood pressure
in adults with septic or
other distributive shock
European Union: GIAPREZA
is indicated for the
treatment of refractory
hypotension in adults
with septic or other
distributive shock who
remain hypotensive
despite adequate volume
restitution and
application of
catecholamines and other
available vasopressor
therapies
(3) U.S.: XERAVA is a
tetracycline class
antibacterial indicated
for the treatment of
cIAIs in patients 18
years of age and older
European Union: XERAVA
is indicated for the
treatment of cIAI in
adults
GIAPREZA® (angiotensin II)
GIAPREZA® (angiotensin II) injection is approved by the FDA as a vasoconstrictor
indicated to increase blood pressure in adults with septic or other distributive
shock. GIAPREZA is approved by the European Commission ("EC") for the treatment
of refractory hypotension in adults with septic or other distributive shock who
remain hypotensive despite adequate volume restitution and application of
catecholamines and other available vasopressor therapies. GIAPREZA mimics the
body's endogenous angiotensin II peptide, which is central to the
renin-angiotensin-aldosterone system ("RAAS"), which in turn regulates blood
pressure. GIAPREZA is marketed in the U.S. by La Jolla Pharmaceutical Company on
behalf of La Jolla Pharma, LLC, its wholly owned subsidiary, and is marketed in
Europe by PAION Deutschland GmbH on behalf of La Jolla Pharma, LLC.
XERAVA® (eravacycline)
XERAVA® (eravacycline) for injection is approved by the FDA as a tetracycline
class antibacterial indicated for the treatment of complicated intra-abdominal
infections ("cIAI") in patients 18 years of age and older. XERAVA is approved by
the EC for the treatment of cIAI in adults. XERAVA is marketed in the U.S. by
Tetraphase Pharmaceuticals, Inc., a wholly owned subsidiary of La Jolla, and is
marketed in Europe by PAION Deutschland GmbH on behalf of Tetraphase. Everest,
the Company's licensee for mainland China, Taiwan, Hong Kong, Macau, South
Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the
Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the
Philippines, submitted an NDA in China, which was accepted by the China National
Medical Products Administration ("NMPA") in March 2021. XERAVA was approved in
Singapore by the Health Science Authority in April 2020.
Product Candidates
In connection with the acquisition of Tetraphase, we acquired the following
product candidates that are in early stage clinical or preclinical development:
(i) TP-6076, an IV formulation of a fully synthetic fluorocycline derivative for
the treatment of certain multidrug-resistant gram-negative bacteria; (ii)
TP-271, an IV and oral formulation of a fully synthetic fluorocycline for the
treatment of respiratory disease caused by bacterial biothreat and
antibiotic-resistant public health pathogens, as well as bacterial pathogens
associated with community-acquired bacterial
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pneumonia; and (iii) TP-2846, an IV formulation of a tetracycline for the
treatment of acute myeloid leukemia. At this time, there are no active studies
nor anticipated future studies for any of these product candidates. We intend to
seek out-license opportunities for these product candidates; however, at this
time, we are unable to predict the likelihood of successfully out-licensing any
of these product candidates.
Results of Operations
The following table summarizes our results of operations for each of the periods
below (in thousands):
Three Months Ended
March 31,
2022 2021 Change
Net product sales $ 10,409 $ 8,637 $ 1,772
License and other revenue 16 25,500 (25,484 )
Cost of product sales 2,165 2,731 (566 )
Cost of license and other revenue 5 3,600 (3,595 )
Selling, general and administrative expense 10,274 8,755 1,519
Research and development expense
27 1,558 (1,531 )
Other income (expense), net 2,049 (3,057 ) 5,106
Provision for income taxes 1 18 (17 )
Net income $ 2 $ 14,418 $ (14,416 )
Net Product Sales
Net product sales consist of revenue recognized from sales of GIAPREZA and
XERAVA to hospitals and other healthcare organizations in the U.S., generally
through a network of specialty distributors. These specialty distributors are
considered our customers for accounting purposes.
