ANTARES PHARMA, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide a reader of our financial statements
with a narrative from the perspective of management on our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results. Our MD&A is presented in five sections.
•Company Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Use of Estimates
•Off-Balance Sheet Arrangements
Our MD&A should be read in conjunction with the consolidated financial
statements and related footnotes included in Item 8 of Part II of this Annual
Report on Form 10-K and risk factors identified in Item 1A of Part I of this
Annual Report on Form 10-K. Some of the statements included below are considered
forward-looking statements. See the discussion regarding forward-looking
statements preceding Item 1 of Part I of this Annual Report on Form 10-K.
The terms "Antares," "we," "our," "us" or the "Company" in this Annual Report on
Form 10-K, unless the context otherwise requires, refer to Antares Pharma, Inc.
and its wholly owned subsidiaries.
Company Overview
Antares Pharma, Inc. is a specialty pharmaceutical company focused primarily on the development and commercialization of pharmaceutical products and technologies that address patient needs in targeted therapeutic areas. We develop, manufacture and commercialize, for ourselves or with partners, novel therapeutic products using our advanced drug delivery systems that are designed to provide commercial or functional advantages such as improved safety and efficacy, convenience, improved tolerability, and enhanced patient comfort and adherence. We also seek product opportunities that complement and leverage our commercial platform. We have a portfolio of proprietary and partnered commercial products and ongoing product development programs in various stages of development. We have formed partnership arrangements with several different industry leading pharmaceutical companies. We market and sell in theU.S. our proprietary product XYOSTED® (testosterone enanthate) injection indicated for testosterone replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone. XYOSTED® is the only FDA approved subcutaneous testosterone enanthate product for once-weekly, at-home self-administration. InDecember 2021 , we sold certain assets used in the operation of the OTREXUP® product under an asset purchase agreement with Otter for$44.0 million , subject to finalization of changes in closing inventory to be transferred, with$18.0 million received at closing and an additional$26.0 million to be paid in installments over a one-year period. Prior to the asset sale, we marketed and sold OTREXUP® (methotrexate) injection, a subcutaneous methotrexate injection for once weekly self-administration with an easy-to-use, single dose, disposable auto injector, indicated for adults with severe active rheumatoid arthritis, children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis, as a proprietary product in theU.S. In conjunction with the asset sale, we entered into a supply agreement with Otter to manufacture the VIBEX® auto-injection system device at cost plus mark-up. Otter is responsible for manufacturing, formulation and testing of methotrexate and the corresponding prefilled syringe for assembly with the device manufactured by us, along with the commercialization and distribution of OTREXUP® going forward. We also entered into a license agreement with Otter granting them a worldwide, exclusive, royalty-free, fully paid-up, irrevocable, transferable license with the right to sublicense to certain patents relating to the OTREXUP® product that may relate to other products we produce. 56
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InOctober 2020 , we entered into an exclusive license agreement (the "NOCDURNA® License Agreement") with Ferring for the marketed product NOCDURNA® (desmopressin acetate) inthe United States , which is indicated for the treatment of nocturia due to nocturnal polyuria ("NP") in adultswho awaken at least two times per night to urinate. We began detailing NOCDURNA® with a soft launch in the fourth quarter of 2020 and are currently executing a reintroduction of the product through a comprehensive re-launch strategy to increase awareness and demand. InOctober 2021 , we entered into an exclusive license agreement (the "TLANDO® License Agreement") with Lipocine for the product TLANDO® (testosterone undecanoate) in theU.S. , a twice-daily oral formulation of testosterone for testosterone replacement therapy indicated for conditions associated with a deficiency or absence of endogenous testosterone, or hypogonadism in adult males. TLANDO® was granted tentative approval from the FDA inDecember 2020 and will be eligible for final approval and marketing in theU.S. upon expiration of the exclusivity period previously granted to Clarus for JATENZO® onMarch 27, 2022 . OnFebruary 3, 2022 , we announced theFDA's acceptance of our NDA resubmission for TLANDO® with a target action date set forMarch 28, 2022 . We continue to prepare for the launch of TLANDO® in 2022 pending final FDA approval after the expiration of JATENZO®'s exclusivity period. Under the terms of the TLANDO® License Agreement, we paid Lipocine an upfront payment of$11.0 million . Lipocine is eligible for additional milestone payments up to$10.0 million and tiered royalty and commercial