You should read the following discussion and analysis of our financial condition
and results of operations together with our historical consolidated financial
statements and the related notes thereto appearing elsewhere in this Annual
Report. The objective of the following discussion and analysis is to provide
material information relevant to your assessment of the financial condition and
results of operations of our company, including an evaluation of the amounts and
certainty of cash flows from operations and from outside sources, and to better
allow you to view our company from management's perspective. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Annual Report, including information with respect to our plans and strategy
for our business and related financing, includes forward-looking statements that
involve risks and uncertainties. As a result of many factors, including those
factors set forth in "Risk Factor Summary and"Risk Factors" in Part I, Item 1A
of this Annual Report, our actual results could differ materially from the
results described in or implied by the forward-looking statements contained in
the following discussion and analysis.
On September 16, 2022, our board of directors effected a one-for-twenty five
reverse stock split of our ordinary shares, or the Reverse Stock Split. As a
result of the Reverse Stock Split, every twenty five ordinary shares of $0.01
each (nominal value) in the authorized and unissued and authorized and issued
share capital of the company were consolidated into one ordinary Share of $0.25
each (nominal value), and the nominal value of each ordinary share was
subsequently immediately reduced from $0.25 to $0.01 nominal value per share.
All outstanding stock options, restricted stock units and warrants entitling
their holders to purchase or acquire ordinary shares were adjusted as a result
of the Reverse Stock Split. Accordingly, all ordinary share, common share,
equity award, warrant and per share amounts have been adjusted to reflect the
Reverse Stock Split for all prior periods presented.
Overview
We are a biopharmaceutical company that historically engaged in the
commercialization and research and development of novel anti-infective agents to
treat serious infections. We have the commercial rights to two approved
products, SIVEXTRO and XENLETA, as well as one development product candidate,
CONTEPO. As part of a plan approved by our board of directors on January 4, 2023
to preserve our cash so that we may adequately fund an orderly wind down of our
operations, we have reduced our operations to those necessary to: (i) make
SIVEXTRO and XENLETA commercially available to wholesale customers; (ii)
identify and explore, with the assistance of Torreya Capital, a range of
strategic options, including the sale, license or other disposition of one or
more of our assets, technologies or products, including XENLETA and CONTEPO; and
(iii) wind down our business. We have no intention of resuming any active sales
promotion or research and development activities. Also as part of the Cash
Preservation Plan, our board of directors determined to terminate all of our
employees not deemed necessary to execute an orderly wind down of our
operations, including Theodore Schroeder, our former chief executive officer,
and Steven Gelone, our former president and chief operating officer, each of
whom was terminated effective January 15, 2023.
In January 2023, we settled all outstanding balances due to Hercules Capital and
removed all secured liens on all of our assets. We also terminated our agreement
with Amplity Health, the contract sales organization responsible for promoting
SIVEXTRO and XENLETA and, on January 31, 2023, entered into the Letter Agreement
to begin transition responsibility for the promotion and distribution of
SIVEXTRO back to Merck & Co. Inc. as of June 30, 2023. For additional discussion
regarding the Letter Agreement see "Business - Our Products and Product
Candidate - SIVEXTRO." Although we have ceased our active commercialization
efforts, we expect to continue to make XENLETA and, for the remaining term of
the Distribution Agreement, SIVEXTRO commercially available to wholesale
customers. We expect to continue to incur significant expenses and increasing
operating losses while we carry out the orderly wind down of operations.
Business Update Regarding COVID-19
The impact of the COVID-19 pandemic could continue to have a material adverse
effect on our business, results of operations, financial condition, liquidity
and prospects. While we have used all currently available information in our
forecasts, the ultimate impact of the COVID-19 pandemic and our product sales
for SIVEXTRO and XENLETA, on our
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results of operations, financial condition and cash flows is highly uncertain,
and cannot currently be accurately predicted. According to the Centers for
Disease Control and Prevention, or CDC, there have been lower incidences of
influenza-like illness cases within the United States from a median of 49,696
per week during the period of September 2019 through February 2020, to 19,537
during the period of March through May 2020, which are largely responsible for
the seasonality observed with community-acquired bacterial pneumonia and which
lead to the decrease in bacterial respiratory tract infection rates, indicated
by the decrease in the number of physician office visits, hospitalizations and
antibiotic prescriptions. Data from clinical laboratories in the United States
indicated a 61% decrease in the number of specimens submitted and a 98% decrease
in influenza activity as measured by percentage of submitted specimens testing
positive. Our results of operations, financial condition and cash flows are
dependent on future developments, including the duration of the pandemic and the
related length of its impact on the global economy or any other negative trend
in the U.S. or global economy and any new information that may emerge concerning
the COVID-19 pandemic and the actions to contain it or treat its impact, which
at the present time are highly uncertain and cannot be predicted with any
accuracy.