For the three months ended March 31, 2022, La Jolla's net product sales were
$10.4 million compared to $8.6 million for the same period in 2021, an increase
of 21%. GIAPREZA U.S. net product sales were $7.7 million for the three months
ended March 31, 2022 compared to $6.8 million for the same period in 2021, an
increase of 13%. XERAVA U.S. net product sales were $2.7 million for the three
months ended March 31, 2022 compared to $1.8 million for the same period in
2021, an increase of 50%. The increase in GIAPREZA and XERAVA U.S. net product
sales is primarily due to an increase in the number of vials sold to our
customers.
License and Other Revenue
License and other revenue consists of revenue from out-license agreements with
counterparties to develop and/or commercialize our products in territories
outside of the U.S. in exchange for: (i) nonrefundable, upfront license fees;
(ii) development, regulatory or commercial milestone payments; and/or (iii)
sales-based royalties. License and other revenue also consists of revenue from
commercial supply agreements with our out-licensees to supply a minimum quantity
of our products in territories outside the U.S. in exchange for: (i)
nonrefundable, upfront fees; and/or (ii) the reimbursement of manufacturing
costs, plus a margin in certain cases.
For the three months ended March 31, 2022, La Jolla's license and other revenue
was $16,000 compared to $25.5 million for the same period in 2021. The 2021
period included a $22.5 million upfront payment and a $3.0 million milestone
payment received in connection with the Company's agreements with PAION AG and
Everest Medicines Limited covering ex-U.S. rights to GIAPREZA and XERAVA.
Cost of Product Sales
Cost of product sales consists primarily of expense associated with: (i)
manufacturing; (ii) royalties payable to George Washington University, Harvard
University and Paratek Pharmaceuticals, Inc.; (iii) shipping and distribution;
and (iv) the inventory fair value step-up adjustment recorded in connection with
the acquisition of Tetraphase.
For the three months ended March 31, 2022, La Jolla's cost of product sales was
$2.2 million compared to $2.7 million for the same period in 2021. The 2021
period included a $0.9 million inventory fair value step-up adjustment recorded
in connection with the acquisition of Tetraphase. No such adjustment was
included in costs of product sales for the three months ended March 31, 2022.
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Cost of License and Other Revenue
Cost of license and other revenue consists of amounts due under in-license
agreements and commercial supply agreements in connection with license and other
revenue from commercially approved product. Cost of license and other revenue
recognized in connection with product that is not commercially approved is
recorded as research and development expense.
For the three months ended March 31, 2022, La Jolla's cost of license and other
revenue was $5,000 compared to $3.6 million for the same period in 2021. This
decrease is due to a decrease in amounts due under the George Washington
University and Harvard University license agreements in connection with the
upfront cash payment received pursuant to the PAION AG out-license agreement.
Selling, General and Administrative Expense
Selling, general and administrative expense consists of non-personnel and
personnel expenses. Non-personnel-related expense includes expense related to:
(i) sales and marketing costs such as speaker programs, advertising and
promotion; (ii) professional fees for legal, patent, consulting, surveillance,
regulatory filings and accounting; (iii) amortization of intangible assets; and
(iv) facilities and information technology. Personnel-related expense includes
expense related to salaries, benefits and share-based compensation for personnel
engaged in sales, finance and administrative functions. We expect our selling,
general and administrative expense to increase modestly in 2022 to support
growing net product sales for both GIAPREZA and XERAVA.
The following table summarizes these expenses for each of the periods below (in
thousands):
Three Months Ended
March 31,
2022 2021 Change
Non-personnel expense:
Sales and marketing $ 1,357 $ 1,195 $ 162
Professional fees 1,585 1,528 57
Facility 67 14 53
Other 1,048 792 256
Total non-personnel expense 4,057 3,529 528
Personnel expense:
Salaries, bonuses and benefits 4,972 4,386 586
Share-based compensation expense 1,245 840 405
Total personnel expense 6,217 5,226 991
Total selling, general and administrative expense $ 10,274 $ 8,755 $ 1,519
During the three months ended March 31, 2022, total selling, general and
administrative non-personnel expense increased compared to the same period in
2021 primarily as a result of: (i) an increase in speaker programs, advertising
and other promotional activities to support growing net product sales for both
GIAPREZA and XERAVA; (ii) an increase in non-personnel allocations to general
and administrative activities; and (iii) an increase in other administrative
expenses.