milestones based on net sales of TLANDO® in theU.S. We will be responsible for the manufacturing and commercialization of TLANDO®. The TLANDO® License Agreement also grants us the option to license and develop LPCN 1111 (TLANDO XR) in theU.S. , a potential once daily oral testosterone product containing testosterone tridecanoate in development for the treatment of hypogonadism in adult males. If elected, upon exercise of the option, we will be required to pay an additional$4.0 million in license fees in two installments and will be responsible for additional development and commercial milestone payments as well as tiered royalties on net sales of TLANDO XR in theU.S. In addition, we will be responsible for completing the development program including the conduct of a Phase 3 clinical trial and applying for regulatory approval in theU.S. In collaboration with Teva, we developed a version of our VIBEX® auto injector for use in a generic epinephrine auto injector product that was approved by the FDA. Teva's Epinephrine Injection USP is indicated for emergency treatment of severe allergic reactions including those that are life threatening (anaphylaxis) in adults and certain pediatric patients and was approved as a generic drug product with an AB rating, meaning that it is therapeutically equivalent to the branded products EpiPen® and EpiPen Jr® and therefore, subject to state law, substitutable at the pharmacy. We are the exclusive supplier of the device and Teva is responsible for commercialization and distribution of the finished product, for which we also receive royalties on Teva's net sales. Through our commercialization partner Teva, we sell Sumatriptan Injection USP indicated in theU.S. for the acute treatment of migraine and cluster headache in adults. We are the exclusive supplier of the device, a variation of our VIBEX® QuickShot® subcutaneous auto injector developed by us, for the progestin hormone drug Makena® (hydroxyprogesterone caproate injection), indicated to help reduce the risk of preterm birth in women pregnant with one baby andwho spontaneously delivered one preterm baby in the past. As the exclusive supplier, we perform final assembly and packaging of the commercial product and receive royalties on Covis' net sales of the product. InOctober 2020 , following an FDA advisory committee meeting, Covis inNovember 2020 , received notice that the FDA is proposing to withdraw approval of Makena® (hydroxyprogesterone caproate injection). Covis formally requested a public hearing in response to theFDA's proposal to withdraw its approval and has stated that it remains committed to working with the FDA to maintain patient access to Makena® as a treatment option to reduce pre-term birth. We are also developing with Teva a multi-dose pen for a generic form of Forteo® (teriparatide rDNA origin injection) for the treatment of osteoporosis, and were developing another multi-dose pen for a generic form of BYETTA® (exenatide injection) for the treatment of type 2 diabetes. OnFebruary 25, 2022 , Teva notified us that it was terminating the exenatide program and related agreement due to a lack of commercial viability. The termination is effectiveAugust 23, 2022 . Teva continues to work through theU.S. regulatory process with the FDA for teriparatide using the ANDA pathway. In 2020, Teva launched Teriparatide Injection ("teriparatide"), the generic version of Eli Lilly's branded product Forsteo® featuring the Antares multi-dose pen used platform in several countries outside theU.S. We are responsible for the manufacturing and supply of the multi-dose pen utilized in Teva's generic teriparatide product under an exclusive development, license and supply agreement with Teva, the scope of which is worldwide. InAugust 2018 , we entered into a development agreement with Pfizer to develop a combination drug device rescue pen. This rescue pen will utilize the Antares QuickShot® auto injector and an undisclosed Pfizer drug. In 2021, we continued to work on this development program, and we expect to continue development of this product candidate. 57
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InNovember 2019 , we entered into a global agreement with Idorsia to develop a novel, drug-device product containing selatogrel. The new chemical entity selatogrel is being developed for the treatment of a suspected AMI in adult patients with a history of AMI. Idorsia will pay for the development of the combination product and will be responsible for applying for and obtaining global regulatory approvals for the product. The parties intend to enter into a separate commercial license and supply agreement pursuant to which we will provide fully assembled and labelled product to Idorsia at cost plus mark-up. Idorsia will then be responsible for global commercialization of the product, pending FDA or foreign approval. We will be entitled to receive royalties on net sales of the commercial product. InJune 2021 , Idorsia announced it had initiated its Phase 3 registration study to evaluate the efficacy and safety of self-administered subcutaneous selatogrel. The study will enroll approximately 14,000 patientswho are at high risk of recurrent AMI, at approximately 250 sites in approximately 30 countries. We are also committed to advancing our internal research and development programs and continue