Financial Operations Overview
Revenue
In September 2019, we had our commercial launch of XENLETA and, in April 2021 we
began exclusive distribution of SIVEXTRO in the United States and certain of its
territories. For the year ended December 31, 2022, we recorded $34.5 million of
SIVEXTRO product revenue, net of gross-to-net accruals and adjustments for
returns, and $0.2 million of XENLETA product revenue, net of gross-to-net
accruals and adjustments for returns. We launched a new 10-count blister pack of
XENLETA in the fourth quarter of 2021, which has a four year shelf life. Future
product revenues will be generated by the amount and frequency of reorders from
our wholesale customers based on the ultimate consumption patterns from the end
users of SIVEXTRO and XENLETA.
Collaboration revenues for the year ended December 31, 2022 was $0.9 million
which included collaboration revenues related to the restructured China Region
License Agreement, a portion of which was recognized over the estimated period
of the manufacturing collaboration and regulatory support that has been provided
to Sumitomo Pharmaceuticals (Suzhou).
Our revenues for the year ended December 31, 2022 included governmental research
premiums, non-refundable government grants, collaboration revenues and the
benefit of government loans at below-market interest rates.
Cost of Revenues
Cost of revenues represented 30.9%, 17.0% and 1.1% of our total operating
expenses for the years ended December 31, 2022, 2021 and 2020, respectively.
Cost of revenues primarily represent the cost of the product itself, labor and
overhead, and any reserve for excess or obsolete inventory. Other cost of
revenues include costs associated with the manufacturing collaboration and
regulatory support under our licensing agreements. The increase in cost of
revenue for the year ended December 31, 2022 was primarily due to the accruals
related to the 2022 minimum purchase commitments for the manufacturing of
XENLETA, a $5.2 million non-cash charge for excess and obsolete inventory, and
full year product sales of SIVEXTRO following the launch under our own National
Drug Code, or NDC, on April 12, 2021.
Loss on Inventory Commitments
Loss on inventory commitments represented 4.7%, or $4.3 million, of our total
operating expenses for the year ended December 31, 2022. In conjunction with our
plan to conduct an orderly wind down of operations, the potential impact of
future contractual commitments have been assessed as of December 31, 2022 and
for the period ended December 31,2022, the loss on inventory commitments has
been accrued under ASC 330-10-35-17, Inventory Purchase Commitments (see
footnote 15 for further details). As part of the asset sale process some
provisions may be transferred as part of any potential transactions, possibly
releasing us from any future commitments. There cannot be any assurance that we
will be able to identify, negotiate or complete a sale of any of our assets or,
if such an asset sale transaction does
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occur, that any such transaction will include release of, or otherwise mitigate,
our contractual commitments under our agreements on favorable terms or at all.
Research and Development Expenses
Research and development expenses represented 15.4%, 16.3% and 21.2% of our
total operating expenses for the years ended December 31, 2022, 2021 and 2020,
respectively.
For each of our research and development programs, we incur both direct and
indirect expenses. Direct expenses include third-party expenses related to these
programs such as expenses for manufacturing services (prior to our products
receiving FDA approval, after which time these costs are capitalized in
inventory until product is sold), non-clinical and clinical studies and other
third party development services. Indirect expenses include salaries and related
costs, including stock-based compensation, for personnel in research and
development functions, infrastructure costs allocated to research and
development operations, costs associated with obtaining and maintaining
intellectual property associated with our research and development operations,
laboratory consumables, consulting fees related to research and development
activities and other overhead costs. We utilize our research and development
staff and infrastructure resources across multiple programs, and many of our
indirect costs historically have not been specifically attributable to a single
program. Accordingly, we cannot state precisely our total indirect costs
incurred on a program-by-program basis.
The following table summarizes our direct research and development expenses by
program and our indirect costs.
Year Ended December 31,
(in thousands) 2022 2021 2020
Direct Costs
XENLETA $ 2,391 $ 2,891 $ 2,119
CONTEPO 330 340 450
Other programs and initiatives 1,340 1,383 1,347
Indirect Costs 10,202 8,016 11,186
Total research and development expenses $ 14,263 $ 12,630 $ 15,102
We do not expect to continue to incur significant research and development
expenses in the future as we have discontinued our research and development
efforts as part of our Cash Preservation Plan.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented 49.0%, 66.7%, and 77.7%
of our total operating expenses for the years ended December 31, 2022, 2021 and
2020, respectively.