During the three months ended March 31, 2022, total selling, general and
administrative personnel expense increased compared to the same period in 2021
primarily as a result of: (i) an increase in the average per cost of employee;
(ii) an increase in personnel allocations to general and administrative
activities; and (iii) an increase in share-based compensation expense resulting
from an increase in the volume and grant date fair value of stock options
granted to employees in connection with their annual performance.
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Research and Development Expense
Research and development expense consists of non-personnel and personnel
expenses. Non-personnel-related expense includes expense related to: (i)
manufacturing development; (ii) amounts due under in-license agreements for drug
product that is not commercially approved; and (iii) conducting post-marketing
pediatric studies. Personnel-related expense includes expense related to
salaries, benefits and share-based compensation for personnel engaged in
research and development functions. We do not expect our research and
development expense to be significant going forward.
For the three months ended March 31, 2022, total research and development
expense was $27,000 compared to $1.6 million for the same period in 2021. This
decrease is primarily due to: (i) a $0.6 million decrease in amounts due under
in-license agreements for drug product that was not commercially approved; (ii)
a $0.4 million decrease in manufacturing development and post-marketing
pediatric study expenses; and (iii) a $0.4 million decrease in total research
and development personnel expense, including share-based compensation expense,
due to a decrease in personnel allocations to research and development
activities.
Other Income (Expense), Net
Other income (expense), net consists primarily of the following: (i) interest
expense accrued for our deferred royalty obligation; (ii) income from
distributions received in connection with our non-voting interest in a related
party; (iii) a gain on the forgiveness of Paycheck Protection Program loan ("PPP
Loan"); and (iv) gains and/or losses resulting from changes in the fair value of
contingent value rights ("CVRs").
For the three months ended March 31, 2022, other income (expense), net was $2.0
million compared to $(3.1) million for the same period in 2021. This increase is
primarily due to: (i) a $2.3 million increase due to a gain on the forgiveness
of the PPP Loan by the U.S. Small Business Administration; (ii) a $1.6 million
increase in the receipt of distributions in connection with the Company's
non-voting interest in a related party; (iii) a $0.7 million gain on the sale of
our non-controlling equity interest of Lowell; and (iv) a $0.6 million net
increase in the change in fair value of CVRs.
Liquidity and Capital Resources
As of March 31, 2022, La Jolla had $44.6 million of cash, cash equivalents and
short-term investments compared to $46.7 million as of December 31, 2021. The
$2.1 million decrease in cash, cash equivalents and short-term investments is
primarily due to $2.5 million of net cash provided by operating activities,
offset by $5.2 million in purchases of the Company's common stock under its
stock repurchase plan. For the three months ended March 31, 2022, La Jolla's net
cash provided by operating activities was $2.5 million compared to $17.2 million
for the same period in 2021. The 2021 period included a $16.8 million net
upfront payment and a $3.0 million milestone payment received in connection with
the Company's agreements with PAION AG and Everest Medicines Limited covering
ex-U.S. rights to GIAPREZA and XERAVA.
Based on our current operating plans and projections, we believe that our
existing cash, cash equivalents and short-term investments will be sufficient to
fund operations for at least one year from the date this Quarterly Report on
Form 10-Q is filed with the SEC. The Company expects to fund future operations
with existing cash or cash generated from operations.
The amount and timing of additional future funding needs, if any, will depend on
many factors, including the success of our commercialization efforts for
GIAPREZA and XERAVA and our ability to control expenses. If necessary, we intend
to raise additional capital through equity or debt financings. We can provide no
assurance that additional financing will be available to us on favorable terms,
or at all.
Contractual Obligations
HealthCare Royalty Partners Royalty Agreement
In May 2018, we closed a $125.0 million royalty financing agreement (the
"Royalty Agreement") with HealthCare Royalty Partners ("HCR"). Under the terms
of the Royalty Agreement, we received $125.0 million in exchange for tiered
royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive
quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018.
Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty
rate, with step-downs based on the achievement of annual net product sales
thresholds. Through December 31, 2021, the maximum royalty rate was 10%.
Starting January 1, 2022, the maximum royalty rate increased by 4%, and starting
January 1, 2024, the maximum royalty rate may increase by an
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additional 4% if an agreed-upon, cumulative net product sales threshold has not
been met. The Royalty Agreement is subject to maximum aggregate royalty payments
to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur
of January 1, 2031 or when the maximum aggregate royalty payments have been
made. The Royalty Agreement was entered into by our wholly owned subsidiary, La
Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against
La Jolla Pharmaceutical Company or any assets other than GIAPREZA.
In-license Agreements
George Washington University
In December 2014, the Company entered into a patent license agreement with
George Washington University ("GW"), which was subsequently amended and restated
(the "GW License") and assigned to La Jolla Pharma, LLC. Pursuant to the GW
License, GW exclusively licensed to the Company certain intellectual property
rights relating to GIAPREZA, including the exclusive rights to certain issued
patents and patent applications covering GIAPREZA. Under the GW License, La
Jolla Pharma, LLC is obligated to use commercially reasonable efforts to
develop, commercialize, market and sell GIAPREZA. The Company has paid
a one-time license initiation fee, annual maintenance fees, an amendment fee,
additional payments following the achievement of certain development and
regulatory milestones and royalties. The Company is obligated to pay a 6%
royalty on net sales of GIAPREZA and 15% on payments received from sublicensees.
The obligation to pay royalties under this agreement extends through the
last-to-expire patent covering GIAPREZA.
Harvard University
In August 2006, the Company entered into a license agreement with Harvard
University ("Harvard"), which was subsequently amended and restated (the
"Harvard License"). Pursuant to the Harvard License, Harvard exclusively
licensed to the Company certain intellectual property rights relating to
tetracycline-based products, including XERAVA, including the exclusive rights to
certain issued patents and patent applications covering such products. Under the
Harvard License, the Company is obligated to use commercially reasonable efforts
to develop, commercialize, market and sell tetracycline-based products,
including XERAVA. For each product covered by the Harvard License, the Company
is obligated to make certain payments for the following: (i) up to approximately
$15.1 million upon the achievement of certain clinical development and
regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA;
(iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA,
starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty
of 7.5% based on the achievement of annual net product sales thresholds; and
(iv) 20% on payments received from sublicensees. The obligation to pay royalties
under this agreement extends through the last-to-expire patent covering
tetracycline-based products, including XERAVA.
Paratek Pharmaceuticals, Inc.
In March 2019, the Company entered into a license agreement with Paratek
Pharmaceuticals, Inc. ("Paratek"), which was subsequently amended and restated
(the "Paratek License"). Pursuant to the Paratek License, Paratek
non-exclusively licensed to the Company certain intellectual property rights
relating to XERAVA, including non-exclusive rights to certain issued patents and
patent applications covering XERAVA. The Company is obligated to pay Paratek a
2.25% royalty based on direct U.S. net sales of XERAVA. The Company's obligation
to pay royalties with respect to the licensed product is retroactive to the date
of the first commercial sale of XERAVA and shall continue until there are no
longer any valid claims of the Paratek patents, which will expire in October
2023.