to invest in the development of our proprietary product pipeline. Our research and development efforts are focused primarily on leveraging our existing product and technology platforms by broadening their applications for use in other drug device combination products, as well as exploring new pharmaceutical products, technologies and drug delivery methods. We have initiated development of a proprietary drug device combination product for the urology oncology market, identified as ATRS-1901, and have conducted formulation development work and non-clinical studies to help advance this program. In 2020, we received a response from the FDA regarding our pre-IND (Investigational New Drug) submission. We have identified a program to develop a proprietary drug device combination product for the endocrinology market, an adrenal crisis pen, identified as ATRS-1902. The development program supports a proposed indication for the treatment of acute adrenal insufficiency, known as adrenal crisis, in adults and adolescents, using a novel proprietary auto-injector platform to deliver a liquid stable formulation of hydrocortisone. We conducted initial formulation work and developed a working prototype of a new device to support this program. We received a response from the FDA regarding our pre-IND submission and believe we have determined the regulatory and clinical path forward. InJuly 2021 , the FDA accepted our IND for ATRS-1902 enabling us to initiate our Phase 1 clinical study. InJanuary 2022 , we announced the positive results from the Phase 1 clinical study and were granted Fast Track designation by the FDA. The positive results support the advancement of our ATRS-1902 development program to a pivotal clinical study for the treatment of acute adrenal insufficiency, known as adrenal crisis, in adults and adolescents, using our Vai™ novel proprietary rescue pen platform to deliver a liquid stable formulation of hydrocortisone. We anticipate starting this pivotal clinical study in the second quarter of 2022 and expect to submit a 505(b)(2) NDA with the FDA by the end of 2022 pending the success of the pivotal clinical study. We have initiated development of a proprietary drug device combination product utilizing our rescue pen technology for a rare immunology disorder, identified as ATRS-1903. Formulation development work has been conducted and we anticipate progressing this towards initial clinical testing to evaluate PK and tolerability in human subjects.
COVID-19
InDecember 2019 , a novel strain of coronavirus (COVID-19) emerged inChina , and has since spread worldwide, including every state in theU.S. OnMarch 11, 2020 , theWorld Health Organization declared the outbreak a Pandemic and onMarch 13, 2020 , theU.S. declared a national emergency with respect to the outbreak. The Pandemic has impacted global economic activity and lead to disruptions in supply chain, labor shortages, business closures, travel restrictions and other health, safety and social distancing requirements. We have taken several measures to actively manage and help minimize the impact of the ongoing Pandemic on our business. We have implemented safety measures and protocols to protect the health and safety of our employees and comply with governmental and public health guidelines while working to ensure the sustainability of our business operations and continuity of product supply. We continue to monitor the situation, including COVID-19 variants, and potential effects on our business, suppliers, partners and workforce. 58
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We have implemented a hybrid work environment with the ability to shift remote as necessary to limit the number of individuals in our facilities to those necessary for essential functions such as research, development, manufacturing and supply. While our field-based team has resumed in-person interaction with fewer restrictions, we believe we are also well-positioned with our virtual capabilities to continue to engage healthcare professionals and patients through the ongoing Pandemic and beyond. Although, we have not experienced significant delays or disruption in our development programs or significant demand reductions for our partnered products due to the Pandemic, we continue monitor the situation, including COVID-19 variants, for potential effects on our or our partners' clinical trials or delays or disruptions in activities with the FDA. Although, we have taken measures to help minimize the potential impact of the Pandemic on our business, given the fluidity of the Pandemic and other macroeconomic factors, we are unable to estimate the impact the Pandemic has had on our operations or cash flows as of the date of this filing. We also believe there continues to be uncertainty around the timing and duration of any potential future disruptions due to the COVID-19 variants and the magnitude of any potential impact. As a result, we are unable to estimate the potential impact on future operations or cash flows as of the date of this filing. For more information on these risks see "Part I - Item 1A. Risk Factors - We face uncertainty and risks related to the outbreak of the novel coronavirus disease, COVID-19, which could significantly disrupt our operations and may materially and adversely impact our business and financial conditions."