Selling, general and administrative expenses consist primarily of salaries and
related costs, including stock-based compensation not related to research and
development activities for personnel in our commercial, medical affairs,
finance, information technology and administrative functions, as well as costs
related to our contract commercial organization, to provide community-based
commercial and sales services. Selling, general and administrative expenses also
include costs related to professional fees for auditors, lawyers and tax
advisors and consulting fees not related to research and development operations,
as well as functions that are partly or fully outsourced by us, such as
accounting, payroll processing and information technology. We do not expect to
incur significant selling, general and administrative expenses in the future as
(i) we have terminated all of our employees not deemed necessary to execute an
orderly wind down of our operations, (ii) we have terminated our agreement with
Amplity Health, the contract sales organization responsible for promoting
SIVEXTRO and XENLETA, and (iii) otherwise reduced the scope of our current
operating plan to seeking out and evaluating a range of strategic options.
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Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which we have
prepared in accordance with generally accepted accounting principles in the
United States, or U.S. GAAP. The preparation of our consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the end of the reporting period, as well as the
reported revenues and expenses during the reporting periods and how our
estimates and assumptions have changed over each relevant reporting period.
However, these estimates and assumptions are subject to uncertainty, due to
unknown trends and events and various other factors that we believe to be
reasonably likely under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Our significant accounting policies and estimates are described in more detail
in the notes to our consolidated financial statements appearing at the end of
this filing. However, we believe that the following accounting policies and
estimates are the most critical to aid you in fully understanding and evaluating
our financial condition and results of operations.
Revenue Recognition
Under Accounting Standards Codification, or ASC, 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an
amount that reflects the consideration that the entity expects to receive in
exchange for those goods or services. We then recognize as revenue the amount of
the transaction price that is allocated to the respective performance obligation
when (or as) the performance obligation is satisfied as services are rendered.
The transaction price that we recognize as revenue reflects the amount we expect
with the sale and transfer of control of the product to our customers. Once the
customer takes control of the product, our performance obligation under the sale
contract is complete and revenue is recorded net of applicable reserves for
various types of variable consideration. The types of variable consideration are
as follows and are further described in Note 2 in our Consolidated Financial
Statements.
? Fees-for-service
? Product returns
? Chargebacks and rebates
? Government rebates
? Commercial payer and other rebates
? Group Purchasing Organizations, or GPO, administration fees
? Voluntary patient assistance programs
In determining the amounts of variable consideration, we must make significant
judgments and estimates. In assessing the amount of net revenue to record, we
consider both the likelihood and the magnitude of the revenue reversal. Actual
amounts of consideration ultimately received may differ significantly from our
estimates. If actual results in the future vary from our estimates, we adjust
our estimates which would affect net product revenue and earnings in the period
such variances become known.
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Net realizable value of XENLETA inventory and prepaid inventory and potential
loss on contractual commitments with contract manufacturing organizations
Our XENLETA inventory is stated at the lower of cost or net realizable value,
with cost determined on a first-in, first-out basis, and consists primarily of
material costs, third-party manufacturing costs, and related transportation
costs in our supply chain. In conjunction with our plan to conduct an orderly
wind down of operations, the Company assessed the net realizable value of
XENLETA inventory as of December 31, 2022 in relation to potential asset sale
opportunities. As a result, we adjusted the value of inventory and prepaid
inventory as of December 31, 2022 with an adjustment of $5.6 million. The
remaining balance of XENLENTA inventory and prepaid inventory was $7.1 million
as of December 31, 2022.
We also considered ASC 330-10-35-17, Inventory Purchase Commitments, regarding
potential losses that a reporting entity may sustain as a result of firm
purchase commitments. As of December 31, 2022 the total aggregate purchase
commitments are $45.1 million. We consider ongoing asset sales and other
negotiations, including evaluating whether certain potential buyers have the
financial resources to complete the transaction and the market's demand for the
XENLETA product to assess any potential loss on our contractual commitments. As
of December 31, 2022, we had $4.3 million accrued within accrued expenses and
other current liabilities, relating to the estimated losses under the XENLETA
purchase commitments.