Out-license Agreements
PAION AG
In January 2021, La Jolla Pharmaceutical Company and certain of its wholly owned
subsidiaries, including La Jolla Pharma, LLC, and Tetraphase Pharmaceuticals,
Inc., entered into an exclusive license agreement (the "PAION License") with
PAION AG and its wholly owned subsidiary (collectively, "PAION"). Pursuant to
the PAION License, La Jolla granted PAION an exclusive license to commercialize
GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and
Switzerland (collectively, the "PAION Territory"). La Jolla has received an
upfront cash payment of $22.5 million, less a 15% refundable withholding tax,
and is entitled to receive potential commercial milestone payments of up to
$109.5 million and double-digit tiered royalty payments. In addition, royalties
payable under the PAION License will be subject to reduction on account of
generic competition and after patent expiration in a jurisdiction. La Jolla
recognized the upfront cash payment of $22.5 million as license and other
revenue for the three months ended March 31, 2021, and the 15% refundable
withholding tax of $3.4 million was recorded as an other current asset as of
March 31, 2022 and December 31, 2021. Pursuant to the PAION
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License, PAION will be solely responsible for the future development and
commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is
required to use commercially reasonable efforts to commercialize GIAPREZA and
XERAVA in the PAION Territory. The Company has not received any payments from
PAION related to either royalties or commercial milestones.
In July 2021, the Company entered into a commercial supply agreement with PAION
whereby the Company will supply PAION a minimum quantity of GIAPREZA and XERAVA
through July 13, 2024. The supply agreement will automatically renew until the
earlier of July 13, 2027, or until a new supply agreement is executed. During
the initial 3-year term of the supply agreement, the Company will be reimbursed
for direct and certain indirect manufacturing costs at cost.
Everest Medicines Limited
In February 2018, the Company entered into a license agreement with Everest,
which was subsequently amended and restated (the "Everest License"). Pursuant to
the Everest License, the Company granted Everest an exclusive license to develop
and commercialize XERAVA for the treatment of cIAI and other indications in
mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian
Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist
Republic of Vietnam and the Republic of the Philippines (collectively, the
"Everest Territory"). The Company is eligible to receive an additional $8.0
million regulatory milestone payment and up to an aggregate of $20.0 million in
sales milestone payments. The Company is also entitled to receive tiered
royalties from Everest at percentages in the low double digits on sales, if any,
in the Everest Territory of products containing eravacycline. Royalties are
payable with respect to each jurisdiction in the Everest Territory until the
latest to occur of: (i) the last-to-expire of specified patent rights in such
jurisdiction in the Everest Territory; (ii) expiration of marketing or
regulatory exclusivity in such jurisdiction in the Everest Territory; or (iii)
10 years after the first commercial sale of a product in such jurisdiction in
the Everest Territory. In March 2021, the Company received a $3.0 million
milestone payment associated with the submission of an NDA with the China NMPA
for XERAVA for the treatment of cIAI in patients in China. XERAVA was approved
in Singapore by the Health Science Authority in April 2020.
In May 2021, the Company entered into a commercial supply agreement with Everest
whereby the Company will supply Everest a minimum quantity of XERAVA through
December 31, 2023 and will transfer to Everest certain XERAVA-related
manufacturing know-how. Pursuant to the supply agreement: (i) the Company has
received $6.8 million of upfront payments comprised of: (1) a $4.0 million
upfront technology transfer payment; and (2) a $2.8 million partial prepayment
for XERAVA that is expected to be delivered to Everest during 2022; (ii) the
Company has received an additional $1.0 million technology transfer payment in
January, 2022; and (iii) the Company will be reimbursed for direct and certain
indirect manufacturing costs at 110% of costs through December 31, 2023. The
Company recognized the $5.0 million of technology transfer-related payments as
license and other revenue during the year ended December 31, 2021 as Everest
obtained control of the XERAVA-related manufacturing know-how prior to December
31, 2021. The Company recognized the $2.8 million partial prepayment for XERAVA
that is expected to be delivered to Everest during 2022 as deferred revenue as
of March 31, 2022 and December 31, 2021 as the performance obligation to deliver
XERAVA had not yet been satisfied.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future effect on our financial condition, changes in our
financial condition, expenses, results of operations, liquidity, capital
expenditures or capital resources.
Critical Accounting Estimates
We believe the estimates, assumptions and judgments involved in the accounting
policies described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of our Form 10-K for the year
ended December 31, 2021 are most critical to understanding and evaluating our
reported financial results. During the three months ended March 31, 2022, there
have been no material changes to the critical accounting policies and estimates
as described in Item 7 of our Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in Item 1
of this Quarterly Report on Form 10-Q.
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