Results of Operations
The following is a discussion and analysis of our financial results, cash flows, and liquidity and capital resources for the years endedDecember 31, 2021 and 2020. A discussion of changes in our financial results, cash flow comparison and liquidity and capital resources for the years endedDecember 31, 2020 and 2019 has been omitted from this Form 10-K but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 2, 2021 . Revenue, Net We generate revenue from proprietary and partnered product sales, license and development activities and royalty arrangements. The following table provides details about the components and drivers of our overall revenue growth: Years Ended December 31, Increased / (Decreased) (in thousands) 2021 2020 $ % Proprietary product sales, net$ 80,016 $ 62,878 $ 17,138 27.3 % Partnered product sales 46,651 50,956 (4,305) (8.4) % Total product revenue, net 126,667 113,834 12,833 11.3 % Licensing and development revenue 19,623 14,466 5,157 35.6 % Royalties 37,692 21,299 16,393 77.0 % Total revenue, net$ 183,982 $ 149,599 $ 34,383 23.0 % Product Revenue, Net Net revenue from product sales increased 11.3% primarily due to increased sales of our proprietary products XYOSTED® and NOCDURNA® and partnered sales of OTREXUP® to Otter subsequent to sale of the product line, partially offset by a reduction in sumatriptan sales to Teva and sales of Makena® subcutaneous auto-injectors to Covis. Sales of our proprietary products are presented net of estimated product returns and sales allowances. The OTREXUP® product line was sold to Otter inDecember 2021 with a supply agreement executed simultaneously; therefore, all revenue generated prior to the date of sale is included in proprietary product sales and all revenue generated subsequent to the date of sale is included in partnered products sales. The increase in propriety product sales of 27.3% was primarily attributable to continued growth in prescriptions and sales of XYOSTED®, which we launched for commercial sale in 2018, and sales of NOCDURNA®, which we in-licensed and began detailing in the fourth quarter of 2020, partially offset by a reduction in sales of OTREXUP® due to the sale of the product line to Otter inDecember 2021 . We attribute this growth to successful marketing and launch strategies, achieving and maintaining targeted reimbursement coverage, and our ability to leverage our virtual sales capabilities to support the continued growth despite any potential softening or impact due to the global Pandemic in 2021 and 2020. 59
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We also manufacture and sell devices, components and fully assembled packaged product to our partners Teva, Covis and Otter. Partnered product sales decreased by 8.4% due to a decrease in sumatriptan sales to Teva, lower production and sales volumes of Makena® to Covis and a decrease in shipments of epinephrine auto injectors to Teva, partially offset by revenue generated from production of OTREXUP® for Otter and higher teriparatide sales to Teva.
Licensing and Development Revenue
Licensing and development revenues include license fees received from partners for the right to use our intellectual property and amounts earned in joint development arrangements with partners under which we perform development activities or develop new products on their behalf. Fluctuations in our licensing and development revenue are generally attributable to the development timelines of our various partnered development projects, the timing of which is often controlled by our partner, and the timing of achievement of certain milestones.
Licensing and development revenue increased 35.6% primarily as a result of incremental development and maintenance activities with Teva to support replacement of molds and tooling related to the commercial production of the epinephrine auto injector and continuing development activities under other ongoing partnered development projects, partially offset by a decline in development activities with Pfizer.
Royalties
Royalties are earned in connection with licenses granted to our partners under
license and development arrangements. Royalties are generally based upon a
percentage of our partners' net sales of the partnered product. Royalty revenue
increased 77.0% primarily due to an increase in royalties from Teva on its net
sales of generic EpiPens®.