Some of these future contractual commitments and contingencies include
contractual language that may mitigate the payments for the commitments and
contingencies. Additionally, as part of the asset sale process some of the other
contractual commitments may be transferred as part of any potential transaction,
possibly releasing us from any future commitments. Actual amounts ultimately
received for our inventory and paid for our contractual commitments may differ
significantly from our estimates. If actual or future estimated payments vary
from our estimates, based upon future asset sales and other negotiations we
adjust our estimates which would affect net income or loss in the period such
variances become known. There cannot be any assurance that we will be able to
identify, negotiate or complete a sale of any of our assets or, if such an asset
sale transaction does occur, that any such transaction will include release of,
or otherwise mitigate, our contractual commitments under our agreements on
favorable terms or at all.
Results of Operations
Comparison of Years Ended December 31, 2022 and 2021
Year Ended December 31,
(in thousands) 2022 2021 Change
Consolidated operations data:
Product revenue, net $ 34,742 $ 23,386 $ 11,356
Collaboration revenue 926 3,830 (2,904)
Research premium and grant revenue 1,267 1,679 (412)
Total revenues 36,935 28,895 8,040
Costs and expenses:
Cost of revenues (28,581) (13,148) (15,433)
Loss on inventory commitments (4,317) - (4,317)
Research and development expenses (14,263) (12,630) (1,633)
Selling, general and administrative expenses (45,264) (51,645) 6,381
Total operating expenses (92,425) (77,423) (15,002)
Loss from operations (55,490) (48,528) (6,962)
Other income (expense):
Other income, net 571 469 102
Interest expense, net (698) (901) 203
Loss before income taxes (55,617) (48,960) (6,657)
Income tax expense (1,568) (490) (1,078)
Net loss $ (57,185) $ (49,450) $ (7,735)
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Revenues
Revenues for the year ended December 31, 2022 were $36.9 million compared to
$28.9 million for the year ended December 31, 2021. The $8.0 million increase
was primarily due to $11.4 million increase in product revenue, net driven by
full year product sales of SIVEXTRO.
Cost of Revenues
Cost of revenues for the year ended December 31, 2022 was $28.6 million compared
to $13.1 million for the year ended December 31, 2021. The $15.4 million
increase was primarily due to accruals related to the 2022 minimum purchase
commitments for the manufacturing of XENLETA, a non-cash charge for excess and
obsolete inventory, and full year product sales of SIVEXTRO. Cost of revenues
for XENLETA primarily represents direct and indirect manufacturing costs, while
cost of revenues for SIVEXTRO represent the actual purchase cost for the
finished product from Merck. Prior to the FDA approval of XENLETA on August 19,
2019, the inventory costs for XENLETA were expensed as research and development
expenses since the approval was outside of our control and therefore not
considered probable. As such, the majority of the expenses incurred for our
initial inventories of XENLETA has been previously expensed. For the years ended
December 31, 2022 and 2021, cost of revenues included $5.2 million and $0.3
million, respectively, of non-cash charges for excess and obsolete inventory due
to timing of expiring inventory.
Loss on Inventory Commitments
Loss on inventory commitments represented 4.7%, or $4.3 million, of our total
operating expenses for the year ended December 31, 2022. In conjunction with our
plan to conduct an orderly wind down of operations, the potential impact of
future contractual commitments have been assessed as of December 31, 2022 and
for the period ended December 31, 2022, the loss on inventory commitments has
been accrued under ASC 330-10-35-17, Inventory Purchase Commitments (see
footnote 15 for further details). As part of the asset sale process some
provisions may be transferred as part of any potential transactions, possibly
releasing us from any future commitments. There cannot be any assurance that we
will be able to identify, negotiate or complete a sale of any of our assets or,
if such an asset sale transaction does occur, that any such transaction will
include release of, or otherwise mitigate, our contractual commitments under our
agreements on favorable terms or at all.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2022 were
$14.3 million compared to $12.6 million for the year ended December 31, 2021.
The $1.6 million increase was primarily due to a $1.4 million increase in study
costs related to our clinical trials, and a $1.0 million increase in research
consultancy expenses, partly offset by a $0.4 million decrease in stock-based
compensation expense, a $0.1 million decrease in staff costs, and a $0.1 million
decrease in infrastructure costs.
Selling, General and Administrative Expenses
Selling, general and administrative expense for the year ended December 31, 2022
were $45.3 million compared to $51.6 million for the year ended December 31,
2021. The $6.4 million decrease was primarily due to a $1.7 million decrease in
staff costs due to the reduction of headcount, a $0.9 million decrease in
stock-based compensation expense, and a $4.8 million decrease in in advisory and
external consultancy expenses primarily related to commercialization activities
of SIVEXTRO and XENLETA, partly offset by a $1.0 million increase in legal fees.