Cost of Revenue
The following table summarizes our cost of product sales and development
revenue:
Years Ended December 31, Increased / (Decreased)
(in thousands) 2021 2020 $ %
Cost of product sales $ 54,418 $ 53,960 $ 458 0.8 %
Cost of development revenue 13,863 9,140 4,723 51.7 %
Total cost of revenue $ 68,281 $ 63,100 $ 5,181 8.2 %
% of revenue 37.1 % 42.2 %
Fluctuations in cost of product sales is generally a function of the product
revenue mix. Proprietary products generally have a lower cost of sales as a
percentage of revenue than partnered product sales. The year-over-year increase
in cost of development revenue is attributable to and relatively consistent with
the growth in development revenue from partnered development activities.
Research and Development Expenses
Research and development ("R&D") expenses consist of external costs for clinical
studies and analysis activities, formulation development, engineering design
work and prototype development, FDA application fees, personnel costs and other
general operating expenses associated with our research and development
activities.
Years Ended December 31, Increased / (Decreased)
(in thousands) 2021 2020 $ %
Research and development $ 14,502 $ 10,121 $ 4,381 43.3 %
R&D expenses increased 43.3% primarily due to our ongoing internal development
programs including ATRS-1902 and ATRS-1901, along with higher employee
compensation expense. Overall, R&D expense fluctuates based on phases of
development and timing of clinical studies, including internal and external
development costs incurred. As discussed above, we further advanced our
ATRS-1902 development program with positive result from a Phase 1 clinical study
for adrenal crisis rescue in January 2022 and were granted Fast Track
designation by the FDA. The results support the advancement of our ATRS-1902
development program to a pivotal clinical study which we anticipate starting in
the second quarter of 2022.
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Selling, General and Administrative
Years Ended December 31, Increased / (Decreased)
(in thousands) 2021 2020 $ %
Selling, general and administrative
$ 11,098 17.7 % Selling, general and administrative expenses increased 17.7% primarily due to higher sales and marketing costs associated with the relaunch of NOCDURNA®, which we in-licensed and began detailing in the fourth quarter of 2020. The increase is also attributable to higher sales and marketing costs associated with XYOSTED®, which were down in 2020 due to the Pandemic as the various restrictions and limitations imposed during the Pandemic led to decreased spending that has returned to pre-Pandemic levels, along with higher employee compensation. General and administrative expenses also increased primarily driven by higher professional service fees, facility costs, insurance expense and employee compensation costs to support the continued growth of the business.
Gain on Sale
InDecember 2021 , we sold certain assets used in the operation of the OTREXUP® product to Otter for$44.0 million , subject to finalization of changes in closing inventory to be transferred, with$18.0 million received at closing and an additional$26.0 million to be paid in installments over a one-year period. The gain on sale of assets of$38.6 million represents the purchase price adjusted for estimated changes in closing inventory to be transferred less net book value of the assets sold and direct transaction costs.
Income Tax Expense (Benefit)
Years Ended December 31, Increased / (Decreased)
(in thousands) 2021 2020 $ %
Income tax provision (benefit) $ 15,982 $ (46,280) $ 62,262 134.5 %
Effective tax rate 25.7 % (466.5) %
Income tax expense recorded for the year ended December 31, 2021 was driven by
the generation of income before income taxes of $62.3 million , resulting in an
effective tax rate of 25.7%. The effective tax rate is primarily driven by the
federal and state tax rates, along with discrete income tax items for
compensation expense. For the year ended December 31, 2020 , we recorded an
income tax benefit of $46.3 million on pre-tax income of $9.9 million primarily
due to the release of our valuation allowance on our deferred tax assets which
favorably impacted our effective tax rate. As of December 31, 2020 , we concluded
that, as a result of generating pre-tax earnings, utilization of net operating
loss carryovers and future projected pre-tax earnings, it is more likely than
not that its deferred taxes are realizable and may be utilized to offset future
tax liabilities. Excluding the release of our valuation allowance on our
deferred tax assets, the effective tax rate for the year ended December 31, 2020
would have been higher than the effective tax rate for the year ended December
31, 2021 primarily due to the impact of permanent tax items on a lower income
before income taxes.
Net Income and Earnings Per Common Share
Years Ended December 31, Increased / (Decreased)
(in thousands, except per share
amounts) 2021 2020 $ %
Net income $ 46,289 $ 56,201 $ (9,912) (17.6) %
Earnings per common share
Basic $ 0.27 $ 0.34 $ (0.07) (20.6) %
Diluted $ 0.26 $ 0.33 $ (0.07) (21.2) %
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Liquidity and Capital Resources
As ofDecember 31, 2021 we had cash and cash equivalents of$65.9 million . We believe that the combination of our current cash and cash equivalents, along with our projected product sales, development revenue and royalties will provide us with sufficient funds to meet our obligations, including debt maturities, and support operations through at least the first quarter of 2023. We reported net income and positive cash flows from operations for the years endedDecember 31, 2021 and 2020. We had an accumulated deficit as ofDecember 31, 2021 of$176.3 million . Prior to 2020, we had not historically generated enough operating cash flow to support our operations and funded our operations through equity offerings and debt issuance. If additional capital is needed to support our operations in the future, we may need to raise additional funds through financing, such as drawing our current credit facility, issuance of additional debt, equity or notes convertible into our common stock. However, we may be unable to obtain such financing, or obtain it on favorable terms, in which case we may be required to curtail development of new products, limit expansion of operations or accept financing terms that are not as attractive as we may desire.
Long-term Debt Financing
As ofDecember 31, 2020 , we were party to a loan and security agreement, as amended, with Hercules Capital, Inc. (the "Term Loan"). The amortizing Term Loan was secured by substantially all of our assets, excluding intellectual property, and accrued interest at a prime-based variable rate with a maximum of 9.5%, which was 8.5% in 2021. In 2021, we made principal prepayments of$20.0 million and paid a 1.0% prepayment fee. OnNovember 1, 2021 , we extinguished the Loan Agreement with Hercules Capital, Inc. and repaid the outstanding$20.0 million principal on the Term Loan, along with a 1.0% prepayment fee and the end of term charge of$1.7 million . All remaining unamortized debt issuance costs associated with the Term Loan were immediately amortized to interest expense. OnNovember 1, 2021 , we entered into a Credit Agreement (the "Credit Agreement") withWells Fargo Bank, National Association , as administrative agent for the lenders, for credit facilities in an aggregate principal amount of up to$40.0 million with a maturity date ofNovember 1, 2024 . The Credit Agreement consists of a$20.0 million term loan facility (the "Term Loan Facility") and a$20.0 million revolving credit facility (the "Revolving Credit Facility"), (collectively the "Credit Facilities"), which are secured by substantially all of our assets. The Term Loan Facility was funded upon execution of the Credit Agreement with the proceeds used to repay our$20.0 million Term Loan with Hercules Capital, Inc. and to pay fees and expenses incurred in connection with the early repayment. Total interest-bearing debt as ofDecember 31, 2021 was$20.0 million and we had$20.0 million of unused borrowing capacity on our Revolving Credit Facility, which is expected to be used for ongoing working capital requirements and other general corporate purposes as needed. Commitment fees are payable on the unused portion of the Revolving Credit Facility at rates between 0.30% and 0.45% based on our Consolidated Total Leverage Ratio, as defined in the Credit Agreement, remeasured quarterly. Payments under the Term Loan Facility are due in consecutive quarterly installments on the last business day of each of March, June, September and December, commencing onMarch 31, 2022 . At our election, interest accrues at LIBOR plus the applicable margin ranging from 2.25% to 3.00%, which varies based on our Consolidated Total Leverage Ratio. The new Credit Facilities, which replaced the previous Term Loan, are expected to provide approximately$1.2 million in annual interest expense savings based on an interest rate of approximately 2.60% (one-month LIBOR rate plus the applicable margin of 2.50%) as ofDecember 31, 2021 . Under the Credit Agreement, we are subject to customary affirmative and negative covenants, including, among others, restrictions on our ability to incur debt; create liens; make investments; merge, consolidate or dispose of assets or subsidiaries; enter into transactions with affiliates; modify accounting practices, our year end and organizational documents; pledge assets; revise nature of business; perform sale leasebacks; and enter into any restrictive agreements and customary events of default (including payment defaults, covenant defaults, change of control defaults and bankruptcy defaults). The Credit Agreement also contains financial covenants, including the ratio of consolidated total indebtedness to consolidated earnings before income, taxes, depreciation and amortization ("Consolidated EBITDA") ("Consolidated Total Leverage Ratio"), as defined in the Credit Agreement" and the ratio of consolidated senior secured indebtedness to Consolidated EBITDA ("Consolidated Senior Secured Leverage Ratio"), as well as the ratio of Adjusted EBITDA to consolidated fixed charges ("Consolidated Fixed Charge Coverage Ratio"), as defined in the Credit Agreement. These covenants restrict our ability to purchase outstanding shares of our common stock. As ofDecember 31, 2021 , we were in compliance with all affirmative, negative and financial covenants.
See Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information on our financing arrangements.
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Cash Flow Comparisons
The following table summarizes our cash flows:
Years Ended December 31 ,
(in thousands) 2021 2020
Total cash provided by (used in): Operating activities$ 36,619 $ 21,320 Investing activities (3,852) 8,167 Financing activities (19,990) 447 Effect of exchange rate changes on cash (1)
2
Increase (decrease) in cash and cash equivalents 12,776
29,936
Cash and cash equivalents, beginning of period 53,137
23,201
Cash and cash equivalents, end of period$ 65,913 $ 53,137 Operating Activities Operating cash inflows are generated primarily from net product sales, license and development fees and royalties. Operating cash outflows consist principally of expenditures for manufacturing costs, personnel costs, general and administrative expenses, research and development activities, and sales and marketing costs. Fluctuations in cash from operating activities are primarily a result of the timing of cash receipts and disbursements. The change in the net cash from operating activities was primarily a result of the increase in our net income, excluding non-cash activity, and changes in operating assets and liabilities due to timing of cash receipts and cash disbursements, principally driven by depletion of inventory and an increase in accrued liabilities, partially offset by an increase in accounts receivable and deferred revenue. Investing Activities Net cash used in investing activities for the year endedDecember 31, 2021 was attributable to the purchase of TLANDO® intangible product rights for$11.3 million , capital expenditures of$6.7 million , an additional NOCDURNA® intangible product rights contractual payment of$2.5 million and investment security purchases of$1.2 million , partially offset by net proceeds of$17.8 from the sale of the OTREXUP® product line. Net cash provided by investing activities for the year endedDecember 31, 2020 was attributable to$22.5 million proceeds from maturities of short-term investments, partially offset by capital expenditures of$9.6 million primarily for our manufacturing facility and the purchase of NOCDURNA® intangible product rights for$5.0 million .
Financing Activities
Net cash used in financing activities for the year endedDecember 31, 2021 consisted of$40.0 million in principal payments on the extinguishment of our Term Loan with Hercules Capital, Inc.,$2.8 million paid to taxing authorities in connection with net-share settled share-based awards for which we withheld shares equivalent to the value of the employee's tax obligation for the applicable income and other employment taxes,$2.1 million in prepayment fees and an end of term charge on our Term Loan and$0.3 million in debt issuance costs, partially offset by$20.0 million in proceeds from the issuance of our new Term Loan Facility with Wells Fargo and$5.2 million in proceeds received from exercises of stock options. Net cash provided by financing activities for the year endedDecember 31, 2020 included$1.8 million in proceeds from the exercise of stock options, partially offset by$1.4 million paid to taxing authorities in connection with net-share settled stock-based awards for which we withheld shares equivalent to the value of the employees' tax obligation for the applicable income and other employment taxes. 63