Other Income, net
Other income, net, increased by $0.1 million for the year ended December 31,
2022 primarily due to remeasurements of our foreign currency account balances.
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Interest Expense, net
Interest expense, net decreased by $0.2 million due the repayment of
indebtedness under our Loan Agreement with Hercules in March 2020. See Note 7 to
our consolidated financial statements included elsewhere in this Form 10-K for
further information.
Income Tax Expense
Our income tax expense was $1.6 million for the year ended December 31, 2022
compared to $0.5 million for the year ended December 31, 2021.
Comparison of Years Ended December 31, 2021 and 2020
Year Ended December 31,
(in thousands) 2021 2020 Change
Consolidated operations data:
Product revenue, net $ 23,386 $ 108 $ 23,278
Collaboration revenue 3,830 2,756 1,074
Research premium and grant revenue 1,679 2,163 (484)
Total revenue 28,895 5,027 23,868
Costs and expenses:
Cost of revenues (13,148) (766) (12,382)
Research and development expenses (12,630) (15,102) 2,472
Selling, general and administrative expenses (51,645) (55,285) 3,640
Total operating expenses (77,423) (71,153) (6,270)
Loss from operations (48,528) (66,126) 17,598
Other income (expense):
Other income, net 469 1,187 (718)
Interest expense, net (901) (1,649) 748
Loss on extinguishment of debt - (2,757) 2,757
Loss before income taxes (48,960) (69,345) 20,385
Income tax expense (490) (139) (351)
Net loss $ (49,450) $ (69,484) $ 20,034
Revenues
Revenues for the year ended December 31, 2021 were $28.9 million compared to
$5.0 million for the year ended December 31, 2020. The $23.9 million increase
was primarily due to $23.8 million in SIVEXTRO product revenue, net since the
launch of SIVEXTRO under our own NDC on April 12, 2021.
Cost of Revenues
Cost of revenues for the year ended December 31, 2021 was $13.1 million compared
to $0.8 million for the year ended December 31, 2020. The $12.4 million increase
was primarily due to the launch of SIVEXTRO under our own NDC on April 12, 2021.
Cost of revenues for XENLETA primarily represents direct and indirect
manufacturing costs, while cost of revenues for SIVEXTRO represent the actual
purchase cost for the finished product from Merck. Prior to the FDA approval of
XENLETA on August 19, 2019, the inventory costs for XENLETA were expensed as
research and development expenses since the approval was outside of our control
and therefore not considered probable. As such, the majority of the expenses
incurred for our initial inventories of XENLETA has been previously expensed.
For the years ended December 31, 2021 and 2020, cost of revenues include $0.3
million and $0.7 million, respectively, of a non-cash reserve adjustment for
excess and obsolete inventory due to timing of expiring inventory.
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Research and Development Expenses
Research and development expenses for the year ended December 31, 2021 were
$12.6 million compared to $15.1 million for the year ended December 31, 2020.
The $2.5 million decrease was primarily due to a $0.7 million decrease in
stock-based compensation expense, a $1.0 million decrease in staff costs, and a
$0.7 million decrease in study costs.
Selling, General and Administrative Expenses
Selling, general and administrative expense for the year ended December 31, 2021
were $51.6 million compared to $55.3 million for the year ended December 31,
2020. The $3.6 million decrease was primarily due to a $5.9 million decrease in
staff costs due to the reduction of headcount, a $1.2 million decrease in
stock-based compensation expense, a $0.7 million decrease in travel costs, a
$0.6 million decrease in infrastructure costs, and a $2.5 million decrease in
professional fees, partly offset by a $7.4 million increase in advisory and
external consultancy expenses primarily related to commercialization activities
and professional service fees for the relaunch of SIVEXTRO and XENLETA.
Other Income, net
Other income, net, decreased by $0.7 million for the year ended December 31,
2021 primarily due to remeasurements of our foreign currency account balances.
Interest Expense, net
Interest expense, net decreased by $0.7 million due the repayment of
indebtedness under our Loan Agreement with Hercules. See Note 7 to our
consolidated financial statements included elsewhere in this Form 10-K for
further information.
Loss on Extinguishment of Debt
In connection with the third amendment to our Loan Agreement with Hercules, we
recognized a non-cash $2.8 million loss on the extinguishment of debt during the
year ended December 31, 2020, which represents the excess of the reacquisition
price of the $30.0 million debt repaid over the net carrying amount of the
extinguished debt. We did not have a loss on the extinguishment of debt during
the year ended December 31, 2021.
Income Tax Expense
Our income tax expense was $0.5 million for the year ended December 31, 2021
compared to $139,000 for the year ended December 31, 2020.
Liquidity and Capital Resources
Since our inception, we have incurred net losses and generated negative cash
flows from our operations. To date, we have financed our operations through the
sale of equity securities, convertible and term debt financings, research and
development support from governmental grants and loans and proceeds from
licensing agreements and XENLETA and SIVEXTRO product sales. As of December 31,
2022, we had cash, cash equivalents and restricted cash of $12.5 million. As
part of a plan approved by our board of directors on January 4, 2023 to preserve
our cash so that we may adequately fund an orderly wind down of our operations,
we have reduced our operations to those necessary to: (i) to make SIVEXTRO and
XENLETA commercially available to wholesale customers; (ii) identify and
explore, with the assistance of Torreya Capital, a range of strategic options,
including the sale, license or other disposition of one or more of our assets,
technologies or products, including XENLETA and CONTEPO; and (iii) wind down our
business. We have no intention of resuming any active sales promotion or
research and development activities. Our management has determined that our
liquidity condition and existing financial obligations raise substantial doubt
about our ability to continue as a going concern if we do not complete the
monetization of at least one of our assets. We aim to complete an
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asset monetization transaction; however, completing an asset monetization
transaction is not entirely within our control. Therefore,we may not have
sufficient cash flows to satisfy our financial obligations as they come due and
therefore, substantial doubt exists about our ability to continue as a going
concern.
In September 2021, we entered into a purchase agreement, or Purchase Agreement,
with Lincoln Park Capital Fund, LLC, or Lincoln Park, which, subject to the
terms and conditions, provides that we have the right to sell to Lincoln Park
and Lincoln Park is obligated to purchase up to $23.0 million of our ordinary
shares. In addition, under the Purchase Agreement, we agreed to issue a
commitment fee of 25,298 ordinary shares, or the Commitment Shares, as
consideration for Lincoln Park entering into the Purchase Agreement and for the
payment of $0.01 per Commitment Share. Under the Purchase Agreement, we may from
time to time, at our discretion, direct Lincoln Park to purchase on any single
business day, or a Regular Purchase, up to (i) 16,000 ordinary shares if the
closing sale price of our ordinary shares is not below $0.25 per share on
Nasdaq, (ii) 24,000 ordinary shares if the closing sale price of our ordinary
shares is not below $50.00 per share on Nasdaq or (iii) 32,000 ordinary shares
if the closing sale price of our ordinary shares is not below $75.00 per share
on Nasdaq. In addition to Regular Purchases, we may also direct Lincoln Park to
purchase other amounts as accelerated purchases or as additional accelerated
purchases on the terms and subject to the conditions set forth in the Purchase
Agreement. Notwithstanding the foregoing, we may direct Lincoln Park to purchase
on any single business day ordinary shares with a purchase price equal to or
greater than $200,000 irrespective of the number of ordinary shares required to
approximate that amount. In any case, Lincoln Park's commitment in any single
Regular Purchase may not exceed $2.5 million absent a mutual agreement to
increase such amount. As of December 31, 2022, we have issued and sold an
aggregate of 320,000 ordinary shares pursuant to the Purchase Agreement and
received net proceeds of $4.6 million. From January 1, 2023 and through the date
of this filing, we did not sell any shares under the Purchase Agreement. As of
the date of this filing, we may issue and sell ordinary shares for gross
proceeds of up to $18.5 million under the Purchase Agreement, subject to the
Nasdaq rules which may limit our ability to make sales of our ordinary shares to
Lincoln Park in excess of a specified amount without prior shareholder approval.
In May 2021, we entered into an Open Market Sale AgreementSM, or the Sale
Agreement, with Jefferies, LLC, or Jefferies, as agent, pursuant to which we may
offer and sell ordinary shares, from time to time through Jefferies, by any
method permitted that is deemed an "at the market offering" as defined in Rule
415(a)(4) promulgated under the Securities Act of 1933, as amended. Upon entry
into the Sale Agreement, our existing ATM agreement with Jefferies entered into
in June 2019 was terminated. We did not incur any termination penalties as a
result of the replacement of the prior agreement with Jefferies. As of December
31, 2022, we have issued and sold an aggregate of 1,429,729 ordinary shares
pursuant to the Sale Agreement and received gross proceeds of $33.9 million and
net proceeds of $32.5 million, after deducting commissions to Jefferies and
other offering expenses. From January 1, 2023 and through the date of this
filing, we did not sell any shares under the Sale Agreement.