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Contractual Obligations
As of
Payments Due by Period
Less than 1 - 3 3 - 5 More than
(in thousands) Total 1 year years years 5 years
Long-term debt obligations 1 $ 20,000 $ 1,500 $ 18,500 $ - $ -
Interest payable on long-term debt 2 1,350 512 838 - -
Unused revolving line of credit fee 3 201 71 130 - -
Operating lease obligations 4 8,012 1,334 1,731 1,354 3,593
Purchase commitments 5 31,312 31,312 - - -
Total $ 60,875 $ 34,729 $ 21,199 $ 1,354 $ 3,593
1 Long-term debt includes principal installment payments on our Term Loan.
Refer to Note 8 to the Consolidated Financial Statements included in Item 8 of
Part II of this Annual Report on Form 10-K for additional information regarding
our financing arrangements.
2 Calculated using the variable interest rate as of December 31, 2021 based on
LIBOR plus required spread on our Term Loan. Refer to Note 8 to the Consolidated
Financial Statements included in Item 8 of Part II of this Annual Report on Form
10-K for additional information regarding our financing arrangements.
3 Calculated using the commitment fee rate as of December 31, 2021 based on our
consolidated total leverage ratio assuming the entire revolving line of credit
remains undrawn for the duration of the agreement. Refer to Note 8 to the
Consolidated Financial Statements included in Item 8 of Part II of this Annual
Report on Form 10-K for additional information regarding our financing
arrangements.
4 Operating leases are primarily for office space, as well as vehicles and equipment. Refer to Note 5 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional lease information.
5 Purchase commitments include open purchase orders with suppliers and inventory to be purchased in accordance with the TLANDO® exclusive license agreement entered into with Lipocine inOctober 2021 . Refer to Note 6 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information on the agreement.
Off Balance Sheet Arrangements
As of
Critical Accounting Policies and Use of Estimates
The preceding discussion and analysis of our results of operations and financial condition is based upon our Consolidated Financial Statements. Our Consolidated Financial Statements have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP"), which require us to make estimates and assumptions in certain circumstances that, giving due consideration to materiality, affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures as of the date of the financial statements. We regularly review our estimates and assumptions, which are based on historical experience and various other factors that are believed to be reasonable 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 our estimates, and significant variances could materially impact our financial condition and results of operations under different assumptions or conditions. We believe that of our significant accounting policies, the following are particularly important to the portrayal of our results of operations and financial position and is subject to an inherent degree of uncertainty as it may require the application of a higher level of subjectivity and judgment by us. Our significant accounting policies are fully described in Note 2 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K. 64
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Table of Contents
Revenue Recognition (Variable Consideration)
We generate revenue from proprietary and partnered product sales, license and development activities and royalty arrangements. Revenue is recognized when or as we transfer control of the promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. We enter into contracts with partners that often contain multiple elements such as licensing, development, manufacturing and commercialization components. These arrangements are often complex, and we may receive various types of consideration over the life of the arrangement, including: up-front fees, reimbursements for research and development services, milestone payments, payments on product shipments, margin sharing arrangements, license fees and royalties. In assessing our revenue arrangements, we must identify the contract, determine the transaction price including an estimation of any variable consideration we expect to receive in connection with the contract, identify the promises of goods or services to the customer and each distinct performance obligation, allocate the transaction price to each of the performance obligations, and recognize revenue when or as the performance obligations are satisfied. Each of these steps in the revenue recognition process requires management to make judgements and/or estimates. The most significant judgements and estimates involve the determination of variable consideration to be included in the transaction price, such as the estimation of product returns and sales allowances in connection with the sale of our proprietary products. Variable consideration is recognized at an amount we believe is not subject to significant reversal and is adjusted at each reporting period if the most likely amount of expected consideration changes or becomes fixed. For example, we must estimate future product returns and sales allowances at the time of sales to distributors. The expected value is determined based on unit sales data, customer purchasing patterns, product expiration dates and levels of inventory in the distribution channel, contractual terms with customers and third-party payers, historical and expected utilization rates, and any new or anticipated changes in programs or regulations. We believe this provides a reasonable basis for recognizing revenue, however, actual results could differ from estimates and significant changes in estimates could impact our results of operations in future periods.
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