In March 2021, we entered into a securities purchase agreement with certain
institutional investors pursuant to which we agreed to issue and sell in a
registered direct offering (1) an aggregate of 390,440 ordinary shares, $0.01
nominal value per share, and accompanying warrants to purchase up to an
aggregate of 195,220 ordinary shares and (2) pre-funded warrants to purchase up
to an aggregate of 24,000 ordinary shares and accompanying ordinary share
warrants to purchase up to an aggregate of 12,000 ordinary shares. Each share
was issued and sold together with an accompanying ordinary share warrant at a
combined price of $61.31, and each pre-funded warrant was issued and sold
together with an accompanying ordinary share warrant at a combined price of
$61.06. The proceeds to us from the offering were $25.4 million gross and $23.4
million net after deducting the placement agent's fees and estimated offering
expenses. Each pre-funded warrant had an exercise price per ordinary share equal
to $0.01 and each pre-funded warrant was exercised in full on the issuance date.
Each ordinary share warrant has an exercise price per ordinary share equal to
$59.75, was exercisable on the date of issuance and will expire on the five-year
anniversary of the date of issuance.
In December 2020, we completed a registered public offering in which we sold
240,000 ordinary shares at a public offering price of $62.50. The proceeds to us
from the offering were $15.0 million gross and $13.3 million net, after
deducting the placement agent's fees and offering expenses. In December 2018, we
announced the closing of up to a $75.0 million term loan with Hercules, or the
Loan Agreement, $25.0 million of which was funded on the day of closing. Under
the terms of the loan, in addition to the $25.0 million received at closing, we
borrowed an additional $10.0 million in connection with the approval by the FDA
of the NDA for XENLETA. In March 2020, we repaid Hercules $30.0 million of the
$35.0 million in aggregate principal amount of debt outstanding under the Loan
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Agreement, and in January 2023 we repaid the remaining balance. See Note 7 to
the consolidated financial statements included elsewhere in this Form 10-K for
additional information on the terms associated with the remaining term loans
potentially available to us and the costs and other conditions associated with
this funding source.
Cash Flows
Comparison of Years Ended December 31, 2022 and 2021
The following table summarizes our cash flows for the years ended December 31,
2022 and 2021:
Year Ended December 31,
(in thousands) 2022 2021
Net cash (used in) provided by:
Operating activities $ (36,711) $ (59,557)
Investing activities (263) (81)
Financing activities 1,851 66,366
Effects of foreign currency translation on cash (174) (484)
Net increase (decrease) in cash, cash equivalents
and restricted cash $ (35,297) $ 6,244
Operating Activities
Cash flow used in operating activities decreased by $22.8 million from
$59.6 million for the year ended December 31, 2021 to $36.7 million for the year
ended December 31, 2022 primarily due to lower working capital of $28.6 million
primarily due to decreases in accounts receivable driven by lower SIVEXTRO
product sales.
Investing Activities
Cash flow used in investing activities increased by $0.2 million from $0.1
million cash used for the year ended December 31, 2021 to $0.3 million cash used
in investing activities for the year ended December 31, 2022 primarily due to
increased investments in property and equipment.
Financing Activities
Cash flow generated from financing activities for the year ended December 31,
2022 was $1.9 million, net of transaction costs from our Purchase Agreement with
Lincoln Park, as well as our Sale Agreement, offset by repayments of unexercised
warrant nominal values and long-term debt. Cash flow generated from financing
activities for the year ended December 31, 2021 was $66.4 million from our March
2021 financing, as well as funding from our Purchase Agreement with Lincoln Park
and Sale Agreement.
Comparison of Years Ended December 31, 2021 and 2020
The following table summarizes our cash flows for the years ended December 31,
2021 and 2020:
Year Ended December 31,
(in thousands) 2021 2020
Net cash (used in) provided by:
Operating activities $ (59,557) $ (71,331)
Investing activities (81) (274)
Financing activities 66,366 26,924
Effect of foreign currency translation on cash (484) (140)
Net increase (decrease) in cash, cash equivalents
and restricted cash $ 6,244 $ (44,821)
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Operating Activities
Cash flow used in operating activities decreased by $11.8 million from
$71.3 million for the year ended December 31, 2020 to $59.6 million for the year
ended December 31, 2021 primarily due to a $15.2 million decrease in net loss,
after adjustments for non-cash amounts included in net loss, offset by a higher
working capital of $3.5 million primarily due to increases in inventory and
accounts receivable driven by the launch of SIVEXTRO under our own NDC in April
2021.
Investing Activities
Cash flow used in investing activities decreased by $0.2 million from $0.3
million cash used for the year ended December 31, 2020 to $0.1 million cash used
for the year ended December 31, 2021 primarily due to changes in restricted cash
and lower investments in property and equipment.
Financing Activities
Cash flow generated from financing activities for the year ended December 31,
2021 was $66.4 million from our March 2021 financing, our Purchase Agreement
with Lincoln Park, as well as our Sale Agreement. Cash flow generated from
financing activities for the year ended December 31, 2020 was $26.9 million,
primarily from total net proceeds of approximately $56.9 million from the
securities purchase agreements entered into in May 2020 and December 2020,
warrant exercises, as well as our Jefferies ATM Agreement, partly offset by the
repayment of $30.0 million of long-term borrowings on our debt facility in the
year ended December 31, 2020.
Material Cash Requirements
As part of a plan approved by our board of directors on January 4, 2023 to
preserve our cash so that we may adequately fund an orderly wind down of our
operations, we have reduced our operations to those necessary to: (i) make
SIVEXTRO and XENLETA commercially available to wholesale customers; (ii)
identify and explore, with the assistance of Torreya Capital, a range of
strategic options, including the sale, license or other disposition of one or
more of our assets, technologies or products, including XENLETA and CONTEPO; and
(iii) wind down our business. We have no intention of resuming any active sales
promotion or research and development activities. Also as part of the Cash
Preservation Plan, our board of directors determined to terminate all of our
employees not deemed necessary to execute an orderly wind down of our business,
including Theodore Schroeder, our former chief executive officer, and Steven
Gelone, our former president and chief operating officer, each of whom was
terminated effective January 15, 2023. We estimate the total cost of severance
costs associated with the wind down of our operations will be approximately $6
million.
In January 2023, we settled our outstanding balance due to Hercules Capital of
approximately $4.5 million and removed all secured liens on all of our assets.
We also terminated our agreement with Amplity Health, the contract sales
organization responsible for promoting SIVEXTRO and XENLETA and, on January 31,
2023, entered into a letter agreement, or the Letter Agreement, relating to our
Sales Promotion and Distribution Agreement, or the Distribution Agreement, with
MSD International GmbH, or MSD, and Merck Sharp & Dohme Corp., or the Supplier,
to begin transition responsibility for the promotion and distribution of
SIVEXTRO back to Merck & Co. Inc. as of June 30, 2023. For additional discussion
regarding the Letter Agreement see "Business - Our Products and Product
Candidate - SIVEXTRO." Although we have ceased our active commercialization
efforts, we expect to continue to make XENLETA and, for the remaining term of
the Distribution Agreement, SIVEXTRO commercially available to wholesale
customers.
As previously disclosed, we have retained Torreya Capital to advise on our
exploration of a range of strategic options. While we continue to work with
Torreya Capital on identifying and evaluating potential strategic options with
the goal of maximizing value, we are currently focused, as part of our Cash
Preservation Plan, on the sale of our existing assets, including XENLETA and
CONTEPO. In the event that our board of directors determines that a liquidation
and dissolution of our business approved by shareholders is the best method to
maximize shareholder value, we would file proxy materials with the Securities
and Exchange Commission, or SEC, and schedule an extraordinary meeting of our
shareholders to seek approval of such a plan as required.
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We have contractual commitments related primarily to contracts entered into with
contract manufacturing organizations and contract research organizations in
connection with the commercial manufacturing of XENLETA and other research and
development activities. The contractual commitments are further described in
Note 15 to our consolidated financial statements included elsewhere in this Form
10-K.
Based on our current operating plans, we expect that our existing cash resources
as of the date of this Annual Report on Form 10-K will be sufficient to enable
us to fund our operations and capital expenditure requirements at least into
June 2023. We have based this estimate on assumptions that may prove to be
wrong, and we could use our capital resources sooner than we currently expect.
This estimate assumes, among other things, that we do not obtain any additional
funding through grants and clinical trial support, collaboration agreements, or
from the monetization of one or more of our assets.
Capital Expenditures
Capital expenditures were $0.2 million and $25,000 for the year ended December
31, 2022 and 2021, respectively. Currently, there are no material capital
projects planned in 2023.
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